<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PEN HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TENNESSEE 6719 62-0852576
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
CO-REGISTRANTS AND GUARANTORS
<TABLE>
<CAPTION>
(EXACT NAME OF REGISTRANT AS (STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------- ------------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
THE ELK HORN COAL CORPORATION WEST VIRGINIA 6519 55-0163764
PEN COAL CORPORATION TENNESSEE 5052 62-1281044
MARINE TERMINALS INCORPORATED MISSOURI 6719 43-1100331
RIVER MARINE TERMINALS, INC. WEST VIRGINIA 6512 62-1338883
PEN COTTON COMPANY OF SOUTH CAROLINA SOUTH CAROLINA 0724 62-1533101
PEN HARDWOOD COMPANY TENNESSEE 6719 62-1496108
PEN COTTON COMPANY TENNESSEE 0724 62-1167340
</TABLE>
5110 MARYLAND WAY, SUITE 300
BRENTWOOD, TN 37027
(615) 371-7300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM E. BECKNER
CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEN HOLDINGS, INC.
5110 MARYLAND WAY, SUITE 300
BRENTWOOD, TN 37027
(615) 371-7300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With a Copy to:
RONALD BASSO, ESQ.
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
20TH FLOOR, 301 GRANT STREET
PITTSBURGH, PA 15219
(412) 562-8800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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9 7/8% Senior Notes due 2008(2) $100,000,000 100% $100,000,000 $29,500
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2).
(2) The Elk Horn Coal Corporation, Pen Coal Corporation, Marine Terminals
Incorporated, River Marine Terminals, Inc., Pen Cotton Company of South
Carolina, Pen Hardwood Company and Pen Cotton Company will guarantee the
payment of the 9 7/8% Senior Notes due 2008. Pursuant to Rule 457(n), no
separate filing fee is required for the guarantees.
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PROSPECTUS DATED , 1998
OFFER TO EXCHANGE
9 7/8% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING 9 7/8% SENIOR NOTES DUE 2008
OF
PEN HOLDINGS, INC.
(ALL NOTES GUARANTEED BY THE GUARANTORS)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
(NEW YORK CITY TIME), ON , 1998, UNLESS EXTENDED
Pen Holdings, Inc., a Tennessee corporation ("Pen Holdings") (references to the
"Company" or "Pen" refer to Pen Holdings and its consolidated subsidiaries)
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange
$1,000 principal amount of 9 7/8% Series B Senior Notes of the Company (the
"Series B Senior Notes") for each $1,000 principal amount of the issued and
outstanding 9 7/8% Senior Notes due 2008 (the "Senior Notes") (the Senior Notes,
collectively with the Series B Senior Notes, being the "Notes"). As of the date
of this Prospectus, $100,000,000 aggregate principal amount at maturity of the
Senior Notes is outstanding. The terms of the Series B Senior Notes and the
Senior Notes are substantially identical in all material respects, except for
certain transfer restrictions and registration rights; and except that holders
of Senior Notes are entitled to receive Additional Interest (as defined) if: (i)
the Exchange Offer Registration Statement (as defined) or Shelf Registration
Statement (as defined) has not been filed with the Securities and Exchange
Commission (the "Commission") within 75 days after the Issue Date (as defined);
(ii) the Exchange Offer Registration Statement or Shelf Registration Statement
is not declared effective within 150 days after the Issue Date; or (iii) the
Exchange Offer is not consummated within 30 days after the Exchange Offer
Registration Statement is declared effective (each such event referred to in
clauses (i) through (iii) above is a "Registration Default"), the sole remedy
available to holders of the Senior Notes would be the immediate assessment of
additional interest ("Additional Interest") as follows: the per annum interest
rate on the Senior Notes would increase by .5%, and the per annum interest rate
would increase by an additional .25% for each subsequent 90-day period during
which the Registration Default remains uncured, up to a maximum additional
interest rate of 2.0% per year in excess of the interest rate set forth above.
All Additional Interest would be payable to holders of the Senior Notes in cash
on each June 15 and December 15, commencing with the first such date occurring
after any such Additional Interest commences to accrue, and continuing until
such Registration Default is cured. After the date on which such Registration
Default is cured, the interest rate on the Senior Notes will revert to the
interest rate originally borne by the Senior Notes. See "Registration Rights
Agreement."
The Exchange Offer is being made to satisfy certain obligations of Pen Holdings
and the Guarantors (as defined) under the Registration Rights Agreement, dated
as of June 8, 1998, among the Company and the Initial Purchaser (as defined)
(the "Registration Rights Agreement"). Upon consummation of the Exchange Offer,
holders of Senior Notes that were not prohibited from participating in the
Exchange Offer and did not tender their Senior Notes will not have any
registration rights under the Registration Rights Agreement with respect to such
non-tendered Senior Notes and, accordingly, such Senior Notes will continue to
be subject to the restrictions on transfer contained in the legend thereon.
Based on interpretations by the staff of the Commission with respect to similar
transactions, the Company believes that the Series B Senior Notes issued
pursuant to the Exchange Offer in exchange for Senior Notes may be offered for
resale, resold and otherwise transferred by any holder of such Senior Notes
(other than any such holder which is an "affiliate" of Pen within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"))
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Series B Senior Notes are acquired in the
ordinary course of such holder's business, such holder has no arrangement or
understanding with any person to participate in the distribution of such Series
B Senior Notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the Series B Senior Notes. Each
broker-dealer that receives Series B Senior Notes for its own account in
exchange for Senior Notes must acknowledge that it will deliver a prospectus in
connection with any resale of its Series B Senior Notes. The Letter of
Transmittal states that by
(cover continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of the Series B Senior
Notes received in exchange for the Senior Notes acquired by the broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus available to any broker-dealer for
use in connection with any such resale for a period of 180 days after the
consummation of the Exchange Offer or, if earlier, until all participating
broker-dealers have so resold. See "Plan of Distribution."
The Series B Senior Notes will evidence the same debt as the Senior Notes and
will be entitled to the benefits of the Indenture (as defined). For a more
complete description of the terms of the Series B Senior Notes, see "Description
of Notes." There will be no cash proceeds to the Company from the Exchange
Offer. The Series B Senior Notes will be general unsecured obligations of Pen
Holdings ranking pari passu in right of payment with all existing and future
unsubordinated indebtedness of Pen Holdings and senior in right of payment to
all existing and future subordinated indebtedness of Pen Holdings. The Series B
Senior Notes will be effectively subordinated to all future secured indebtedness
of Pen Holdings, if any, to the extent of the value of the assets securing such
secured indebtedness.
The Series B Senior Notes will be unconditionally guaranteed, on a senior
unsecured basis, as to the payment of principal, premium, if any, and interest,
fully and unconditionally, jointly and severally (the "Guarantees"), by certain
of the Restricted Subsidiaries (as defined herein, the "Guarantors"). The
Guarantees will rank pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Guarantors and senior in right of payment to
all existing and future subordinated indebtedness of the Guarantors. See
"Description of Notes--Guarantees."
The Senior Notes were originally issued and sold on June 8, 1998 in the Offering
(as defined), a transaction exempt from registration under the Securities Act in
reliance upon the exemptions provided by Rule 144A, Section 4(2) and Regulation
S of the Securities Act. Accordingly, the Senior Notes may not be reoffered,
resold or otherwise pledged, hypothecated or transferred in the United States
unless so registered or unless an exemption from the registration requirements
of the Securities Act and applicable state securities laws is available.
The Company has not entered into any arrangement or understanding with any
person to distribute the Series B Senior Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Series B Senior Notes in
its ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the Series B Senior Notes to be
received in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m. (New York City time), on , 1998, unless extended
(as it may be so extended, the "Expiration Date"). The date of acceptance for
exchange of the Senior Notes for the Series B Senior Notes (the "Exchange Date")
will be the first business day following the Expiration Date. The Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable.
Prior to this Exchange Offer, there has been no public market for the Senior
Notes. The Senior Notes have traded on the PORTAL Market. If a market for the
Series B Senior Notes should develop, the Series B Senior Notes could trade at a
discount from their initial offering price. The Company does not intend to apply
for listing of the Series B Senior Notes on any securities exchange or in any
automated quotation system. There can be no assurance that an active trading
market for the Series B Senior Notes will develop.
The Series B Senior Notes will be available initially only in book-entry form.
The Company expects that the Series B Senior Notes issued pursuant to this
Exchange Offer will be issued in the form of an Exchange Global Note (as
defined), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depository") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Exchange Global Note representing
the Series B Senior Notes will be shown on, and transfers thereof will be
effected through, records maintained by the Depository and its participants.
After the initial issuance of the Exchange Global Note, Series B Senior Notes in
certificated form will be issued in exchange for interests in the Exchange
Global Note only on the terms set forth in the Indenture dated as of June 8,
1998 (the "Indenture") between the Company and The Bank of New York, as trustees
(the "Trustee"). See "Description of Notes--Book-Entry, Delivery and Form."
Neither Pen Holdings nor any of its subsidiaries will receive any cash proceeds
from the issuance of the Series B Senior Notes offered hereby. No dealer-manager
is being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL PEN ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF SENIOR NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
LAWS OF SUCH JURISDICTION.
2
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-4 under the Securities Act with respect to the
Exchange Offer. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Exchange Offer, reference is made to such Registration
Statement and the exhibits and schedules filed as part thereof. The Registration
Statement and the exhibits and schedules thereto filed with the Commission may
be inspected without charge at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and the Citicorp Center, 500 West Madison Street Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission upon payment of
certain prescribed fees. Electronic registration statements made through the
Electronic Data Gathering, Analysis, and Retrieval System are publicly available
through the Commission's Website (http://www.sec.gov), which is maintained by
the Commission and which reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that,
until such time as the Company shall become subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, (a) the Company shall
provide to the Trustee and holders of Senior Notes such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a United States of America
corporation subject to such Sections, such information, documents and other
reports to be so provided at the times specified in the Indenture. Thereafter,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted
by the Exchange Act, the Company shall file with the Commission and provide the
Trustee and holders of Notes with such annual reports and such information,
documents and other reports as are specified in such Sections and applicable to
a United States of America corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections; provided, however, that the Company shall not be required to file
any report, document or other information with the Commission if the Commission
does not permit such filing. In addition, for so long as any of the Senior Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Senior Notes or beneficial owner of the Senior Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
contained elsewhere herein. Unless the context indicates otherwise, references
herein to the "Company" or "Pen" include Pen Holdings, Inc. ("Pen Holdings") and
its consolidated subsidiaries. The estimates of the Company's recoverable coal
reserves as of May 1998 (other than the Company's Fork Creek reserves) set forth
herein have been audited by Marshall Miller & Associates ("Marshall Miller") as
of such date (the "Marshall Miller Report"). The estimates of the Company's
recoverable Fork Creek coal reserves as of September 1997 set forth herein have
been reviewed by Stagg Engineering Services, Inc. ("Stagg Engineering") as of
such date (the "Stagg Engineering Report"). As used herein, "reserves" means
"recoverable reserves" and "resources." Recoverable reserves are virgin and/or
accessed parts of a coal reserve base that can be economically extracted at the
time of determination considering environmental, legal and technological
constraints. Resources are naturally occurring concentrations or deposits of
coal in such forms and amounts that economic extraction is currently or
potentially feasible. Reserve estimates for all of the Company's coal properties
are based on the Marshall Miller Report and the Stagg Engineering Report, which
are collectively referred to herein as the "Reserve Studies." All references to
"tons" are to short tons unless otherwise indicated. For definitions of certain
coal-related terms, see "Certain Definitions" attached to this Prospectus as
Annex A. As used in this Prospectus, any references to any year are to the
calendar years ended December 31. The Private Securities Litigation Reform Act
of 1995 provides a "safe harbor" for forward-looking statements. Certain
information included or incorporated by reference in this Prospectus, including
but not limited to the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" is forward-looking, such as information relating to
the Company or any of the transactions described herein, including the timing,
financing, strategies and the effects of such transactions. Such forward-looking
information involves important risks and uncertainties that could significantly
affect expected results in the future from those expressed in any forward-
looking statements made by, or on behalf of, the Company. These risks and
uncertainties include, but are not limited to, uncertainties relating to: the
Company's current litigation in the U.S. Tax Court and the pending Internal
Revenue Services' examination of certain other tax returns of the Company, the
Company's reliance on long-term sales contracts, the Company's reliance on
long-term mineral leases, the competitive environment in which the Company
operates, the risks inherent to the mining industry, acquisitions, government
regulation, reclamation and mine closure accruals, the effects of Clean Air Act
Amendments on the coal industry, replacement and recoverability of coal
reserves, economic conditions in the coal industry generally and technological
developments. Persons participating in this Exchange Offer are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, persons participating in this
Exchange Offer should specifically consider the various factors which would
cause actual events or results to differ materially from those indicated by such
forward looking statements. Persons participating in this Exchange Offer should
carefully consider the factors set forth herein under the caption "Risk
Factors." The Company does not intend to update these forward looking
statements.
THE COMPANY
OVERVIEW
The Company is engaged in the mining, preparation, marketing and leasing of
primarily compliance and low-sulfur coal from mines located in the Central
Appalachian region of eastern Kentucky and southern West Virginia. Based on the
Reserve Studies, the Company controls the mineral rights to approximately 340
million tons of coal reserves, of which management believes 309 million tons are
owned in fee. In 1997, the Company sold approximately 5.3 million tons of coal,
approximately 66% of which was generated from captive production with the
remainder purchased from other coal mine operators. In 1997, approximately 83%
of the tonnage was sold to seven long-term sales contract customers, with most
of the remainder sold to 14 spot market customers. The Company sells primarily
to domestic public utilities, an international government-owned utility and
industrial customers. In addition to its coal sales, the Company leases the
mineral rights on approximately 56 million tons of its reserves to 22 operators
who mined approximately 3.0 million tons in 1997. The Company received an
average leasing revenue per ton of coal from its lessees of approximately $2.79
per ton in 1997. The Company's coal leases typically have a term of five years,
although some leases are for the life of the respective
4
<PAGE> 6
reserves. For the twelve months ended March 31, 1998, the Company generated
revenues and EBITDA, both as adjusted to represent only business units currently
in operation, of $176.5 million and $25.4 million, respectively.
The Company has demonstrated a long-term record of selectively increasing
its reserves through acquisitions and consistently increasing its production
through the development of its reserves. Since 1992, reserves have increased
more than 359%, and captive production has increased at a compound annual rate
of 12.0% to 3.5 million tons in 1997. Beginning in 1987, Pen commenced surface
coal mining production with the purchase of approximately 74 million tons of
compliance and low-sulfur coal reserves located in southern West Virginia ("Kiah
Creek"). Prior to the purchase of Kiah Creek, the Company fulfilled its
contractual obligations through coal purchases and limited contract mining.
Approximately 84% of the Company's 1997 coal production was from Kiah Creek,
where three underground and two surface mines were operating. In 1994, the
Company acquired approximately 151 million tons of primarily compliance and
low-sulfur coal reserves located in eastern Kentucky ("Elk Horn"). The Company's
strategy for Elk Horn is (i) to lease a significant portion of the reserves to
other mining operators under long-term agreements and (ii) to produce coal for
Company sales from contract mining operations. Annual lease payments including
minimum royalties paid to the Company from Elk Horn leases have averaged $9.4
million per year since 1994. In November 1997, the Company acquired
approximately 118 million tons of primarily compliance, low-sulfur, and
metallurgical coal reserves located in southern West Virginia ("Fork Creek").
The Company expects to have obtained the necessary permits and completed the
infrastructure at Fork Creek to commence mining operations and to begin coal
deliveries by early 2000. The Fork Creek operations are planned to produce
approximately 1.7 million tons annually by 2001. See "Capital Development
Program."
The Company's strategy has been to secure sales contracts with customers
accessible from its own loading terminals in advance of planned increases in
production. In each of the last five years, the Company's production has been
fully committed under long-term sales contracts. Management believes that this
strategy provided the Company with greater flexibility in managing mine
development, production levels and reserve life at Kiah Creek and, to a lesser
extent, at Elk Horn. Although production is not scheduled to commence until
early 2000, the Company has already committed to supply from Fork Creek
approximately 500,000 tons in 2000, increasing to approximately 720,000 tons
annually by 2002. The Company's sales contracts and spot market agreements are
primarily with domestic public utilities and industrial customers located in the
upper Ohio River Valley and accessible by river barge transportation from the
Company's terminal on the Big Sandy River, a navigable tributary of the Ohio
River. The Company shipped less than 1% of its tonnage sold in 1997 by rail.
The Company has an integrated production, preparation and loading operation
which management believes enhances control over product quality and consistency,
storage capability and delivery scheduling for its customers. In 1990, the
Company built a modern, heavy media preparation plant at Kiah Creek to clean and
size its underground coal production, which the Company believes: (i) improved
its reputation with customers by increasing the quality and quantity of
marketable compliance and low-sulfur coal production and (ii) positioned the
Company to be able to bid for more favorably priced sales contracts and spot
market agreements. In addition to production and preparation, all of the coal
loaded at the Company's river terminal is mechanically sampled twice to assure
that the Company's coal meets customer specifications: first upon arrival of
loaded trucks and second as it is loaded into outgoing barges. The Company's
development plans for Fork Creek include construction of an additional
preparation plant and a rail loadout which is expected to extend product control
over new production at Fork Creek and provide the Company an opportunity to
supply new customers in the Northeast and upper Midwest which are primarily
accessible by rail.
The Company utilizes room and pillar mining in its underground mines and
contour and point removal mining at its surface mines, which the Company
believes are the most cost-efficient methods for extracting its reserves given
their geological composition. Although a majority of the Company's production
has shifted toward underground mining, which generally can be more costly due to
preparation costs, the Company's cash production costs at the mine site have
declined from $18.81 per ton in 1993 to $18.31 per ton in 1997. Management
believes that this decline resulted from the Company's ability to improve
productivity from its mines and recovery rates at its preparation plant through
better planning, improvements to its preparation plant and more efficient use of
capital equipment.
5
<PAGE> 7
The Company believes its compliance and low-sulfur coal reserves, cost
effective production and access to efficient transportation position it to take
advantage of the anticipated growth in the demand for coal. According to data
compiled by the Energy Information Administration of the United States
Department of Energy (the "EIA"), total domestic coal consumption exceeded 1.0
billion tons in 1997 and has grown at a compound annual rate of 1.8% since 1987.
The steady growth in coal usage is attributable to similar growth in the
electric generation industry, which accounts for more than 89.5% of domestic
coal consumption. In 1997, coal-fired facilities generated approximately 50.6%
of the nation's electricity, which is almost three times the level generated by
the second largest fuel alternative, nuclear energy. Coal is both cost efficient
and domestically abundant, and management believes that these factors are
favorable to the growth in domestic consumption and production of coal.
The changing regulatory environment is an additional factor which
management believes will enhance demand for low-sulfur, high Btu coal, such as
the Company's coal reserves. Examples of this changing regulatory environment
are the Phase I and upcoming Phase II air quality requirements under the Clean
Air Act Amendments and deregulation of the electricity transmission systems.
Compliance coal exceeds the current requirements of Phase I and meets the
requirements of Phase II. Users of such coal currently can either earn sulfur
emission credits, which can be sold to other coal consumers, or blend the coal
with higher sulfur coal to lower the overall sulfur emissions without having to
install expensive sulfur reduction technology (i.e., scrubbers). The Company
believes that its customers are generally low cost producers of electricity that
are well positioned to compete as the electric utility industry deregulates
under the rules providing for open access to electricity transmission systems
promulgated by the Federal Energy Regulatory Commission ("FERC") in April 1996.
COMPETITIVE STRENGTHS
From 1993 through 1997, the Company has increased production, total tonnage
sold and total tonnage sold under sales contracts by compound annual rates of
12.0%, 4.5% and 2.9%, respectively, through the acquisition and development of
new and existing operations, the addition of new customers and an increase in
contractual requirements to existing customers. The Company currently operates
two surface mines and three underground mines and contracts production of
certain of its reserves to other operators in one surface mine and six
underground mines. The Company believes that it has been able to achieve these
consistent results due to the following competitive strengths:
Ownership of High Quality Reserves. Based on the Reserve Studies, the
Company's reserve life index (defined as total recoverable reserves divided by
1997 total captive and leased coal production) was in excess of 50 years. Of the
Company's approximately 340 million tons of reserves, management estimates that
approximately 44% are compliance coal, 30% are low-sulfur and 26% are medium
sulfur coal. Management believes that unlike many other coal producers of
similar size, the Company owns in fee a substantial portion (309 million tons)
of its reserves, and, as a result, the Company does not pay significant mineral
royalties ($1.6 million in 1997). Ownership in fee of its reserves allows the
Company to significantly improve its operating results and reserve utilization
and provides the flexibility to selectively lease a portion of its reserves to
other operators.
Geographic Concentration of Large Contiguous Reserves. The Company has
completed three significant acquisitions of reserves since 1986, two of which
have consisted of large contiguous tracts concentrated in Central Appalachia, a
region known for high quality, low-sulfur, high Btu coal and cost efficient
river and rail transportation. According to Resource Data International, Inc.
("RDI"), energy industry economists, delivered tonnage from the Central
Appalachian region has increased at a compound annual rate of 3.6% since 1991,
which has outpaced the growth in total United States tonnage delivery during the
same period. As a result of its geographic concentration and large contiguous
tracts, the Company has realized economies of scale including greater
utilization of its facilities, manpower and equipment and enhanced management
oversight of its properties.
Strong Reputation as a High Quality Provider of Coal. Management believes
it is recognized as a high quality supplier by its customers as evidenced by (i)
a consistent increase in tonnage under contract; (ii) the extension, renewal or
expansion of existing sales contracts; (iii) the addition of new sales contracts
and spot
6
<PAGE> 8
market agreements with new customers; (iv) consistent compliance with its
contractual obligations for quality and quantity; and (v) timely supply
deliveries. The Company has maintained an average continuous supply relationship
with its current long-term sales contract customers in excess of 8.7 years. As
of March 31, 1998, the Company had seven long-term sales contracts with
highly-rated public or government owned utilities, such as The Dayton Power and
Light Company, American Electric Power, Electric Fuels Corporation (a subsidiary
of Florida Progress), East Kentucky Power and Taiwan Power Company. The weighted
average remaining life of long-term sales contracts was approximately 3.3 years
(excluding option periods) and approximately 9.6 years (including option
periods) as of March 31, 1998. For eight of the Company's 14 spot market
customers (exclusive of long-term sales contract customers) in 1997, the Company
has maintained a continuous supply relationship of more than three years.
Significant Recurring Lease Revenue. The acquisition of Elk Horn provided
the Company with a substantial amount of recurring revenue from outstanding
leases with other coal companies. Terms typically include expiration at the
earlier of five years or the remaining life of the reserves, minimum tonnage
requirements per year and payment based on tonnage mined. The Company believes
the location and geological composition of its Elk Horn reserves coupled with
their proximity to the operations of other coal producers make it more
economically attractive to lease such reserves to other coal companies than for
the Company to mine them. Leasing contributed an average of $9.4 million per
year in revenues since 1994, and management believes leasing will continue to
generate significant revenues based on existing leases and indications of future
mining activity by these operators.
Stable Operating Results from Coal Operations. Since 1993, adjusted EBITDA
has averaged approximately $24.1 million per year, with fluctuations of no
greater than 1.8% annually. Such consistency has been primarily due to the
Company's (i) declining cash production costs, (ii) stable tonnage under sales
contracts, (iii) significant recurring revenue from royalty payments under lease
agreements and (iv) tight control of general and administrative expenses, all of
which have generally offset declining revenues per ton. Over the past five
years, the Company's average cash cost per ton of coal shipped (FOB barge) has
declined approximately 3.1% from $23.96 per ton in 1993 to $23.22 per ton in
1997, despite shifting a greater percentage of total production from surface
mines to more costly underground mines. In an attempt to continually re-evaluate
the Company's cash production costs, the Company annually updates its five-year
plan including mine and resource development, equipment replacement
requirements, contract production levels and coal purchases, to manage
production and maximize operating results.
Experienced Management with Significant Ownership. The Company has an
experienced senior management team, including William E. Beckner (Chairman,
President and Chief Executive Officer), who has 18 years of experience in the
coal industry and has worked at the Company for the past 15 years; Joseph A.
Davis, Jr. (Senior Vice President of Sales and Marketing), who has 22 years of
experience in the coal industry and has worked at the Company for the past 14
years; Stephen G. Capelli (Senior Vice President of Operations), who has 26
years of experience in the coal industry and has worked at the Company for the
past four years; and Mark A. Oldham (Senior Vice President, Chief Financial
Officer, Treasurer and Secretary), who has 14 years of experience in the coal
industry and at the Company. The management team has a proven record of
developing low-cost operations, maintaining strong customer relationships and
making strategic, opportunistic acquisitions. Mr. Beckner and the other members
of senior management currently own approximately 93.4% of the Company's
outstanding common stock.
BUSINESS STRATEGY
Following the death of the founder in 1993, the Company completed a
recapitalization (the "Recapitalization") in December 1995 whereby William E.
Beckner acquired approximately 94.2% of the then outstanding common stock of the
Company. Following the Recapitalization, senior management adopted a business
strategy of focusing on its coal businesses. As a result, the Company sold most
of its cotton businesses and discontinued its lumber operations in 1996 and sold
its Barge Fleet (as defined herein) in 1997. Proceeds from the sales of these
assets were used in part to acquire the Fork Creek reserves. The Company's
strategy is to focus on its coal business, steadily increase coal reserves and
production and improve revenues, operating results and cash flow by continuing
to pursue its existing strategies including:
7
<PAGE> 9
Acquiring Additional High Quality Reserves and Operations. The Company has
selectively increased its recoverable reserves by acquiring high quality coal
reserves primarily located on large contiguous tracts in the Central Appalachian
region and expects to continue increasing its reserves or adding operations
through strategic and opportunistic acquisitions. Historically, ownership of
coal reserves in Central Appalachia has been highly fragmented; hence management
believes there are opportunities to increase its reserve base in proximity to
existing properties and selectively increase leasing and production by acquiring
other existing operations. Management believes reserves acquired adjacent to
existing properties can enhance infrastructure utilization and reduce cash
production costs and capital investment requirements.
Increasing Tonnage Under Contract and Expanding the Customer Base. The
Company's strategy is to continually secure sales contracts approximately equal
to or greater than its captive production. Management believes that electric
utilities in general are shifting their contracts toward shorter term periods,
generally three to five years, to limit the impact of price inflation indexes
and more closely align supply with market prices. As a result of this industry
trend toward shorter-term contracts, the number of future bidding opportunities
is expected to increase. Annual production from Kiah Creek is effectively
designated for existing sales contracts. The Company believes, however, that the
development of its Fork Creek reserves and its associated preparation plant and
rail terminal will enhance the Company's ability to secure additional sales
contracts by (i) increasing access to public utilities in the Northeast and
upper Midwest which are primarily served by rail transport; (ii) increasing
access to existing customers; (iii) developing industrial customer prospects for
metallurgical coal sales; and (iv) providing the flexibility of alternatively
shipping by rail or barge from the Company's loading terminals. The Company
plans to produce from Fork Creek approximately 1.7 million tons annually by
2001. The Company is already committed to supply from Fork Creek approximately
500,000 tons in the year 2000, increasing to approximately 720,000 tons annually
by 2002, and continues to bid for additional sales contracts.
Maximizing Reserve Utilization and Mining Productivity. The Company's
strategy is to apply its extensive planning process to its existing reserves,
including the development of Fork Creek, as well as reserves acquired in the
future, to maximize reserve utilization and mining productivity. The Company
utilizes an extensive core sampling and testing program to create its mine
development plans years in advance of actual production. As a result of this
planning process, the Company forecasts anticipated equipment, preparation plant
capacity, permit and regulatory requirements, the level of contract mining and
coal purchases. The Company utilizes continuous mining equipment in underground
mines and contour and point removal methods in surface mines where coal seam
thickness or overburden ratios allow extraction rates to meet profitability
thresholds. Mining productivity, as measured by tons mined per man-hour,
increased 11.2% and 24.4% at Company-operated surface and underground mines,
respectively, since 1993. Management believes such improvement is due to
increased operating efficiencies and productivity rates through the addition of
underground mining units, increased preparation plant capacity, long-term
planning and more efficient use of capital equipment. When seam thickness or
overburden ratios exceed management's thresholds for efficient mining, the
Company will selectively contract production with other mining companies at set
prices per ton on specified reserves to improve reserve utilization. Management
believes that the Company's enhanced reserve utilization and mining productivity
is a result of its extensive planning process, its site-specific mining
techniques and its contract mining production.
The Company's headquarters are located at Center Court Building, Suite 300,
5110 Maryland Way, Brentwood, TN 37027, and its telephone number is (615)
371-7300.
8
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered................. Up to $100,000,000 aggregate principal
amount of 9-7/8% Senior Notes due 2008 of
the Company. The terms of the Series B
Senior Notes and the Senior Notes are
substantially identical in all material
respects, except for certain transfer
restrictions, registration rights and
additional interest (the "Additional
Interest") for Registration Defaults
relating to the Senior Notes which will
not apply to the Series B Senior Notes.
See "Description of Notes."
The Exchange Offer................. Pen Holdings is offering to exchange
$1,000 principal amount of Series B
Senior Notes for each $1,000 principal
amount of Senior Notes. See "The Exchange
Offer" for a description of the
procedures for tendering Senior Notes.
The Exchange Offer satisfies the
registration obligations of Pen Holdings
under the Registration Rights Agreement.
Upon consummation of the Exchange Offer,
holders of Senior Notes that were not
prohibited from participating in the
Exchange Offer and did not tender their
Senior Notes will not have any
registration rights under the
Registration Rights Agreement with
respect to such nontendered Senior Notes
and, accordingly, such Senior Notes will
continue to be subject to the
restrictions on transfer contained in the
legend thereon.
Tenders, Expiration Date;
Withdrawal......................... The Exchange Offer will expire at 5:00
p.m. (New York City time) on
, 1998, or such later date and time to
which it is extended, provided that the
Exchange Offer. Tender of Senior Notes
pursuant to the Exchange Offer may be
withdrawn and retendered at any time
prior to the Expiration Date. Any Senior
Notes not accepted for exchange for any
reason will be returned without expense
to the tendering holder as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax
Considerations..................... The Exchange Offer will not result in any
income, gain or loss to the holders of
Senior Notes or the Company for U.S.
federal income tax purposes. See "Certain
Federal Income Tax Considerations."
Use of Proceeds.................... There will be no proceeds to the Company
from the exchange of Series B Senior
Notes for the Senior Notes pursuant to
the Exchange Offer. See "Use of
Proceeds."
Exchange Agent..................... The Bank of New York, the Trustee under
the Indenture, is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange Offer.
9
<PAGE> 11
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE SENIOR NOTES
PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Senior Notes (other than any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchange their Senior Notes for Series B Senior Notes pursuant to the
Exchange Offer may offer their Series B Senior Notes for resale, resell their
Series B Senior Notes, and otherwise transfer their Series B Senior Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such Series B Senior Notes are acquired in the
ordinary course of the holder's business, such holders have no arrangement with
any person to participate in a distribution of such Series B Senior Notes and
neither the holder nor any other person is engaging in or intends to engage in a
distribution of the Series B Senior Notes in the Exchange Offer. Each
broker-dealer that receives Series B Senior Notes for its own account in
exchange for Senior Notes must acknowledge that it will deliver a prospectus in
connection with any resale of its Series B Senior Notes. See "Plan of
Distribution." To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the Series B Senior Notes prior
to offering or selling such Series B Senior Notes. The Company is required,
under the Registration Rights Agreement, to register the Series B Senior Notes
in any jurisdiction requested by the holders, subject to certain limitations.
Upon consummation of the Exchange Offer, holders that were not prohibited from
participating in the Exchange Offer and did not tender their Senior Notes will
not have any registration rights under the Registration Rights Agreement with
respect to such nontendered Senior Notes, and accordingly, such Senior Notes
will continue to be subject to the restrictions on transfer contained in the
legend thereon. In general, Senior Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws. See
"The Exchange Offer--Consequences of Failure to Exchange."
10
<PAGE> 12
SUMMARY OF THE TERMS OF THE SERIES B SENIOR NOTES
Issuer............................. Pen Holdings, Inc.
Securities Offered................. $100,000,000 principal amount of 9-7/8%
Series B Senior Notes due 2008 (the
"Series B Senior Notes"). The terms of
the Series B Senior Notes and the Senior
Notes are substantially identical in all
material respects, except for certain
transfer restrictions, registration
rights and Additional Interest for
Registration Defaults relating to the
Senior Notes which will not apply to the
Series B Senior Notes. See "Description
of Notes."
Maturity Date...................... June 15, 2008.
Interest Payment Dates............. Interest will accrue on the Notes from
the date of original issuance (the "Issue
Date") and will be payable semiannually
on each June 15 and December 15,
commencing on December 15, 1998.
Ranking............................ The Series B Senior Notes will be general
unsecured obligations of Pen Holdings
ranking pari passu in right of payment
with all existing and future
unsubordinated indebtedness of Pen
Holdings and senior in right of payment
to all existing and future subordinated
indebtedness of Pen Holdings. The Series
B Senior Notes will be effectively
subordinated to all future secured
indebtedness of Pen Holdings, if any, to
the extent of the value of the assets
securing such secured indebtedness.
Guarantees by Subsidiaries......... The Series B Senior Notes will be
unconditionally guaranteed, on a senior
unsecured basis, as to the payment of
principal, premium, if any, and interest,
fully and unconditionally, jointly and
severally (the "Guarantees"), by certain
of the Restricted Subsidiaries (as
defined herein, the "Guarantors"). The
Guarantees will rank pari passu in right
of payment with all existing and future
unsubordinated indebtedness of the
Guarantors and senior in right of payment
to all existing and future subordinated
indebtedness of the Guarantors. See
"Description of Notes--Guarantees."
Optional Redemption................ The Series B Senior Notes will be
redeemable at the option of the Company,
in whole or in part, at any time on or
after June 15, 2003, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption. In addition, the Company, at
its option, may redeem in the aggregate
up to 35% of the original principal
amount of the Notes at any time and from
time to time prior to June 15, 2001 at a
redemption price equal to 109.875% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon to
the redemption date, with the Net
Proceeds (as defined herein) of one or
more Public Equity Offerings (as defined
herein) of the Company, provided that at
least $65.0 million of the principal
amount of the Notes originally issued
remains outstanding immediately after the
occurrence of any such redemption and
that any such
11
<PAGE> 13
redemption occurs within 90 days
following the closing of any such Public
Equity Offering. See "Description of
Notes--Optional Redemption."
Change of Control.................. In the event of a Change of Control (as
defined herein), the Company will be
required to make an offer to repurchase
all outstanding Notes at a price in cash
equal to 101% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the purchase date.
See "Description of Notes--Change of
Control Offer."
Asset Sale Proceeds................ The Company will be obligated in certain
instances to make an offer to purchase
the Notes at a purchase price in cash
equal to 100% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the date of purchase
with the net cash proceeds of certain
asset sales. See "Description of
Notes--Certain Covenants--Limitation on
Certain Asset Sales."
Certain Covenants.................. The Indenture (as defined herein)
contains covenants for the benefit of the
holders of the Notes that, among other
things, restrict the ability of the
Company and its Restricted Subsidiaries
to: (i) incur additional Indebtedness;
(ii) pay dividends and make
distributions; (iii) issue stock of
Subsidiaries (as defined herein) of the
Company to third parties; (iv) make
certain investments; (v) repurchase
stock; (vi) create liens; (vii) create
any Subsidiaries of the Company; (viii)
enter into transactions with affiliates;
(ix) enter into sale and leaseback
transactions; (x) merge or consolidate
the Company or any Guarantors; and (xi)
transfer and sell assets. These covenants
are subject to a number of important
exceptions. See "Description of
Notes--Certain Covenants."
RISK FACTORS
For a discussion of certain factors that should be considered by holders of
the Senior Notes and by prospective investors in connection with an investment
in the Series B Senior Notes, see "Risk Factors."
12
<PAGE> 14
SUMMARY CONSOLIDATED CONDENSED HISTORICAL FINANCIAL DATA
The following table sets forth summary consolidated historical financial
data of the Company at the dates and for the periods indicated. Historical data
for the five years ended December 31, 1997 have been derived from consolidated
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants. Historical data for the three months ended March 31, 1998 and for
the three months ended March 31, 1997 have been derived from unaudited interim
consolidated financial statements of the Company which, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information. Historical
data for the three months ended March 31, 1998 do not purport to be indicative
of results expected for the full year.
The pro forma balance sheet data as of March 31, 1998 gives effect to the
Offering and the application of the net proceeds therefrom as if such
transaction had occurred on March 31, 1998.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues................................ $169,754 $185,680 $186,043 $182,469 $ 182,289 $ 44,646 $ 40,548
Cost of sales........................... 142,997 154,441 153,688 150,816 150,025 38,020 33,799
-------- -------- -------- -------- --------- -------- --------
Gross profit............................ 26,757 31,239 32,355 31,653 32,264 6,626 6,749
Selling, general and administrative..... 5,784 5,573 5,540 5,013 5,445 1,300 1,152
Depreciation, depletion and
amortization.......................... 7,771 11,397 13,975 14,742 15,290 4,022 3,582
-------- -------- -------- -------- --------- -------- --------
Operating income........................ $ 13,202 $ 14,269 $ 12,840 $ 11,898 $ 11,529 $ 1,304 $ 2,015
======== ======== ======== ======== ========= ======== ========
OTHER DATA:
EBITDA(2)............................... $ 20,973 $ 25,666 $ 26,815 $ 26,640 $ 26,819 $ 5,326 $ 5,597
Capital expenditures(3)................. 18,469 7,181 5,902 9,542 7,969 3,156 1,231
Ratio of earnings to fixed charges(4)... 3.67x 2.43x 1.38x 1.61x 2.05x 1.40x 1.75x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
MONTHS ENDED
MARCH 31, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
OTHER DATA:
EBITDA(2)................................................... $25,443
Interest expense............................................ 11,412
Ratio of EBITDA to interest expense......................... 2.23x
Ratio of net debt to EBITDA................................. 3.47x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,496 $ 20,591
Working capital(5).......................................... 15,333 15,333
Total assets................................................ 221,133 241,276
Total debt.................................................. 83,427 108,984
Mandatorily redeemable preferred stock(6)................... 17,527 17,527
Total shareholders' equity.................................. 42,004 38,989
</TABLE>
- ---------------
(1) Included in the summary consolidated operating results are the Company's
barge fleet (the "Barge Fleet") and Pen Cotton Company, a cotton ginning and
warehousing business ("Pen Cotton Tennessee"). The Company disposed of its
Barge Fleet in December 1997 and sold the assets of Pen Cotton Tennessee in
September 1996. The Barge Fleet and Pen Cotton Tennessee were not definable
segments for which treatment as discontinued operations would be
appropriate. Operating results for these business units disposed or sold
were as follows:
13
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ------------
1993 1994 1995 1996 1997(C) 1997 1998
------- ------- ------- ------ ------- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:(d)
Barge Fleet..................................... $ 8,715 $ 8,434 $ 2,122 $2,321 $2,300 $624 --
Pen Cotton Tennessee............................ 3,658 7,395 12,579 1,775 -- -- --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ 12,373 15,829 14,701 4,096 2,300 624 --
Cost of sales:
Barge Fleet(a).................................. 6,870 7,139 -- -- -- -- --
Pen Cotton Tennessee............................ 3,054 7,273 11,655 1,353 34 5 --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ 9,924 14,412 11,655 1,353 34 5 --
Gross profit:
Barge Fleet..................................... 1,845 1,295 2,122 2,321 2,300 624 --
Pen Cotton Tennessee............................ 604 122 924 422 (34) (5) --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ 2,449 1,417 3,046 2,743 2,266 619 --
Selling, general and administrative:(b)
Barge Fleet..................................... -- -- -- -- -- -- --
Pen Cotton Tennessee............................ -- -- -- -- -- -- --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ -- -- -- -- -- -- --
Depreciation depletion and amortization:
Barge Fleet..................................... 927 927 927 918 957 229 --
Pen Cotton Tennessee............................ 316 407 417 85 -- -- --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ 1,243 1,334 1,344 1,003 957 229 --
Operating income:(d)
Barge Fleet..................................... 918 368 1,195 1,403 1,343 395 --
Pen Cotton Tennessee............................ 288 (285) 507 337 (34) (5) --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ $ 1,206 $ 83 $ 1,702 $1,740 $1,309 $390 --
======= ======= ======= ====== ====== ==== ====
OTHER DATA:
EBITDA(d)(2)
Barge Fleet..................................... $ 1,845 $ 1,295 $ 2,122 $2,321 $2,300 $624 --
Pen Cotton Tennessee............................ 604 122 924 422 (34) (5) --
------- ------- ------- ------ ------ ---- ----
Subtotal........................................ $ 2,449 $ 1,417 $ 3,046 $2,743 $2,266 $619 --
======= ======= ======= ====== ====== ==== ====
</TABLE>
- ---------------
(a) The Company outsourced the management of its Barge Fleet at the beginning
of 1995 to a third party operator, who paid the Company an administrative
rental fee per barge day for the use of the vessels. The Company recorded
this administrative rental fee as revenue within the coal business
segment. The Company, therefore, incurred no cost of sales in the years
1995 through 1997.
(b) Due to the nature of expenses incurred by the Barge Fleet and Pen Cotton
Tennessee, the Company has appropriately classified all expenses, except
depreciation, within cost of sales.
(c) Interest expense, other income and income tax expense for the Barge Fleet
and Pen Cotton Tennessee, in aggregate, amounted to $962, $3,715 and
$1,377, respectively, in the year ended December 31, 1997.
(d) The Company's consolidated revenues, adjusted to exclude the operations of
the Barge Fleet and Pen Cotton Tennessee for all periods presented, were
$157,381, $169,851, $171,342, $178,373, $179,989, $44,022 and $40,548 in
the years ended December 31, 1993 through 1997 and for the three months
ended March 31, 1997 and 1998, respectively. Operating income, on the same
adjusted basis, was $11,996, $14,186, $11,138, $10,158, $10,220, $914 and
$2,015 in the years ended December 31, 1993 through 1997 and for the three
months ended March 31, 1997 and 1998, respectively. EBITDA, on the same
adjusted basis, was $18,524, $24,249, $23,769, $23,897, $24,553, $4,707
and $5,597 in the years ended December 31, 1993 through 1997 and for the
three months ended March 31, 1997 and 1998, respectively.
(2) Represents operating income plus depreciation, depletion and amortization.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be used as an
alternative to net income or as an indicator of operating performance or to
cash flows as a measure of liquidity.
(3) Includes capital additions financed through capital lease transactions
amounting to $8,246, $155, $1,287, $7,221, $4,098, $2,443 and $0 for the
years ended December 31, 1993 through 1997, and for the three months ended
March 31, 1997 and 1998, respectively.
(4) For the purpose of this calculation, earnings are defined as income (loss)
from continuing operations before income taxes plus fixed charges. Fixed
charges consist of interest expensed or capitalized, amortization of
deferred financing costs and discount, the component of operating lease
expense which management believes represents an appropriate interest factor
and preferred stock dividends.
(5) Equal to current assets (excluding cash and cash equivalents) less current
liabilities (excluding current portion of long-term debt, current maturities
of capital leases and revolving credit loans).
(6) The Company's outstanding mandatorily redeemable preferred stock (the
"Convertible Preferred Stock") was issued in connection with the
Recapitalization. The Convertible Preferred Stock had a liquidation
preference of $13,650 at March 31, 1998, does not pay cash dividends and no
dividends accrue from the date of issuance through December 2000; beginning
in January 2001, dividends will accrue on the then liquidation preference at
an annual rate of 25.25% for a five-year period. The aggregate amount of
dividends which will accumulate from 2001 to 2006 is being recorded evenly
from the date of issuance in 1996 through the redemption date in 2006. The
Indenture will not prohibit such mandatory redemption in 2006. See
"Description of Notes--Certain Covenants--Limitation on Restricted
Payments." The Convertible Preferred Stock is mandatorily redeemable in
January 2006 and is redeemable with the issuance of a note equal to the
liquidation preference which equally amortizes over the ten years following
the redemption at an interest rate 2.25% above the rate on five-year U.S.
Treasury obligations. Accumulated dividends will be payable on the same
terms over the same period. The liquidation preference of the Convertible
Preferred Stock, as well as the amounts owed upon redemption of the
Convertible Preferred Stock, are to be reduced by any tax deficiencies or
settlements (including interest and penalties) paid or payable for all tax
periods beginning prior to December 29, 1995. See "Business--Legal
Proceedings--IRS Proceedings." The Convertible Preferred Stock is
convertible, at the option of the holder, into 2,950,000 shares of Class I
Common Stock. The conversion feature is exercisable from January 2001 until
January 2002, and immediately prior to certain fundamental transactions. See
"Description of Capital Stock-Convertible Preferred Stock."
14
<PAGE> 16
RISK FACTORS
In addition to the other information in this Prospectus the following risk
factors should be carefully considered in evaluating the Company and its
business in connection with the Exchange Offer.
LEVERAGE; ABILITY TO SERVICE DEBT
As a result of the Offering and New Credit Facility, the Company has, and
will continue to have, substantial leverage. At March 31, 1998, on a pro forma
basis after giving effect to the Offering, the Company had approximately $109.0
million of indebtedness, representing approximately 66% of the Company's total
capitalization. See "Capitalization." Furthermore, subject to certain
restrictions in the Indenture, the Company may incur additional indebtedness
from time to time to finance acquisitions, to provide for working capital or
capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including, but not limited to, the following: (i) the
ability of the Company to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes, if necessary, may be impaired
or such financing may not be on terms favorable to the Company; (ii) the Company
will have significant cash requirements for debt service; (iii) financial and
other covenants and operating restrictions imposed by the terms of the Indenture
and by the New Credit Facility will limit, among other things, its ability to
borrow additional funds or to dispose of assets; (iv) a downturn in the
Company's businesses will have a more significant impact on its results of
operations; and (v) the Company may increase indebtedness senior to the Notes
immediately following the issuance of the Notes.
The ability of Pen Holdings to satisfy its obligations will be primarily
dependent upon the future financial and operating performance of its
subsidiaries and upon its ability to renew or refinance borrowings or to raise
additional equity capital. Each of these alternatives is dependent upon
financial, business and other general economic factors affecting Pen Holdings
and its subsidiaries in particular, many of which are beyond the control of Pen
Holdings and its subsidiaries. If Pen Holdings and its subsidiaries are unable
to generate sufficient cash flow to meet their debt service obligations, they
will have to pursue one or more alternatives, such as reducing or delaying
capital expenditures, refinancing debt, including the Notes, selling assets or
raising equity capital. There can be no assurance that any such alternatives
could be accomplished or could be accomplished on satisfactory terms or that
such actions would yield sufficient funds to retire the Notes and any secured
indebtedness. While management believes that cash flow from operations will
provide an adequate source of long-term liquidity, a significant drop in
operating cash flows resulting from economic conditions, competition or other
uncertainties beyond the Company's control would increase the need for
alternative sources of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
EFFECTIVE SUBORDINATION OF THE NOTES AND GUARANTEES; RESTRICTIVE DEBT COVENANTS
The Notes are senior unsecured obligations of the Company and will rank
pari passu in right of payment with all existing and future unsubordinated
obligations of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. Borrowings under the New Credit
Facility will be secured by certain of Pen Holdings' and certain of its
Subsidiaries' assets, including the stock of Pen Coal Corporation ("Pen Coal")
and The Elk Horn Coal Corporation ("Elk Horn Coal") and substantially all of the
assets of Pen Holdings' active subsidiaries (defined to include Pen Coal, Elk
Horn Coal, River Marine Terminals, Inc., Marine Terminals Incorporated and Pen
Cotton Company of South Carolina). Accordingly, while the Notes will rank pari
passu in right of payment with borrowings under the New Credit Facility, the
Notes will be effectively subordinated to the obligations outstanding under the
New Credit Facility to the extent of the value of the assets securing such
borrowings. Similarly, the Guarantees of the Guarantors will rank pari passu in
right of payment with all obligations of the respective Guarantors that are not
by their terms expressly subordinated to the Guarantees. In the event of a
default under the New Credit Facility or other secured indebtedness (whether as
a result of the failure to comply with a payment or any covenant, a
cross-default or otherwise), the lenders thereunder will have a secured claim
foreclosure right on their collateral, and, if exercised, the Company's
financial condition and the value of the Notes will be materially adversely
affected. In the event of certain asset
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sales, the New Credit Facility will provide that net proceeds thereof not
reinvested as provided therein must be applied to the repayment of borrowings
under the New Credit Facility.
The New Credit Facility and the Indenture contain covenants that, among
other things, limit the Company's ability to incur additional indebtedness,
prepay subordinated indebtedness, dispose of certain assets, incur liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. The New Credit Facility also requires the Company
to comply with certain financial ratios and tests, under which the Company is
required to achieve certain financial and operating results. The ability of the
Company to comply with such provisions may be affected by events beyond its
control. A breach of any of these covenants would result in a default under the
New Credit Facility. In the event of any such default, depending on the actions
taken by the lenders under the New Credit Facility, the Company could be
prohibited from making any payments on the Notes. In addition, such lenders
could elect to declare all amounts borrowed under the New Credit Facility,
together with accrued interest thereon, to be due and payable, which would be an
event of default under the Indenture. As a result of the priority and/or
security afforded the New Credit Facility, there can be no assurance that the
Company would have sufficient assets to pay indebtedness then outstanding under
the New Credit Facility and the Indenture. Any future refinancing of the New
Credit Facility is likely to contain similar restrictive covenants. See
"Description of Notes--Certain Covenants" and "Description of New Credit
Facility."
RISKS ASSOCIATED WITH IRS MATTERS
The Company is engaged in litigation in the U.S. Tax Court challenging
certain deficiencies determined by the Internal Revenue Service ("IRS") for the
years 1982 through 1989. After significant reductions resulting from pretrial
discussions between the Company's counsel and the IRS trial attorney, the
remaining disputes relate to approximately $15 million in taxes and $2 million
in penalties (exclusive of interest). The Company's counsel and the IRS counsel
continue to discuss the remaining issues in dispute. However, in the event that
the Company and the IRS fail to reach a pretrial resolution, the dispute would
be tried in the U.S. Tax Court probably in late 1999. While it is impossible to
predict the final disposition of the litigation, management believes, that the
Company should prevail. However, there can be no assurance that the Company will
prevail in the Tax Court litigation and, if issues were decided substantially in
favor of the IRS positions, the required payments of taxes and penalties could
have a material adverse effect on the Company's operating results and financial
condition. See "Business--Legal Proceedings."
The IRS also is currently examining the Company's federal tax returns for
the years 1990 through 1993. The Company has received various preliminary
notices of proposed adjustments from the IRS proposing substantial adjustments
to taxable income reported on the Company's income tax returns for these years.
As the IRS has not yet concluded its examination or issued its examination
report, management does not yet know what issues the IRS will pursue and is
unable to estimate the likely outcome of the audits for these years. The Company
is continuing to meet with the IRS to discuss the preliminary proposed
adjustments in an attempt to resolve these issues. Although management believes
that most of the preliminary proposed adjustments from the IRS are likely to be
eliminated or substantially reduced prior to any necessary litigation, there can
be no assurance as to the ultimate outcome of the ongoing examination by the
IRS. Given the stage of this examination, and the number and complexity of the
administrative and judicial proceedings involved in reaching a resolution,
management believes it is unlikely that ultimate resolution of the Company's tax
audits for the years 1990 through 1993 will occur for several years. If, after
exhaustion of all administrative and judicial remedies and appeals, issues
currently raised in the preliminary proposed adjustment were decided
substantially in favor of the IRS positions, the result could have a material
adverse effect on the Company's financial condition. See "Business--Legal
Proceedings."
RELIANCE ON LONG-TERM SALES CONTRACTS
A substantial portion of the Company's coal is sold pursuant to long-term
sales contracts which are significant to the stability and profitability of the
Company's operations. In 1997, approximately 83% of the Company's revenues from
coal sales were made under long-term sales contracts. As of March 31, 1998, the
Company had seven long-term sales contracts with a weighted average term of
approximately 3.3 years
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(excluding option periods). As of March 31, 1998, the Company's long-term sales
contracts provided for coal to be sold at a price which exceeds the price at
which such coal could be sold in the spot market.
The Company's long-term sales contract with Taiwan Power Company accounted
for 56%, 58%, 36%, 23% and 25% of the Company's coal sales revenues from 1993
through 1997, respectively. The contract with Taiwan Power expires in 1999, and
the Company expects that it will not be renewed or extended due to the high
transportation cost to Taiwan from the Gulf of Mexico, as compared with other
sources. The Company's long-term sales contract with Dayton Power & Light
accounted for 15%, 15%, 23%, 21% and 24% of the Company's coal sales revenues
from 1993 through 1997, respectively. The Company's long-term sales contract
with American Electric Power-Mountaineer accounted for 8%, 9%, 15%, 18% and 17%
of the Company's coal sales revenues from 1993 through 1997. The Company
continually bids on new contracts to replace existing contracts in order to
align supply requirements with its anticipated production levels. There can be
no assurance, however, that the Company will be able to secure additional
contracts to replace any expiring contract or to replace such contract on terms
favorable to the Company. As a result, the loss of these or other of its sales
contracts could have a material adverse effect on the Company's financial
condition and results of operations.
Virtually all of the Company's long-term sales contracts are subject to
price adjustment provisions which permit an increase or decrease in the contract
price at specified times during the contract term to reflect changes in certain
price or other economic indices, taxes and other governmental charges. Long-term
sales contracts also typically contain force majeure provisions allowing
suspension of performance by the Company or the customer to the extent necessary
during the duration of certain events beyond the control of the affected party,
including labor disputes and changes in government regulations. See
"Business--Long-Term Coal Sales Contracts." There can be no assurance that the
Company's currently existing contracts will remain in force for the duration of
their current terms.
In addition, the Taiwan Power Company contract contains an annual price
reopener provision which provides for the contract price to be adjusted upward
or downward on the basis of certain market factors. If the parties fail to agree
on a price for a given year, each party has the right to require that the price
be determined by binding arbitration. Pending determination of the annual price,
coal sales are made at the prior year's price. Upon establishment of the price,
any change is adjusted retroactively to January 1 of the subject year, and
interest is owed on any amount due. The Company and Taiwan Power Company have
not yet reached an agreement on price for 1998. As a result, currently coal is
being shipped to Taiwan Power Company at the price agreed to by the parties for
1997. In the event that the price for 1998 is determined to be less than the
1997 price at which 1998 deliveries are being made, the Company would be
required to adjust the 1998 price downward on a retroactive basis (to January 1,
1998), with interest to be charged on the difference. At present, the Company is
not able to determine whether there will be a decrease in the price under the
Taiwan Power Company contract from the price paid in 1997. In the event that the
price were to decrease significantly, this could have a material adverse affect
on the Company's EBITDA for 1998. In addition, the price for 1999 has not yet
been determined. The foregoing, therefore, may also apply to 1999.
The operating profit margins realized by the Company under its long-term
sales contracts depend on a variety of factors, including production costs,
transportation costs, delivered coal qualities and quantities and various
general macro-economic indices, many of which are beyond the Company's control.
In addition, price adjustment, price reopener and other provisions may reduce
the insulation from short-term coal price volatility provided by such contracts
and may adversely impact the Company's operating profit margins. If any of the
Company's long-term sales contracts were modified or terminated, the Company
could be adversely affected to the extent that it is unable to find alternate
customers at the same level of profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RELIANCE ON LONG-TERM MINERAL LEASES
A portion of the Company's revenues is derived from the leasing of its coal
reserves pursuant to long-term (longer than one year) mineral lease agreements.
Although under such leases the lessees are required to pay certain minimum
royalties, a lessee will generally be obligated to pay the Company royalties
based on the level of the lessee's production from the leased reserve. In 1997,
approximately 25.5% of the Company's gross profits
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were derived from the leasing of its mineral reserves. See "Selected
Consolidated Financial Data." As of March 31, 1998, the Company had 34 mineral
leases with a weighted average remaining life of approximately 16.6 years.
The amount of gross profit the Company derives from long-term mineral
leases is subject to the production of its lessees. The Company evaluates each
prospective lessee to determine its ability to efficiently and productively mine
the leased reserves based in large part upon past performance of the particular
prospective lessee. Beyond this evaluation, however, the ability of the lessee
to generate royalties for the Company is beyond the Company's control. There can
be no assurance that the companies which lease the Company's mineral reserves
will continue to have production levels from the Company's reserves at the same
levels they have been in the past.
The revenues generated by the Company's leases depends upon a variety of
other factors, including the long-term viability of the lessees and the
Company's ability to renew these leases as they approach termination or find
other willing and suitable lessees. If a number of the leases are terminated due
to the lessee ceasing operations, or the leases are not renewed upon expiration
of their term, the Company's results of operations could be adversely affected
to the extent that it is not able to find suitable alternate lessees.
HIGHLY COMPETITIVE INDUSTRY
The U.S. coal industry is highly competitive, with numerous producers in
all coal producing regions. The Company competes with other large producers and
hundreds of small producers in the United States and abroad. Many of the
Company's customers also purchase coal from its competitors. The markets in
which the Company sells its coal are highly competitive and affected by factors
beyond the Company's control. Demand for coal and the prices that the Company
will be able to obtain for its coal are closely linked to coal consumption
patterns of the domestic electric utility industry, which accounted for
approximately 89.5% of domestic coal consumption in 1997. These coal consumption
patterns are influenced by the demand for electricity, coal transportation
costs, environmental and other governmental regulation, technological
developments and the location, availability and price of competing sources of
coal, alternative fuels such as natural gas, oil and nuclear, and alternative
energy sources such as hydroelectric power. In addition, during the mid-1970's
and early 1980's, a growing coal market and increased demand attracted new
investors to the coal industry and spurred the development of new mines and
added production capacity throughout the industry. As a result of the increased
development of large surface mining operations, particularly in the western
United States, and more efficient mining equipment and techniques, the industry
has developed excess coal production capacity in the United States. Competition
resulting from excess capacity encourages producers to reduce prices and to pass
productivity gains through to customers. Moreover, because of greater
competition in the domestic electric utility industry and increased pressure
from customers and regulators to lower electricity prices, public utilities are
lowering fuel costs by buying higher percentages of spot coal through a
competitive bidding process and by only buying the amount of coal necessary
under existing contracts to meet their contractual requirements. There can be no
assurance that the Company will continue to be able to obtain long-term sales
contracts with reliable customers as its reserves expand and as existing
contracts expire. If a lower percentage of its revenues are generated pursuant
to long-term sales contracts, the Company will be increasingly affected by
changes in prices for coal in the spot market.
RISKS INHERENT TO MINING
The Company's mining operations are subject to conditions beyond the
Company's control which can negatively or positively affect the cost of mining
at particular mines for varying lengths of time. These conditions include
weather and natural disasters such as heavy rains and flooding, unexpected
maintenance problems, variations in coal seam thickness, variations in the
amount of rock and soil overlying the coal deposit, variations in rock and other
natural materials and variations in other geological and other conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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IMPORTANCE OF ACQUISITIONS AND RELATED RISKS
The Company has grown, in part, through the acquisition of coal companies,
coal properties, coal leases and related assets, and management believes that
such acquisitions will continue to be important to the Company. Acquisitions
involve a number of special risks, including possible adverse effects on the
Company's operating results, diversion of management's attention, failure to
retain key acquired personnel, risks associated with unanticipated events or
liabilities and difficulties in the assimilation of the operations,
technologies, services and products of the acquired companies, some or all of
which could have a material adverse effect on the Company's financial condition
and results of operations. There can be no assurance that the Company will be
successful in the development of such acquisitions or joint ventures or that the
acquired companies or other businesses acquired in the future will achieve
anticipated revenues and earnings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
GOVERNMENT REGULATION OF THE MINING INDUSTRY
The coal mining industry is subject to regulation by federal, state and
local authorities on matters such as employee health and safety, permitting and
licensing requirements, air quality standards, water pollution, plant and
wildlife protection, reclamation and restoration of mining properties after
mining is completed, the discharge of materials into the environment, surface
subsidence from underground mining and the effects that mining has on
groundwater quality and availability. Numerous governmental permits and
approvals are required for mining operations. The Company believes all material
permits required to conduct its present mining operations have been obtained.
The Company 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, including
the development of Fork Creek. All 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 exists that new
legislation and/or regulations and orders may be adopted which may materially
adversely affect the Company's mining operations, its cost structure and/or its
customers' ability to use coal. New legislation, including proposals related to
the protection of the environment which would further regulate and tax the coal
industry, may also require the Company or its customers to change their
operations significantly or incur increased costs. Such factors and legislation
(if enacted) could have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Government Regulation."
RECLAMATION AND MINE CLOSURE ACCRUALS
The federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA")
and similar state statutes require that mine property be restored in accordance
with specified standards and an approved reclamation plan. The Company accrues
for the costs of final mine closure over the estimated useful mining life of the
property. These costs relate to reclaiming the pit and support acreage at
surface mines and sealing portals and contour reclamation at underground mines,
scrap removal, and contour reclamation at the preparation plant. Other costs
common to both types of mining are related to reclaiming refuse and slurry
ponds. The Company accrues for current mine disturbance which will be reclaimed
prior to final mine closure. The establishment of the final mine closure
reclamation liability and the current disturbance is based upon permit
requirements and requires various estimates and assumptions, principally
associated with costs and production levels. Although the Company's management
believes it is making adequate provisions for all expected reclamation and other
costs associated with mine closures, the Company's financial condition and its
future operating results would be adversely affected if such accruals were later
determined to be insufficient.
IMPACT OF CLEAN AIR ACT AMENDMENTS ON COAL CONSUMPTION
The federal Clean Air Act ("Clean Air Act") and amendments to the Clean Air
Act ("Clean Air Act Amendments"), and corresponding state laws which regulate
the emissions of materials into the air, affect coal mining operations both
directly and indirectly. Coal mining and processing operations may be directly
affected by Clean Air Act permitting requirements and/or emissions control
requirements relating to particulate matter (e.g., "fugitive dust"). Coal mining
and processing may also be impacted by future regulation of fine particulate
matter measuring 2.5 micrometers in diameter or smaller. Regulations relating to
fugitive dust and coal
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combustion emissions may restrict the Company's ability to develop new mines or
could require the Company to modify its existing operations. The Clean Air Act
indirectly affects coal mining operations by extensively regulating the air
emissions of coal-fueled utility power plants. Title IV of the Clean Air Act
Amendments places limits on sulfur dioxide emissions from electric power
generation plants. These limits set baseline emission standards for such
facilities. Reductions in such emissions will occur in two phases: the first
began in 1995 ("Phase I") and applies only to certain identified facilities; and
the second is currently scheduled to begin in 2000 ("Phase II") and will apply
to most remaining facilities, including those subject to the 1995 restrictions.
The affected utilities have been and may be able to meet these requirements by,
among other ways, switching to lower sulfur fuels, installing pollution control
devices such as scrubbers, reducing electricity generating levels or purchasing
or trading "pollution credits." Specific emission sources will 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
Amendments require a study of utility power plant emission of certain toxic
substances and their eventual regulation, if warranted.
The effect of the Clean Air Act Amendments on the Company cannot be
completely ascertained at this time. The Company believes that implementation of
Phase II will likely exert a downward pressure on the price of higher sulfur
coal, as additional coal-burning utility power plants become subject to the
restrictions of Title IV. This price effect is expected to result after the
large surplus of pollution credits which has accumulated in connection with
Phase I has been reduced and before utilities electing to comply with Phase II
by installing scrubber sulfur-reduction technologies are able to implement such
a compliance strategy. If the price of compliance coal rises as Phase II is
implemented, scrubber compliance strategies may become more attractive to
utility customers, thereby lessening the downward pressure on the price of high
sulfur coal which could adversely affect the Company's sales for its compliance
and low-sulfur coal. See "--Reliance on Long-Term Sales Contracts,"
"Business--Long-Term Coal Sales Contracts" and "Business--Government
Regulation."
The Clean Air Act Amendments also require that utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone non-attainment
areas install reasonably available control technology ("RACT") for nitrogen
oxides, which are precursors of ozone. In addition, stricter ozone standards are
expected to be implemented by the U.S. Environmental Protection Agency (the
"EPA") by 2003. The Ozone Transport Assessment Group ("OTAG"), formed to make
recommendations to the EPA for addressing ozone problems in the eastern United
States, submitted its final recommendations to the EPA in June 1997. Based on
the OTAG's recommendations, the EPA recently announced a proposal (the "SIP
call") that would require 22 eastern states, including states in which the
Company's customers are located, to make substantial reductions in nitrous oxide
emissions. The EPA expects that states will achieve these reductions by
requiring power plants to reduce their nitrous oxide emissions by an average of
85%. Installation of RACT and additional control measures required under the SIP
call will make it more costly to operate coal-fired utility power plants and,
depending on the requirements of individual state attainment plans and the
development of revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility power plants
in the future. Any reduction in coal's share of the capacity for power
generation could have a material adverse effect on the Company's financial
condition and results of operations. The effect such legislation or regulation,
or other legislation that may be enacted in the future, could have on the coal
industry in general and on the Company in particular cannot be predicted with
certainty. Although a large portion of the Company's coal reserves are comprised
of compliance and low-sulfur coal, there can be no assurance that the
implementation of the Clean Air Act Amendments or any future regulatory
provisions will not materially adversely affect the Company.
POTENTIAL IMPACT OF KYOTO PROTOCOL
On December 11, 1997, U.S. government representatives at the climate change
negotiations in Kyoto, Japan, agreed to reduce the emissions of greenhouse gas
(including carbon dioxide and other gas emissions that are believed to be
trapping heat in the atmosphere and warming the Earth's climate) in the United
States. The adoption of the requirements of the Kyoto protocol by the United
States are subject to conditions which may not occur, and are also subject to
the protocol's ratification by the U.S. Senate. The U.S. Senate has indicated
that it will not ratify an agreement unless certain conditions, not currently
provided for in the Kyoto protocol, are met. At present, it is not possible to
predict whether the Kyoto protocol will attain the force of law in the United
States
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or what its impact would be on the Company. Further developments in connection
with the Kyoto process could adversely affect the Company's financial condition
and results of operations.
REPLACEMENT AND RECOVERABILITY OF RESERVES
The Company's future success depends, in part, upon its ability to find,
develop or acquire additional coal reserves. The reserves of the Company will
generally be depleted as mining operations are conducted, except to the extent
that the Company conducts successful exploration and development activities or
acquires properties containing reserves. To increase reserves and production,
the Company must continue its development, exploration and acquisition
activities or undertake other replacement activities. The Company's current
strategy includes increasing its reserve base through acquisitions of producing
properties and by continuing to exploit its existing properties. There can be no
assurance, however, that the Company's planned development and exploration
projects and acquisition activities will result in significant additional
reserves or that the Company will have continuing success developing additional
mines. For a discussion of the Company's reserves, see "Business--Coal
Reserves." Most of the Company's mining operations are conducted on properties
owned or leased by the Company. Because title to most of the Company's leased
properties and mineral rights is not thoroughly verified until a permit is
obtained to mine the property, the Company's right to mine certain of its
reserves may be adversely affected if defects in title or boundaries exist. In
addition, there is no assurance that the Company can successfully negotiate new
leases or mining contracts for properties containing additional reserves or
maintain its leasehold interest in properties on which mining operations are not
commenced during the term of the lease. See "Business--Coal Reserves."
PRICE FLUCTUATIONS AND MARKETS
The Company's results of operations are highly dependent upon the prices
received for the Company's coal. Any significant decline in prices for coal
could have a material adverse effect on the Company's financial condition,
results of operation and quantities of reserves recoverable on an economic
basis. Should the industry experience significant price declines from current
levels or other adverse market conditions, the Company may not be able to
generate sufficient cash flow from operations to meet its obligations and make
planned capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
To the extent the Company is unable to sell its coal under long-term sales
contracts, it would be forced to cease production or to sell its production into
the spot market. The prices for spot coal sales are typically below the price
received under long-term sales contracts. The Company estimates that, on
average, spot sales for coal shipped through the Big Sandy River district in
1997 averaged approximately $2.50 less per ton (for comparable quality coal)
than the amount received by the Company under long-term sales contracts.
RELIANCE ON ESTIMATES OF RECOVERABLE RESERVES
There are numerous uncertainties inherent in estimating quantities of
recoverable reserves, including many factors beyond the control of the Company.
The coal reserve data set forth in this Prospectus are based on the Reserve
Studies. Estimates of economically recoverable coal reserves and future net cash
flows necessarily depend upon a number of variable factors and assumptions, such
as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future coal prices, future operating costs, severance and
excise taxes, development costs and reclamation costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of coal attributable to any particular group
of properties, classifications of such reserves based on risk of recovery and
estimates of future net cash flows expected therefrom prepared by different
engineers or by the same engineers at different times may vary substantially.
Actual production, revenues and expenditures with respect to the Company's
reserves will likely vary from estimates, and such variances will likely be
material. As a result, potential investors should not place undue reliance on
the coal reserve data included herein. See "Business--Coal Reserves."
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DEPENDENCE ON KEY MANAGEMENT AND CONTROL BY PRINCIPAL SHAREHOLDER
The Company's business is managed by a number of key personnel, the loss of
any of whom could have a material adverse effect on the Company. In addition, as
the Company's business develops and expands, the Company believes that its
future success will depend greatly on its continued ability to attract and
retain highly skilled and qualified personnel. See "Management."
William E. Beckner beneficially owns 90.4% of the outstanding voting
securities of the Company. Accordingly, Mr. Beckner is able to control the
election of the Company's directors and to determine the corporate and
management policies of the Company, including decisions relating to any mergers
or acquisitions by the Company, sales of all or substantially all of the
Company's assets and other significant corporate transactions, which
transactions may result in a Change of Control under the Indenture. See
"Security Ownership of Principal Stockholders and Management."
TRANSPORTATION
The United States coal industry depends on rail, trucking and river barge
transportation to deliver shipments of coal to customers. Disruption of these
transportation services could temporarily impair the Company's ability to supply
coal to its customers and thus adversely affect the Company's financial
condition and operating results. Transportation costs are a significant
component of the total cost of supplying coal to customers and can affect
significantly the Company's competitive position and profitability. Increases in
the Company's transportation costs, or changes in such costs relative to
transportation costs incurred by providers of competing coal or of other fuels,
could have an adverse effect on the Company's financial condition and operating
results. In addition, the Company may be adversely affected by labor or other
disruptions throughout the transportation industry as a whole.
In the past, the Company has experienced delays in transporting coal from
its mine sites near the Kentucky-West Virginia border due to temporary
cessations of operations at its Big Sandy River loading terminals. In the past,
the Big Sandy River has flooded or water levels have risen after sustained
periods of adverse weather conditions, forcing the terminals to cease loading
barges. These terminals were unable to load barges 61 days during the five year
period ending December 31, 1997. Delays in transporting its coal to customers
increases the Company's cost of production and decreases customer satisfaction
and, if prolonged, could have a material adverse effect on the Company. It is
anticipated that coal production from Fork Creek will be shipped on rail via CSX
and, as a result, the Company will be dependent upon CSX to transport this coal.
UNIONIZATION OF LABOR FORCE
The Company is not currently a party to any collective bargaining agreement
and considers its relations with its employees to be good. If some or all of the
Company's currently non-union operations were to become unionized, the Company
could incur higher labor costs and an increased risk of work stoppages. There
can be no assurance that the Company's workforce will not unionize in the
future. In addition, even if the Company remains non-unionized, its operations
may still be adversely affected by work stoppages at unionized companies.
NEW TECHNOLOGY
The coal mining industry is increasingly affected by advances in
technology. The ability of the Company to compete successfully may depend on the
extent to which it is able to implement and exploit such technological changes.
The failure of the Company to develop, anticipate or respond to such changes
could have a material adverse effect on the Company. The development of new and
better technologies by the Company's competitors could have a material adverse
effect on the Company's financial condition and results of operations.
ADEQUACY OF COAL INDUSTRY RETIREE HEALTH BENEFITS RESERVES
The Coal Industry Retiree Health Benefits Act of 1992 ("CIRHBA") requires
companies currently operating in the coal mining industry to subsidize the
healthcare premiums of retired coal miners and their beneficiaries. The Social
Security Administration assigns miners and their beneficiaries to the coal
companies with which they
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were formerly employed or related. Until recently, the Company believed that it
fell within the scope of CIRHBA. Therefore, the Company had established a
reserve to satisfy the healthcare premiums of those miners and their
beneficiaries which have been assigned to the Company. However, on June 25,
1998, the U.S. Supreme Court held in Eastern Enterprises v. APFEL, Commissioner
of Social Security et al., that the assignment of miners under CIRHBA to certain
coal companies violated certain provisions of the U.S. Constitution. The Company
believes that it is in the class of coal companies to which the Constitutional
prohibitions to CIRHBA apply. Therefore, the Company is no longer making
contributions into its CIRHBA reserves. At the time of the Eastern Enterprises
decision, the Company believed that the reserves it had established were
sufficient to satisfy its obligations to the miners then assigned to it and
those which are reasonably foreseeable to be assigned to it in the future.
Because the Eastern Enterprises decision is very recent, the Company is
continuing to review its CIRHBA policies.
If, however, the Eastern Enterprises decision was found inapplicable to the
Company, the possibility exists that the Company could be assigned a greater
number of miners than could be reasonably foreseen. Such a situation could
exhaust the Company's reserves and have an adverse effect on the Company's
financial condition and operating results.
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if a court were to find that, among
other things, at the time Pen Holdings incurred the indebtedness evidenced by
the Notes or a Guarantor executed its Guaranty, Pen Holdings or the Guarantor,
as the case may be: (i) (a) was or is insolvent or rendered insolvent by reason
of such occurrence, (b) was or is engaged in a business or transaction for which
the assets remaining with Pen Holdings or such Guarantor constituted
unreasonably small capital, or (c) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature; and (ii) received or receives less than reasonably equivalent value or
fair consideration for the incurrence of such indebtedness, then the Notes or
Guarantee, as the case may be, could be voided, or claims in respect of the
Notes or Guarantees could be subordinated to all other debts of Pen Holdings, as
the case may be. In addition, the payment of interest and principal by Pen
Holdings pursuant to the Notes could be voided and required to be returned to
the person making such payment, or to a fund for the benefit of the creditors of
Pen Holdings.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, Pen Holdings or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the salable value of all of its assets at a fair valuation or if
the present fair salable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that, as a result of the indebtedness
incurred in connection with the Offering and the establishment of the New Credit
Facility, it was not rendered insolvent, did not have unreasonably small capital
for the business in which it is engaged and did not incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with the Company's conclusions in this regard.
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Additional Interest (as defined herein), if any,
to the date of repurchase. However, there can be no assurance that sufficient
funds will be available at the time of any Change of Control to make any
required repurchases of Notes tendered or that restrictions in the New Credit
Facility will allow the Company to make such required repurchases. See
"Description of Notes--Change of Control Offer."
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<PAGE> 25
ABSENCE OF A PUBLIC MARKET FOR NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
Prior to the Exchange Offer, the Senior Notes have not been registered
under the Securities Act or any state securities laws and, unless so registered,
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. Although the Initial Purchaser has
informed the Company that it currently intends to make a market in the Series B
Senior Notes, it is not obligated to do so and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Series B Senior Notes.
The Series B Senior Notes are expected to be eligible for trading in the PORTAL
market. The Company does not intend to apply for listing of the Notes on any
securities exchange or for quotation through the NASDAQ National Market. If a
market for the Series B Senior Notes were to develop, the Series B Senior Notes
could trade at prices that may be higher or lower than the Senior Notes initial
offering price depending upon many factors, including prevailing interest rates,
the Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that, if a market for the Series
B Senior Notes were to develop, such a market will not be subject to similar
disruptions.
FORWARD LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which statements can be identified by
the use of forward looking terminology such as "believes," "expects," "may,"
"will," "should," "intends" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. Management cautions the reader that these
forward looking statements, are only predictions. No assurance can be given that
future results will be achieved; actual events or results may differ materially
as a result of risks facing the Company. Such risks include, but are not limited
to, the Company's current litigation in the U.S Tax Court and the pending
Internal Revenue Service's examination of certain other tax returns of the
Company, the Company's reliance on long-term sales contracts, the Company's
reliance on long-term mineral leases, the competitive environment in which the
Company operates, the risks inherent to the mining industry, acquisitions,
government regulation, reclamation and mine closure accruals, the effects of
Clean Air Act Amendments on the coal industry, replacement and recoverability of
coal reserves, economic conditions in the coal industry generally and
technological developments. Such risks could cause actual results to vary
materially from the future results indicated, expressed or implied, in such
forward looking statements.
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<PAGE> 26
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On June 8, 1998, the Company issued $100,000,000 aggregate principal amount
at maturity of Senior Notes to CIBC Oppenheimer Corp., the Initial Purchaser.
The issuance was not registered under the Securities Act in reliance upon the
exemption under Rule 144A, Section 4(2) and Regulation S of the Securities Act.
In connection with the issuance and sale of the Senior Notes, the Company
entered into a registration rights agreement with the Initial Purchaser dated as
of June 8, 1998 (the "Registration Rights Agreement"), which requires the
Company to cause the Senior Notes to be registered under the Securities Act or
to file with the Commission a registration statement under the Securities Act
with respect to an issue of new notes of the Company identical in all material
respects to the Senior Notes, and use its best efforts to cause such
registration statement to become effective under the Securities Act and, upon
the effectiveness of that registration statement, to offer to the holders of the
Senior Notes the opportunity to exchange their Senior Notes for a like principal
amount of Series B Senior Notes, which will be issued without a restrictive
legend and may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Exchange Offer is being made pursuant to the
Registration Rights Agreement to satisfy the Company's obligations thereunder.
Based on no-action letters issued by the staff of the Commission to
third-parties, the Company believes that the Series B Senior Notes issued
pursuant to the Exchange Offer in exchange for Senior Notes may be offered for
resale, resold and otherwise transferred by any holder of such Series B Senior
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Series B Senior Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such Series B Senior Notes and
neither the holder nor any other person is engaging in or intends to engage in a
distribution of the Series B Senior Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the Series
B Senior Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker dealer
that receives Series B Senior Notes for its own account in exchange for Senior
Notes, where such Senior Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Series B
Senior Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept any and all Senior Notes validly
tendered and not withdrawn prior to 5:00 p.m. (New York City time) on the
Expiration Date. The Company will issue a principal amount of Series B Senior
Notes in exchange for an equal principal amount of outstanding Senior Notes
tendered and accepted in the Exchange Offer. Holders may tender some or all of
their Senior Notes pursuant to the Exchange Offer. The date of acceptance for
exchange of the Senior Notes for the Series B Senior Notes (the "Exchange Date")
will be the first business day following the Expiration Date.
The terms of the Series B Senior Notes and the Senior Notes are
substantially identical in all material respects, except for certain transfer
restrictions, registration rights and Additional Interest for Registration
Defaults relating to the Senior Notes which will not apply to the Series B
Senior Notes. See "Description of Notes." The Series B Senior Notes will
evidence the same debt as the Senior Notes. The Series B Senior Notes will be
issued under and entitled to the benefits of the Indenture pursuant to which the
Senior Notes were issued.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
at maturity of the Senior Notes are outstanding. This Prospectus, together with
the Letter of Transmittal, is being sent to all registered holders.
Holders of Senior Notes do not have any appraisal or dissenters' rights
under Tennessee law or the Indenture in connection with the Exchange Offer. The
Company intends to conduct the Exchange Offer in
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<PAGE> 27
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Exchange Act, and the rules and regulations of
the Commission thereunder. Senior Notes which are not tendered and were not
prohibited from being tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and to be subject to transfer
restrictions, but will not be entitled to any rights or benefits under the
Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Senior Notes
properly tendered and will issue the Series B Senior Notes promptly after
acceptance of the Senior Notes. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Senior Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the Series B Senior Notes from the Company.
In all cases, issuance of Series B Senior Notes for Senior Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Senior Notes, a properly completed
and duly executed Letter of Transmittal and all other required documents;
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Senior Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Senior Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Senior Notes or substitute Senior Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
Holders who tender Senior Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Senior
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m. (New York City time), on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m. (New York City
time), on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Senior Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions" shall
not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of Senior
Notes of such amendment.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE SERIES B SENIOR NOTES
The Series B Senior Notes will bear interest at the rate of 9-7/8% per
annum, payable semi-annually, in cash, on June 15 and December 15, of each year,
commencing December 15, 1998.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any Series B Senior Notes for any Senior Notes, and may
terminate or amend the Exchange Offer before the acceptance of any Senior Notes
for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange
Offer which seeks to restrain or prohibit the Exchange Offer or, in
the Company's judgment, would materially impair the ability of the
Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule, order or regulation is
interpreted by any government or governmental authority which, in
the Company's judgment, would materially impair the ability of the
Company to proceed with the Exchange Offer; or
(c) the Exchange Offer or the consummation thereof would otherwise
violate or be prohibited by applicable law.
If the Company determines in its sole discretion that any of these
conditions is not satisfied, the Company may (i) refuse to accept any Senior
Notes and return all tendered Senior Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Senior Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders who tendered
such Senior Notes to withdraw their tendered Senior Notes, or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Senior Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above shall be final and binding on all parties.
PROCEDURES FOR TENDERING
The tender of Senior Notes by a holder as set forth below and the
acceptance thereof by the Company will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth in this Prospectus and in the Letter of Transmittal.
Only a holder of Senior Notes may tender such Senior Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must (i) complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Senior Notes (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below) and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date, or (ii) comply with the guaranteed delivery procedures described below.
Delivery of all documents must be made to the Exchange Agent at its address set
forth herein.
THE METHOD OF DELIVERY OF SENIOR NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE
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THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Senior Notes, either make appropriate arrangements to register ownership
of the Senior Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any Eligible Institution (as defined) unless
the Senior Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Senior Notes listed therein, such Senior Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Senior Notes
with the signature thereon guaranteed by an Eligible Institution. If the Letter
of Transmittal or any Senior Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
Any financial institution that is a participant in the book-entry transfer
facility for the Senior Notes (The Depository Trust Company system ("DTC")), may
make book-entry delivery of Senior Notes by causing DTC to transfer such Senior
Notes into the Exchange Agent's account with respect to the Senior Notes in
accordance with DTC's procedures for such transfer. Although delivery of Senior
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, an appropriate Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted to
and received and confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Senior Notes and withdrawal of tendered Senior
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Senior Notes not properly tendered or any Senior Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Senior Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Senior Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Senior Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Senior Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Senior Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or
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waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Senior Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Senior Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will also represent to the Company, (i) that the
Series B Senior Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such Series B Senior
Notes, whether or not such person is the holder, (ii) that neither the holder
nor any such person has an arrangement or understanding with any person to
participate in the distribution of such Series B Senior Notes and (iii) that
neither the holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company, or that if it is an
"affiliate," it will comply with the registration and prospective delivery
requirements of the Securities Act to the extent applicable.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Senior Notes and (i) whose Senior Notes
are not immediately available, (ii) who cannot deliver their Senior Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, or (iii) who cannot complete the procedures for
book-entry transfer of Senior Notes to the Exchange Agent's account with DTC
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the
certificate number(s) of such Senior Notes (if possible) and the
principal amount of Senior Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five business trading
days after the Expiration Date, (i) the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the
Senior Notes and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, or (ii) that book-entry transfer of such Senior Notes
into the Exchange Agent's account at DTC will be effected and
confirmation of such book-entry transfer will be delivered to the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Senior Notes in proper form for transfer and all other
documents required by the Letter of Transmittal, or confirmation of
book-entry transfer of the Senior Notes into the Exchange Agent's
account at DTC, are received by the Exchange Agent within five business
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Senior Notes according to the
guaranteed delivery procedures set forth above.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The holder tendering Senior Notes exchanges, assigns and transfers the
Senior Notes to the Company and irrevocably constitutes and appoints the
Exchange Agent as the holder's agent and attorney-in-fact to cause the Senior
Notes to be assigned, transferred and exchanged. The holder represents and
warrants to the Company and the Exchange Agent that (i) it has full power and
authority to tender, exchange, assign and transfer the Senior Notes and to
acquire the Series B Senior Notes in exchange for the Senior Notes, (ii) when
the Senior Notes are accepted for exchange, the Company will acquire good and
unencumbered title to the Senior Notes, free and clear
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of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim, (iii) it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Senior Notes and (iv) acceptance
of any tendered Senior Notes by the Company and the issuance of Series B Senior
Notes in exchange therefor will constitute performance in full by the Company of
its obligations under the Registration Rights Agreement and the Company will
have no further obligations or liabilities thereunder to such holders (except
with respect to accrued and unpaid Additional Interest, if any). All authority
conferred by the holder will survive the death or incapacity of the holder and
every obligation of the holder will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or that, if it
is an "affiliate," it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii) is acquiring
the Series B Senior Notes offered in the ordinary course of its business and
(iii) has no arrangement with any person to participate in the distribution of
the Series B Senior Notes.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to 5:00 p.m. (New York City time) on the Expiration
Date.
To withdraw a tender of Senior Notes in the Exchange Offer, a telegram,
telex, facsimile transmission or letter indicating notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m. (New York City time), on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having tendered the Senior Notes to be
withdrawn (the "Depositor"), (ii) identify the Senior Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Senior
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Senior Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Senior Notes
register the transfer of such Senior Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Senior Notes
are to be registered, if different from that of the Depositor. If Senior Notes
have been tendered pursuant to the procedure for book-entry transfer, any notice
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Senior Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Senior Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Series B Senior Notes will be issued with respect thereto
unless the Senior Notes so withdrawn are validly retendered. Any Senior Notes
which have been tendered but which are not accepted for payment will be returned
to the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Senior Notes may be retendered by following one of the procedures
described above under "Procedures for Tendering" at any time prior to the
Expiration Date.
UNTENDERED SENIOR NOTES
Holders of Senior Notes whose Senior Notes are not tendered or are tendered
but not accepted in the Exchange Offer will continue to hold such Senior Notes
and will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Senior Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligations to such holders, other than the Initial Purchaser, to
provide for the registration under the Securities Act of the Senior Notes held
by them. To the extent that Senior Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Senior Notes could be adversely affected.
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EXCHANGE AGENT
The Bank of New York, the Trustee under the Indenture, has been appointed
as Exchange Agent of the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail,
by hand or by Overnight Courier By Facsimile:
The Bank of New York The Bank of New York
101 Barclay Street Attention: Corporate Trust Department
Floor 21 West (212) -
New York, NY 10286 Confirm by Telephone:
Attention: Corporate Trust Department (212) -
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and will
pay the reasonable fees and expenses of holders in delivering their Senior Notes
to the Exchange Agent.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Senior Notes pursuant to the Exchange Offer. If, however, certificates
representing Series B Senior Notes or Senior Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Senior Notes
tendered, or if tendered Senior Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Senior Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Senior Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Senior Notes will not have any registration rights under the Registration Rights
Agreement with respect to such non-tendered Senior Notes and, accordingly, such
Senior Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Senior Notes may not be offered
or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
does not intend to register the Senior Notes under the Securities Act. Based on
interpretations by the staff of the Commission with respect to similar
transactions, the Company believes that the Series B Senior Notes issued
pursuant to the Exchange Offer in exchange for Senior Notes may be offered for
resale, resold and otherwise transferred by any holder of such Series B Senior
Notes (other than
31
<PAGE> 33
any such holder which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Series
B Senior Notes are acquired in the ordinary course of such holder's business,
such holder has no arrangement or understanding with any person to participate
in the distribution of such Series B Senior Notes and neither the holder nor any
other person is engaging in or intends to engage in a distribution of the Series
B Senior Notes. If any holder has any arrangement or understanding with respect
to the distribution of the Series B Senior Notes to be acquired pursuant to the
Exchange Offer, the holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Series B Senior Notes for
its own account in exchange for Senior Notes must acknowledge that it will
deliver a prospectus in connection with any resale of its Series B Senior Notes.
See "Plan of Distribution." The Series B Senior Notes may not be offered or sold
unless they have been registered or qualified for sale under applicable state
securities laws or an exemption from registration or qualification is available
and is complied with. The Company is required, under the Registration Rights
Agreement, to register the Series B Senior Notes in any jurisdiction requested
by the holders, subject to certain limitations.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Senior Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of the Senior Notes that
were not prohibited from participating in the Exchange Offer and did not tender
their Senior Notes will not have any registration rights under the Registration
Rights Agreement with respect to such non-tendered Senior Notes and,
accordingly, such Senior Notes will continue to be subject to the restrictions
on transfer contained in the legend thereon.
The Company has not entered into any arrangement or understanding with any
person to distribute the Series B Senior Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Series B Senior Notes in
its ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the Series B Senior Notes to be
received in the Exchange Offer. In this regard, the Company will make each
person participating in the Exchange Offer aware (through this Prospectus or
otherwise) that if the Exchange Offer is being registered for the purpose of
secondary resale, any holder using the Exchange Offer to participate in a
distribution of Series B Senior Notes to be acquired in the registered Exchange
Offer (i) may not rely on the staff position enunciated in Morgan Stanley and
Co. Inc. (avail. June 5, 1991) and Exxon Capital Holding Corp. (avail. May 13,
1988) or similar letters and (ii) must comply with registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
ACCOUNTING TREATMENT
The Series B Senior Notes will be recorded at the same carrying value as
the Senior Notes as reflected in the Company's accounting records on the
Exchange Date. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the terms of the Series B Senior Notes.
32
<PAGE> 34
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Series B
Senior Notes. Net proceeds to the Company, after deducting the discount to the
Initial Purchaser and offering expenses, of $96.2 million from the original
private placement (the "Offering") were used (i) to repay $57.9 million of
indebtedness under the Credit Agreement, dated as of August 16, 1994, by and
between Pen Holdings and certain of its Subsidiaries and Mellon Bank, N.A., as
agent, and the lenders named therein, as amended, (the "Original Credit
Facility"), (ii) to repay an $11.0 million note issued to the seller as partial
consideration in the Company's acquisition of Fork Creek (the "Fork Creek
Note"), (iii) to repay $1.3 million of certain other indebtedness of the
Company, and (iv) to redeem for $3.0 million outstanding warrants to purchase
the Company's common stock issued to the lenders in connection with an amendment
to the Original Credit Facility. The Company intends to use the remaining net
proceeds from the Offering for working capital, including, to fund a portion of
the development of the Fork Creek property, preparation plant and rail loadout
terminal (see "Capital Development Program"). The New Credit Facility represents
a $40.0 million senior secured credit facility commitment providing for
revolving borrowings for working capital purposes, including acquisitions, and
to fund future development projects. See "Description of New Credit Facility."
33
<PAGE> 35
CAPITALIZATION
The following table sets forth the historical cash and cash equivalents and
capitalization of the Company (i) as of March 31, 1998 and (ii) after giving pro
forma effect to the Offering and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the information
contained in "Pro Forma Financial Information."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................... $ 2,496 $ 20,591
======== ========
Original Credit Facility(1)......................... $ 61,278 --
New Credit Facility(2).............................. -- --
Fork Creek Note..................................... 11,000 --
Notes offered hereby, net of discount............... -- $ 99,216
Other debt(3)....................................... 11,149 9,768
-------- --------
Total debt..................................... 83,427 108,984
Mandatorily redeemable preferred stock(4)........... 17,527 17,527
Redeemable common stock warrants.................... 2,399 --
Shareholders' equity................................ 42,004 38,989
-------- --------
Total capitalization........................... $145,357 $165,500
======== ========
</TABLE>
- ---------------
(1) Net of approximately $1,461,000 of original issue discount.
(2) The New Credit Facility represents a $40.0 million senior secured credit
facility commitment providing for revolving borrowings for working capital
purposes, including certain acquisitions and future development projects.
(3) Other debt consists of $5.6 million of capital leases, a $4.2 million
mortgage on the Company's headquarters building, and $1.4 million of
miscellaneous indebtedness, which is being refinanced with the proceeds from
the Offering.
(4) The Convertible Preferred Stock was issued in connection with the
Recapitalization. The Convertible Preferred Stock had a liquidation
preference of $13,650 at March 31, 1998, does not pay cash dividends and no
dividends accrue from the date of issuance through December 2000; beginning
in January 2001, dividends will accrue on the then liquidation preference at
an annual rate of 25.25% for a five-year period. The aggregate amount of
dividends which will accumulate from 2001 to 2006 is being recorded evenly
from the date of issuance in 1996 through the redemption date in 2006. The
Indenture will not prohibit such mandatory redemption in 2006. See
"Description of Notes--Certain Covenants--Limitation on Restricted
Payments." The Convertible Preferred Stock is mandatorily redeemable in
January 2006 and is redeemable with the issuance of a note equal to the
liquidation preference which equally amortizes over the ten years following
the redemption at an interest rate 2.25% above the rate on five-year U.S.
Treasury obligations. Accumulated dividends will be payable on the same
terms over the same period. The liquidation preference of the Convertible
Preferred Stock, as well as the amounts owed upon redemption of the
Convertible Preferred Stock, are to be reduced by any tax deficiencies or
settlements (including interest and penalties) paid or payable for all tax
periods beginning prior to December 29, 1995. See "Business--Legal
Proceedings--IRS Proceedings." The Convertible Preferred Stock is
convertible, at the option of the holder, into 2,950,000 shares of Class I
Common Stock. The conversion feature is exercisable from January 2001 until
January 2002, and immediately prior to certain fundamental transactions. See
"Description of Capital Stock--Convertible Preferred Stock."
34
<PAGE> 36
CAPITAL DEVELOPMENT PROGRAM
In November 1997, the Company acquired in fee the coal reserves comprising
Fork Creek for an aggregate purchase price of $16.0 million. Fork Creek contains
approximately 118 million tons of compliance, low-sulfur and metallurgical coal
reserves located in southern West Virginia. The Company expects to have obtained
the necessary permits and completed the infrastructure at Fork Creek to commence
mining operations and to make coal deliveries in early 2000. Management believes
the Fork Creek operations should increase the Company's total coal production by
approximately 50% from current levels by the year 2001. Prior to March 31, 1998,
the Company expended approximately $16.1 million for the acquisition, initial
testing, planning and permitting of the Fork Creek property.
The Company's Fork Creek capital development program anticipates
expenditures totaling approximately $45.0 million over the next three years,
including the following: approximately $12.3 million for the initial preparation
and development of the properties (i.e., permitting, mapping, core drilling,
mine offices, haulroads, general site preparation, etc.); approximately $14.6
million for the purchase or lease of underground mining equipment and
endloaders; approximately $12.3 million for the construction of a coal
preparation plant and the purchase of related equipment; and approximately $5.8
million for the construction of a rail loadout facility. All necessary permits
for road access, the preparation plant, the loadout and the underground facility
are expected to be submitted by September 1998.
The following table details the capital expenditures related to the
development of the Fork Creek property incurred by the Company prior to March
31, 1998 and approximates the Company's anticipated capital expenditures for the
nine months ending December 31, 1998 and years 1999 and 2000.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDING
PRIOR TO ENDING DECEMBER 31,
MARCH 31, DECEMBER 31, ----------------
1998 1998 1999 2000
--------- ------------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition of Fork Creek(1)......................... $16,000 -- -- --
Initial Mine Preparation and Development Costs....... 79 $4,800 $ 7,500 --
Equipment:
Area #1............................................ -- -- 3,000 $ 900
Area #2............................................ -- -- 2,600 1,000
Area #3............................................ -- -- -- 3,600
Area #4............................................ -- -- 2,600 900
------- ------ ------- ------
Total Equipment................................. -- -- 8,200 6,400
Preparation Plant.................................... -- 1,600 10,700 --
Rail Loadout Terminal................................ -- 1,800 4,000 --
------- ------ ------- ------
Total........................................... $16,079 $8,200 $30,400 $6,400
======= ====== ======= ======
</TABLE>
- ---------------
(1) Includes $5.0 million cash payment and the Fork Creek Note. See "Use of
Proceeds."
In addition to the Fork Creek development, the Company anticipates that it
will continue to replace equipment in its other mines and selectively acquire
additional reserves in the ordinary course of operations. Equipment replacement
generally occurs every three to five years based on mine development plans.
Equipment is either purchased or financed through capital or operating leases
depending on the relative economics. The Company estimates minimal equipment
replacement expenditures through 2000 for the Fork Creek development. The
Company estimates average annual equipment replacement expenditures of
approximately $8.0 million for the Company's other properties through 2000.
Selective reserves may also be acquired to extend or enhance a particular
property.
35
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Statements of Operations and
Other Data for the year ended December 31, 1997 and the three months ended March
31, 1998 and the Combined Balance Sheet at March 31, 1998 (the "Condensed
Combined Financial Statements") of the Company are based on the consolidated
financial statements included elsewhere herein, as adjusted to give effect to
the disposition of the Barge Fleet and Pen Cotton Tennessee (the "Asset
Dispositions"), the estimated effects of the Offering and the application of
proceeds therefrom. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Condensed Combined Financial Statements and accompanying
notes should be read in conjunction with the historical financial statements and
other financial information of the Company appearing elsewhere herein.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997 gives effect to the Asset Dispositions, the
Offering and the application of the estimated net proceeds therefrom as if such
transactions had occurred on January 1, 1997. The Unaudited Pro Forma Combined
Statement of Operations for the three months ended March 31, 1998 gives effect
to the Offering and the application of the estimated net proceeds therefrom as
if such transaction had occurred on January 1, 1998. The Unaudited Pro Forma
Condensed Combined Balance Sheet as of March 31, 1998 gives effect to the
Offering and the application of the estimated net proceeds therefrom as if such
transaction had occurred on March 31, 1998.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to be indicative of what the Company's financial position or results of
operations actually would have been had the Offering been completed on such date
or at the beginning of the periods indicated or to project the Company's results
of operations for any future period.
36
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
AND OTHER DATA
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
ASSET OFFERING
ACTUAL DISPOSITIONS ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $182,289 $(2,300) $ -- $179,989
Cost of sales................................ 150,025 (34) -- 149,991
Selling, general and administrative.......... 5,445 -- -- 5,445
Depreciation, depletion and amortization..... 15,290 (957) -- 14,333
-------- ------- ------- --------
Operating income............................. 11,529 (1,309) -- 10,220
Interest expense............................. 7,906 (962) 4,510(2) 11,454
Other income................................. 6,125 (3,715) -- 2,410
-------- ------- ------- --------
Income from continuing operations before
income taxes............................... 9,748 (4,062) (4,510) 1,176
Income taxes (benefit)....................... 2,246 (1,377) (1,533) (664)
-------- ------- ------- --------
Net income from continuing operations........ 7,502 (2,685) (2,977) 1,840
Loss from discontinued operations............ (35) -- -- (35)
-------- ------- ------- --------
Net income before extraordinary items........ 7,467 (2,685) (2,977) 1,805
Extraordinary expense, net of income taxes... -- -- (2,158)(3) (2,158)
-------- ------- ------- --------
Net income................................... $ 7,467 $(2,685) $(5,135) $ (353)
======== ======= ======= ========
OTHER DATA:
EBITDA(1).................................... $ 26,819 $(2,266) -- $ 24,553
Capital expenditures......................... 7,969 -- -- 7,969
</TABLE>
- ---------------
(1) Represents operating income plus depreciation, depletion and amortization.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principals and should not be used as an
alternative to net income or as an indicator of operating performance or to
cash flows as a measure of liquidity.
(2) Represents the incremental interest expense on the Notes, net of the
elimination of actual interest expense on debt refinanced out of the net
proceeds of the Offering.
(3) Represents the after-tax impact of (i) the write-off of unamortized loan
costs on the Original Credit Facility and other debt being refinanced and
(ii) the write-off of unamortized original issue discount and repurchase of
redeemable common stock warrants associated with the Original Credit
Facility. See "Use of Proceeds."
37
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
AND OTHER DATA
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------
OFFERING
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................... $40,548 $ -- $40,548
Cost of sales.............................................. 33,799 -- 33,799
Selling, general and administrative........................ 1,152 -- 1,152
Depreciation, depletion and amortization................... 3,582 -- 3,582
------- ------- -------
Operating income........................................... 2,015 -- 2,015
Interest expense........................................... 1,746 1,097(2) 2,843
Other income............................................... 1,115 -- 1,115
------- ------- -------
Income before income taxes................................. 1,384 (1,097) 287
Income taxes (benefit)..................................... 436 (373) 63
------- ------- -------
Net income before extraordinary items...................... 948 (724) 224
Extraordinary expense, net of income taxes................. -- (1,989)(3) (1,989)
------- ------- -------
Net income (loss).......................................... $ 948 $(2,713) $(1,765)
======= ======= =======
OTHER DATA:
EBITDA(1).................................................. $ 5,597 -- $ 5,597
Capital expenditures....................................... 1,231 -- 1,231
</TABLE>
- ---------------
(1) Represents operating income plus depreciation, depletion and amortization.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principals and should not be used as an
alternative to net income or as an indicator of operating performance or to
cash flows as a measure of liquidity.
(2) Represents the incremental interest expense on the Notes, net of the
elimination of actual interest expense on debt refinanced out of the net
proceeds of the Offering.
(3) Represents the after-tax impact of (i) the writeoff of unamortized loan
costs on the Original Credit Facility and other debt being refinanced and
(ii) the writeoff of unamortized original issue discount and repurchase of
redeemable common stock warrants associated with the Original Credit
Facility. See "Use of Proceeds."
38
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------------
OFFERING AS
ACTUAL ADJUSTMENTS ADJUSTED
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,496 $ 18,095(1) $ 20,591
Accounts receivable....................................... 18,950 -- 18,950
Inventories............................................... 5,461 -- 5,461
Other Assets.............................................. 3,448 -- 3,448
-------- -------- --------
Total current assets.................................... 30,355 18,095 48,450
Investment in unconsolidated affiliate companies............ 5,229 -- 5,229
Coal reserves and mine development costs, net............... 137,113 -- 137,113
Property, plant and equipment, net.......................... 33,175 -- 33,175
Long-term investments....................................... 13,604 -- 13,604
Net assets to be disposed................................... 566 -- 566
Other assets................................................ 1,091 2,048(2) 3,139
-------- -------- --------
Total assets............................................ $221,133 $ 20,143 $241,276
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans.................................... $ 285 $ (285) --
Current maturities of long-term debt...................... 11,041 (10,943) $ 98
Current maturities of capital leases...................... 3,530 -- 3,530
Accounts payable and accrued expenses..................... 11,752 -- 11,752
Deferred income taxes..................................... -- -- --
Income taxes payable...................................... 774 -- 774
-------- -------- --------
Total current liabilities............................... 27,382 (11,228) 16,154
Long-term debt(3)........................................... 66,515 36,785 103,300
Long-term capital leases.................................... 2,056 -- 2,056
Deferred income taxes....................................... 59,689 -- 59,689
Other....................................................... 3,561 -- 3,561
-------- -------- --------
Total liabilities....................................... 159,203 25,557 184,760
-------- -------- --------
Mandatorily redeemable preferred stock...................... 17,527 -- 17,527
Redeemable common stock warrants............................ 2,399 (2,399) --
Shareholders' equity:
Class I common stock...................................... 43 -- 43
Class II common stock..................................... 2 -- 2
Additional paid in capital................................ 19 -- 19
Retained earnings......................................... 41,940 (3,015)(4) 38,925
-------- -------- --------
Total shareholders' equity.............................. 42,004 (3,015) 38,989
-------- -------- --------
$221,133 $ 20,143 $241,276
======== ======== ========
</TABLE>
- ---------------
(1) Represents the net proceeds of the Offering, less the funds used to repay
existing indebtedness and funds used to redeem the common stock warrants.
(2) Represents the incremental deferred financing costs associated with the
Offering, net of the writeoff of unamortized loan costs on the Original
Credit Facility.
(3) Net of original issue discount of $784 on the Senior Notes.
(4) Represents the after-tax impact of (i) the incremental costs to redeem the
common stock warrants in excess of their carrying value and (ii) the
writeoff of unamortized loan costs and unamortized original issue discount
on the Original Credit Facility.
39
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for each of
the five years ended December 31, 1997 have been derived from the consolidated
financial statements of the Company which have been audited by
PricewaterhouseCoopers LLP, independent accountants. Historical data for the
three months ended March 31, 1998 and for the three months ended March 31, 1997
have been derived from unaudited interim consolidated financial statements of
the Company, which, in the opinion of management, have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the information. The information presented below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements of the Company and related notes
included elsewhere in this Prospectus. For purposes of this presentation,
depreciation, depletion, and amortization have been reclassified into a separate
component of operating expenses from cost of sales and selling, general and
administrative. The balance sheet items as of December 31, 1993, 1994 and 1995
and the statement of operations data and other data for the years ended December
31, 1993 and 1994 have been derived from audited consolidated financial
statements not included herein.
Data for the three months ended March 31, 1998 do not purport to be
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER-TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Coal sales............................. $154,513 $161,744 $147,169 $154,205 $161,462 $ 39,359 $ 37,659
Leased coal............................ -- 4,198 10,738 9,348 8,235 2,204 1,575
Other.................................. 15,241 19,738 28,136 18,916 12,592 3,083 1,314
-------- -------- -------- -------- -------- -------- --------
Total revenues....................... 169,754 185,680 186,043 182,469 182,289 44,646 40,548
Cost of sales:
Coal sales............................. 130,872 137,217 129,185 135,347 140,107 35,625 32,475
Leased coal............................ -- 54 60 99 12 -- --
Other.................................. 12,125 17,170 24,443 15,370 9,906 2,395 1,324
-------- -------- -------- -------- -------- -------- --------
Total cost of sales.................. 142,997 154,441 153,688 150,816 150,025 38,020 33,799
Gross profit:
Coal sales............................. 23,641 24,527 17,984 18,858 21,355 3,734 5,184
Leased coal............................ -- 4,144 10,678 9,249 8,223 2,204 1,575
Other.................................. 3,116 2,568 3,693 3,546 2,686 688 (10)
-------- -------- -------- -------- -------- -------- --------
Total gross profit................... 26,757 31,239 32,355 31,653 32,264 6,626 6,749
Selling, general and administrative...... 5,784 5,573 5,540 5,013 5,445 1,300 1,152
Depreciation, depletion and
amortization........................... 7,771 11,397 13,975 14,742 15,290 4,022 3,582
-------- -------- -------- -------- -------- -------- --------
Operating income......................... 13,202 14,269 12,840 11,898 11,529 1,304 2,015
Interest expense(1)...................... 4,395 6,173 10,340 9,186 7,906 2,170 1,746
Other income............................. 4,418 1,725 1,698 2,884 6,125 1,593 1,115
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
income taxes........................... 13,225 9,821 4,198 5,596 9,748 727 1,384
Income taxes............................. 2,603 2,497 1,137 1,463 2,246 247 436
-------- -------- -------- -------- -------- -------- --------
Net income before discontinued
operations............................. 10,622 7,324 3,061 4,133 7,502 480 948
Income (loss) from discontinued
operations(2).......................... 122 152 70 (1,448) (35) (18) --
-------- -------- -------- -------- -------- -------- --------
Net income............................. $ 10,744 $ 7,476 $ 3,131 $ 2,685 $ 7,467 $ 462 $ 948
======== ======== ======== ======== ======== ======== ========
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER-TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Coal sold (in thousands of tons)......... 4,459 5,010 4,734 5,051 5,317 1,311 1,286
Coal production (in thousands of
tons)(3)............................... 2,224 2,680 3,057 3,298 3,504 845 903
Leased coal production (in thousands of
tons)(4)............................... 3,273 3,988 3,739 3,406 2,952 640 751
Average sales price per ton of coal(5)... $ 34.65 $ 32.28 $ 31.09 $ 30.53 $ 30.37 $ 30.02 $ 29.29
Average cash costs per ton of coal
shipped (FOB barge)(6)................. 23.96 24.07 25.46 23.05 23.22 23.85 23.68
Average leasing revenue per ton of
coal(7)................................ -- 2.53 2.87 2.74 2.79 3.44 2.10
OTHER DATA:
EBITDA(8)................................ $ 20,973 $ 25,666 $ 26,815 $ 26,640 $ 26,819 $ 5,326 $ 5,597
Capital expenditures(9).................. 18,469 7,181 5,902 9,542 7,969 3,156 1,231
Ratio of earnings to fixed charges(10)... 3.67x 2.43x 1.38x 1.61x 2.05x 1.40x 1.75x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET ITEMS:
Cash and cash equivalents................ $ 10,171 $ 5,194 $ 8,160 $ 1,885 $ 6,151 $ 1,402 $ 2,496
Working capital(11)...................... 14,505 30,751 4,412 12,953 11,895 9,732 15,333
Total assets............................. 153,046 284,845 257,628 231,753 224,847 229,074 221,133
Total debt............................... 57,065 129,217 109,374 96,873 86,371 94,901 83,427
Mandatorily redeemable preferred
stock(12).............................. -- -- 13,650 15,344 17,097 15,768 17,527
Total shareholders' equity............... 53,796 61,272 34,793 35,786 41,486 35,843 42,004
</TABLE>
- ---------------
(1) Excludes capitalized interest expense of $97 for the year ended December
31, 1997 and $231 for the three months ended March 31, 1998. There was no
capitalized interest expense for any prior periods.
(2) Represents the earnings (loss) of Pen Cotton Alabama, Pen Hardwood and Pen
California (collectively, the "Discontinued Operations"), which were
discontinued or disposed of in 1996, 1996 and 1995, respectively.
(3) Coal production includes contract mining production of 601, 282, 641, 552,
770, 181 and 203 tons (in thousands) for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and for the three months ended March 31, 1997 and
1998, respectively.
(4) The Company acquired its Elk Horn coal operations in August 1994. Data for
1993 and 1994 prior to the acquisition was obtained from the previous owner
of these properties and the Company makes no representation as to the
accuracy of such data. Included in such data are 3,273 and 2,330 tons (in
thousands), respectively, produced by lessees in 1993 and in 1994 prior to
the Company's acquisition of Elk Horn.
(5) In the five years ended December 31, 1997, the average sales price per ton
of coal includes per ton costs of approximately $5.88, $5.41, $2.71, $1.97,
$1.98, $1.83 and $1.22, respectively, for the shipment of coal sold to
Taiwan Power Company from the Company's loading facility on the Big Sandy
River until loaded into a vessel at a transloading facility along the
Mississippi River near the Gulf of Mexico.
(6) Average cash cost per ton of coal shipped includes all cash costs of coal
production, transportation of the coal to the loading facility, loading of
the coal into barges, and selling expenses.
(7) Represents average leasing revenue per ton of coal for coal produced by
lessees subsequent to the Company's acquisition of Elk Horn.
(8) Represents operating income plus depreciation, depletion and amortization.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principals and should not be used as an
alternative to net income or as an indicator of operating performance or to
cash flows as a measure of liquidity.
(9) Includes capital additions financed through capital lease transactions
amounting to $8,246, $155, $1,287, $7,221, $4,098, $2,443 and $0 for the
years ended December 31, 1993 through 1997, and for the three months ended
March 31, 1997 and 1998, respectively.
(10) For the purpose of this calculation, earnings are defined as income (loss)
from continuing operations before income taxes plus fixed charges. Fixed
charges consist of interest expensed or capitalized, amortization of
deferred financing costs and discount, the component of operating lease
expense which management believes represents an appropriate interest factor
and preferred stock dividends.
(11) Equal to current assets (excluding cash and cash equivalents) less current
liabilities (excluding current portion of long-term debt, current
maturities of capital leases and revolving credit loans).
(12) The Company's outstanding Convertible Preferred Stock was issued in
connection with the Recapitalization. The Convertible Preferred Stock had a
liquidation preference of $13,650 at March 31, 1998, does not pay cash
dividends and no dividends accrue from the date of issuance through
December 2000; beginning in January 2001, dividends will accrue on the then
liquidation preference at an annual rate of 25.25% for a five-year period.
The aggregate amount of dividends which will accumulate from 2001 to 2006
is being recorded evenly from the date of issuance in 1996 through the
redemption date in 2006. The Indenture will not prohibit such mandatory
redemption in 2006. See "Description of Notes--Certain
Covenants--Limitation on Restricted Payments." The Convertible Preferred
Stock is mandatorily redeemable in January 2006 and is redeemable with the
issuance of a note equal to the liquidation preference which equally
amortizes over the 10 years following the redemption at an interest rate
2.25% above the rate on five-year U.S. Treasury obligations. Accumulated
dividends will be payable on the same terms over the same period. The
liquidation preference of the Convertible Preferred Stock, as well as the
amounts owed upon redemption of the Convertible Preferred Stock, are to be
reduced by any tax deficiencies or settlements (including interest and
penalties) paid or payable for all tax periods beginning prior to December
29, 1995. See "Business--Legal Proceedings--IRS Proceedings." The
Convertible Preferred Stock is convertible, at the option of the holder,
into 2,950,000 shares of Class I Common Stock. The conversion feature is
exercisable from January 2001 until January 2002, and immediately prior to
certain fundamental transactions. See "Description of Capital
Stock--Convertible Preferred Stock."
41
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
Financial Statements included elsewhere herein.
GENERAL
The Company is engaged in the mining, preparation, marketing and leasing of
primarily compliance and low-sulfur coal from mines located in the Central
Appalachian region of eastern Kentucky and southern West Virginia. Based on the
Reserve Studies, the Company controls the mineral rights to approximately 340
million tons of coal reserves, of which management believes 309 million tons are
owned in fee. In 1997, the Company sold approximately 5.3 million tons of coal,
approximately 66% of which was generated from captive production with the
remainder purchased from other coal mine operators. Approximately 83% of the
tonnage was sold to seven long-term sales contract customers, with most of the
remainder sold to 14 spot market customers. The Company sells primarily to
domestic public utilities, an international government-owned utility and
industrial customers. In addition to its coal sales, the Company leases the
mineral rights on approximately 56 million tons of its reserves to 22 operators
who mined approximately 3.0 million tons in 1997.
Coal sales under long-term sales contracts (contracts with a term longer
than one year) are the primary source of revenues for the Company, accounting
for 81%, 81%, 68%, 64% and 73% of total revenues in the years 1993 through 1997,
respectively. Tonnage under long-term sales contracts was 3.9, 4.4, 4.1, 3.9 and
4.4 million tons in the years 1993 through 1997, respectively. The Company's
strategy has been to secure sales contracts in advance of its planned future
production to enhance the predictability of its sales revenues. Management
believes coal sales prices under long-term sales contracts are typically higher
than spot market prices. Hence, revenues should be greater with a higher
proportion of long-term sales contracts than with spot market sales. Long-term
sales contracts typically have certain provisions for adjustment (usually
quarterly) of coal sales price based on various indexes compiled by U.S.
government agencies. The Company's objective in negotiating contract provisions
is to include in these "escalation clauses" indices which are reflective of the
Company's production costs in order to stabilize profit margins over the life of
the contract. See "Risk Factors--Reliance on Long-Term Sales Contracts." During
the period from 1993 to 1997, approximately 2.3 million tons of annual coal
shipments covered by sales contracts came up for renewal, and all of this coal
was rolled over into new sales contracts. In addition, over the same period, the
Company entered into a new long-term sales contract for 0.3 million tons per
year (the coal expected to be delivered under this contract escalates to 0.7
million tons annually by 2002).
The Company's sales contracts are primarily with electric utilities
including Dayton Power & Light, American Electric Power, Taiwan Power Company,
East Kentucky Power Cooperative and others. The Company has had continuous
supply relationships with these customers from four to 18 years. Sales contracts
had a weighted average remaining life of approximately 3.3 years excluding
option periods and approximately 9.6 years including option periods as of March
31, 1998. The contract with Taiwan Power Company expires in 1999, and the
Company expects that it will not be renewed or extended due to the high
transportation cost to Taiwan from the Gulf of Mexico, as compared with other
sources. The Company historically has focused on securing contracts with public
electric utilities and has not pursued contracts with independent power
producers. While the terms of sales contracts with public utilities generally
are shorter than sales contracts with independent power producers, the Company
believes that contracts with public electric utilities are more desirable
because they are less reliant on individual project performance. In the period
from 1993 through 1997, the Company had no bad debt expense from its coal
customers.
Revenues from spot market coal sales (sales agreements with terms of one
year or less) accounted for 10%, 6%, 11%, 20% and 15% of total revenues from the
period of 1993 through 1997, respectively. Revenues for tonnage sold under spot
market agreements were $17,423,000, $11,540,000, $20,591,000, $36,795,000 and
$27,519,000 for the years 1993 through 1997, respectively. Customers in the spot
market include companies with which the Company has maintained long-term sales
contracts, as well as other domestic utilities and industrial consumers of coal
such as Anheuser-Busch, Monsanto and Archer Daniels Midland. The Company has
maintained a continuous supply relationship of over three years with eight of
its 14 spot market customers
42
<PAGE> 44
(exclusive of long-term sales contract customers) in 1997. Spot market sales
agreements typically cover periods from one to three months with tonnages
ranging from 10,000 to 20,000 tons per month.
The Company also generates significant revenues by leasing portions of its
mineral rights to independent coal producers in exchange for revenue-based lease
royalties. During the three month period ended March 31, 1998, the Company had
15 operators who were actively mining, including leases with MC Mining, a
division of MAPCO, Addington Mining, M&M Enterprises, TECO Coal (a subsidiary of
TECO Energy), Lodestar and Electric Fuels Corporation (a subsidiary of Florida
Progress). Generally, the lease terms provide the Company with a royalty fee of
up to 10% of the sales price of the coal with a minimum of $1.75 to $2.50 per
ton. The length of such leases varies from five years to the life of the
reserves. A minimum advance annual royalty is required whether or not the
property is mined. Such minimum royalty can be recouped by the lessee as a
credit against royalties owed on production if such production is within a
specified period of time after a minimum advance royalty is paid. Management
believes that the structure of these agreements motivates the lessee to maximize
production of the property during the term of the lease. The Company's credit
experience with its lessees has historically been favorable, with bad debt
write-offs for the period from 1995 through 1997 of $27,000, $3,000 and
$111,000, respectively. In the period from 1995 through 1997, independent coal
producers mined approximately 3.7, 3.4 and 3.0 million tons, respectively, of
coal under leases. Leasing contributed an average of $9.4 million per year in
revenues since 1994, and management believes leasing will continue to generate
significant revenues based on existing leases and indications of future mining
activity by these operators.
The Company's cost of sales is primarily composed of expenses related to
coal operations, coal leasing and other operations such as cotton ginning and
warehousing. Cost of coal sales are principally related to (i) costs associated
with production, (ii) contract mining fees, (iii) coal purchases and (iv)
upriver loading charges. In 1997, costs associated with production, contract
mining fees, coal purchases and upriver loading represented 51%, 7%, 30% and 3%,
respectively, of total cost of coal sales.
The Company's costs associated with production include labor, haulage,
depreciation and depletion, coal preparation plant costs, coal fees and taxes,
supplies, and repairs and maintenance. The Company believes its cost of
production is impacted by the type of mining operations (underground or
surface), overburden ratios at its surface mines, in-seam and out-of-seam
dilution levels at its underground mines, productivity and infrastructure
utilization. Mining operations at Kiah Creek, the Company's principal mining
source, have shifted towards a greater percentage of underground production
since 1993 due to the geology of its reserves. While underground production is
generally more expensive than surface mining due to preparation plant costs,
management believes the quality of coal produced after processing can generally
support a higher price per ton and offset the higher production costs.
In managing production costs, the Company constantly monitors overburden
ratios and in-seam and out-of-seam dilution levels which will impact washed coal
recovery rates at its preparation plant. From 1993 through 1997, the Company
averaged a 13:1 overburden ratio at its surface mines and a 48% washed coal
recovery rate at its preparation plant, with 1996 and 1997 results more
favorable than historical averages. Another important factor is haulage and
transportation costs. Kiah Creek is one large contiguous property which allows
management to plan and build a centralized haulage and reclamation
infrastructure which increases utilization and leverages capital investment.
Truck haulage costs have consistently averaged approximately $3.86 per ton of
coal produced since 1992. Mining productivity as measured by tons mined per
man-hour increased 11.2% and 24.4% at Company-operated surface and underground
mines, respectively, since 1992. Management believes such improvement is due to
increased operating efficiencies and productivity rates through the addition of
underground mining units, increasing preparation plant capacity, long-term
planning and more efficient use of capital equipment. As a result of the
foregoing, the Company's average cash cost per ton of coal shipped (FOB barge)
has declined from $23.96 per ton in 1993 to $23.22 per ton in 1997.
Expenses related to contract mining fees and coal purchases have
historically varied due to the level of contract mining production, the quantity
and quality of tonnage purchased and spot market coal prices. Contract mining,
as a percentage of total captive production, has averaged approximately 20%
since 1992 and is expected to continue to contribute a significant percentage of
captive production as the Company seeks to enhance its reserve utilization in
mines where seam thickness or location are less attractive for the Company to
mine with its
43
<PAGE> 45
own employees and equipment. Contract mining operations at the Company's Elk
Horn underground mines utilize conventional mining techniques which results in
less production volume and less ash content, eliminating the need to wash the
coal and incur preparation costs. Contract mining fees at all of the Company's
operations have averaged approximately $14.92 per ton from 1993 through 1997.
Contract mining fees typically exclude taxes, royalties and transportation.
Coal purchases accounted for 2.2, 2.3, 1.7, 1.8 and 1.8 million tons in the
periods 1993 through 1997, respectively. The Company utilizes coal purchases
along with its captive production to meet its supply requirements. In general,
the cost of coal purchases follows spot market prices, which have generally
declined since 1993. The Company expects that with the development of Fork Creek
and an associated increase in captive production, the amount of coal purchases
will likely decline in the future.
The Company's cost of sales related to its lease operations consist
primarily of depletion and administrative costs. In 1996 and 1997, the Company
increased the amount of its administrative costs to expand exploration and
testing levels of its Elk Horn coal reserves to refine the geological conditions
and improve target marketing opportunities for securing new leases or expanding
existing leases. Since 1995, the Company has signed 13 new leases covering
approximately 33 million tons of reserves.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating and other data of the Company presented as a percent of revenues. See
"Consolidated Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------------- -----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 89.8 90.4 90.3 93.5 91.8
Selling, general and administrative........... 3.3 3.1 3.4 3.6 3.2
----- ----- ----- ----- -----
Operating income.............................. 6.9 6.5 6.3 2.9 5.0
Interest expense.............................. 5.5 5.0 4.3 4.9 4.3
Other income (expense)........................ 0.9 1.6 3.4 3.6 2.7
----- ----- ----- ----- -----
Income from continuing operations before
income tax provision........................ 2.3 3.1 5.4 1.6 3.4
Income tax provision (benefit)................ 0.6 0.8 1.3 0.6 1.1
----- ----- ----- ----- -----
Net income from continuing operations......... 1.7 2.3 4.1 1.0 2.3
Income (loss) from discontinued operations.... 0.0 (0.8) (0.0) (0.0) --
----- ----- ----- ----- -----
Net income.................................... 1.7% 1.5% 4.1% 1.0% 2.3%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
Coal sales. Coal sales revenues were $37,659,000 for the three months
ended March 31, 1998 compared to $39,359,000 for the three months ended March
31, 1997, a decrease of 4.3%. The decrease primarily resulted from decreased
volume of coal shipped. Coal sales volume was 1,286,000 tons for the three
months ended March 31, 1998 compared to 1,311,000 tons for the three months
ended March 31, 1997, a decrease of 1.9%. The average price per ton sold was
$29.29 for the three months ended March 31, 1998 compared to $30.02 for the
three months ended March 31, 1997, a decrease of $0.73 per ton, or 2.4%. The
decrease in average sales revenues per ton is a result of several factors,
including a non-recurring export sale in 1997 which included ocean freight in
the sales price.
44
<PAGE> 46
Coal leases. Coal lease revenues were $1,575,000 for the three months
ended March 31, 1998 compared to $2,204,000 for the three months ended March 31,
1997, a decrease of 28.5%. The decrease primarily resulted from a decrease in
advance minimum royalties from one of the lessees which paid a sizable minimum
in the first quarter of 1997, and recoupments of advance minimum royalties which
were higher in the first quarter of 1998 than the first quarter of 1997. Tonnage
produced by lessees was 751,000 tons in the three months ended March 31, 1998
compared to 640,000 tons in the three months ended March 31, 1997, an increase
of 17.3%. Average revenue per ton was $2.10 for the three months ended March 31,
1998 compared to $3.44 for the three months ended March 31, 1997, a decrease of
$1.34 per ton.
Other. Other revenues primarily includes revenues from cotton ginning and
warehousing and sales of cottonseed in the three months ended March 31, 1998 and
cotton ginning, warehousing and cottonseed sales and barge lease revenues in the
three months ended March 31, 1997. Other revenues were $1,314,000 for the three
months ended March 31, 1998 compared to $3,083,000 for the three months ended
March 31, 1997, a decrease of 57.4%. The decrease primarily resulted from a
reduction in ginning revenues due to the cotton crop for 1996 being harvested
late in the fiscal year resulting in some ginning for that crop occurring in
early 1997, whereas the 1997 crop was ginned prior to the end of 1997.
Additionally, there were barge lease revenues recorded in the first quarter of
1997 which were not recorded in 1998 due to the sale of the Barge Fleet in late
1997.
COST OF SALES
Cost of Sales--Coal sales. Cost of coal sales totaled $35,384,000 for the
three months ended March 31, 1998 compared to $38,655,000 for the three months
ended March 31, 1997, a decrease of 8.5%. The decrease primarily resulted from
decreased volume of coal shipped. In addition, costs decreased by approximately
$2.00 per ton which was reflective of lower costs of production from one of the
Company's surface mines at Kiah Creek, lower costs of production from Elk Horn
underground mines and lower costs of coal purchased from other coal companies.
Costs per ton at the Company's other mining operations remained stable.
Cost of Sales--Coal leases. Cost of coal lease revenues totaled $490,000
for the three months ended March 31, 1998 compared to $419,000 for the three
months ended March 31, 1997, an increase of 16.9%. The increase primarily
resulted from an increase in the volume of coal produced by lessees. The costs
per ton for each of the three month periods was unchanged.
Cost of Sales--Other. Cost of other revenues totaled $1,349,000 for the
three months ended March 31, 1998 compared to $2,645,000 for the three months
ended March 31, 1997, a decrease of 49.0%. The decrease primarily resulted from
ginning costs incurred during the first quarter of 1997 related to the 1996
cotton crop being harvested late so that some ginning for that crop occurred in
early 1997, whereas the 1997 crop was ginned prior to the end of 1997.
Depreciation for the three months ended March 31, 1998 decreased from the same
period in 1997 due to the sale of the Barge Fleet in December 1997.
OTHER
Selling, general and administrative expenses totaled $1,310,000 for the
three months ended March 31, 1998 compared to $1,623,000 for the three months
ended March 31, 1997, a decrease of 19.3%. The decrease primarily resulted from
reductions in salaries and legal fees. Selling, general and administrative
expenses were 2.7% of revenues for the three months ended March 31, 1998
compared to 3.6% for the three months ended March 31, 1997.
As a result of the above, EBITDA totaled $5,597,000 for the three months
ended March 31, 1998 compared to $5,326,000 for the three months ended March 31,
1997, an increase of 5.1%.
Interest expense totaled $1,746,000 for the three months ended March 31,
1998 compared to $2,170,000 for the three months ended March 31, 1997, a
decrease of 19.5%. The decrease primarily resulted from the repayment of debt
secured by the Barge Fleet and reduction of other debt of the Company.
Other income totaled $1,115,000 for the three months ended March 31, 1998
compared to $1,593,000 for the three months ended March 31, 1997, a decrease of
30.0%. Other income in the three months ended March 31, 1997 was related
primarily to a gain on the sale of mining equipment. Other income in the three
months ended
45
<PAGE> 47
March 31, 1998 was primarily the Company's share of income from the Company's
one-third interest in International Marine Terminals.
Income taxes were $436,000 for the three months ended March 31, 1998
compared to $247,000 for the three months ended March 31, 1997, an increase of
76.5%. The increase is primarily a result of higher earnings in the three months
ended March 31, 1998 than for the three months ended March 31, 1997.
As a result of the above, net income from continuing operations was
$948,000 for the three months ended March 31, 1998 compared to $480,000 for the
three months ended March 31, 1997, an increase of 97.5%.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Coal sales. Coal sales revenues were $161,462,000 for the year ended
December 31, 1997 compared to $154,205,000 for the year ended December 31, 1996,
an increase of 4.7%. The increase primarily resulted from increased volume of
coal shipped. Coal sales volume was 5.3 million tons for the year ended December
31, 1997 compared to 5.1 million tons for the year ended December 31, 1996, an
increase of 3.9%. Tons sold under long-term contracts increased from 4.0 million
tons in 1996 to 4.4 million tons in 1997, while revenue on long-term contracts
increased from $30.05 per ton in 1996 to $30.32 per ton in 1997.
Coal leases. Coal lease revenues were $8,235,000 for the year ended
December 31, 1997 compared to $9,348,000 for the year ended December 31, 1996, a
decrease of 11.9%. The decrease primarily resulted from a reduction of 453,000
tons of coal mined by lessees, resulting in lower revenues. While the Company
does not control its lessees' decisions regarding mining coal, management's
experience is that fluctuations in its coal lease revenues is primarily
attributable to factors such as: (i) lower market prices reducing general
production from the area; (ii) permitting delays; (iii) geological
interruptions; and (iv) the changing of ownership of certain leases.
Other. Other revenues, which includes primarily revenues from cotton
ginning and warehousing and sales of cottonseed, were $12,592,000 for the year
ended December 31, 1997 compared to $18,916,000 for the year ended December 31,
1996, a decrease of 33.4%. The decrease primarily resulted from a reduction in
volume due to an excellent cotton crop in 1996 compared to a poor crop in 1997
due to weather. In addition, revenues from Pen Cotton Tennessee contributed some
revenues in 1996 and no revenues in 1997, since the operation was sold in
September 1996.
COST OF SALES
Cost of Sales--Coal sales. Cost of coal sales totaled $150,076,000 for the
year ended December 31, 1997 compared to $144,213,000 for the year ended
December 31, 1996, an increase of 4.1%. The increase primarily resulted from
increased volume of coal shipped. Costs of coal sold decreased from $28.67 per
ton in 1996 to $28.37 per ton in 1997, a decrease of $0.30 per ton, due
primarily to cost reductions from improved operating efficiencies at the Kiah
Creek operation.
Cost of Sales--Coal leases. Cost of coal lease revenues totaled $1,940,000
for the year ended December 31, 1997 compared to $2,313,000 for the year ended
December 31, 1996, a decrease of 16.1%. The decrease primarily resulted from the
reduction in depletion expense due to lower volume of coal mined by lessees.
Cost of Sales--Other. Cost of other revenues totaled $12,654,000 for the
year ended December 31, 1997 compared to $18,437,000 for the year ended December
31, 1996, a decrease of 31.4%. The decrease primarily resulted from the
reduction in volume of cotton ginned due to weather, as well as the sale of Pen
Cotton Tennessee in September 1996.
OTHER
Selling, general and administrative expenses totaled $6,090,000 for the
year ended December 31, 1997 compared to $5,608,000 for the year ended December
31, 1996, an increase of 8.6%. The increase primarily resulted from increased
legal expenses in connection with the case pending in U.S. Tax Court. The
petition filed
46
<PAGE> 48
with the U.S. Tax Court by the Company challenges deficiency notices of the IRS
for the years 1982 through 1989. See "Business--Legal Proceedings--IRS
Proceedings."
As a result of the above, EBITDA totaled $26,819,000 for the year ended
December 31, 1997 compared to $26,640,000 for the year ended December 31, 1996,
an increase of 0.7%.
Interest expense totaled $7,906,000 for the year ended December 31, 1997
compared to $9,186,000 for the year ended December 31, 1996, a decrease of
13.9%. The decrease primarily resulted from reduction of the Company's term
debt.
Other income totaled $6,125,000 for the year ended December 31, 1997
compared to $2,884,000 for the year ended December 31, 1996, an increase of
112.4%. The increase primarily resulted from the sale and resulting gains on the
Barge Fleet and excess surface mining equipment.
Income taxes were $2,246,000 for the year ended December 31, 1997 compared
to $1,463,000 for the year ended December 31, 1996, an increase of 53.5%. The
increase is primarily a result of higher earnings in 1997 than 1996.
Loss from discontinued operations totaled $35,000 for the year ended
December 31, 1997 compared to losses of $1,448,000 for the year ended December
31, 1996, a decrease of 97.6%. The decreased loss primarily resulted because
only a small amount of additional loss was accrued in 1997 on operations
discontinued in 1996.
Net income was $7,467,000 for the year ended December 31, 1997 compared to
$2,685,000 for the year ended December 31, 1996, an increase of 178.1%. The
increase primarily resulted from the gain on the sale of the Barge Fleet and
excess surface mining equipment.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Coal sales. Coal sales revenues were $154,205,000 for the year ended
December 31, 1996 compared to $147,169,000 for the year ended December 31, 1995,
an increase of 4.8%. The increase primarily resulted from increased volume of
coal shipped. Coal sales volume was 5.1 million tons for the year ended December
31, 1996 compared to 4.7 million tons for the year ended December 31, 1995, an
increase of 8.5%. Tons sold under long-term contracts remained approximately the
same in 1996 as in 1995. Revenue on long-term contracts decreased from $31.04
per ton in 1995 to $30.05 per ton in 1996, due primarily to the completion in
1995 of a favorable contract and a reduction in price of another contract which
was subject to an annual market price adjustment.
Coal leases. Coal lease revenues were $9,348,000 for the year ended
December 31, 1996 compared to $10,738,000 for the year ended December 31, 1995,
a decrease of 12.9%. The decrease resulted from a reduction of 333,000 tons of
coal mined by lessees, resulting in lower lease revenues. In addition,
recoupment of advance minimum royalties was greater in 1996 than 1995, also
resulting in lowering revenues. While the Company does not control its lessees
decisions regarding mining coal, management's experience is that fluctuations in
its coal lease revenues is primarily attributable to factors such as: (i) lower
market prices reducing general production from the area; (ii) permitting delays;
(iii) geological interruptions; and (iv) the changing of ownership of certain
leases.
Other. Other revenues, which includes primarily revenues from cotton
ginning and warehousing and sales of cottonseed, were $18,916,000 for the year
ended December 31, 1996 compared to $28,136,000 for the year ended December 31,
1995, a decrease of 32.8%. The decrease primarily resulted from the sale of Pen
Cotton Tennessee in September 1996, immediately before the harvest season when
substantially all revenues are typically generated.
COST OF SALES
Cost of Sales--Coal sales. Cost of coal sales totaled $144,213,000 for the
year ended December 31, 1996 compared to $138,104,000 for the year ended
December 31, 1995, an increase of 4.4%. The increase primarily resulted from
increased volume of coal shipped. Costs of coal sold decreased from $29.17 per
ton in 1995 to
47
<PAGE> 49
$28.55 per ton in 1996, a decrease of $0.62 per ton, due primarily to cost
reductions from improved operating efficiencies at the Kiah Creek operation.
Cost of Sales--Coal leases. Cost of coal lease revenues totaled $2,313,000
for the year ended December 31, 1996 compared to $2,499,000 for the year ended
December 31, 1995, a decrease of 7.4%. The decrease primarily resulted from the
reduction in depletion expense due to lower volume of coal mined by lessees.
Cost of Sales--Other. Cost of other revenues totaled $18,437,000 for the
year ended December 31, 1996 compared to $26,508,000 for the year ended December
31, 1995, a decrease of 30.4%. The decrease primarily resulted from the sale of
Pen Cotton Tennessee in September 1996, immediately before the harvest season
when substantially all costs are typically generated.
OTHER
Selling, general and administrative expenses totaled $5,608,000 for the
year ended December 31, 1996 compared to $6,092,000 for the year ended December
31, 1995, a decrease of 7.9%. The decrease primarily resulted from downsizing in
the corporate headquarters in connection with discontinuing non-coal businesses
and increased efficiencies in managing the coal business.
As a result of the above, EBITDA totaled $26,640,000 for the year ended
December 31, 1996 compared to $26,815,000 the year ended December 31, 1995, a
decrease of 0.7%.
Interest expense totaled $9,186,000 for the year ended December 31, 1996
compared to $10,340,000 for the year ended December 31, 1995, a decrease of
11.2%. The decrease primarily resulted from reduction of the Company's term
debt.
Other income totaled $2,884,000 for the year ended December 31, 1996
compared to $1,698,000 for the year ended December 31, 1995, an increase of
69.8%. Other income in 1996 was primarily a gain on the sale of Pen Cotton
Tennessee and a reduction of an over-accrual of self-insured employee health
benefits net of a reduction in interest income.
Income taxes were $1,463,000 for the year ended December 31, 1996 compared
to $1,137,000 for the year ended December 31, 1995, an increase of 28.8%. The
increase is primarily a result of higher earnings in 1996 than 1995.
Loss from discontinued operations totaled $1,448,000 for the year ended
December 31, 1996 compared to income of $70,000 for the year ended December 31,
1995, a difference of $1,518,000. The increased loss primarily resulted from the
recognition of future expected operating losses and losses on disposal of Pen
Cotton Alabama and Pen Hardwood.
Net income was $2,685,000 for the year ended December 31, 1996 compared to
$3,131,000 for the year ended December 31, 1995, a decrease of 14.2%. The
decrease primarily resulted from losses recognized on the discontinued
operations which exceeded the increase in net income before discontinued
operations.
INFLATION
Inflation in the United States has not had a significant effect on the
Company's business or operations during recent periods.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Offering, the Company has significant indebtedness and
debt service requirements. As a result of the Offering, the Company has a total
indebtedness including current maturities of $110,112,000 as of June 30, 1998.
The Indenture permits the Company to incur additional indebtedness, subject to
certain limitations. Such limitations will include certain covenants that, among
other things: (i) limit the incurrence by the Company of additional
indebtedness; (ii) restrict the ability of the Company to pay dividends or make
certain other payments; (iii) limit transactions by the Company with affiliates;
(iv) limit the ability of the Company to incur certain liens; (v) limit the
ability of the Company to consolidate or merge with or into, or to transfer all
or
48
<PAGE> 50
substantially all of its assets to, another person; and (vi) limit the ability
of the Company to engage in other lines of business. In addition, the New Credit
Facility requires the Company to maintain specified financial ratios and satisfy
certain tests relating to its financial condition. See "Use of Proceeds,"
"Capitalization," "Description of Notes--Certain Covenants" and "Description of
New Credit Facility." As of March 31, 1998, on a pro forma basis after giving
effect to the Offering and the application of the estimated net proceeds
therefrom, the Company would have had earnings to cover fixed charges.
In connection with the Offering, the Company entered into the New Credit
Facility, which provides for aggregate borrowings of up to $40,000,000. Interest
rates on the revolving loans under the New Credit Facility are based, at the
Company's option, on a grid spread to LIBOR (as defined therein) or the Prime
Rate (as defined therein). The initial grid spread will be 1.75% above LIBOR and
0.75% above Prime Rate. The New Credit Facility matures, subject to extensions
requested by the Company at the discretion of the lenders, five years after the
closing date which occurred simultaneously with the closing of the Offering. The
New Credit Facility contains certain restrictions and limitations, including
financial covenants that requires the Company to maintain and achieve certain
levels of financial performance and limit the payment of cash dividends and
similar payments. See "Description of New Credit Facility."
The Company's principal liquidity requirements are for debt service
requirements under the Notes, the New Credit Facility and other outstanding
indebtedness, and for working capital needs and capital expenditures.
Historically, the Company has funded its capital and operating requirements with
a combination of cash on hand, operating cash flow and borrowings under credit
facilities and capital leases. The Company has utilized these sources of funds
to make acquisitions, fund significant capital investments in its properties,
fund operations and service debt under credit facilities.
In 1997, the Company made capital expenditures of $7,969,000 (including
$4,098,000 financed through capital leases). The Company's budget for 1998
capital expenditures is approximately $22,000,000 (including $1,600,000 of
capitalized interest), of which $1,231,000 has been spent as of March 31, 1998.
In the budget for 1999, capital expenditures are approximately $40,000,000
(including $4,000,000 of capitalized interest). Of the $62,000,000 of
anticipated capital expenditures for 1998 and 1999 combined, approximately
$39,000,000 relates to the costs for a preparation plant, rail-loading facility,
shaft and slope access to an underground coal mine, certain mining equipment,
and other development of the Fork Creek property which was acquired in November
1997. See "Capital Development Program." The Company expects to fund its
budgeted capital expenditures through a combination of proceeds from the
issuance of the Senior Notes, borrowings or leases from equipment finance
companies, borrowings under the New Credit Facility and cash currently on hand
or generated from operations.
The Company is continually engaged in evaluating potential acquisitions.
The Company expects that funding for future acquisitions may come from a variety
of sources, depending on the size and nature of any such acquisitions. Potential
sources of capital include cash on hand, cash generated from operations,
proceeds from the issuance of the Senior Notes, borrowings under the New Credit
Facility, additional external debt financing (including seller-financing) or
capital leases. There can be no assurance that such additional capital sources
will be available to the Company on terms which the Company finds acceptable, or
at all.
Based upon its current level of operations and anticipated growth, the
Company believes that the cash available currently, along with cash flow from
operations and available borrowings under the New Credit Facility, will be
sufficient to meet its future liquidity needs. However, the Company currently
expects that it may make additional acquisitions and, in connection therewith,
expects to incur additional indebtedness. In the event that the Company incurs
such additional indebtedness, its ability to make principal and interest
payments on its indebtedness, including the Notes, may be adversely affected.
There can be no assurance that the Company's business will generate adequate
cash flow from operations, that anticipated growth and operating improvements
will be realized or that future borrowings will be available under the New
Credit Facility or from any other source in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. The Company issued 10,000 shares of Convertible Preferred Stock
with an initial liquidation preference of $13,650,000 in connection with the
Recapitalization. An aggregate amount of dividends on the Convertible Preferred
Stock amounting to $17,233,000 plus the liquidation value of $13,650,000 will be
49
<PAGE> 51
due in January 2006, if not reduced by certain tax-related reductions. The
Convertible Preferred Stock will be redeemed at that time by the issuance of a
note payable which amortizes over the 10 years following the redemption, unless
converted to Common Stock (as defined herein) in accordance with its terms. See
"Description of Capital Stock--Convertible Preferred Stock."
YEAR 2000
The Company has conducted a review of its computer systems to identify the
systems that could be affected by Year 2000 issues and is implementing its plan
to resolve the issue. Based upon the review of its systems, management believes
that Year 2000 issues will not pose significant operational problems for the
Company's computer systems, nor will the Company incur significant expense that
would not have otherwise been incurred to upgrade systems for operational
reasons. The potential impact on the Company of any Year 2000 problems of its
suppliers and customers is not determinable at this time.
50
<PAGE> 52
THE COAL INDUSTRY
OVERVIEW
According to data compiled by the United States Department of Energy
Information Administration ("EIA"), United States coal production in 1997
totaled 1.09 billion tons, a 2.3% increase from the 1.06 billion tons produced
in 1996 and a record high. The increase in 1997 coal production levels was
driven by an increase in coal consumption for electricity generation due to
increased natural gas prices, a significant decline in nuclear-powered
generation, and strong economic growth. Total U.S. coal consumption exceeded 1.0
billion tons in 1997, a 2.1% increase from 1996, and export shipments totaled
approximately 83.5 million tons. Approximately 89.5% of the coal consumed in the
United States is used for the generation of electricity, and coal continues to
be the principal energy source for U.S. electricity generation, with its share
of total electricity generation rising from 50.4% in 1996 to 50.6% in 1997, as
compared with 17.8% from nuclear, 9.5% from hydroelectric and 8.0% from
gas-fired facilities in 1997. In the last three years, coal prices under
long-term sales contracts have generally remained steady; however, spot market
coal prices have experienced greater fluctuation due to seasonal variations in
supply and demand caused by weather. Despite the increased consumption and the
many inefficient mines that have closed in the last 10 years, coal mining
companies with improving productivity have filled the increasing demand without
price increases. Increased competition in the generation of electricity is
forcing utility buyers to purchase coal more selectively. This heightened fiscal
responsibility has led to lower stockpiles, increased spot market activity and
shorter contract terms, which may create greater price volatility than has been
experienced in the past.
Productivity gains and environmental legislation have worked together to
exert pressures on the coal industry. According to statistics compiled by the
Mine Safety and Health Administration ("MSHA"), the number of operating mines
has declined 47.3% from 1987 through 1997, even though production during that
same time has increased 21.1%. During this period, work practice and
technological improvements have allowed overall production per man to increase
by 104.5% while industry employment declined by 40.8%. These productivity gains
and the resulting excess productive capacity in most segments of the industry
have contributed to the stability of coal prices in recent years at levels lower
than in the 1970's and early 1980's. Clean air concerns and legislation have
increased consumption of low-sulfur products mined in Appalachia and the western
United States. Although recently there has been some consolidation of coal
producers in the United States, according to RDI the 10 largest coal producers
in 1997 accounted for only 54% of total domestic coal production, and no company
held a domestic market share of more than 14% in 1997.
According to a recent report by Hill & Associates, the demand for steam
coal and the demand for coal by electric utilities in the United States
generally is expected to increase steadily over the next 13 years. The following
chart highlights the increases projected by Hill & Associates:
U.S. STEAM COAL DEMAND AND ELECTRIC UTILITY COAL DEMAND
(MILLIONS OF TONS)
<TABLE>
<CAPTION>
TOTAL ELECTRIC
MEASUREMENT PERIOD UTILITY COAL TOTAL STEAM
(FISCAL YEAR COVERED) DEMAND COAL DEMAND
<S> <C> <C>
1996 865.3 972.5
1997 893.3 1000.4
1998 922.4 1033.4
1999 961.0 1072.6
2000 1003.5 1121.6
2001 1044.4 1159.5
2006 1142.8 1265.8
2011 1190.7 1314.9
2016 1206.7 1331.6
2021 1223.6 1348.6
</TABLE>
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<PAGE> 53
COAL TYPES
In general, steam coal is classified by Btu content and sulfur content. In
ascending order of heat values, the four basic types of coal are lignite,
sub-bituminous, bituminous and anthracite.
Lignite coal is a brownish-black coal with a Btu content that generally
ranges from approximately 6,500 to 8,300 Btu per pound. Major lignite operations
are located in Texas, North Dakota, Montana and Louisiana. Lignite coal is used
almost exclusively in power plants located adjacent to such mines because any
transportation costs, coupled with the mining costs, would exceed the price a
customer would pay for such low-Btu coal.
Sub-bituminous coal is a black coal with a Btu content that generally
ranges from approximately 7,800 to 9,500 Btu per pound. Most sub-bituminous
reserves are located in Montana, Wyoming, Colorado, New Mexico, Washington and
Alaska. Sub-bituminous coal is used almost exclusively by electric utilities and
some industrial consumers.
Bituminous coal is a "soft" black coal with a Btu content that generally
ranges from approximately 10,500 to 14,000 Btu per pound. This coal is located
primarily in Appalachia, the Midwest, Colorado and Utah, and is the type most
commonly used for electric power generation in the United States. Bituminous
coal is used for utility and industrial steam purposes, and as a feedstock for
coke, which is used in steel production. All of the Company's reserves are
bituminous coal.
Anthracite coal is a "hard" coal with a Btu content that can be as high as
15,000 Btu per pound. Anthracite deposits are located primarily in the
Appalachian region of Pennsylvania, and are used primarily for industrial and
home heating purposes.
COAL QUALITIES
The primary factors considered in determining the value and marketability
of coal are the Btu content, the sulfur content and the percentage of ash (small
particles of inert material), moisture and volatile matter. The Btu content
provides the basis for satisfying the heating requirements of boilers. Coal
having a lower Btu content frequently must be blended with coal having a higher
Btu content to allow the consumer to utilize the coal efficiently in its
operations. Due to the restrictive environmental regulations regarding sulfur
dioxide emissions, coal is commonly described with reference to its sulfur
content. Coal that emits no more than 1.6 pounds of sulfur dioxide per million
Btu when burned is called low-sulfur coal. Coal that emits no more than 1.2
pounds of sulfur dioxide per million Btu is called compliance coal. Compliance
coal exceeds the current requirements of Phase I of the Clean Air Act Amendments
and meets the prospective requirements of Phase II of the Clean Air Act
Amendments. Since compliance coal exceeds the Phase I requirements, customers
using such coal can either earn sulfur emission credits, which can be sold to
other coal customers, or blend the coal with higher sulfur coal to lower the
overall sulfur emissions without having to install expensive sulfur-reduction
technology (i.e., scrubbers). Very low-sulfur coal (0.8 pounds or less of sulfur
dioxide per million Btu), such as the coal from the Central Appalachian region,
is desirable because utilities can blend it with higher sulfur coal or burn it
by itself to earn sulfur emission credits even under Phase II of the Clean Air
Act Amendments.
The inert nature of ash diminishes the heating value of the coal (i.e., the
higher the percentage of ash, the lower the heating value). For electric
utilities, the percentage of ash is important not only for its effect on heating
value, but also because it affects the amount of combustion by-products.
Electric utilities typically require coal with an ash content ranging from 6% to
15%, depending on individual power plant specifications. The percentage of
moisture is important because the higher the moisture, the lower the heating
value or Btu per pound. In addition, if the percentage of moisture is too high,
customers may experience handling problems with the coal. Moisture concerns are
principally related to coal from the Powder River Basin where the Company does
not operate. Volatility is the percentage of matter which is vaporized in the
combustion process, and is important for electric utilities because power plant
boilers are designed to burn coal having a particular volatility. Most utility
power plants are designed to burn medium- to high-volatility coal.
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<PAGE> 54
COAL REGIONS
The majority of United States coal production is generated from six
regions: Central Appalachia, Southern Appalachia, Northern Appalachia, Illinois
Basin, Rocky Mountain, and Powder River Basin. With the exception of the coal
from the Northern Appalachia region, which generally serves only the
northeastern United States market, coal from each region competes in a national
market. The geographic areas that comprise the six regions and characteristics
of the coal in those regions are as follows:
Central Appalachia consists of southern West Virginia, eastern Kentucky and
Virginia. All of the Company's coal reserves are in this region. The coal in
this region is generally quite low in sulfur (0.7%-1.5% for 12,000 Btu) and high
in Btu content (12,000-13,500 Btu per pound of coal). The majority of this coal
complies with Phase I of the Clean Air Act Amendments and, after the
implementation of Phase II of the Clean Air Act Amendments, this coal is
expected to be in high demand. Central Appalachia sources provide most of the
United States' overseas export coal. According to Hill & Associates, this region
has considerable excess production capacity.
Southern Appalachia, consists of southeastern Kentucky, Tennessee and
Alabama. Coal from this region also has a low sulfur content (0.7%-1.5% for
12,000 Btu), which is generally acceptable for Phase I of the Clean Air Act
Amendments, and a high Btu content (12,000-13,000 Btu per pound of coal). While
productivity is impaired by the region's thin seams, readily accessible
waterways and proximity to southern utility plants help to reduce delivery costs
of coal from this region to utility customers.
Northern Appalachia consists of northern West Virginia, Pennsylvania and
Ohio. The Btu content of this coal is generally high (12,000-13,000 Btu per
pound of coal), with the exception of coal from Ohio. However, the sulfur
content in this coal (1.5%-2.5% for 12,000 Btu) generally does not meet the
Phase I standards of the Clean Air Act Amendments.
The Illinois Basin consists of western Kentucky, Illinois and Indiana. Coal
from this region generally has a moderately low Btu content (10,000-12,000 Btu
per pound of coal) and a high sulfur content (2.5%-3.5% for 12,000 Btu).
Although there are exceptions, generally no unwashed Illinois Basin coal
satisfies the Phase I or Phase II standards of the Clean Air Act Amendments.
Therefore, Illinois Basin coal is primarily blended with low-sulfur coal or
burned in plants equipped with scrubbers.
The Rocky Mountain region consists of Utah and Colorado. The coal in this
region is low in sulfur content (0.4%-0.5% for 12,000 Btu) and has a moderately
high Btu content (10,500-12,300 Btu per pound of coal). This coal complies with
Phase I and Phase II of the Clean Air Act Amendments.
The Powder River Basin consists mainly of Wyoming and parts of Montana.
This coal is very low in sulfur content (0.25% to 0.65% for 12,000 Btu), but
also is low in Btu content (8,000-8,800 Btu per pound of coal) and very high in
moisture content (20%-35%). All of this coal complies with Phase I and Phase II
of the Clean Air Act Amendments, but most utilities cannot burn it without
derating their plants, unless it is blended with higher Btu coal.
MINING METHODS
Coal is mined using either surface or underground methods. The method
utilized depends upon several factors, including the proximity of the target
coal seam to the earth's surface, and the geology of the surrounding area.
Surface techniques generally are employed when a coal seam is within 200 feet of
the earth's surface, and underground techniques are used for deeper seams. In
1997, surface mining accounted for approximately 61.6% of total United States
coal production, with underground mining accounting for the balance of
production. Surface mining generally is less expensive and has a higher
extraction percentage than underground mining, with surface mining typically
resulting in an extraction percentage of 80% to 90%, and underground mining
resulting in an extraction percentage of 50% to 60%, of the total coal from a
particular deposit.
Mountaintop Removal Mining is a surface mining method in which all material
above the coal seam is removed prior to removal of the coal, leaving a level
plateau in place of the hilltop after mining. A more complete
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<PAGE> 55
recovery of the coal is accomplished through this method; however, its
feasibility depends on the amount of overlying material in relation to the coal
to be removed.
Highwall Mining is a mining system that bores into the face of a coal seam
using a continuous miner and transports coal to the mine opening using cascading
conveyor belts with wheels on a series of cars connected to the continuous
miner. Trench, box, open-pit or contour cuts allow the highwall mining equipment
to be utilized as the primary production machine for projects requiring large
volumes of coal production.
Contour Mining is a surface mining method conducted on coal seams where
mountaintop removal is not feasible because the coal seam is overlain by too
much of the hill to mine economically by mountaintop removal. Mining proceeds
laterally around a hillside, at essentially the same elevation (assuming the
seam is fairly flat), allowing extraction of the exposed coal. The contour cut
in a coal seam also provides a flat surface that can be used to facilitate
highwall mining (discussed above) or the less efficient auger mining (discussed
below). This is a common surface mining method in the steeper slopes of the
Appalachian bituminous coal fields.
Conventional Mining is an underground mining method that utilizes a cutting
machine to cut beneath a coal seam. Such undercuts allow explosive charges to be
set in the coal seam to separate the coal from surrounding materials. Once
separated, the coal is loaded into shuttle cars and removed from the mine.
Surface Mining is essentially a large-scale earth moving operation, with
the overburden being "stripped" away by means of large earth-moving machines.
The coal exposed by stripping is fractured by blasting and is loaded onto haul
trucks or overland conveyors for transportation to processing and loading
facilities. The site is then backfilled with the overburden and otherwise
restored to its approximate original contour and vegetated condition.
Auger Mining is a surface mining method in which miners remain outside of
the mine and a large, corkscrew-like machine (an "auger") bores into the side of
a hill and extracts coal by "twisting" it out. Auger mining generally permits
the extraction of coal to depths of only 300 feet or less.
Room and Pillar Mining is a mining method used in underground mining which
uses either continuous or conventional mining that cuts out a block of coal in
18- to 20-foot wide passages as high as the coal seam. Roof bolters, by
installing conventional or resin grouted rods, stabilize the mine roof prior to
mine advancement. Pillars (typically 50 feet by 50 feet) are left to provide
additional primary roof support.
Longwall Mining is an underground mining method that uses hydraulic jacks,
varying from five feet to 12 feet in height, to support the roof of the mine
while cutting shears extract the coal. Chain belts then move the coal to a
standard underground mine belt system for delivery to the surface. The longwall
machine generally cuts blocks of coal, referred to as longwall panels, that have
a width of approximately 900 feet and a length ranging from 9,000 to 11,000
feet. Longwall machines that cut panels of coal up to 1,200 feet wide and 18,000
feet long are being tested for future use. Longwall mining is a low-cost,
high-output method of underground mining that results in the recovery of
approximately 60% of coal reserves. In addition, longwall mining is a more
productive method of mining coal than room and pillar mining. However, longwall
mining is more capital intensive and requires minimum seam thickness of at least
48 inches and more consistent and larger blocks of coal than room and pillar
mining to be cost effective.
Point Removal Mining is a mining method used in contour mining when the
overburden ratio makes it economically feasible to mine using the mountaintop
removal method.
COAL PREPARATION
Depending on coal quality and customer requirements, it is sometimes
possible to ship raw coal directly from the mine to the customer. Generally, raw
coal from mountaintop removal, contour and point removal surface mines can be
shipped in this manner. If coal is not shipped raw directly to the customer, it
is processed in a preparation plant. Most coal mined by underground mining
methods and some coal mined by surface mining methods must be processed in a
preparation plant. The preparation plant crushes coal, washes it in a liquid
solution, separates it by size, and removes non-coal materials. Processing the
coal in a preparation plant upgrades the quality and heating value of the coal
by removing or reducing sulfur, rock, clay and other ash-producing
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<PAGE> 56
materials, but entails significant expense and results in some loss of coal.
Coal blending or mixing is often performed at a preparation plant or loading
facility to meet the specific combustion and environmental needs of customers.
CUSTOMERS
Over the last 10 years, coal consumption in the United States has generally
experienced steady annual growth, reaching a record level exceeding 1.0 billion
tons in 1997. This steady growth in coal consumption is attributable to similar
growth in the demand for electricity over the same period, as the electricity
generation industry accounts for more than 89% of domestic coal consumption. In
1997, coal-fired electricity generation facilities generated approximately 50.6%
of the nation's electricity, followed by nuclear (17.8%), hydroelectric (9.5%)
and gas-fired (8.0%) utilities. According to Hill & Associates, over the next
several years, electricity usage is expected to increase at an average annual
rate of 2.1%. As demonstrated by the following graph, for the past 47 years
coal-fired utilities have generated an increasing percentage of all electricity
generated in the United States and this trend is expected to continue:
Electricity Generation by Fuel Type
<TABLE>
<CAPTION>
BILLION KWH
Measurement Period
(Fiscal Year Covered) Coal Gas/Oil Nuclear Hydro
<S> <C> <C> <C> <C>
12/1950 155 79 0 96
185 86 0 100
195 98 0 105
219 118 0 105
239 126 0 107
12/1955 301 132 0 113
339 140 0 122
346 154 0 130
344 160 0 140
378 194 0 138
12/1960 403 206 1 146
422 218 2 152
450 233 2 169
494 254 3 166
526 277 3 177
12/1965 571 287 4 194
613 330 6 195
630 354 8 222
685 408 13 222
706 471 14 250
12/1970 704 557 22 248
713 594 38 266
771 650 54 273
848 655 83 272
828 621 114 301
12/1975 853 589 173 300
944 615 191 284
985 664 251 220
976 670 276 280
1075 633 255 280
12/1980 1162 592 251 276
1203 552 273 261
1192 452 283 309
1259 418 294 332
1342 417 328 321
12/1985 1402 392 384 281
1386 386 414 291
1464 391 455 250
1541 402 527 223
1554 425 529 265
12/1990 1560 381 577 283
1551 375 613 280
1576 353 619 244
1639 359 610 269
1635 382 640 247
12/1995 1653 368 673 296
1736 331 675 332
1876 357 703 304
1925 365 703 304
2000 380 704 304
12/2000 2075 420 704 304
2160 455 704 304
2229 482 705 304
2280 512 705 304
2310 548 704 304
12/2005 2350 570 704 304
2375 590 703 304
2392 615 702 304
2410 635 702 304
2430 655 702 304
12/2010 2450 680 701 304
</TABLE>
Electricity can be generated less expensively using coal than using gas,
oil or geothermal energy. The delivered cost of coal for utilities averaged
$1.20 per million Btu in 1996 compared to $2.57 per million Btu for gas and
$3.00 per million Btu for oil. Although nuclear and hydro energy are less
expensive than coal, no new nuclear plant permits have been issued since 1978,
and many existing plants are near the end of their useful life. Additionally,
the availability of hydro electricity is limited.
Because coal is one of the least expensive and most abundant resources for
the production of electricity, and imports of coal historically have not
exceeded 1% of domestic coal consumption, domestically produced coal is expected
to continue to play a significant role in the production of electricity in the
future. The Company believes that it is well positioned to benefit from
favorable trends in the coal and electric utility industries because
approximately 64.9% of the Company's 1997 shipments were to domestic public
electric utilities.
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<PAGE> 57
The following table (derived from publications of the EIA) presents
five-year domestic coal production by region, and consumption by sector:
<TABLE>
<CAPTION>
FIVE-YEAR COAL PRODUCTION AND CONSUMPTION
-------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C>
Production by Region
Appalachian................................ 409.7 445.4 434.9 451.9 464.7
Interior................................... 167.2 179.9 168.5 172.8 172.3
Western.................................... 368.5 408.3 429.6 439.2 451.6
----- ------- ------- ------- -------
Total................................... 945.4 1,033.6 1,033.0 1,063.9 1,088.6
Consumption by Sector
Utilities.................................. 813.5 817.3 829.0 874.7 898.5
Independent Power Producers................ 17.8 21.3 21.2 22.2 23.5
Coke Plants................................ 31.3 31.7 33.0 31.8 29.4
Other Industrial Plants.................... 74.9 75.2 73.0 70.9 70.4
Residential/Commercial Users............... 6.2 6.0 5.8 6.0 6.0
----- ------- ------- ------- -------
Total................................... 943.7 951.5 962.0 1,005.6 1,027.8
===== ======= ======= ======= =======
</TABLE>
UTILITY DEREGULATION
Since 1935, domestic electric utilities have operated in a regulated
environment, with prices and return on investment being determined by state
utility and power commissions. In April 1996, the FERC established rules
providing for open access to electricity transmission systems, thereby
initiating consumer choice in electricity purchasing and encouraging competition
in the generation of electricity. It is anticipated that the FERC rules will
create a national market for the sale of wholesale electricity where competition
will primarily focus on price. Within the electric utility industry, the
low-cost producers of electricity, located primarily in Kentucky, Tennessee,
Indiana and Ohio, should benefit most due to the increased focus on price.
Competition will likely benefit the coal industry generally because coal is a
relatively low-cost source of electricity generation. Within the coal industry,
companies with customers that are low-cost producers are likely to see the
greatest increase in coal demand. The Company's primary domestic customers are
low-cost electricity producers, located in Kentucky, Ohio, West Virginia and
Indiana.
CLEAN AIR ACT AMENDMENTS
The Clean Air Act Amendments have had, and will continue to have, a
significant effect on the domestic coal industry. Phase I of the Clean Air Act
Amendments, which became effective in 1995, regulates the level of emissions of
sulfur dioxide from power plants and targets the highest sulfur dioxide
emitters. Phase II, which is scheduled to be implemented in 2000, will extend
the restrictions of the Clean Air Act Amendments to most remaining power plants.
The Clean Air Act Amendments do not define allowable emission levels on a per
plant basis, but instead allocate emission allowances to the affected plants and
allow the emission allowances to be traded so that market participants can
fashion more efficient and flexible compliance strategies. The emission
allowance allocations for Phase I were based on 2.5 pounds of sulfur dioxide per
million Btu, and Phase II allocations will be based on 1.2 pounds of sulfur
dioxide per million Btu. See "Business--Government Regulation."
56
<PAGE> 58
BUSINESS
OVERVIEW
The Company is engaged in the mining, preparation, marketing and leasing of
primarily compliance and low-sulfur coal from mines located in the Central
Appalachian region of eastern Kentucky and southern West Virginia. Based on the
Reserve Studies, the Company controls the mineral rights to approximately 340
million tons of coal reserves, of which management believes 309 million tons are
owned in fee. In 1997, the Company sold approximately 5.3 million tons of coal,
approximately 66% of which was generated from captive production with the
remainder purchased from other coal mine operators. In 1997, approximately 83%
of the tonnage was sold to seven long-term sales contract customers, with most
of the remainder sold to 14 spot market customers. The Company sells primarily
to domestic public utilities, an international government-owned utility and
industrial customers. In addition to its coal sales, the Company leases the
mineral rights on approximately 56 million tons of its reserves to 22 operators
who mined approximately 3.0 million tons in 1997. The Company received an
average leasing revenue per ton of coal from its lessees of approximately $2.79
per ton of mined coal in 1997. The Company's coal leases typically have a term
of five years, although some leases are for the life of the respective reserves.
For the twelve months ended March 31, 1998, the Company generated revenues and
EBITDA, both adjusted to represent only business units currently in operation,
of $176.5 million and $25.4 million, respectively.
The Company has demonstrated a long-term record of selectively increasing
its reserves through acquisitions and consistently increasing its production
through the development of its reserves. Since 1992, reserves have increased
more than 359%, and captive production has increased at a compound annual rate
of 12.0% to 3.5 million tons in 1997. Beginning in 1987, Pen commenced surface
coal mining production with the purchase of approximately 74 million tons of
compliance and low-sulfur coal reserves located at Kiah Creek. Prior to the
purchase of Kiah Creek, the Company fulfilled its contractual obligations
through coal purchases and limited contract mining. Approximately 84% of the
Company's 1997 coal production was from Kiah Creek, where three underground and
two surface mines were operating. In 1994, the Company acquired approximately
151 million tons of primarily compliance and low-sulfur coal reserves located at
Elk Horn. The Company's strategy for Elk Horn is (i) to lease a significant
portion of the reserves to other mining operators under long-term agreements and
(ii) to produce coal for Company sales from contract mining operations. Annual
lease payments including minimum royalties paid to the Company from Elk Horn
leases have averaged $9.4 million per year since 1994. In November 1997, the
Company acquired approximately 118 million tons of primarily compliance,
low-sulfur, and metallurgical coal reserves located at Fork Creek. The Company
expects to have obtained the necessary permits and completed the infrastructure
at Fork Creek to commence mining operations and to begin coal deliveries by
early 2000. The Fork Creek operations are planned to produce approximately 1.7
million tons annually by 2001. See "Capital Development Program."
The Company's strategy has been to secure sales contracts with customers
accessible from its own loading terminals in advance of planned increases in
production. In each of the last five years, the Company's production has been
fully committed under long-term sales contracts. Management believes that this
strategy provided the Company with greater flexibility in managing mine
development, production levels and reserve life at Kiah Creek and, to a lesser
extent, at Elk Horn. Although production is not scheduled to commence until
early 2000, the Company has already committed to supply from Fork Creek
approximately 500,000 tons in 2000, increasing to approximately 720,000 tons
annually by 2002. The Company's sales contracts and spot market agreements are
primarily with domestic public utilities and industrial customers located in the
upper Ohio River Valley and accessible by river barge transportation from the
Company's terminal on the Big Sandy River, a navigable tributary of the Ohio
River. The Company shipped less than 1% of its tonnage sold in 1997 by rail.
The Company has an integrated production, preparation and loading operation
which management believes enhances control over product quality and consistency,
storage capability and delivery scheduling for its customers. In 1990, the
Company built a modern, heavy media preparation plant at Kiah Creek to clean and
size its underground coal production, which the Company believes: (i) improved
its reputation with customers by increasing the quality and quantity of
marketable compliance and low-sulfur coal production and (ii) positioned the
Company to be able to bid for more favorably priced sales contracts and spot
market agreements. In addition to production and preparation, all of the coal
loaded at the Company's river terminal is mechanically sampled
57
<PAGE> 59
twice to assure that the Company's coal meets customer specifications: first
upon arrival of loaded trucks and second as it is loaded into outgoing barges.
The Company's development plans for Fork Creek include construction of an
additional preparation plant and a rail loadout which is expected to extend
product control over new production at Fork Creek and provide the Company an
opportunity to supply new customers in the Northeast and upper Midwest which are
primarily accessible by rail.
The Company utilizes room and pillar mining in its underground mines and
contour and point removal mining at its surface mines, which the Company
believes are the most cost-efficient methods for extracting its reserves given
their geological composition. Although a majority of the Company's production
has shifted toward underground mining, which generally can be more costly due to
preparation costs, the Company's cash production costs at the mine site have
declined from $18.81 per ton in 1993 to $18.31 per ton in 1997. Management
believes that this decline resulted from the Company's ability to improve
productivity from its mines and recovery rates at its preparation plant through
better planning, improvements to its preparation plant and more efficient use of
capital equipment.
Pen Holdings was incorporated under the laws of Tennessee in 1971. Pen
Holdings serves as a holding company for its five active subsidiaries and nine
inactive subsidiaries. The subsidiaries of Pen Holdings, Inc., both direct and
indirect, include: Pen Coal Corporation (coal mining, processing, loading and
sales); The Elk Horn Coal Corporation (coal leasing); Marine Terminals
Incorporated (one-third partner in International Marine Terminals, an ocean
going vessel loading terminal); River Marine Terminals, Inc. (owns the Wayne
County River Terminal); Pen Cotton Company of South Carolina (cotton ginning and
warehousing); Pen Hardwood Company (inactive); Pen Cotton Company (inactive);
Pen Cotton Company of Alabama, Inc. (inactive); Pen Sales Company, Inc.
(inactive); Big River Mining Company (inactive); Pen Trading Company (inactive);
The Elk Horn Corporation (inactive); Buck Coal, Inc. (inactive); and Ram
Processing, Inc. (inactive).
The Company has been in the coal business since 1980, and since December,
1995, following the death of the founder in 1993, the majority of the common
stock has been owned by William E. Beckner, as described below. Mr. Beckner has
been employed by the Company since December 1982. Members of the senior
management team currently own approximately 93.4% of the common stock.
The Company completed the Recapitalization on December 29, 1995. The estate
of the former owner received the following in the Recapitalization: (i)
$12,500,000 in cash, (ii) 100% of the Company's investment in Pen Development of
California, Inc., a real estate development company located in California with a
book value of $3,339,000, and (iii) 10,000 shares of Convertible Preferred Stock
with a redemption value of $13,650,000. The estate of the former owner retained
250,000 shares of the Company's Class I Common Stock (5.6% of the outstanding
common stock at December 31, 1997.) The Recapitalization was accounted for as a
treasury stock transaction and resulted in a carryover of the historical basis
of the Company's assets and liabilities existing prior to the Recapitalization.
Concurrent with the Recapitalization, William E. Beckner acquired 4,040,000
shares of common stock (90.4% of the outstanding common stock at December 31,
1997) from the Company.
Prior to 1983, when the Company entered into its first contract mining
agreement, the Company met sales contract obligations with coal purchased from
other mining operators. At times since its inception, the Company has also
engaged in several agricultural businesses, timber production, operation of a
river barge fleet and real estate development. As of the date hereof, all of
those operations, except for a single cotton ginning and warehousing operation,
have either been sold by the Company or discontinued. Since its inception, the
Company has made three significant acquisitions of coal reserves. In 1987, 1994
and 1997, respectively, the Company acquired the Kiah Creek, Elk Horn and the
Fork Creek reserves. The Company is currently engaged in the mining,
preparation, marketing and leasing of primarily compliance and low-sulfur coal
from mines located in the Central Appalachian region.
The Company's headquarters are located at Center Court Building, Suite 300,
5110 Maryland Way, Brentwood, TN 37027, and its telephone number is (615)
371-7300.
58
<PAGE> 60
COMPETITIVE STRENGTHS
From 1993 through 1997, the Company has increased production, total tonnage
sold and total tonnage sold under sales contracts by compound annual rates of
12.0%, 4.5% and 2.9%, respectively, through the acquisition and development of
new and existing operations, the addition of new customers and an increase in
contractual requirements to existing customers. The Company currently operates
two surface mines and three underground mines and contracts production of
certain of its reserves to other operators in one surface mine and six
underground mines. The Company believes that it has been able to achieve these
consistent results due to the following competitive strengths:
Ownership of High Quality Reserves. Based on the Reserve Studies, the
Company's reserve life index (defined as total recoverable reserves divided by
1997 total captive and leased coal production) was in excess of 50 years. Of the
Company's approximately 340 million tons of reserves, management estimates that
approximately 44% are compliance coal, 30% are low-sulfur and 26% are medium
sulfur coal. Management believes that unlike many other coal producers of
similar size, the Company owns in fee a substantial portion (309 tons) of its
reserves, and, as a result, the Company does not pay significant mineral
royalties ($1.6 million in 1997). Ownership in fee of its reserves allows the
Company to significantly improve its operating results and reserve utilization
and provides the flexibility to selectively lease a portion of its reserves to
other operators.
Geographic Concentration of Large Contiguous Reserves. The Company has
completed three significant acquisitions of reserves since 1986, two of which
have consisted of large contiguous tracts concentrated in Central Appalachia, a
region known for high quality, low-sulfur, high Btu coal and cost efficient
river and rail transportation. According to RDI, energy industry economists,
delivered tonnage from the Central Appalachian region has increased at a
compound annual rate of 3.6% since 1991, which has outpaced the growth in total
United States tonnage delivery during the same period. As a result of its
geographic concentration and large contiguous tracts, the Company has realized
economies of scale including greater utilization of its facilities, manpower and
equipment and enhanced management oversight of its properties.
Strong Reputation as a High Quality Provider of Coal. Management believes
it is recognized as a high quality supplier by its customers as evidenced by (i)
a consistent increase in tonnage under contract; (ii) the extension, renewal or
expansion of existing sales contracts; (iii) the addition of new sales contracts
and spot market agreements with new customers; (iv) consistent compliance with
its contractual obligations for quality and quantity; and (v) timely supply
deliveries. The Company has maintained an average continuous supply relationship
with its current long-term sales contract customers in excess of 8.7 years. As
of March 31, 1998, the Company had seven long-term sales contracts with
highly-rated public or government owned utilities, such as The Dayton Power and
Light Company, American Electric Power, Electric Fuels Corporation (a subsidiary
of Florida Progress), East Kentucky Power and Taiwan Power Company. The weighted
average remaining life of long-term sales contracts was approximately 3.3 years
(excluding option periods) and approximately 9.6 years (including option
periods) as of March 31, 1998. For eight of the Company's 14 spot market
customers (exclusive of long-term sales contract customers) in 1997, the Company
has maintained a continuous supply relationship of more than three years.
Significant Recurring Lease Revenue. The acquisition of Elk Horn provided
the Company with a substantial amount of recurring revenue from outstanding
leases with other coal companies. Terms typically include expiration at the
earlier of five years or the remaining life of the reserves, minimum tonnage
requirements per year and payment based on tonnage mined. The Company believes
the location and geological composition of its Elk Horn reserves coupled with
their proximity to the operations of other coal producers make it more
economically attractive to lease such reserves to other coal companies than for
the Company to mine them. Leasing contributed an average of $9.4 million per
year in revenues since 1994, and management believes leasing will continue to
generate significant revenues based on existing leases and indications of future
mining activity by these operators.
Stable Operating Results from Coal Operations. Since 1993, adjusted EBITDA
has averaged approximately $24.1 million per year, with fluctuations of no
greater than 1.8% annually. Such consistency has been primarily due to the
Company's (i) declining cash production costs, (ii) stable tonnage under sales
contracts, (iii) significant recurring revenue from royalty payments under lease
agreements and (iv) tight control of general
59
<PAGE> 61
and administrative expenses, all of which have generally offset declining
revenues per ton. Over the past five years, the Company's average cash cost per
ton of coal shipped (FOB barge) has declined approximately 3.1% from $23.96 per
ton in 1993 to $23.22 per ton in 1997, despite shifting a greater percentage of
total production from surface mines to more costly underground mines. In an
attempt to continually re-evaluate the Company's cash production costs, the
Company annually updates its five year plan including mine and resource
development, equipment replacement requirements, contract production levels and
coal purchases, to manage production and maximize operating results.
Experienced Management with Significant Ownership. The Company has an
experienced senior management team, including William E. Beckner (Chairman,
President and Chief Executive Officer), who has 18 years of experience in the
coal industry and has worked at the Company for the past 15 years; Joseph A.
Davis, Jr. (Senior Vice President of Sales and Marketing), who has 22 years of
experience in the coal industry and has worked at the Company for the past 14
years; Stephen G. Capelli (Senior Vice President of Operations), who has 26
years of experience in the coal industry and has worked at the Company for the
past four years; and Mark A. Oldham (Senior Vice President, Chief Financial
Officer, Treasurer and Secretary), who has 14 years of experience in the coal
industry and at the Company. The management team has a proven record of
developing low-cost operations, maintaining strong customer relationships and
making strategic, opportunistic acquisitions. Mr. Beckner and the other members
of senior management currently own approximately 93.4% of the Company's
outstanding common stock.
BUSINESS STRATEGY
Following the death of the founder in 1993, the Company completed the
Recapitalization in December 1995 whereby William E. Beckner acquired
approximately 94.2% of common stock of the Company. Following the
Recapitalization, senior management adopted a business strategy of focusing on
its coal businesses. As a result, the Company sold most of its cotton businesses
and discontinued its lumber operations in 1996 and sold its barge fleet in 1997.
Proceeds from the sales of these assets were used in part to acquire the Fork
Creek reserves. The Company's strategy is to focus on its coal business,
steadily increase coal reserves and production and improve revenues, operating
results and cash flow by continuing to pursue its existing strategies including:
Acquiring Additional High Quality Reserves and Operations. The Company has
selectively increased its recoverable reserves by acquiring high quality coal
reserves primarily located on large contiguous tracts in the Central Appalachian
region and expects to continue increasing its reserves or adding operations
through strategic and opportunistic acquisitions. Historically, ownership of
coal reserves in Central Appalachia has been highly fragmented; hence management
believes there are opportunities to increase its reserve base in proximity to
existing properties and selectively increase leasing and production by acquiring
other existing operations. Management believes reserves acquired adjacent to
existing properties can enhance infrastructure utilization and reduce cash
production costs and capital investment requirements.
Increasing Tonnage Under Contract and Expanding the Customer Base. The
Company's strategy is to continually secure sales contracts approximately equal
to or greater than its captive production. Management believes that electric
utilities in general are shifting their contracts toward shorter term periods,
generally three to five years, to limit the impact of price inflation indexes
and more closely align supply with market prices. As a result of this industry
trend toward shorter-term contracts, the number of future bidding opportunities
is expected to increase. Annual production from Kiah Creek is effectively
designated for existing sales contracts. The Company believes, however, that the
development of its Fork Creek reserves and its associated preparation plant and
rail terminal will enhance the Company's ability to secure additional sales
contracts by (i) increasing access to public utilities in the Northeast and
upper Midwest which are primarily served by rail transport; (ii) increasing
access to existing customers; (iii) developing industrial customer prospects for
metallurgical coal sales; and (iv) providing the flexibility of alternatively
shipping by rail or barge from the Company's loading terminals. The Company
plans to produce from Fork Creek approximately 1.7 million tons annually by
2001. The Company is already committed to supply from Fork Creek approximately
500,000 tons in the year 2000, increasing to approximately 720,000 tons annually
by 2002, and continues to bid for additional sales contracts.
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<PAGE> 62
Maximizing Reserve Utilization and Mining Productivity. The Company's
strategy is to apply its extensive planning process to its existing reserves,
including the development of Fork Creek, as well as reserves acquired in the
future to maximize reserve utilization and mining productivity. The Company
utilizes an extensive core sampling and testing program to create its mine
development plans years in advance of actual production. As a result of this
planning process, the Company forecasts anticipated equipment, preparation plant
capacity, permit and regulatory requirements, the level of contract mining and
coal purchases. The Company utilizes continuous mining equipment in underground
mines and contour and point removal methods in surface mines where coal seam
thickness or overburden ratios allow extraction rates to meet profitability
thresholds. Mining productivity, as measured by tons mined per man-hour,
increased 11.2% and 24.4% at Company-operated surface and underground mines,
respectively, since 1992. Management believes such improvement is due to
increased operating efficiencies and productivity rates through the addition of
underground mining units, increased preparation plant capacity, long-term
planning and more efficient use of capital equipment. When seam thickness or
overburden ratios exceed management's thresholds for efficient mining, the
Company will selectively contract production with other mining companies at set
prices per ton on specified reserves to improve reserve utilization. Management
believes that the Company's enhanced reserve utilization and mining productivity
is a result of its extensive planning process, its site-specific mining
techniques and its contract mining production.
RECENT ACQUISITION
In November 1997, the Company completed the Fork Creek acquisition. As a
result of this acquisition, the Company acquired in fee approximately 118
million tons of compliance, low-sulfur and metallurgical coal reserves located
on one large contiguous property in southern West Virginia. The Company expects
to have obtained the necessary permits and completed the infrastructure at Fork
Creek to commence mining operations and to make coal deliveries in early 2000. A
portion of the net proceeds of the Offering will be utilized to repay
indebtedness incurred in connection with the Fork Creek acquisition and to
partially fund development of this property. See "Use of Proceeds" and "Capital
Development Program."
COAL RESERVES
Existing Reserves. Based on the Reserve Studies, the Company controls the
mineral rights to approximately 340 million tons of coal reserves, of which
management believes 309 million are owned in fee. All of the Company's reserves
are bituminous coal. Of the Company's 340 million tons of reserves, management
estimates that approximately 44% are compliance coal, 30% are low-sulfur coal
and 26% are medium sulfur coal. The Company believes this high percentage of
compliance and low-sulfur coal gives it a competitive advantage in the sale of
coal as more stringent air quality requirements under Phase II of the Clean Air
Act Amendments are implemented.
Reserve estimates are prepared by the Company's engineers and geologists
and are reviewed periodically to reflect data received and developments
affecting the reserves. Accordingly, reserve estimates will change from time to
time in reflection of mining activities, analysis of new engineering and
geological data, acquisition or divestiture of reserve holdings, fluctuations in
coal market prices, modification of mining plans or mining methods and other
factors. The Company engaged Marshall Miller, independent mining and geological
consultants, to audit the Company's estimates of its coal reserves at Kiah Creek
and Elk Horn as of May 1998 and the Company has a reserve study prepared by
Stagg Engineering as of September 1997 for its Fork Creek reserves. The Reserve
Studies include a review of the procedures used by the Company to prepare its
internal reserve estimates for Kiah Creek and Elk Horn and geological assessment
based on data from record searches and from previously recorded resource studies
for Fork Creek, verifying the accuracy of selected property reserve estimates
and retabulating reserve groups according to standard classifications of
reliability. The following table
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<PAGE> 63
summarizes the Company's coal reserves and is based on the information contained
in the indicated Reserve Studies. See Annex B--the Marshall Miller Report and
Annex C--the Stagg Engineering Report.
<TABLE>
<CAPTION>
UNDERGROUND (UG) RECOVERABLE TOTAL
REGION OR SURFACE(S) RESERVES(1) RESOURCES(2) RESERVES
------ ------------- ----------- ------------ --------
(MILLIONS OF TONS)
<S> <C> <C> <C> <C>
Kiah Creek (West Virginia)...... UG 27.7 25.8 53.5
S 26.2 6.4 32.6
Elk Horn (Kentucky)............. UG 86.2 35.7 121.9
S 7.8 6.6 14.4
Fork Creek (West Virginia)...... UG 72.9 31.8 104.7
S 7.1 6.3 13.4
----- ----- -----
227.9 112.6 340.5
===== ===== =====
</TABLE>
- ---------------
(1) For the purposes of this table, "recoverable reserves" means demonstrated
reserves from the Marshall Miller Report and reserves from the Stagg
Engineering Report, in each case indicating those parts of a coal reserve
base that could be economically extracted or produced at the time of
determination considering environmental, legal, and technological
constraints.
(2) Resources represents "resources" for the Marshall Miller Report and
resources plus marginal reserves for the Stagg Engineering Report, in each
case indicating those deposits of coal in such forms and amounts that
economic extraction is currently or potentially feasible. Marginal reserves
represents 6.6 and 2.7 million tons for Fork Creek's underground and surface
mines, respectively.
Potential investors should be aware that the Reserve Studies are estimates
based on an evaluation of available data, and actual reserves may vary
substantially from the estimates. Estimated minimum recoverable reserves are
comprised of coal that is considered to be merchantable and economically
recoverable by using mining practices and techniques prevalent in the coal
industry at the time of the reserve study and based upon then-current prevailing
market prices for coal. Although the reserves shown in the table above include a
variety of qualities of coal, the Company presently blends coal of different
qualities to meet contract specifications.
Of the Company's total reserves, management believes approximately 309
million tons are owned in fee by the Company (i.e., not leased from a third
party and therefore not subject to a royalty payment). The Company believes that
this high percentage of owned reserves gives it a competitive advantage over
competitors who lease coal reserves from others by reducing the all-in operating
costs to produce coal. The Company leases from third parties mineral rights on
terms of between 10 and 15 years and generally has the right to renew the lease
for a stated period or to maintain the lease in force until the exhaustion of
minable and merchantable coal. These leases provide for royalties to be paid to
the lessor either as a fixed amount per ton or as a percentage of the sales
price, with a bonus or minimum royalties, payable either at the time of the
execution of the lease or in periodic installments. In the period from 1993
through 1997, the Company paid $0.2, $1.5, $1.0, $0.7 and $1.6 million,
respectively, in lease payments to third party mineral and surface owners.
Title examinations are performed by qualified title examiners on properties
owned by the Company. As to properties the Company leases, a limited title
investigation and, to the extent possible, a determination of the precise
boundaries of a property is made in most cases only as a part of the process of
securing a mining permit before commencement of mining operations. Title to
property is verified prior to the time the Company begins mining operations. If
defects in title or boundaries of undeveloped reserves arise in the future, the
Company's control, and right to mine, such reserves could be materially
adversely affected. Most of the Company's leases describe the leased property in
general terms, and these descriptions are usually not based on actual surveys or
boundaries which are otherwise precisely identified. Because of the short-term
nature of its leases and the expense involved, the Company does not have all
titles to the leases reviewed by qualified title examiners. The Company believes
that its practices of investigating title and determining boundaries to the
properties it owns, leases or otherwise controls are consistent with customary
industry practices and that such practices are adequate to enable it to acquire
the right to mine such properties. Both Kiah Creek and Fork Creek are large
contiguous tracts of land that were owned and primarily undeveloped by the
previous owners. Therefore management
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<PAGE> 64
believes that the integrity of the title searches and examinations are less
likely to be challenged. Although Elk Horn is not a contiguous block of
reserves, the Company's predecessor, The Elk Horn Coal Corporation, maintained
extensive title records dating to the early 1900's. Management also believes
that this recordation provides some safeguard to its rights to the mineral from
the property.
The extent to which the Company's coal reserves will be mined will depend
upon certain factors over which it has no control, such as future economic
conditions, the price and demand for coal of the quality and type controlled by
the Company, the price and supply of alternative fuels and future mining
practices and regulations.
Acquisition of Additional Reserves. Although the Company does not need to
acquire additional reserves to meet the terms of its existing contracts, the
Company generally attempts to replace the coal reserves that it depletes. The
Company has a current reserve life in excess of 50 years and seeks to maintain
sufficient reserves available to fulfill its contract requirements. The
Company's Kiah Creek and Fork Creek developments represent large contiguous
properties which allow the Company the flexibility to manage long-term mine
development and reclamation with a centralized preparation plant and transport
facilities. The Company's preference is to acquire in fee or lease additional
reserves adjacent to its existing properties to realize greater economies of
scale including greater utilization of its facilities, manpower and equipment
and enhanced management oversight of its properties. In 1995 and 1996, the
Company acquired by lease an aggregate of approximately 31 million tons of
additional reserves contiguous to its then existing Kiah Creek property. To
date, the Company has not experienced any material difficulty in acquiring
sufficient reserves to meet its goals. Since 1993, the Company's total reserves
have increased from approximately 74 million tons to more than approximately 340
million currently.
The Company intends to continue expanding its coal reserves by acquiring
reserves that will allow it to: (i) minimize production and delivery costs; (ii)
continue to exploit the Company's experience in and synergies arising from
operating in the Central Appalachian region; and (iii) satisfy the quality
requirements of its existing coal sales contracts. The Company expects that it
will continue to add to its compliance and low-sulfur coal reserves because it
believes these reserves are more likely to yield a premium as environmental
regulations become more stringent.
MINING OPERATIONS
Captive Coal Production. The Company currently conducts mining operations
at four underground mines and two surface mines at its Kiah Creek reserves
located in Wayne, Lincoln and Mingo counties in southern West Virginia and six
underground mines and one surface mine at its Elk Horn reserves located in
Floyd, Johnson, Knott, Letcher, Magoffin, Martin and Pike counties in eastern
Kentucky. Approximately 69% of the Company's 1997 production originated from its
underground mines, and approximately 31% originated from its surface mines. Coal
seam thickness, location and the amount of overburden required to be removed,
among other conditions, are factors utilized by the Company to determine the
appropriate mining method. Over the last five years, the Company has shifted a
greater percentage of its production to underground mines to maximize its
reserve utilization. In 1993, 37% of the Company's production was from
underground mines, compared to 69% in 1997. Contract miners, under the terms of
contract mining agreements with the Company, operate in seven of the underground
mines on the Company's Kiah Creek and Elk Horn reserves. Contract mining has
represented 27%, 11%, 21%, 17% and 22% of the Company's coal production in the
periods 1993 through 1997, respectively.
The following table presents the Company's total captive coal production
for the previous five years for its regions:
<TABLE>
<CAPTION>
REGION 1993 1994 1995 1996 1997
------ ---- ---- ---- ---- ----
(IN THOUSANDS OF TONS)
<S> <C> <C> <C> <C> <C>
Kiah Creek (West Virginia.................. 2,224 2,068 2,161 2,746 2,947
Elk Horn (Kentucky)(1)..................... -- 612 896 552 557
----- ----- ----- ----- -----
Total.................................... 2,224 2,680 3,057 3,298 3,504
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 65
- ---------------
(1) Includes the production of a Company operated mine in Kentucky known as Big
River Mining which produced 330,000 tons and 255,000 tons in 1994 and 1995,
respectively. Excludes production by The Elk Horn Coal Corporation, which
the Company acquired in August 1994. Prior to the Company's purchase of the
Elk Horn reserves, production from Elk Horn was (exclusive of leased
production) 466,000 tons during 1994 and 764,000 tons in 1993.
Kiah Creek. The Company's major mining operations are located at Kiah
Creek. These reserves were purchased by the Company in 1987 for $16.5 million,
and mining operations commenced shortly thereafter with surface mining and,
later, underground mining. This property consists of approximately 45,000 acres
of surface area. In 1995 and 1996, the Company acquired by lease approximately
31 million tons of reserves which are contiguous to Kiah Creek. Management
estimates that the Company owns in fee approximately 55 million tons of reserves
and controls, primarily through leases, an additional approximately 31 million
tons of reserves on this property. Management estimates that the quality of its
production at Kiah Creek has averaged 10 to 14% ash, and 11,500 to 12,500 Btu
per pound, and that its remaining reserves at Kiah Creek are 73% compliance
coal, 17% low-sulfur and 10% medium sulfur.
At Kiah Creek, five underground mining units in four underground mines are
currently operating. The Company operates two underground mining units in its
Mine #3 in the Coalburg seam, one underground mining unit in its Mine #4 in the
5-Block seam and one underground mining unit in its Mine #5 in the 5-Block seam.
In addition, a contract mining company operates one underground mining unit at
the Company's Mine #2 in the Coalburg seam. Each of the Company's underground
mining units generally consists of a remote-controlled continuous mining machine
which removes the coal from the seam, shuttle cars to transport the coal to a
conveyer belt which transports the coal to the surface, a roof bolting machine
which secures the mine roof in an area that has been mined and other related
equipment. Each unit generally employs from 10 underground miners per shift. The
Company generally operates two production shifts and one maintenance shift per
day in its underground mines, which utilize the room and pillar method of
underground mining. Approximately 0.8, 0.9, 1.0, 1.5 and 1.9 million tons of
coal were produced from the Company's Kiah Creek underground mines in the years
from 1993 through 1997, respectively.
The Company also operates one surface mine in the 5-Block seam and one
surface mine in the Coalburg seam at Kiah Creek. The Company expects that it
will be operating from a third surface mine in the 5-Block seam at Kiah Creek
within the next 60 days. The Company utilizes contour and point removal and
mountaintop mining techniques in its surface mining operations. The Company
generally employs 15 persons per shift at each surface mining operation and
currently operates two production shifts per day. A typical surface mine spread
includes two bulldozers, a wheel loader, several trucks and other related
equipment. Approximately 1.4, 1.2, 1.2, 1.3 and 1.1 million tons of coal were
produced from the Company's Kiah Creek surface mines in the years from 1993
through 1997, respectively.
The Company owns and operates a computer-controlled, 600 tons-per-hour
heavy media preparation plant on the Kiah Creek property where the coal from all
of its underground mines on this property and a small percentage of its surface
mined coal is processed. The preparation plant sizes the raw product, then
directs the sized product to one of three circuits: heavy media vessel, heavy
media cyclones or spirals. Each of these circuits utilizes gravity separation to
separate coal from rock and other impurities. This preparation plant also has
the ability to produce stoker coal. The preparation plant has a storage capacity
of approximately 50,000 tons of raw and washed coal and a processing capacity of
approximately four million raw tons per year. This plant processed 0.8, 0.9,
1.0, 1.5 and 1.9 million tons of clean coal in the years from 1993 through 1997,
respectively, and has averaged recovery rates of 46%, 47%, 42%, 54% and 51% in
the years 1993 through 1997, respectively. The preparation plant currently
operates 24 hours per day, seven days a week. Management believes that it could
increase the capacity of this preparation plant to 1,000 tons per hour, if
necessary, for $4.8 million, although it has no current plans to do so.
The coal from the Kiah Creek surface mines and from the Kiah Creek
preparation plant is sent by truck approximately 50 miles to the Company's Wayne
County River Terminal located in West Virginia on the Big Sandy River, a
navigable tributary of the Ohio River. The Company built its Wayne County
facility in 1988 at an
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initial cost of approximately $3.5 million and has made additional capital
expenditures on this facility of $3.8 million. This river terminal, which is
approximately 15 miles from Huntington, West Virginia, has blending capabilities
and a loading capacity of approximately 6 million tons annually. This terminal
provides the Company with a strategic advantage over competitors who do not own
and operate a river loading facility as it provides the Company with greater
control over product quality and consistency, storage capacity and delivery
scheduling. While most other terminals on the Big Sandy River load coal for
third parties, the Company handles only its own coal and does not provide any
third-party loading at this facility.
The Company delivers coal by barge to its domestic customers along the Ohio
River and Mississippi River, and to its international and Gulf of Mexico
customers through International Marine Terminals, an ocean vessel loading
facility south of New Orleans on the Mississippi River which is one-third owned
by the Company. Either an independent barge operator or the Company's customers
transport the coal after it has been loaded into the river barges. The Company
recently ceased operations at its smaller river terminal in Kentucky located
along the Big Sandy River since all of the Company's barge loading needs can be
more efficiently met at the Company's Wayne County River Terminal.
The Company shipped 3.9, 3.8, 4.1, 4.4 and 4.5 million tons from its
terminals on the Big Sandy River in 1993 through 1997, respectively. According
to the Big Sandy River Committee, an organization of shipping facilities on the
Big Sandy River, including 10 coal loading facilities, the Company shipped more
tonnage than any other operator on this river in 1996 and 1997.
Generally, the Company undertakes and controls all permitting and permit
maintenance under the SMCRA requirements and similar state requirements in West
Virginia for its captive production. The Company's only contract mine site in
West Virginia is underground. The contract miner fulfills the site maintenance
requirements for the SMCRA permits as part of its contract with the Company. The
Company provides surety bonds for these SMCRA permits.
Elk Horn. In 1994, the Company acquired the Elk Horn properties through
its purchase of all of the outstanding capital stock of The Elk Horn Coal
Corporation for $71 million in cash. This acquisition made the Company one of
the largest private owners of coal reserves in Central Appalachia. The Company
produces coal through the use of contract mining companies and leases to other
coal companies the mineral rights to a portion of the coal from its Elk Horn
reserves. See "Business--Coal Leasing." The Company's Elk Horn reserves include
approximately 142,000 non-contiguous surface acres of coal bearing lands in
eastern Kentucky, all of which is owned in fee. Based on the Reserve Studies,
the Elk Horn reserves are estimated to contain more than 136 million tons of
coal.
The Company believes that due to the location and geological composition of
its Elk Horn reserves, it is more economically attractive to either contract
with other mining companies or lease to other coal companies than for the
Company to mine. See "Business--Coal Leases." However, the Company continually
reevaluates its reserves and production to determine whether the Company can
cost-effectively extract coal through its own mining operations. Therefore,
given the appropriate economic and geological factors, the Company could
determine to mine the reserves at Elk Horn itself.
Elk Horn's contract mines include both underground and surface mines.
Because of the reserve's geological composition, Elk Horn's contract underground
miners currently utilize conventional mining techniques which generally result
in less volume and productivity per man hour versus utilizing continuous mining
units. However, conventional mining tends to produce coal with less ash content
which reduces the requirement to wash the coal at a preparation plant. As a
result, the Company does not maintain a preparation plant on the Elk Horn
reserve.
Under these contract miner arrangements, the Company contracts with
independent mining companies to extract coal in exchange for a predetermined
per-ton fee. Contract mining fees at the Elk Horn operations have averaged
approximately $15.19 per ton from 1995 through 1997. Contract mining fees
typically exclude taxes and royalties. The relationships between the Company and
its contract miners are generally governed by the Company's standard contract
mining agreement (the "Contract Miner Agreement"). The Contract Mining Agreement
is for a term of one year which is automatically renewed from year to year,
although either party may elect not to renew upon 60 days' notice. Several of
the Contract Miner Agreements allow either party to terminate
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upon 30 days' notice for virtually any reason. Each Contract Miner Agreement
provides that the independent contractor meet certain minimum daily and monthly
production requirements and minimum coal quality standards. Contractors are
given premiums or charged penalties based on delivered coal quality. The
Contract Miner Agreement is not assignable by the contractor without the express
permission of the Company nor is a significant change in ownership of the
contractor permitted. The Contract Miner Agreement requires the contractor to
provide all of the equipment, manpower and other resources necessary to mine the
coal. The contractor must provide all required insurance coverage to its
employees and liability insurance for its operation. The Contract Miner
Agreement provides that the contractor will hold the Company harmless from any
environmental or health and safety liability incurred by the contractor as a
result of its mining. The Company in conjunction with the contractor, determines
the most efficient mining plan for the coal reserve in order to maximize the use
of the resources.
Similar to its contract mine in West Virginia, the Company generally
undertakes and controls all permitting and permit maintenance under SMCRA
requirements and similar state requirements in Kentucky (including providing the
surety bonds for the SMCRA permits for these contract mine sites). Each contract
miner fulfills the site maintenance requirements for the SMCRA permits as part
of its contract with the Company. All federal Mine Safety Health Act
requirements are also the sole responsibility of the contract miner.
The coal produced for the Company from Elk Horn is transported to the
Company's Wayne County River Terminal on the Big Sandy River for delivery to
customers on the Ohio River and Mississippi River systems and to the Gulf of
Mexico. The Elk Horn reserves are accessible by truck by a four-lane state
highway.
From the date of acquisition in August 1994 through 1997, contract mining
operations at Elk Horn produced 282,000, 641,000, 552,000 and 557,000 tons,
respectively. The average raw coal quality produced by these contract mining
operations has consistently exceeded the Company's sales contract requirements.
In January 1998, a new contract surface mine commenced mining operations which
is expected to increase current contract production.
Fork Creek. In November 1997, the Company acquired a 28,000-acre
contiguous tract located in Kanawha, Boone and Lincoln counties in West
Virginia. Based on the Reserve Studies, Fork Creek contains 118 million tons of
coal reserves. The Fork Creek acquisition is consistent with the Company's
strategy to focus its operations on large contiguous properties located in the
Central Appalachia region. The purchase price for this property was $16 million
with $5 million paid in cash at closing and the Fork Creek Note. The Fork Creek
Note will be repaid in full with proceeds from the Offering. See "Use of
Proceeds."
The Fork Creek reserves are a large contiguous tract of mineral reserves
analogous in size to the Kiah Creek reserves. Unlike Kiah Creek, however, the
geological conditions of the Fork Creek reserves have led the Company to plan
primarily underground mining operations to extract the mineral. The Company
intends to develop Fork Creek for its own production while selectively
contracting with other miners where such contracts are commercially attractive.
The Company expects to invest approximately $45 million over the next
several years to develop this property, including the construction of an
upgradable 400 tons per hour coal preparation plant and a 150 car, four hour,
batch weigh, fast feed rail loadout adjacent to a CSX rail line. The Company
anticipates that the construction of the preparation plant and the rail loadout
would take approximately twelve months to complete. A portion of the proceeds of
the Offering is intended to be used to fund a portion of the Fork Creek
development, and in particular to fund the construction of the preparation plant
and rail loadout. See "Use of Proceeds" and "Capital Development Program." In
addition to rail transportation, coal from this property may also be cost-
effectively transported by truck to river terminals located on the nearby
Kanawha River and loaded into river barges for shipment along the Ohio River and
Mississippi River systems. The Fork Creek reserves are accessible by truck via a
major four-lane state highway. The Company believes that flexibility in
transporting coal by rail or river barge will provide it with a competitive
advantage in increasing the number of potential customers for coal from this
property. All necessary permits for road access, the preparation plant, the
loadout and the underground facility are expected to be submitted by the end of
1998.
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Reclamation and Safety. The Company is required under various federal and
state laws to reclaim its mineral properties to their approximate original
contour and vegetation. The Company's reclamation has been recognized with
several awards, including: in 1994 the Governor's Environmental Excellence
award, the highest honor bestowed by the Governor of Kentucky for the best
overall reclamation achieved by a mining operation within Kentucky for that
year, and in both 1994 and 1997 awards presented by the West Virginia Mining and
Reclamation Association in West Virginia. Because the Company's properties are
large contiguous tracts, the Company has the ability to plan and schedule
reclamation over an extended period while continuing to mine the property at
various sites.
The Company is required under various federal and state laws to comply with
certain safety standards. The Company has been consistently recognized for mine
safety. It won the Mountaineer Guardian Award in 1994, 1995 and 1996, which is
based on tonnage mined without a fatality. The Company also received the Holmes
Safety Association Small Surface Mine Award for its Kiah Creek Surface Mine,
which is presented to a surface mine with less than 50 employees for achieving
safety benchmarks. The Company's Wayne County River Terminal also received the
Joseph A. Holmes Safety Award for 1995, 1996 and 1997, which is based on man
hours worked without a fatality.
Coal Leasing. The primary use of the Company's Elk Horn property has
involved the leasing of its mineral rights to independent coal producers in
exchange for revenue-based lease royalties. The Company's strategy has been to
lease attractive coal reserves to reliable coal producers under financially
sound leases. As noted earlier, the Company owns the mineral rights on
approximately 142,000 acres in eastern Kentucky and has approximately 136
million tons of reserves, which are generally characterized as high-volatility
bituminous with low-sulfur content. The Elk Horn coal reserves are strategically
located in eastern Kentucky, with access to major markets on the CSX rail
system, and by barge via the Big Sandy and Ohio Rivers. Much of these reserves
are adjacent to numerous mining companies' operations. As a result, it often is
cost-effective for such mining companies to continue mining in such areas,
including on reserves leased from the Company for a fee, rather than to cease
mining operations at such locations and redeploy equipment to other locations or
idle or dispose of equipment. All of these factors make the Company's Elk Horn
reserves attractive lease property to independent producers and coal operators.
During the three-month period ended March 31, 1998, the Company had 15
operators who were actively mining, including leases with MC Mining, a division
of MAPCO, Addington Mining, M&M Enterprises, TECO Coal (a subsidiary of TECO
Energy), Lodestar and Electric Fuels Corporation (a subsidiary of Florida
Progress). Generally, the lease terms provide the Company with a royalty fee of
up to 10% of the sales price of the coal with a minimum of $1.75 to $2.50 per
ton. The length of such leases generally varies from three to five years with
five years being the most common term. The Company has a limited number of
longer term leases which have terms of 35 years to the exhaustion of the
reserve. Under these longer term leases the royalties range from 4% to 7% of the
coal sales price. A minimum royalty per year is required whether the property is
mined or not. Such minimum royalty can be recouped by the lessee as a credit
against royalties owed on mined coal if there is production within a period of
time after the minimum royalty is paid. This system motivates the lessee to
maximize production of the property during the term of the lease. The Company's
credit experience with its lessees has historically been favorable, with minimal
bad debt write-offs for the period from 1995 through 1997 of $27,000, $3,000 and
$111,000, respectively.
In the period from 1993 through 1997, independent coal producers mined
approximately 3.1, 4.0, 3.7, 3.4 and 3.0 million tons, respectively, of coal
under leases (the information provided prior to the Company's acquisition of the
Elk Horn reserves has been derived from amounts reported by Elk Horn's previous
owner). Management believes that the amount of leased coal mined in 1997
decreased from 1995 and 1996 levels due to (i) lower market prices reducing
general production from the area; (ii) permitting delays; (iii) geological
interruptions; and (iv) the changing of ownership of certain lessees. Leased
coal production for the three months ended March 31, 1998 was 0.8 million tons.
Leasing contributed an average of $9.4 million per year in revenues since 1994
and management believes leasing will continue to generate significant revenues
based on existing leases and indications of future mining activity by these
operators.
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The leasing business operates from Prestonsburg, Kentucky with nine
employees. The main activities include new lease development, cubication for
lessee extraction verification, continuing reserve analysis and mapping,
acquisitions and dispositions of properties, lease compliance, environmental
oversight on unleased properties, and related matters.
In recent years, Elk Horn's internal engineering and mapping group has
identified and prioritized the coal reserves which are favorable for
development. Management has proactively sought lessees for these identified
areas. The Company has also leased in response to inquiries about mining
opportunities in specific seams, areas, or boundaries. The Company's objective
is to acquire by purchase or lease properties contiguous to its Elk Horn
properties in order to offer additional lease tracts to coal operators.
COAL TRANSPORTATION
The Company's coal is transported to its customers primarily by barges
loaded at the Company's river terminal on the Big Sandy River and, to a much
lesser extent, by truck and rail. The Company shipped less than 1% of its
tonnage sold by rail in 1997, although the Company intends to construct a rail
loadout facility at Fork Creek. See "Use of Proceeds" and "Capital Development
Program."
Depending on the proximity of the customer and the transportation available
for delivering coal to that customer, the customer's transportation costs can
significantly increase the total delivered cost. According to information from
RDI, the transportation costs incurred by all other producers of coal who ship
to the Company's long-term domestic sales contract customers range from 22% to
50% of the total cost of the customer's coal. The Company generally pays truck
charges to deliver coal from its preparation plant or mine site to its Wayne
County River Terminal and incurs costs to load it onto a barge. Customers
typically pay the transportation costs from the barge to the customer's ultimate
destination of delivery. The average annual per ton cost incurred by the Company
for transporting its coal from the preparation plant or mine site to its river
terminals during the period from 1993 through 1997 was $3.86. For the Company's
export customers, the Company incurs additional charges related to the
transloading from river barges to ocean-going vessels. The availability and cost
of transportation constitute important factors for the marketability of coal.
The Company currently contracts with 12 non-union independent trucking
companies to haul its coal from the mine site or preparation plant to the Wayne
County River Terminal. These hauling arrangements typically consist of a term of
three years and are based on a fixed fee per ton. The Company believes it can
replace, if necessary, any of its independent trucking relationships with other
independent trucking companies upon relatively short notice.
COAL MARKETING AND SALES
The Company employs eight people in its sales and marketing department.
Such personnel's responsibilities include the development of new sales
agreements, the preparation of bids for new and renewal agreements, maintaining
relationships with existing and potential customers, monitoring compliance and
administration of existing sales agreements, including the quality of the coal
delivered, coal purchases and coordinating and assisting with the transportation
requirements needed for coal delivery. The Company anticipates hiring an
additional sales person to assist with the sales and marketing of the Fork Creek
reserves. The Company's marketing personnel have extensive experience and good
customer relations in the coal industry. These strengths allow the Company to
make long-term sales commitments which are consistent with the Company's
strategy of selling its coal well in advance of production.
LONG-TERM COAL SALES CONTRACTS
Long-term coal sales contracts are for terms of more than one year. The
Company's long-term sales contracts are primarily with electric utilities, with
a weighted average remaining life of approximately 3.3 years excluding option
periods and approximately 9.6 years including option periods as of December 31,
1997. The Company historically has focused on securing contracts with public
electric utilities and has not pursued contracts with independent power
producers. While the terms of sales contracts with public utilities generally
are shorter than sales contracts with independent power producers, the Company
believes that contracts with public
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electric utilities are more desirable because they are less reliant on
individual project performance. In the period from 1993 through 1997, the
Company had no bad debt expense from its coal customers.
The Company's long-term sales contracts have accounted for an average of
approximately 85% of the Company's coal sales revenues for the period 1993
through 1997. Over the same period, approximately 2.3 million tons of annual
coal shipments covered by sales contracts were up for renewal, and sales
contracts for all of this coal were rolled over into new sales contracts upon
their expiration. In addition, over the same period, the Company entered into a
new long-term sales contract for 0.3 million tons per year (the coal delivered
under this contract escalates to 0.7 million tons of annually by the year 2002).
The Company believes that customers enter into such long-term sales contracts
principally to secure a reliable source of coal at predictable prices. The
Company enters into such contracts to obtain the stable sources of revenues
required to support the large expenditures needed to open, expand and maintain
the mines servicing such contracts.
The Company's long-term contract with Taiwan Power Company accounted for
56%, 58%, 36%, 23% and 25% of the Company's coal sales revenues from 1993
through 1997, respectively. The contract with Taiwan Power expires in 1999, and
the Company expects that it will not be renewed or extended due to the high
transportation cost to Taiwan from the Gulf of Mexico, as compared with other
sources. The Company's long-term sales contract with Dayton Power & Light
accounted for 15%, 15%, 23%, 21% and 24% of the Company's coal sales revenues
from 1993 through 1997, respectively. The Company's long-term sales contract
with American Electric Power-Mountaineer accounted for 8%, 9%, 15%, 18% and 17%
of the Company's coal sales revenues from 1993 through 1997. No other contract
accounted for more than 10% of 1997 coal sales revenues. The Company continually
bids on new contracts to replace existing contracts in order to align supply
requirements with its anticipated production levels. There can be no assurance,
however, that the Company will be able to secure additional contracts to replace
any expiring contract or to replace such contract on terms favorable to the
Company. As a result, the loss of these or other of its sales contracts could
have a material adverse effect on the Company's financial condition and results
of operations.
The following table sets forth information regarding the remaining contract
tonnage, the contract expiration date, the estimated future average base price
per ton and the estimated future revenue of the Company's existing sales
contracts:
<TABLE>
<CAPTION>
CONTRACT TOTAL REMAINING ESTIMATED FUTURE
EXPIRATION DATE CONTRACT TONNAGE(1) AVERAGE BASE PRICE(2)
------------------- ------------------- ---------------------
YEARS OF MINIMUM MAXIMUM
CONTINUOUS WITHOUT WITH WITH WITH WITHOUT WITH
CUSTOMER(3) SERVICE OPTIONS OPTIONS 1997 TONNAGE OPTIONS OPTIONS OPTIONS OPTIONS
----------- ------- ------- ------- ------------ ------- ------- ------- -------
(IN THOUSANDS) ($ PER TON FOB BARGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AEP-Mountaineer........ 9 12/31/00 12/31/03 854 5,112 6,840 $33.00 $30.00
AEP-Tanners Creek(4)... 2 12/31/02 12/31/07 -- 4,500 7,440 28.85 28.66
EFC-Florida Power...... 8 07/31/01 07/31/04 431 2,336 2,894 29.00 29.00
East Kentucky Power.... 9 12/31/98 12/31/02 127 1,500 2,100 28.50 28.50
Dayton Power & Light... 7 06/30/00 06/30/10 1,502 16,975 20,625 25.91 27.00
Taiwan Power Company... 18 12/31/99 12/31/99 1,144 2,183 2,668 25.50 25.50
Vanderbilt
University........... 8 06/30/99 06/30/99 70 55 80 34.00 34.00
</TABLE>
- ---------------
(1) Remaining contract tonnage amounts have been calculated assuming exercise by
customers of all possible options to extend the applicable contracts to
their maximum possible terms. "Minimum" and "Maximum" refer to tonnages that
could be shipped pursuant to such fully-extended contracts.
(2) Estimated future average base price is the average of the base price of the
contract over its remaining life with options, assuming that coal will be
delivered in accordance with the contract terms and utilizing assumed market
prices for option periods. Base price is the stated contract price for the
quality of coal specified in the contract after adjustments, if any, for
fixed and determinable contract price increases. The majority of the
Company's contracts provide for limited adjustments based on unforeseen
changes of law, including tax and environmental and safety legislation. The
actual price received for coal shipped will vary from the estimated future
average base price due to variances in these other adjustments and
adjustments to the base price for the
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quality of coal actually shipped. Assumptions as to future market prices,
while presented with numerical specificity and considered reasonable by the
Company as of the date hereof, are inherently subject to significant
business, economic, competitive and regulatory uncertainties and
contingencies, many of which are beyond the control of the Company. See
"Risk Factors--Reliance on Long-Term Sales Contracts."
(3) A contract with Kentucky Utilities expired on March 31, 1998. The Company
submitted a bid in May 1998 for a new contract with Kentucky Utilities. In
1997 the Company shipped 289,000 tons of coal under that contract. At time
of the expiration of the contract, the Company had a continuous supply
relationship with Kentucky Utilities of approximately 8 years.
(4) Shipment of coal to this customer under a sales contract commenced in
January 1998. Prior to shipment under this contract, the Company had
continually served this customer for two years, with spot shipments.
BENEFITS OF SALES CONTRACTS TO CUSTOMERS
The Company's long-term coal sales contracts specify Btu, sulfur, ash,
moisture, volatility and other qualities. The Company believes that customers
generally enter into long-term sales contracts to assure themselves of a supply
of coal at a predetermined price, thereby obtaining some protection from market
price fluctuation and establishing a dependable supply source. Typical contracts
between the Company and its customers contain provisions that (i) give the
customer various options to increase or decrease quantities of coal to be
delivered under the contract, within stated limitations, (ii) advance or delay
the delivery schedules to a specified extent, (iii) modify or terminate
contracts under certain circumstances, and (iv) call for adjustments in the
purchase price of coal based, in most cases, upon industry-wide or
macro-economic factors (although changes in these may not reflect actual changes
in the Company's costs), and in some cases, as to certain cost components, upon
specific costs incurred by the Company.
The contracts also provide that the customers have a right to terminate
their purchase obligations if applicable environmental standards would prohibit
the burning of the coal to be purchased. In addition, the contracts provide for
suspension of deliveries upon the occurrence of certain force majeure events
(i.e., events outside the control of the parties) as defined in the contracts.
Moreover, certain of the contracts require that the coal to be delivered be
mined and shipped only from approved sites or specific seams, which approval has
been secured with respect to areas mined to date. If the coal supplied is not
timely delivered or fails to meet the contract's specifications, the contract
may allow the customer to suspend its acceptance of deliveries until the Company
furnishes reasonable assurances that the deficiency will be corrected. If
corrections are not made within a specified period, the customer may terminate
its contract. The Company has been able to meet its contractual obligations
under its coal sales contracts in all material respects. The discussion of the
coal sales contracts is qualified in its entirety by reference to the actual
coal sales contracts.
The terms of long-term sales contracts result from applicable bidding
procedures and extensive negotiations with customers. Consequently, the terms of
such contracts typically vary significantly in many respects, including price
adjustment features, price reopener terms, coal quality requirements, quantity
parameters, flexibility and adjustment mechanics, permitted sources of supply,
treatment of environmental constraints, options to extend, and force majeure,
termination and assignment provisions. Management believes electric utilities in
general are shifting their contracts towards shorter term periods, generally
three to five years, to avoid price inflation indexes and more closely align
supply with market prices, and are increasing their spot market purchases to
meet variable electricity generation as they prepare for greater competition in
a deregulated environment.
Virtually all of the Company's sales contracts are subject to price
adjustment provisions which permit an increase or decrease at specified times in
the contract price to reflect changes in certain price indices or other economic
indices, taxes and other governmental charges. Currently, only the Taiwan Power
sales contract contains an annual price reopener provision which provides for
the contract price to be adjusted upward or downward on the basis of certain
market factors. Contract prices are generally higher than the price at which a
customer could acquire and take delivery of coal of similar quality in the spot
market.
The Company has not had any material contract disputes with its long-term
sales contract customers in the last five years. The Company may in the future
be involved in contract disputes relating to, among other things, coal quality,
pricing and quantity. While material customer disputes, if unresolved, could
result in the termination
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or cancellation of the applicable contract, the Company believes that curative
and/or dispute resolution measures decrease the likelihood of termination or
cancellation. In addition, the Company's development of long-term business
relationships with many of its customers has generally permitted it to resolve
business disputes in a mutually acceptable manner. Nevertheless, the Company
may, from time to time, be involved in arbitration or other legal proceedings
regarding its sales contracts, and there can be no assurance that any such
future disputes will be resolved in a mutually satisfactory manner.
Operating profit margins realized by the Company under its sales contracts
vary from contract to contract and depend upon a variety of factors, including,
without limitation, price adjustment provisions and the Company's production and
transportation costs. Termination or suspension of deliveries under a
high-priced contract could have a material adverse effect on earnings and
operating cash flow disproportionate to the percentage of production represented
by the tonnage delivered under contract.
OTHER
International Marine Terminals. The Company has a one-third partnership
interest in International Marine Terminals ("IMT"). IMT owns and operates an
ocean marine loading facility located in Louisiana south of New Orleans along
the Mississippi River. IMT (i) transloads coal from river barges into gulf
barges or ocean going vessels to Gulf Coast coal customers and international
markets; (ii) transloads pet coke for domestic producers (or their sales
brokers); and (iii) provides transloading services for the U.S. steel industry
with imported iron ore and other ferro alloys. The Company believes that IMT
handles approximately 40% to 50% of the export coal trade through the port of
New Orleans, or 4,000,000 to 5,000,000 tons per year.
IMT is dependent on U.S. coal producers' ability to compete in the world
coal market and the strength of the U.S. steel industry. The freight rates of
the carriers who serve IMT (barge and ocean), along with the railroad rates to
the east coast and Gulf Coast ports, are completely independent of IMT; the
relative level of these different freight rates can have a substantial impact on
IMT's annual volume.
Due to the excess coal transfer capacity in the Gulf of Mexico region,
prices over the last five years have been competitive. IMT currently receives
approximately $2.10 per ton for ground storage coal. IMT averages approximately
$1.85 per ton of coal moved, both directly to the vessel from a barge and out of
ground storage. IMT receipts averaged approximately $1.30 per ton for iron ore
and other bulk commodity transfers. During the period from 1993 through 1997,
the Company's share of net income (loss) earned from IMT was ($272,000),
($201,000), $150,000, ($111,000) and ($167,000), respectively, and the Company's
share of cash distributions received from IMT was $1,500,000, $1,200,000,
$600,000, $200,000 and $300,000, respectively.
Long-term investments on the Company's balance sheet at December 31, 1997
include zero coupon U.S. Treasury bonds with a book value totaling $13.3 million
held in escrow in connection with the Company's purchase of its interest in IMT.
Such bonds will accrete to satisfy the Company's portion of IMT's debt
(approximately $7.7 million) due 2000 and bonds (approximately $13.3 million)
due 2006. The Company also has agreed to fund its portion of IMT's expenses.
Cotton. The Company has one cotton ginning and warehousing business in
South Carolina which accounted for approximately 6% of the Company's 1997
revenues. In 1996, the Company sold Pen Cotton Tennessee, its Tennessee cotton
operations, and closed Pen Cotton Company of Alabama, Inc., its Alabama cotton
merchandising activity. Approximately 23,000 bales of cotton were ginned in
1997, compared with approximately 30,000 bales in 1996. The Company receives
fees for its services for ginning and warehousing. In 1997, revenues from this
operation were $10.3 million. The South Carolina cotton operation revenues as a
percentage of total revenues and EBITDA as a percentage of total EBITDA as
reflected in the Supplemental Historical Unaudited and Pro Forma Adjusted
Financial Data for the period from 1993 through 1997 were 1.4%, 4.7%, 7.8%, 8.3%
and 5.7%, respectively and (0.4%), 1.0%, 0.7%, 3.0% and 1.7%, respectively. The
Company also typically purchases cottonseed from the farmer at the time of
ginning. The seed is then sold to a local oil mill who produces cottonseed oil
or, more commonly, is sold into the dairy cattle market where the seed is used
as a feed. Consistent with the Company's strategy to focus on its core business,
the Company, may, given the right market conditions, choose to sell its
remaining cotton operations.
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ADMINISTRATIVE OFFICES AND EQUIPMENT
The Company maintains administrative offices in Brentwood (located near
Nashville), Tennessee, Kenova Dunlow, and Alum, West Virginia and Prestonsburg,
Kentucky. In addition, the Company currently leases some of the equipment used
in its mining operations, such as bulldozers, graders, rock trucks, loaders,
continuous miners, and shuttle cars. In the Company's opinion, its offices and
equipment are adequate and suitable for its current operations.
LEGAL PROCEEDINGS
IRS Proceedings. In 1995, following years of discussions and proceedings
with the Internal Revenue Service ("IRS"), the Company received deficiency
notices from the IRS seeking additional taxes of approximately $30 million
(exclusive of interest) and penalties of approximately $6 million for the years
1982 through 1989. In 1995, the Company filed petitions in the U.S. Tax Court
(the "Tax Court") challenging the IRS deficiency notices in litigation, which is
ongoing. After pretrial discussions between the Company's counsel and the IRS
trial attorney, the Company and the IRS have resolved most of the issues. As a
result, the Company paid additional tax of approximately $140,000 (exclusive of
interest), and the IRS conceded tax of approximately $14,860,000 and penalties
of approximately $4,000,000. Accordingly, the remaining asserted tax deficiency
is approximately $15 million and the remaining asserted penalties are
approximately $2 million. The primary remaining issue in dispute is the
deductibility of an aggregate of approximately $36 million in payments made by
the Company as commissions in connection with certain expired coal contracts
with Taiwan Power Company. The IRS has advanced three theories for disallowing
the deductions for these payments: (i) the payments were not ordinary and
necessary business expenses and the amount of the payments was unreasonable;
(ii) some or all of the payments were foreign lobbying expenses; and (iii) some
or all of the payments were illegal payments to foreign officials. The IRS
recently conceded that the payments were not unreasonable in amount and also
informed the Company that the IRS would not pursue its claim that the payments
were illegal payments to foreign officials. Management believes that all of
these payments were properly deducted in the years in question. Accordingly, the
Company intends to defend vigorously its position including, if necessary,
continuing to litigate the issue. The Company's counsel and the IRS counsel
continue to discuss the commissions issue. However, in the event that the
Company and the IRS fail to reach a pretrial resolution of the commissions
issue, the Tax Court trial would occur, at the earliest, in late 1999, and
management believes that the Tax Court would likely not render a decision before
2000. While it is impossible to predict the final disposition of the Tax Court
litigation, management believes that the Company should prevail. However, there
can be no assurance that the Company will prevail in the Tax Court litigation.
The IRS also is currently examining the Company's federal tax returns for
the years 1990 through 1993. The Company has received various preliminary
notices of proposed adjustments from the IRS proposing substantial adjustments
to taxable income reported on the Company's income tax returns for these years.
These preliminary notices have not been finalized, and management believes it is
likely that certain of these proposed adjustments will be eliminated or
substantially reduced prior to the completion of the examination and the
issuance of the revenue agent's examination report. The IRS has raised a variety
of issues including the deductibility in these years of the commissions relating
to the coal contracts referenced above, the Company's substantiation for certain
deductions taken during this period, and unrecognized income and gain from
certain transactions during this period. The Company is continuing to meet with
the IRS to discuss these issues in an attempt to resolve them. Given the early
stage of this examination, and the number and complexity of the administrative
and judicial proceedings involved in reaching a resolution, management believes
it is unlikely that the ultimate outcome will be determined for several years.
Additionally, since the IRS has not yet issued its examination report,
management does not know what issues the IRS will pursue and is unable to
estimate the likely outcome for these years.
Management believes that the Company has provided sufficient reserves with
respect to the amounts at issue. In addition, the terms of the Convertible
Preferred Stock provide that the amount of liquidation preference and any
accumulated but unpaid dividends shall be reduced by any tax deficiencies or
settlements (including penalties and interest) paid or payable for all periods
beginning prior to December 29, 1995. Accordingly, management believes that the
likely outcome of these matters should not have a material adverse effect on the
Company's
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<PAGE> 74
financial condition or results of operations. However, there can be no assurance
that the Company will prevail in these matters. If the Company were required to
pay a significant portion of the deficiencies determined for 1982 through 1989
with related interest and penalties and any amounts that may be assessed for
1990 through 1993, any such payment could have a material adverse effect on the
Company's financial condition.
Other. Additionally, in the ordinary course of its business, the Company
is also involved in certain pending or threatened legal proceedings. The Company
believes that none of such proceedings of which it currently is aware will have
a material adverse effect on the financial position or results of operations of
the Company.
GOVERNMENT REGULATION
The Company is subject to regulation pursuant to a variety of
environmental, health and safety laws, including SMCRA, the Federal Coal Mine
Health and Safety Act, the Clean Air Act, the Clean Air Act Amendments and the
Federal Water Pollution Control Act which govern, among other things, air
emissions, discharges to surface and ground water, waste storage, treatment and
disposal, and remediation of releases of hazardous materials. These laws require
governmental approval of many aspects of coal mining operations, including
reclamation of mined areas. The Company believes that it has all material
permits required to conduct its present mining operations and that it is in
material compliance with them as well as other applicable environmental, health
and safety requirements.
As of December 31, 1997, the Company had accrued approximately $3.28
million for estimated reclamation liabilities. Except for the reclamation costs,
amounts spent by the Company in 1997 for environmental matters were not material
and are not expected to be material in 1998 or 1999. However, there can be no
assurance that new information, new laws and regulations or increased
enforcement of existing requirements will not require significant additional
expenditures, or that compliance with any such laws and regulations will not
have a material adverse effect on the Company's financial condition and or
operations.
EMPLOYEES
At December 31, 1997, the Company employed 341 people. None of the
Company's employees are represented by a labor union, and management believes
that its relations with its employees are good. The Company maintains an open
communications management style along with a strong commitment to the safety and
welfare of its employees. The one previous effort to unionize the Company's
employees in 1988 was unsuccessful. The Company cannot predict whether there
will be any unionization activities in the future.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following information is furnished with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
William E. Beckner........................ 46 Chairman of the Board of Directors, President and
Chief Executive Officer
Stephen G. Capelli........................ 47 Senior Vice President of Operations; Director
Joseph A. Davis, Jr....................... 50 Senior Vice President of Sales and Marketing;
Director
Mark A. Oldham............................ 40 Senior Vice President, Secretary and Treasurer/
Chief Financial Officer
</TABLE>
William E. Beckner has been the President and Chief Executive Officer of
the Company since 1993, and Chairman of the Board of Directors since 1996. Mr.
Beckner also served as Executive Vice President and Chief Operating Officer of
Pen Holdings from 1986 to 1993 and as Vice President of Finance from 1982 to
1986. Mr. Beckner, who has 18 years of experience in the coal industry and has
been with the Company for 15 years, holds a controlling interest in Pen
Holdings. Mr. Beckner received an M.B.A. degree from the University of Tennessee
(Nashville) in 1979 and received a B.S. degree in Business from the University
of Evansville in 1973.
Stephen G. Capelli has been the Senior Vice President of the Company's coal
operations and a director of Pen Holdings since 1996, having previously served
as Vice President of Operations since 1994. Mr. Capelli has 26 years of
experience in the coal industry. Prior to joining the Company, Mr. Capelli was
Vice President of Mining and Development of Amvest Minerals, Inc., a coal
company, from 1991 to 1994. Mr. Capelli serves on the Board of Directors of the
West Virginia Mining and Reclamation Association. Mr. Capelli received a B.S.
degree in Mining Engineering from Virginia Tech University in 1973.
Joseph A. Davis, Jr., has been Senior Vice President of Sales & Marketing
of the Company's coal operations and a director of Pen Holdings since 1996.
Prior to that time, Mr. Davis was Vice President of Sales and Marketing from
1987. Mr. Davis has 22 years of experience in the coal industry. Before joining
the Company, he was Vice President of Sales for Benford-Nightengale Coal Company
from 1977 to 1984, and was Sales Manager of Kentucky Pioneer Coal Company from
1975 to 1977. Mr. Davis received a B.A. degree from Western Kentucky University
in 1976.
Mark A. Oldham has been Senior Vice President, Secretary and
Treasurer/Chief Financial Officer of the Company since 1996. Prior to that time,
Mr. Oldham served as Vice President from 1993 to 1996 and Controller from 1985
to 1993. Mr. Oldham has 14 years experience in the coal industry. Mr. Oldham is
a Certified Public Accountant (CPA) and has been a member of the American
Institute of Certified Public Accountants and the Tennessee Society of CPA's
since 1982. From 1979 to 1984, Mr. Oldham was employed in public accounting. Mr.
Oldham received a B.S. degree in Business Administration from Tennessee
Technological University in 1979.
BOARD COMPENSATION
All current directors are employees of the Company. No additional
remuneration beyond their compensation as employees is currently given to
directors for their services.
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities for the year ended December 31, 1997, for (i) the chief executive
officer of the Company, and (ii) each of the three other most highly compensated
executive officers of the Company who received in excess of $100,000, determined
as of December 31, 1997 (collectively, the "Named Executive Officers").
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<PAGE> 76
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION(1)
--------------------------- ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William E. Beckner.................... 1997 $383,575 $ 360,000 -- $4,800
President and Chief Executive
Officer
Stephen G. Capelli.................... 1997 148,000 66,000 $75,045(2) 4,800
Senior Vice President of Operations
Joseph A. Davis, Jr................... 1997 141,000 52,875 75,045(2) 4,800
Senior Vice President of
Sales/Marketing
Mark A. Oldham........................ 1997 125,000 37,500 75,045(2) 4,285
Senior Vice President, Secretary,
Treasurer/Chief Financial Officer
</TABLE>
- ---------------
(1) Represents annual contribution made by the Company under its 401(k) plan.
(2) Represents incremental increase in the value of the officer's account under
the Pen Holdings, Inc. Stock Purchase Plan (the "Stock Purchase Plan"). The
Stock Purchase Plan provides generally that stock issued to the officer will
be repurchased by the Company upon the termination of the officer's
employment with the Company. The repurchase price for this stock is equal to
$0.01 plus the aggregate net income per common share, determined over the
period beginning with the close of the 1995 fiscal year and ending with the
close of the Company's last fiscal year ending prior to the officer's date
of termination. The amount included does not include amounts credited to the
account of the officer prior to 1997.
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CERTAIN RELATED PARTY TRANSACTIONS
LOANS AND GUARANTEES
The Company owns a one-third interest in the general partnership IMT, an
ocean marine loading facility located in Louisiana. The Company is a guarantor
of $7,667,000 of IMT debt. The Company intends to make a capital infusion to IMT
to repay one-third of the partnership's debt ($21,000,000, which includes the
$7,667,000 described above) at its scheduled maturity. The Company has escrowed
U.S. government obligations that will accrete to an amount sufficient to fund
this infusion.
The Company is also a guarantor of a bank loan in the amount of $186,000 to
the Company's partner in Camden Hardwood Company for the partner's capital
contribution.
The Company extended a loan to the previous Chairman of the Board of
Directors in the amount of $500,000 in 1994. Repayment was made in installments
of $2,083 plus interest through December 1997, with a balloon payment of
$425,000 due in December 1997. The loan was paid in full in July 1997.
ARRANGEMENTS INVOLVING AFFILIATES
The Company uses the IMT facility to load coal for export. Fees paid to IMT
for coal loading in 1997, 1996 and 1995 were approximately $1,988,000,
$1,864,000 and $2,115,000, respectively.
In 1996 and 1995, the Company paid approximately $60,000 and $997,000,
respectively, in commissions for coal sales to a relative of a shareholder. In
1995, the Company paid approximately $249,000 in commissions for coal sales to a
company controlled by a relative of a shareholder.
RECAPITALIZATION
The Company completed the Recapitalization in December 1995 whereby
4,250,000 shares of the Company's outstanding common stock held by the former
majority shareholder were converted into 4,250,000 shares of Class I Common
Stock (as defined herein) and 10,000 shares of Convertible Preferred Stock with
a redemption value of $13.65 million. The Company then reacquired 4.0 million
shares of Class I Common Stock in exchange for cash of $12.50 million, 100% of
the Company's investment in the common stock of Pen Development of California,
Inc., which had a book value of approximately $3.34 million, and Company assets
with a book value of $63,000.
Concurrent with the Recapitalization, 4.04 million shares of Class I Common
Stock were issued to the Company's current Chief Executive Officer for $0.01 per
share.
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<PAGE> 78
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Tennessee law and to
the provisions of the Company's Restated Charter, as amended.
The authorized capital stock of the Company consists of (i) 10,000 shares
of Convertible Preferred Stock, without par value (the "Convertible Preferred
Stock"), (ii) 7,800,000 shares of Class I common stock, par value $0.001 per
share (the "Class I Common Stock") and (iii) 200,000 shares of Class II common
stock, par value $0.001 per share (the "Class II Common Stock" and collectively
with the Class I Common Stock, the "Common Stock"). As of December 31, 1997, (i)
10,000 of the authorized shares of Convertible Preferred Stock, (ii) 4,290,000
of the authorized shares of Class I Common Stock and (iii) 177,550 of the
authorized shares of Class II Common Stock were issued and outstanding.
COMMON STOCK
Class I Common Stock and Class II Common Stock vote together as a single
class on matters coming before the Company's shareholders.
Class II Common Stock may only be issued to those officers designated
eligible under the Pen Holdings, Inc. Stock Purchase Plan. The Stock Purchase
Plan provides that the Class II Common Stock is to be repurchased by Pen
Holdings upon the officer's termination of employment with Pen Holdings.
The declaration and payment of dividends are restricted by certain
covenants in the Indenture and in the New Credit Facility. In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Class I
and Class II Common Stock are entitled to share equally and ratably in the
assets of the Company, if any, remaining after the payment of all debts and
liabilities of the Company (including the Notes) and payments to the holders of
Convertible Preferred Stock. There is no established public trading market for
the Common Stock.
The Company has reserved 560,000 shares of Class I Common Stock for
issuance pursuant to options, warrants or other rights granted or which may be
granted to financial institutions with which the Company has a borrowing
relationship. As of December 31, 1997, no Class I Common Stock had been issued
with regard to these options, warrants or rights; however, warrants to purchase
326,772 shares of Class I Common Stock were outstanding. The warrants are
exercisable beginning January 2001 at $.01 per share and may be put to the
Company at the fair value of the Class I Common Stock at that time, subject to a
minimum value of $3.0 million. Such warrants will be redeemed using a portion of
the net proceeds of the Offering. See "Use of Proceeds." No other Class I Common
Stock may be issued until the Convertible Preferred Stock is redeemed in full.
Each holder of Class I Common Stock has the option to sell to the Company
100% of the stock held at a price of $.01 per share. This option is exercisable
beginning January 2005 and lapses upon conversion of the Convertible Preferred
Stock to Class I Common Stock.
CONVERTIBLE PREFERRED STOCK
All, but not less than all, of the Convertible Preferred Stock is
convertible at the option of the holder into an aggregate of 2,950,000 shares of
Class I Common Stock. The conversion feature is exercisable at the earlier of
(i) the period beginning January 2001 and ending January 2002 or (ii)
immediately prior to a merger, consolidation or share exchange involving the
Company or a sale of all or substantially all of the assets of the Company. No
dividends accrue on the Convertible Preferred Stock until January 2001.
Beginning on January 3, 2001 dividends on the Convertible Preferred Stock accrue
at an annual rate of 25.25% of the then liquidation preference. Dividends not
paid will accumulate without interest until the Convertible Preferred Stock
becomes mandatorily redeemable. The Convertible Preferred Stock is mandatorily
redeemable in 2006. The Indenture will not prohibit such mandatory redemption in
2006. See "Description of Notes--Certain Covenants--Limitations on Restricted
Payments." The Convertible Preferred Stock will be redeemed at that time by
issuance of one or more promissory note(s) from the Company equal to the
liquidation preference of the Convertible Preferred Stock payable in 40
quarterly installments at an interest rate of 2.25% above the rate payable on
five-year U.S. Treasury obligations on the date of redemption (the "Redemption
Interest Rate"). The liquidation preference of the Convertible Preferred Stock
was $13,650,000 at March 31, 1998 and is subject to reduction to the extent of
any
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<PAGE> 79
tax deficiencies or settlements (including interest and penalties paid or
payable for all periods beginning prior to December 29, 1995. See
"Business--Legal Proceedings--IRS Proceedings." At redemption, accrued but
unpaid dividends bear interest at the Redemption Interest Rate and are payable
on the same terms as the liquidation preference. No dividends may be paid on the
Common Stock prior to the full redemption of the Convertible Preferred Stock.
Except as provided in the Company's charter or as otherwise required by law, the
Convertible Preferred Stock does not have any voting rights.
The liquidation preference of the Convertible Preferred Stock, as well as
the amounts owed upon redemption of the Convertible Preferred Stock, are to be
reduced by all amounts owed by the Company with respect to tax periods beginning
prior to December 29, 1995. See "Business--Legal Proceedings--IRS Proceedings."
SECURITY OWNERSHIP
OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information concerning ownership of
the Class I and Class II Common Stock of the Company by each director, each
person who is known to the Company to be the beneficial owner of more than 5% of
the Class I and Class II Common Stock and all directors and officers of the
Company as a group. Each stockholder listed below has sole voting and
dispositive power with respect to the shares listed next to his name. The
address of each stockholder listed below is: c/o Pen Holdings, Inc., Center
Court Building, 3rd Floor, 5100 Maryland Way, Brentwood, Tennessee 37027.
<TABLE>
<CAPTION>
CLASS I COMMON STOCK(1) CLASS II COMMON STOCK(1)
--------------------------- --------------------------- PERCENTAGE OF
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE CLASS I AND
SHARES OF CLASS SHARES OF CLASS CLASS II
NAME AND ADDRESS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OF BENEFICIAL OWNER OWNED OWNED OWNED(2) OWNED OWNED
------------------- ----- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C>
William E. Beckner.................... 4,040,000 94.2% 90.4%
Stephen G. Capelli.................... 44,900 25.3% 1.0
Joseph A. Davis, Jr................... 44,900 25.3% 1.0
Mark A. Oldham........................ 44,900 25.3% 1.0
Directors and Executive Officers as a
group (4 persons)................... 4,040,000 94.2% 134,700 75.9% 93.4%
</TABLE>
- ---------------
(1) The Company's Class I and Class II Common Stock currently have the same
rights. Prior to the Recapitalization the classes of stock had different
rights, however, the difference in rights no longer exists.
(2) Includes shares subject to repurchase upon termination of employment with
the Company under the Stock Purchase Plan.
REPORTS TO NOTEHOLDERS
The Company intends to furnish the holders of the Notes with annual reports
containing audited financial statements after the end of each calendar year and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
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<PAGE> 80
DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
Upon the consummation of the Offering on June 8, 1998 (the "Closing Date"),
the Company amended and restated its then existing credit facility (the
"Original Credit Facility") with an Amended and Restated Credit Facility (the
"New Credit Facility"). Mellon Bank, N.A. is the Administrative and Collateral
Agent and Canadian Imperial Bank of Commerce is the Syndication Agent under the
New Credit Facility. The New Credit Facility provides the Company with a $40.0
million committed revolving credit facility guaranteed by certain of the
Company's subsidiaries (the "Bank Guarantors"). The New Credit Facility includes
a $5.0 million sub-limit for the issuance of letters of credit. This information
relating to the New Credit Facility is qualified in its entirety by reference to
the complete text of the documents entered into in connection therewith (the New
Credit Facility has been filed as an exhibit to the registration statement of
which this Prospectus is forms a part). The following is a description of the
general terms of the New Credit Facility.
SECURITY
Indebtedness of the Company under the New Credit Facility is secured by a
first priority perfected security interest in all of the capital stock of each
of the active subsidiaries (direct or indirect) of the Company. The Collateral
Agent (on behalf of the lenders) has or will receive a first priority perfected
security interest in substantially all other present and future assets and
properties of the Company and certain of its subsidiaries (including, without
limitation, accounts receivable, inventory, real property, leasehold interests,
machinery, equipment, contracts, trademarks, copyrights, patents, license
agreements and general intangibles, but excluding rolling stock (mobile mining
equipment)).
INTEREST RATE AND COMMITMENT FEE
Indebtedness under the New Credit Facility bears interest at a rate, for
the period from the June 8, 1998, through November 1, 1998, at LIBOR plus 1.75%
or Prime plus 0.75%, at the option of the Company. Thereafter, the interest rate
will be subject to change based on the ratio of (i) total indebtedness minus the
amount of cash and permitted investments of the Company and the Restricted
Subsidiaries to (ii) EBITDA (the "net leverage ratio") of the Company, in a
range of LIBOR plus 1.00% to 2.50% or Prime to Prime plus 1.50%, the type of
borrowing to be determined at the option of the Company.
For the period from the June 8, 1998 through November 1, 1998, the Company
will pay a commitment fee at a rate equal to 0.375% per annum on the undrawn
portion of the commitments in respect of the New Credit Facility, which began to
accrue on the June 8, 1998, payable quarterly in arrears. Thereafter, the
Company will pay a commitment fee based on the net leverage ratio of the Company
in a range equal to 0.25% to 0.50% per annum on the undrawn portion of the
commitments in respect of the New Credit Facility, payable quarterly in arrears.
MATURITY
The New Credit Facility terminates and all amounts outstanding thereunder
will be due and payable on May 31, 2003, subject to one year extensions upon the
request of the Company subject to approval of the lenders.
GUARANTEES
The New Credit Facility is guaranteed by the Bank Guarantors. Such
guarantees are secured by a first priority perfected security interest in
substantially all other present and future assets and properties of the Bank
Guarantors (including, without limitation, accounts receivable, inventory, real
property, leasehold interests, machinery, equipment, contracts, trademarks,
copyrights, patents, license agreements and general intangibles, but excluding
rolling stock (mobile mining equipment)).
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<PAGE> 81
PURPOSE
The proceeds of the New Credit Facility may be used for working capital,
including developing the Fork Creek property, and general corporate purposes
including qualifying acquisitions in any one year of up to $5.0 million.
COVENANTS
The New Credit Agreement contains customary affirmative covenants of the
Company and the Guarantors, including, without limitation, (i) delivery of
financial statements and other information, (ii) payment of obligations, (iii)
continuation of business, (iv) maintenance of existence, (iv) compliance with
laws and material contractual obligations, and (v) maintenance of property and
insurance and books and records. The New Credit Agreement also contains
customary negative covenants of the Company and the Guarantors, including,
without limitation, restrictions on (i) indebtedness and liens, (ii) guarantee
obligations, (iii) consolidations, liquidations and distributions, (iv) sales of
assets, leases, (v) investments and dividends, (vi) loans and advances, and
(vii) capital expenditures. The New Credit Agreement also contains various
financial covenants, including covenants requiring the maintenance of maximum
net funded debt to EBITDA and fixed charge coverage ratios and minimum net
worth.
EVENTS OF DEFAULT
The New Credit Agreement contains customary events of default under the New
Credit Facility, including, without limitation (i) the non-payment of principal,
interest, fees or other amounts when due under the New Credit Facility or,
subject to applicable grace periods in certain circumstances, upon the
non-fulfillment of the covenants described above, (ii) certain changes in
control of the ownership of the Company, (iii) cross-defaults to certain other
indebtedness, (iv) certain events of bankruptcy and insolvency, and (v) certain
judgment defaults.
INDEMNIFICATION
Under the New Credit Agreement, the Company is required to indemnify the
lenders (and their respective directors, officers, employees and agents) from
and against any loss, liability, claim or expense relating to the financing, the
Company's use or proposed use of loan proceeds, provided that the Company will
not be liable for any such loss, liability, claim or expense resulting from such
indemnified party's own gross negligence or willful misconduct.
OPTIONAL AND MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS
The Company may prepay the New Credit Facility and reduce in whole or in
part at any time without penalty, subject to reimbursement of the Lenders'
breakage and redeployment costs in the case of prepayment of LIBOR borrowings.
The New Credit Facility may be reduced, at the lenders' option, by the net
proceeds of certain sales of assets or securities.
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DESCRIPTION OF NOTES
The Senior Notes were and the Series B Senior Notes will be issued under an
Indenture, dated as of June 8, 1998 (the "Indenture"), by and among the Issuer,
the Guarantors and The Bank of New York, as trustee (the "Trustee"). The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. The Notes are subject to all
such terms, and holders of the Notes are referred to the Indenture and the TIA
for a statement of them. The following is a summary of the material terms and
provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). Definitions relating to certain
capitalized terms are set forth under "--Certain Definitions." Capitalized terms
that are used but not otherwise defined herein have the meanings ascribed to
them in the Indenture and such definitions are incorporated herein by reference.
For purposes of this section, references to the "Issuer" include only Pen
Holdings and not its Subsidiaries.
GENERAL
The Notes are limited in aggregate principal amount to $100,000,000. The
Notes are general unsecured obligations of the Issuer, ranking pari passu in
right of payment with all existing and future unsubordinated obligations of the
Issuer and senior in right of payment to all existing and future subordinated
obligations of the Issuer.
The Notes are unconditionally guaranteed, on a senior unsecured basis, as
to the payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors (together with each other Restricted Subsidiary of
the Issuer which guarantees payment of the Notes pursuant to the covenant
described under "--Certain Covenants--Limitation on Creation of Subsidiaries").
MATURITY, INTEREST AND PRINCIPAL
The Notes mature on June 15, 2008. The Notes bear interest at a rate of
9 7/8% per annum from the Issue Date until maturity. Interest is payable
semi-annually in arrears on each June 15 and December 15, commencing on December
15, 1998, to holders of record of the Notes at the close of business on the
immediately preceding June 1 and December 1, respectively. The interest rate on
the Senior Notes is subject to increase, and such Additional Interest (as
defined below) will be payable on the payment dates set forth above, in certain
circumstances, if the Notes (or other securities substantially similar to the
Senior Notes) are not registered with the Commission within the prescribed time
periods. See "Registration Rights Agreement."
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Issuer, in whole at any time
or in part from time to time on or after June 15, 2003 at the following
redemption prices (expressed as percentages of the principal amount thereof),
together, in each case, with accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on June 15
of each year listed below:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2003................................................. 104.938%
2004................................................. 103.292%
2005................................................. 101.646%
2006 and thereafter.................................. 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuer may (but shall have no obligation
to) redeem in the aggregate up to 35% of the original principal amount of Notes
at any time and from time to time out of the net cash proceeds of one or more
Public Equity Offerings prior to June 15, 2001 at a redemption price equal to
109.875% of the aggregate principal amount so redeemed, plus accrued and unpaid
interest, if any, to the redemption date; provided that at least $65.0 million
of the principal amount of Notes originally issued remains outstanding
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immediately after the occurrence of any such redemption and that any such
redemption occurs within 90 days following the closing of any such Public Equity
Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and
equitable. The Notes are redeemable in whole or in part upon not less than 30
nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless the Issuer
shall fail to redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Issuer will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including, without limitation, any Acquired Indebtedness); provided that if no
Default or Event of Default shall have occurred and be continuing at the time or
as a consequence of the incurrence of such Indebtedness, the Issuer may incur
Indebtedness (including any Acquired Indebtedness) if the Issuer's Consolidated
Fixed Charge Coverage Ratio is greater than 2.0 to 1.
Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries
may incur Permitted Indebtedness.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xii) of
the definition of Permitted Indebtedness or is entitled to be incurred pursuant
to the first paragraph hereof, the Issuer may, in its sole discretion, classify
such item of Indebtedness in any manner that complies with this covenant and
such item of Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph hereof.
Limitation on Restricted Payments
The Issuer will not make, and will not cause or permit any of its
Restricted Subsidiaries to make, directly or indirectly, any Restricted Payment,
unless:
(a) no default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Issuer could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the "--Limitation on
Additional Indebtedness" covenant above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made after
the Issue Date does not exceed the greater of (i) $5 million or (ii)
the sum (without duplication) of (A) 50% of the Issuer's cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) earned (or accrued, as the
case may be) during the period beginning on the first day of the
Issuer's fiscal quarter commencing prior to the Issue Date and
ending on the last day of the fiscal quarter for which financial
statements are available immediately preceding the date of such
proposed Restricted Payment (treating such period as a single
accounting period); (B) 100% of the aggregate net cash proceeds
received by the Issuer from the issuance or sale after the Issue
Date (other than to a Subsidiary) of (1) Capital Stock (other than
Disqualified Capital Stock) of the Issuer or (2) any Indebtedness or
other securities of the Issuer that are convertible into or
exercisable or exchangeable for Capital Stock (other than
Disqualified Capital Stock) of the Issuer, which have been so
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converted, exercised or exchanged, as the case may be; excluding, in
the case of clause (c)(ii)(B), any net cash proceeds from a Public
Equity Offering to the extent used to redeem the Notes in accordance
with the second paragraph of "--Optional Redemption" above; (C)
without duplication of any amounts included in clause (A) above, so
long as the Designation thereof was treated as a Restricted Payment
made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with the definition of
"Restricted Subsidiary," the Issuer's proportionate interest in an
amount equal to the Fair Market Value of the Issuer's interest in
such Subsidiary; provided that such amount shall not in any case
exceed the Designation Amount with respect to such Restricted
Subsidiary at the time of its Designation; and (D) in the case of
the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date, an amount equal to the
lesser of the return of capital with respect to such Investment and
the initial amount of such Investment which was treated as a
Restricted Payment, in either case, less the cost of the disposition
of such Investment and net of taxes. For purposes of determining the
amount expended for Restricted Payments under this clause (c),
property other than cash shall be valued at its Fair Market Value.
Provided no default or Event of Default has occurred and is continuing, the
provisions of this covenant shall not prevent (i) the payment of any dividend or
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Issuer or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Issuer (other than Disqualified Capital Stock), or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Issuer) of other shares of Capital Stock of the Issuer (other than Disqualified
Capital Stock); provided that any such net cash proceeds and the value of any
Capital Stock issued in exchange for such retired Capital Stock or Indebtedness
are excluded from clause (c)(ii)(B) of the immediately preceding paragraph for
the purposes of this calculation (and were not included therein at any time) and
are not used to redeem the Notes pursuant to "--Optional Redemption" above,
(iii) the redemption, repayment or retirement of Indebtedness of the Issuer
subordinated to the Notes in exchange for, by conversion into, or out of the net
cash proceeds of, (x) a substantially concurrent sale or incurrence of
Indebtedness of the Issuer (other than any Indebtedness owed to a Subsidiary)
that is contractually subordinated in right of payment to the Notes to at least
the same extent as the Indebtedness being redeemed, repaid or retired or (y) a
substantially concurrent sale (other than to a Subsidiary of the Issuer) of
shares of Capital Stock of the Issuer; provided that any such net cash proceeds
and the fair value of any Capital Stock issued in exchange for such retired
Disqualified Capital Stock are excluded from clause (c)(ii)(B) of the
immediately preceding paragraph (and were not included therein at any time) and
are not used to redeem the Notes pursuant to "--Optional Redemption" above, (iv)
the retirement of any shares of Disqualified Capital Stock of the Issuer by
conversion into, or by exchange for, shares of Capital Stock of the Issuer, or
out of the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Issuer) of other shares of Capital Stock of the Issuer;
provided that any such net cash proceeds and the Fair Market Value of any
Capital Stock issued in exchange for such retired Disqualified Capital Stock are
excluded from clause (c)(ii)(B) of the immediately preceding paragraph (and were
not included therein at any time) and are not used to redeem the Notes pursuant
to "--Optional Redemption" above, (v) the purchase, redemption or other
acquisition for value of shares of Capital Stock of the Issuer (other than
Disqualified Capital Stock) or options on such shares held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates) upon the death, disability, retirement or termination of
employment of such current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to which such shares
of capital stock or options were issued or pursuant to a severance, buy-sell or
right of first refusal agreement with such current or former officer or
employee; provided that the aggregate cash consideration paid, or distributions
made, pursuant to this clause (v) do not exceed $3.0 million, (vi) the making of
Investments in Unrestricted Subsidiaries, joint ventures and other entities in
an amount not to exceed $2.0 million in the aggregate at any one time
outstanding and (vii) the redemption of the Convertible Preferred Stock in
conjunction with any Tax Settlement or in conjunction with Indebtedness
permitted under the Indenture (provided however, that the Issuer shall not be
prevented from redeeming the Convertible Preferred Stock on or after January 3,
2006 by reason of any default or Event of Default). In calculating the aggregate
amount of Restricted Payments made subsequent to
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the Issue Date for purposes of clause (c) of the immediately preceding
paragraph, amounts expended pursuant to clauses (i), (vi) and (vii) shall be
included in such calculation and (ii), (iii), (iv) and (v) shall not be included
in such calculation.
Not later than the date of making any Restricted Payment, the Issuer shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Issuer's latest available financial statements, and that no
Default or Event of Default has occurred and is continuing and no Default or
Event of Default will occur immediately after giving effect to any such
Restricted Payments.
Limitation on Liens
The Issuer will not, and will not cause or permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Issuer or any of its Restricted Subsidiaries, unless (i) if such
Lien secures Indebtedness which is ranked pari passu with the Notes or any
Guarantee, then the Notes or such Guarantee, as the case may be, are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien or (ii) if such Lien secures
Indebtedness which is subordinated to the Notes or any Guarantee, then the Notes
or such Guarantee, as the case may be, are secured and the Lien securing such
other Indebtedness shall be subordinated to the Lien granted to the holders of
the Notes or such Guarantee, as the case may be, at least to the same extent as
such Indebtedness is subordinated to the Notes or such Guarantee, as the case
may be.
Limitation on Transactions with Affiliates
The Issuer will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (each an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless (i) such Affiliate Transaction is between or among the Issuer and
its Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction
are fair to the Issuer or such Restricted Subsidiary, as the case may be, and
are at least as favorable as the terms which could be obtained by the Issuer or
such Restricted Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis between unaffiliated parties. In any Affiliate
Transaction (or any series of related Affiliate Transactions) involving an
amount or having a Fair Market Value in excess of $3.0 million which is not
permitted under clause (i) of the immediately preceding sentence, the Issuer
must obtain a resolution of the Board of Directors of the Issuer certifying in
good faith that it has approved such Affiliate Transaction and determined that
such Affiliate Transaction complies with clause (ii) of the immediately
preceding sentence. In addition, in any Affiliate Transaction (or any series of
related Affiliate Transactions) involving an amount or having a Fair Market
Value in excess of $10.0 million which is not permitted under clause (i) of the
second preceding sentence, the Issuer must obtain a written opinion from an
Independent Financial Advisor that such transaction or transactions are fair to
the Issuer or such Restricted Subsidiary, as the case may be, from a financial
point of view; provided that the provisions of this sentence shall not apply to
(i) the sale of inventory in the ordinary course of business or (ii) payments
made to International Marine Terminals, on an arm's-length basis in the ordinary
course of business, relating to the loading of coal onto ships or in accordance
with the Issuer's financial obligations, if any, pursuant to the Issuer's
contractual partnership obligations existing on the Issue Date with respect to
International Marine Terminals.
The foregoing provisions will not apply to (i) any Restricted Payment made
in compliance with the provisions described under "--Limitation on Restricted
Payments" above, (ii) reasonable fees and compensation paid to and indemnity
provided on behalf of officers, directors or employees of the Issuer or any
Restricted Subsidiary of the Issuer as determined in good faith by the Issuer's
Board of Directors or senior management or (iii) any written agreement in
existence on the Issue Date which has been disclosed in this Prospectus in
respect of the Notes and any such extension, renewal or substitution that does
not materially alter the financial and economic risks and obligations of the
Issuer thereto from those existing on the Issue Date.
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Limitation on Creation of Subsidiaries
The Issuer will not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Indenture, (ii) a Restricted
Subsidiary conducting a business similar or reasonably related to the coal
mining and marketing businesses of the Company and its Subsidiaries on the Issue
Date, or (iii) an Unrestricted Subsidiary; provided, however, that each
Restricted Subsidiary acquired or created pursuant to clause (ii) shall, at the
time it has either assets or shareholders' equity in excess of $25,000 have
evidenced its guarantee with such documentation, satisfactory in form and
substance to the Trustee relating thereto as the Trustee shall require,
including, without limitation a supplement or amendment to the Indenture and
opinions of counsel as to the enforceability of such guarantee, pursuant to
which such Restricted Subsidiary shall become a Guarantor. See "Description of
Notes--General."
Limitation on Certain Asset Sales
The Issuer will not, and will not cause or permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Issuer or such
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such sale or other disposition at least equal to the Fair Market
Value of the assets sold or otherwise disposed of; (ii) not less than 75% of the
consideration received by the Issuer or such applicable Restricted Subsidiary,
as the case may be, is in the form of cash or Cash Equivalents (provided, that
the amount of any Indebtedness (other than subordinated Indebtedness) of the
Issuer or any Guarantor that is actually assumed by the transferee in such Asset
Sale and from which the Issuer and the Guarantors are fully and unconditionally
released shall be deemed to be cash for purposes of clause (i) above; and (iii)
the Asset Sale Proceeds received by the Issuer or such Restricted Subsidiary, as
the case may be, are applied (or, at the Issuer's election, are deemed to have
been applied to an event described under clauses (iii)(a) or (iii)(b) occurring
within 45 days prior to the receipt of such Asset Sale Proceeds, provided, that
the Issuer's intent to apply Asset Sale Proceeds to such an event must have been
announced by letter to the Trustee prior to the occurrence of the event), at the
Issuer's option, (a) to prepay, repay or purchase indebtedness under the Credit
Facility or any other secured Indebtedness of the Issuer or such Restricted
Subsidiary; provided that any such repayment shall result in or the Issuer shall
effect a permanent reduction of the commitments thereunder in an amount equal to
the principal amount so repaid; or (b) to make an Investment in properties and
assets that are used or useful in the business of the Issuer or its Restricted
Subsidiaries or in businesses similar to or ancillary to the business of the
Issuer or its Restricted Subsidiaries as conducted at the time of such Asset
Sale (and, pending such use, may be used to temporarily reduce indebtedness
under the Credit Facility or may invest such Asset Sale Proceeds in any manner
not prohibited by the Indenture); provided that, (c) if on the 360th day
following the receipt of the Asset Sale Proceeds, the Available Asset Sale
Proceeds exceed $5.0 million, the Issuer shall apply an amount equal to the
Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date (an "Excess Proceeds Offer"). If
an Excess Proceeds Offer is not fully subscribed, the Issuer may retain and use
for general corporate purposes the portion (any such portion, a "Deficiency") of
the Available Asset Sale Proceeds not required to repurchase Notes. Upon
completion of any Excess Proceeds Offer, the amount of Available Asset Sale
Proceeds shall be reset to zero.
If the Issuer is required to make an Excess Proceeds Offer, the Issuer
shall mail, within 30 days following the date specified in clause (iii)(c)
above, a notice to the holders stating, among other things: (1) that such
holders have the right to require the Issuer to apply the Available Asset Sale
Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date; (2) the purchase date, which shall be no earlier than 30 days and
not later than 60 days from the date such notice is mailed; (3) the instructions
that each holder must follow in order to have such Notes purchased; and (4) the
calculations used in determining the amount of Available Asset Sale Proceeds to
be applied to the purchase of such Notes.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Issuer and its Restricted Subsidiaries as an entirety
to a Person (other than a Guarantor) in a transaction permitted under "--Merger,
Consolidation or Sale of Assets" below, the successor Person shall be deemed to
have sold the
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properties and assets of the Issuer and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Asset Sale" provisions of
the Indenture, the Issuer shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Capital Stock of Restricted Subsidiaries
The Issuer will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary of the Issuer (other
than under the Credit Facilities) or (ii) permit any of its Restricted
Subsidiaries to issue any Capital Stock, other than to the Issuer or a
Restricted Subsidiary of the Issuer. The foregoing restrictions shall not apply
to an Asset Sale consisting of 100% of the Capital Stock of a Restricted
Subsidiary owned by the Issuer made in compliance with "--Limitation on Certain
Asset Sales" above.
Limitation on Sale and Lease-Back Transactions
The Issuer will not, and will not cause or permit any of its Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the Fair Market Value of the property sold, as determined by a board
resolution of the Issuer, and (ii) immediately prior to and after giving effect
to the Attributable Indebtedness in respect of such Sale and Lease-Back
Transaction, the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant described
under "Limitation on Additional Indebtedness."
Limitation on Conduct of Business
The Issuer and its Restricted Subsidiaries will not engage in any
businesses which are not the same as, similar or related to the businesses in
which the Issuer and its Restricted Subsidiaries are engaged in on the Issue
Date.
Payments for Consent
The Issuer will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Issuer shall be obligated
to make an offer to purchase (the "Change of Control Offer") all outstanding
Notes at a purchase price (the "Change of Control Purchase Price") equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
Change of Control Payment Date (as defined) in accordance with the procedures
set forth below.
Within 30 days of the occurrence of a Change of Control, the Issuer shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
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(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed (the "Change of Control
Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuer defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender
the Notes to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Notes delivered for
purchase, and a statement that such holder is withdrawing his
election to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Note purchased
and each such new Note issued shall be in an original principal
amount in denominations of $1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuer shall, to the extent
lawful, (i) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent
money sufficient to pay the purchase price of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Issuer. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price for
such Notes, and the Issuer shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
The Indenture further provides that (A) if the Issuer or any Restricted
Subsidiary thereof has issued any outstanding (i) indebtedness that is
subordinated in right of payment to the Notes or (ii) Preferred stock, and the
Issuer or such Restricted Subsidiary is required to make a Change of Control
Offer or to make a distribution with respect to such subordinated indebtedness
or Preferred Stock in the event of a change of control, the Issuer shall not
consummate any such offer or distribution with respect to such subordinated
indebtedness or Preferred Stock until such time as the Issuer shall have paid
the Change of Control Purchase Price in full to the holders of Notes that have
accepted the Issuer's Change of Control Offer and shall otherwise have
consummated the Change of Control Offer made to holders of the Notes and (B) the
Issuer will not issue Indebtedness that is subordinated in right of payment to
the Notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
Notes in the event of a Change in Control under the Indenture.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Issuer shall comply
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with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Merger, Consolidation or Sale of Assets
The Issuer will not consolidate with, amalgamate with, merge with or into,
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Issuer (determined on a consolidated
basis for the Issuer and its Restricted Subsidiaries) as an entirety or
substantially as an entirety in one transaction or a series of related
transactions, to any Person unless: (i) the Issuer shall be the continuing
Person, or the Person (if other than the Issuer) formed by such consolidation or
amalgamation or into which the Issuer is merged or to which the properties and
assets of the Issuer are sold, assigned, transferred, leased, conveyed or
otherwise disposed of shall be a corporation organized and existing under the
laws of the United States or any State thereof or the District of Columbia and
shall expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the obligations of the
Issuer under the Indenture and the Notes and the obligations thereunder shall
remain in full force and effect; (ii) immediately before and immediately after
giving effect to such transaction (including, without limitation, giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis the Issuer or such Person (A) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Issuer
immediately prior to such transaction and (B) could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under "--Certain
Covenants--Limitation on Additional Indebtedness" above; provided that a Person
that is a Restricted Subsidiary may consolidate with, amalgamate with, merge
with, or sell, assign, transfer, lease, convey to or otherwise dispose of all or
substantially all of its assets to the Issuer or another Restricted Subsidiary
without complying with this clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuer shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Issuer, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Issuer, shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Issuer.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Certain
Covenants--Limitation on Certain Assets Sales") will not, and the Issuer will
not cause or permit any Guarantor to, consolidate with or merge with or into or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to any Person (other than a merger of the Issuer
with any Guarantor or a merger of Guarantors or a sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of a Guarantor to the Issuer or to any other Guarantor) unless: (i) the entity
formed by or surviving any such consolidation or merger (if other than the
Guarantor) or to which such sale, lease, conveyance or other disposition shall
have been made is a corporation organized and validly existing under the laws of
the United States or any state thereof or the District of Columbia; (ii) such
entity assumes by supplemental indenture all of the obligations of such
Guarantor under such Guarantee; and (iii) immediately before and immediately
after giving effect to such transaction, no default or Event of Default shall
have occurred or be continuing.
GUARANTEES
The Senior Notes are and the Series B Senior Notes will be fully and
unconditionally guaranteed, on a senior unsecured basis, jointly and severally,
by each of the Guarantors. The Guarantors guaranteed all of the
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obligations of the Issuer under the Indenture, including its obligation to pay
principal, premium, if any, and interest with respect to the Notes.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the net assets of each Guarantor, determined in accordance with
GAAP.
A Guarantor shall be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold, in each case in a
transaction in compliance with "--Certain Covenants--Limitation on Certain Asset
Sales" above, or the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its assets in compliance with "Merger,
Consolidation or Sale of Assets" above, or the Guarantor is designated an
Unrestricted Subsidiary in compliance with the other terms of the Indenture, and
such Guarantor has delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Issuer's obligations under the Notes and the Indenture, and the aggregate net
assets, earnings and equity of the Guarantors and the Issuer are substantially
equivalent to the net assets, earnings and equity of the Issuer on a
consolidated basis.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(a) default in payment of any principal of, or premium, if any, on the
Notes when due (whether at maturity, upon redemption or otherwise);
(b) default in the payment of any interest on any Note when due, which
default continues for 45 days or more;
(c) default by the Issuer or any Restricted Subsidiary in the observance
or performance of any other covenant in the Notes or the Indenture
for 30 days after written notice from the Trustee or the holders of
not less than 25% in aggregate principal amount of the Notes then
outstanding (except in the case of a default with respect to the
"Change of Control" or "Merger, Consolidation or Sale of Assets"
covenants, which shall constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(d) failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of
any indebtedness of the Issuer or any Restricted Subsidiary of the
Issuer, or the acceleration of the final stated maturity of such
indebtedness, if, in either case, the aggregate principal amount of
such indebtedness, together with the principal amount of any such
indebtedness in default or failure to pay principal at final
maturity or which has been accelerated, aggregates $5.0 million or
more at any time and such indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within
30 days of such final maturity or acceleration;
(e) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $5.0 million (net of amounts
covered by insurance) shall be rendered against the Issuer or any
Restricted Subsidiary thereof, and shall not be discharged for any
period of 60 consecutive days during which a stay of enforcement
shall not be in effect;
(f) certain events involving bankruptcy, insolvency or reorganization of
the Issuer or any Restricted Subsidiary thereof; and
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(g) any of the Guarantees of a Material Subsidiary are determined in a
judicial proceeding (i) to be not in full force and effect, (ii) to
be null and void and unenforceable, or (iii) to be invalid; or any
of the Guarantors denies its liability under its Guarantee (other
than by reason of release of a Guarantor in accordance with the
terms of the Indenture).
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes or a default in the observance or performance of the
"Merger, Consolidation or Sale of Assets" covenant) if the Trustee considers it
to be in the best interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (vi) above) shall have occurred and be continuing,
then the Trustee or the holders of not less than 25% in aggregate principal
amount of the Notes then outstanding by written notice to the Issuer and the
Trustee may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and the same shall become immediately due and payable; provided
that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if (i) all Events of Default, other than nonpayment
of principal, premium, if any, or interest that has become due solely because of
the acceleration, have been cured or waived as provided in the Indenture, (ii)
to the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, (iii) if the Issuer has
paid the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (iv) in the event of the cure or waiver
of an Event of Default of the type described in clause (f) of the above Events
of Default, the Trustee shall have received an Officers' Certificate and an
opinion of counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the principal, premium and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuer may elect either (a) to defease and
be discharged from any and all of its and any Guarantor's obligations with
respect to the Notes (except for the obligations to register the transfer or
exchange of such Notes, to replace temporary or mutilated, destroyed, lost or
stolen Notes, to maintain an office or agency in respect of the Notes and to
hold monies for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to the Notes under certain covenants contained in the
Indenture ("covenant defeasance") upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose, of money and/or non-callable
U.S. government obligations which through the payment of principal and interest
in accordance with their terms will provide money, in an amount sufficient to
pay the principal of, premium, if any, and interest on the Notes, on the
scheduled due dates therefor or on a selected date of redemption in accordance
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with the terms of the Indenture. Such a trust may only be established if, among
other things, (i) the Issuer has delivered to the Trustee an opinion of counsel
(as specified in the Indenture) describing either a private ruling concerning
the Notes or a published ruling of the Internal Revenue Service, to the effect
that holders of the Notes or persons in their positions will not recognize
income, gain or loss for United States Federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to United States
Federal income tax on the same amount and in the same manner and at the same
times, as would have been the case if such deposit, defeasance and discharge had
not occurred, (ii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy, insolvency or reorganization events are concerned, at any time in
the period ending on the 91st day after the date of deposit; (iii) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Issuer or any of its Subsidiaries is a party or by which
the Issuer or any or its Subsidiaries is bound; (iv) the Issuer shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by the Issuer with the intent of preferring the holders of the Notes
over any other creditors of the Issuer or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Issuer or others;
(v) the Issuer shall have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
or relating to the defeasance or the covenant defeasance have been complied
with; (vi) the Issuer shall have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (vii)
certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, the Issuer, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, adversely affect the rights of any holder in any material respect. The
Indenture contains provisions permitting the Issuer, the Guarantors and the
Trustee, with the consent of holders of at least a majority in principal amount
of the outstanding Notes, to modify or supplement the Indenture, except that no
such modification shall, without the consent of each holder affected thereby,
(i) reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture, (ii) reduce the rate of or change the
time for payment of interest, including defaulted interest, on any Note, (iii)
reduce the principal of or premium on or change the stated maturity of any Note
or change the date on which any Notes may be subject to redemption or repurchase
or reduce the redemption or repurchase price therefor, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) waive a default on the payment of the
principal of, interest on, or redemption payment with respect to any Note, (vi)
make any change in provisions of the Indenture protecting the right of each
holder of Notes to receive payment of principal of and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment, or
permitting holders of a majority in principal amount of Notes to waive Defaults
or Events of Default, (vii) amend, change or modify in any material respect the
obligation of the Issuer to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate an Asset Sale Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto, (viii) modify or change any
provision of the Indenture or the related definitions affecting the ranking of
the Notes or any Guarantee in a manner which adversely affects the holders of
Notes or (ix) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of the
Indenture.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture
provides that even if the Issuers are entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, they
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
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COMPLIANCE CERTIFICATE
The Issuer will deliver to the Trustee on or before 90 days after the end
of the Issuer's fiscal year and on or before 45 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any default or Event of Default that
has occurred. If they do, the certificate will describe the default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or Series B Senior Notes in accordance
with the Indenture. The Registrar under such Indenture may require a holder,
among other things, to furnish appropriate endorsements and transfer documents,
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Note selected for
redemption and, further, is not required to transfer or exchange any Note for a
period of 15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
GOVERNING LAW
The Indenture provides that the Indenture and the Notes will be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the principles of conflicts of laws to the extent the
application of the laws of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with the Issuer or a Restricted
Subsidiary or which is assumed in connection with the acquisition of assets from
such Person and, in each case, not incurred by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such merger, consolidation or acquisition.
"Affiliate" means, with respect to any specific Person, any other Person
(including, without limitation, such Person's issue, siblings and spouse) that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person; provided
that for purposes of the Indenture, the term "Affiliate" shall not include CIBC
Oppenheimer Corp. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by," and "under
common control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that, for purposes of the
covenant described under "--Certain Covenants--Limitation on Transactions with
Affiliates," beneficial ownership of at least 10% of the voting securities of a
Person, either directly or indirectly, shall be deemed to be control.
"Asset Acquisition" means (a) an Investment by the Issuer or any Restricted
Subsidiary of the Issuer in any other Person pursuant to which such Person
becomes a Restricted Subsidiary of the Issuer, or shall be merged with or into
the Issuer or any Restricted Subsidiary of the Issuer or (b) the acquisition by
the Issuer or any
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Restricted Subsidiary of the Issuer of the assets of any Person (other than a
Restricted Subsidiary of the Issuer) which constitute all or substantially all
of the assets of such Person or comprise any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Issuer or any of its Wholly-Owned
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of any Restricted Subsidiary of the Issuer or (b) any other
property or assets of the Issuer or of any Restricted Subsidiary thereof outside
of the ordinary course of business; provided that Asset Sales shall not include
(i) a transaction or series of related transactions for which the Issuer or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million (provided that the Issuer or such Restricted Subsidiary received
consideration equal to the Fair Market Value of any such property or assets so
sold, conveyed, assigned, transferred, leased or otherwise disposed of), (ii)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Issuer as permitted under "--Merger,
Consolidation or Sale of Assets," (iii) sales of property or equipment that has
become worn out, obsolete or damaged or otherwise unsuitable for use or no
longer useful or productive in connection with the business of the Issuer or any
Restricted Subsidiary, as the case may be, (iv) the sale of inventory in the
ordinary course of business, (v) any transaction consummated in compliance with
"--Certain Covenants--Limitation on Restricted Payments," (vi) the sale of the
Issuer's Big Sandy River Terminal located in Kentucky, and (vii) the sale of the
stock, partnership interests or assets of Pen Cotton Company of South Carolina,
Pen Cotton Company, Pen Cotton Company of Alabama, Inc., Pen Hardwood Company
(including its 78% partnership interest in Camden Hardwood Company), and Marine
Terminals Inc. (including its one-third partnership interest in International
Marine Terminals).
"Asset Sale Proceeds" means, with respect to any Asset Sale, cash or Cash
Equivalents received by the Issuer or any Restricted Subsidiary of the Issuer
from such Asset Sale, after (a) provision for all income or other taxes
resulting from such Asset Sale, (b) payment of all brokerage commissions and
other fees and expenses, including, without limitation, legal, accounting and
appraisal fees, related to such Asset Sale, (c) provision for minority interest
holders in any Restricted Subsidiary of the Issuer as a result of such Asset
Sale, (d) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale and (e) deduction of appropriate amounts to be provided by
the Issuer or a Restricted Subsidiary of the Issuer as a reserve, in accordance
with GAAP, against any liabilities associated with the assets sold or disposed
of in such Asset Sale and retained by the Issuer or a Restricted Subsidiary
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the assets sold or
disposed of in such Asset Sale.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination the present value (discounted according
to GAAP at the cost of indebtedness implied in the Sale and Lease-Back
Transaction) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied or
that have not been deemed to have been applied in accordance with clause (iii),
and which have not yet been the basis for an Excess Proceeds Offer in accordance
with clause (iii)(c), in each case, of the first paragraph of "--Certain
Covenants--Limitation on Certain Asset Sales."
"Bank Warrants" means the warrants to initially purchase an aggregate of
three hundred twenty-six thousand, seven hundred seventy-two shares of the
common stock of the Issuer issued to the lenders in connection with the
establishment of the Issuer's Original Credit Facility.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, Common Stock and Preferred Stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
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"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof; (ii) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state, as the case may be, or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state, as the case may be, thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (iv) above; and
(vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
A "Change of Control" of the Issuer will be deemed to have occurred at such
time as (i) any Person (including a Person's Affiliates), other than a Permitted
Holder, becomes the beneficial owner (as defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of 50% or more
of the total voting power of the Issuer or otherwise becomes able to exercise
the right to give directions with respect to the operating and financial
policies of the Issuer or (ii) there shall be consummated any consolidation or
merger of the Issuer in which the Issuer is not the continuing or surviving
corporation or pursuant to which the Common Stock of the Issuer would be
converted into cash, securities or other property, other than a merger or
consolidation of the Issuer in which the holders of the Common Stock of the
Issuer outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person for the four most recent consecutive
fiscal quarters for which financial statements are available (the "Four Quarter
Period") ending on or prior to the date of determination to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis to (i) the incurrence of any Indebtedness of such Person or any of
its Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation, (ii), any incurrence of other
Indebtedness (and the application of the proceeds thereof), in each case set
forth in clauses (i) and (ii), occurring on or after the first day of the Four
Quarter Period and on or prior to the date of determination, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (iii) any
Asset Sales or Asset Acquisitions (including the increase or decrease, as the
case may be, in the EBITDA directly attributable to such Asset Sale or Asset
Acquisition, as the case may be) occurring on or after the first day of the Four
Quarter Period and on or prior to the date of determination, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
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"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments (to any Person other
than the Issuer or a Restricted Subsidiary) on any series of Disqualified
Capital Stock of such Person (other than dividends paid in Capital Stock (other
than Disqualified Capital Stock)) paid, accrued or scheduled to be paid or
accrued during such period times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, without duplication, (i) the aggregate amount of interest charges,
whether expensed or capitalized, incurred or accrued by such Person and its
Restricted Subsidiaries, determined on a consolidated basis in accordance with
GAAP for such period (including non-cash interest payments), plus (ii) to the
extent not included in clause (i) above, an amount equal to the sum of: (A)
imputed interest included in Capitalized Lease Obligations, (B) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (C) the net costs associated with Interest Rate
Agreements and other hedging obligations, (D) amortization of deferred financing
costs and expenses, (E) the interest portion of any deferred payment
obligations, (F) amortization of discount or premium on Indebtedness, if any,
(G) all capitalized interest and all accrued interest, (H) all non-cash interest
expense and (I) all interest incurred or paid under any guarantee of
Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person minus to the extent included in clauses (i) or (ii)
above, fees and expenses (cash or non-cash) incurred in connection with the
Offering, the termination of the Original Credit Facility, including the
redemption of the Bank Warrants, and the establishment of the New Credit
Facility). For purposes of calculating Consolidated Interest Expense on a pro
forma basis, the interest on Indebtedness bearing a floating rate of interest
shall be the interest rate in effect at the time of determination, taking into
account on a pro forma basis any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term at the date of
determination of at least 12 months.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the Net Income of any Person, other than a
Restricted Subsidiary of the referent Person, shall be excluded, except to the
extent of the amount of cash dividends or distributions actually received by the
referent Person, (b) the Net Income of any Restricted Subsidiary of the Person
in question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions (other than pursuant to the Notes
or the Indenture or the New Credit Facility) shall be excluded to the extent of
such restriction or limitation, (c)(i) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (ii) any net gain (but not loss) resulting
from an Asset Sale by the Person in question or any of its Restricted
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary gains and losses and any foreign exchange gains and losses
shall be excluded, (e) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued) shall be
excluded, (f) the cumulative effect of a change in accounting principles after
the Issue Date shall be excluded, (g) any restoration to income or any
contingency reserve of an extraordinary, non-recurring or unusual nature shall
be excluded, except to the extent that provision for such reserve was made out
of Consolidated Net Income accrued at any time subsequent to the Issue Date and
(h) in the case of a successor to the referent Person by consolidation or merger
or as a transferee of the referent Person's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of assets
shall be excluded.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP, less (to the extent included)
amounts attributable to Disqualified Capital Stock of such Person.
"Convertible Preferred Stock" means the convertible preferred stock of the
issuer with a face value of $13,650,000, convertible to common stock of the
Issuer at the holder's option between January 2001 and January 2002. If not
earlier converted to common stock of the Issuer, the Convertible Preferred Stock
will be mandatorily redeemable in 2006, along with accrued dividends thereon,
such amounts to be paid in 40 quarterly payments over ten years at a rate of
2.25% above the rate payable on five-year U.S. Treasury obligations.
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"Credit Facilities" means the Credit Agreement dated as of June 8, 1998,
among the Issuer, the guarantors named therein, the lenders party thereto in
their capacities as lenders thereunder and Mellon Bank, N.A. and Canadian
Imperial Bank of Commerce, as co-agents, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by "--Certain Covenants--Limitation on Additional Indebtedness"
covenant) or adding Subsidiaries of the Issuer as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any Restricted Subsidiary of the Issuer against fluctuations in
currency values.
"Designation" shall have the meaning set forth in the definition of
"Restricted Payment."
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof (except, in each case, in
accordance with a change of control provision, which provision has substantially
the same effect as the provisions of the Indenture described under "Change of
Control Offer"), in whole or in part, or is exchangeable into Indebtedness on or
prior to the final maturity date of the Notes.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to (a) the sum of (i) Consolidated Net Income
for such period, plus (ii) the provision for taxes for such period based on
income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense for such period, plus (iv) depreciation and depletion for such period on
a consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, plus (vii) charges resulting from fees and expenses
(cash or non-cash) incurred in connection with the Offering of the Notes, the
termination of the Original Credit Facility, including the redemption of the
Bank Warrants, and the establishment of the New Credit Facility, and charges
resulting from prepayment penalties incurred in connection with the early
retirement of Indebtedness out of the net proceeds from the Offering of the
Notes minus (b) all non-cash items increasing Consolidated Net Income for such
period, minus (c) to the extend not included above, interest income accruing on
restricted cash and Cash Equivalents that the Issuer has deposited in escrow to
fund guarantees of indebtedness of International Marine Terminals, minus (d) all
cash payments during such period relating to non-cash charges that were added
back in determining EBITDA in any prior period, all for such Person and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value
shall be determined by the Board of Directors of the Issuer acting reasonably
and in good faith and, in the case of determination involving assets or property
in excess of $500,000 shall be evidenced by a resolution of the Board of
Directors of the Issuer delivered to the Trustee.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary whose
jurisdiction of incorporation or formation is other than the United States, any
state thereof or the District of Columbia or Canada or any province or territory
thereof.
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"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States on the Issue Date.
"Guarantors" means (i) each Subsidiary of the Issuer existing on the Issue
Date with assets or shareholders' equity in excess of $25,000 on the Issue Date
and (ii) each other Restricted Subsidiary of the Issuer formed, created or
acquired after the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that existed prior to such time becoming Indebtedness
shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person (but excluding any obligations
under operating leases), (ii) obligations of others secured by a lien to which
any property or assets owned or held by such Person are subject, whether or not
the obligation or obligations secured thereby shall have been assumed, provided
that, for the purposes of determining the amount of Indebtedness described in
this clause, if recourse with respect to such Indebtedness is limited to such
asset, the amount of such Indebtedness shall be limited to the Fair Market Value
for such asset, (iii) guarantees of items of other Persons which would be
included within this definition for such other Persons (whether or not such
items would appear upon the balance sheet of the guarantor), provided that
guarantees of indebtedness of International Marine Terminals shall be included
only to the extent that such guarantees exceed the amount of restricted cash and
Cash Equivalents that the Issuer has deposited in escrow to fund such
guarantees, (iv) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (v) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price (for the purposes hereof "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were repurchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture), (vi)
obligations of any such Person under any Currency Agreement or any Interest Rate
Agreement applicable to any of the foregoing (if and to the extent such Currency
Agreement or Interest Rate Agreement obligations would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP) and (vii)
Attributable Indebtedness. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation;
provided that (i) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the accreted value of such Indebtedness at such
time as determined in conformity with GAAP and (ii) Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Issuer or any
of its Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Independent Financial Advisor" means an investment banking firm of
national reputation in the United States (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
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indirect financial interest in the Issuer or any of its Affiliates; provided,
that notwithstanding the foregoing, CIBC Oppenheimer Corp. shall be deemed to be
an Independent Financial Advisor and (ii) which, in the judgment of the Board of
Directors of the Issuer, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investments" means, with respect to any Person, directly or indirectly,
any advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the stock or other evidence of beneficial ownership of, any
Person or the making of any investment in any Person. Investments shall exclude
(i) extensions of trade credit on commercially reasonable terms in accordance
with normal trade practices of such Person and (ii) the repurchase of securities
of any Person by such Person. For the purposes of the "Limitation on Restricted
Payments" covenant, the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by the Issuer or any
of its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. In determining the amount of any
Investment involving the transfer of any property or assets other than cash,
such property shall be valued at its Fair Market Value at the time of such
transfer, as determined in good faith by the Board of Directors of the Person
making such transfer.
"Issue Date" means the date the Senior Notes were first issued by the
Issuer and authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Material Subsidiary" means, at any date of determination, (a) any
Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Issuer
accounted for more than 5.0% of the consolidated revenues of the Issuer and the
Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned more
than 5.0% of the consolidated assets of the Issuer and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Issuer and the Restricted Subsidiaries for such year prepared in conformity with
GAAP, and (b) any Restricted Subsidiary which, when aggregated with all other
Restricted Subsidiaries that are not otherwise Material Restricted Subsidiaries
and as to which any event described in clause (g) of "Events of Default" above
has occurred, would constitute a Material Restricted Subsidiary under clause (a)
of this definition.
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Original Credit Facility" means the Issuer's senior secured credit
facility pursuant to the Credit Agreement, dated as of August 16, 1994, by and
among the Issuer, Pen Coal Corporation, River Marine
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Terminals, Inc., The Elk Horn Coal Corporation, and Mellon Bank, N.A., as agent
and a lender, and the lenders named therein, as amended.
"Permitted Holders" means William E. Beckner or any Affiliate of William E.
Beckner including any trust established and controlled by William E. Beckner for
the principal benefit of himself or his family members.
"Permitted Indebtedness" means:
(i) Indebtedness, including letters of credit, arising under or in
connection with the Credit Facility in an aggregate principal amount not to
exceed $40.0 million outstanding at any time and less any mandatory
prepayments actually made thereunder (to the extent, in the case of
payments of revolving credit borrowings, that the corresponding commitments
have been permanently reduced) or scheduled payments actually made
thereunder;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness which is outstanding on the Issue Date;
(iv) Indebtedness of the Issuer owed to and held by any Wholly-Owned
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the Issuer's obligations under the Indenture and
the Notes and Indebtedness of any Subsidiary owed to and held by the Issuer
or another Wholly-Owned Subsidiary; provided that (a) any sale or other
disposition of any Indebtedness of the Issuer or any Restricted Subsidiary
referred to in this clause (iv) to a Person (other than the Issuer or a
Wholly-Owned Subsidiary), (b) any sale or other disposition of Capital
Stock of any Restricted Subsidiary which holds Indebtedness of the Issuer
or another Restricted Subsidiary such that such Restricted Subsidiary
ceases to be a Subsidiary of the Issuer and (c) the Designation of a
Restricted Subsidiary that holds Indebtedness of the Issuer or any other
Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be
an incurrence of Indebtedness not constituting Permitted Indebtedness by
the Issuer;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire, lease, construct or improve property used in the
business or other Indebtedness secured by Liens on Property constituting
Rolling Stock which Purchase Money Indebtedness, Capitalized Lease
Obligations and other Indebtedness referenced above do not in the aggregate
exceed, at any one time outstanding, the sum of $10 million plus the amount
of borrowings permitted under clause (i) hereof minus the amount of
outstanding borrowings under clause (i) hereof;
(vi) Interest Rate Agreements relating to Indebtedness of the Issuer
(which Indebtedness (a) bears interest at fluctuating interest rates and
(b) is otherwise permitted to be incurred under "--Certain
Covenants--Limitation on Additional Indebtedness"; provided that (a) such
Interest Rate Agreements have been entered into for bona fide business
purposes and not for speculation and (b) the notional principal amount of
such Interest Rate Agreements, at the time of the incurrence thereof, does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Agreements relate;
(vii) Indebtedness Under Currency Agreements; provided that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the principal amount of Indebtedness of the
Issuer and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities or compensation payable thereunder;
(viii) Refinancing Indebtedness;
(ix) Indebtedness resulting from the redemption of the Convertible
Preferred Stock and payment of accumulated dividends thereon, in each case
after January 1, 2006 and in accordance with the Articles of Amendment to
the Restated Charter of the Issuer in effect on the Issue Date; provided,
however, that Indebtedness incurred pursuant to this clause (ix) that could
not be incurred pursuant to the "Limitation on Additional Indebtedness"
covenant shall reduce the aggregate sum of the amounts otherwise available
under clauses (i) and (v) hereof;
(x) Indebtedness incurred in respect of performance, surety, and
similar bonds and the completion guarantees provided by the Issuer or any
Restricted Subsidiary in the ordinary course of business;
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(xi) Indebtedness represented by the guarantee by the Issuer or any of
the Guarantors of Indebtedness of the Company or a Guarantor that was
permitted to be incurred under the Indenture;
(xii) additional Indebtedness of the Issuer and its Restricted
Subsidiaries not to exceed $7.0 million at any one time outstanding.
"Permitted Investments" means Investments made on or after the Issue Date
consisting of
(i) Investments by the Issuer, or by a Restricted Subsidiary thereof,
in the Issuer or a Wholly-Owned Subsidiary;
(ii) Investments by the Issuer, or by a Restricted Subsidiary thereof,
in a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Issuer or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Wholly-Owned Subsidiary thereof;
(iii) Investments in Cash Equivalents;
(iv) reasonable and customary loans and advances made to employees in
connection with their relocation not to exceed $1.0 million in the
aggregate at any one time outstanding;
(v) an Investment that is made by the Issuer or a Restricted
Subsidiary thereof in the form of any Capital Stock, bonds, notes,
debentures or other securities that are issued by a third party to the
Issuer or such Restricted Subsidiary solely as partial consideration for
the consummation of an Asset Sale that is permitted under "--Certain
Covenants--Limitation on Certain Asset Sales" above;
(vi) Investments paid for solely in Capital Stock (other than
Disqualified Capital Stock) of the Issuer;
(vii) Interest Rate Agreements and Currency Agreements entered into in
the ordinary course of the Issuer's or its Restricted Subsidiaries'
business;
(viii) Investments in International Marine Terminals (a) to repay
indebtedness to Mellon Bank, N.A. of approximately $7.7 million due in 2000
and to repay approximately $13.3 million of bonds due 2006 issued by
International Marine Terminals, provided, however, that such Investments
shall only be Permitted Investments to the extent they are derived from
Investments that the Issuer had deposited in escrow as of the Issue Date to
fund such obligations of International Marine Terminals and (b) in
accordance with the Issuer's partnership obligations existing on the Issue
Date with respect to International Marine Terminals.
(ix) Investments in existence on the Issue Date; and
(x) other Investments that do not exceed $3.0 million in the aggregate
at any one time outstanding.
"Permitted Liens" means (i) Liens on Property or assets of, or any Capital
Stock of, any corporation existing at the time such assets are acquired by the
Issuer or any of its Subsidiaries, whether by merger, amalgamation,
consolidation, purchase of assets or otherwise; provided that such Liens (x) are
not created, incurred or assumed in connection with, or in contemplation of,
such assets being acquired by the Issuer or its Subsidiaries and (y) that any
such Lien does not extend to or cover any property, Capital Stock or
Indebtedness other than the property, assets, Capital Stock or Indebtedness of
such corporation or a Subsidiary of such corporation, (ii) Liens securing
Refinancing Indebtedness; provided that any such Lien does not extend to or
cover any Property, Capital Stock or Indebtedness other than the Property,
Capital Stock or Indebtedness securing the Indebtedness so refunded, refinanced
or extended, (iii) Liens in favor of the Issuer or any of its Restricted
Subsidiaries, (iv) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the Indenture; provided that (a) any such Lien is created solely
for the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property,
(b) the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of such costs, and (c) such Lien does not extend to or cover any
Property other than such item of Property and any improvements on such item, (v)
statutory liens or landlords', carriers', warehousemen's, unemployment
insurance, surety or appeal bonds, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
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business with respect to amounts not yet delinquent or being contested in good
faith by appropriate proceedings, if a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been made
therefor, (vi) Liens existing on the Issue Date, (vii) Liens securing only the
Notes or the Guarantees,(viii) easements, reservation of rights of way,
restrictions (including, but not limited to, zoning and building restrictions)
and other similar easements, licenses, restrictions on the use of properties, or
minor imperfections of title that in the aggregate are not material in amount
and do not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Issuer and its
Restricted Subsidiaries, (ix) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings;
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor, (x) Liens securing
Capitalized Lease Obligations otherwise permitted under the Indenture; provided
that such Lien does not extend to any property other than that subject to the
underlying lease, (xi) Liens under the Credit Facilities and obligations under
Interest Rate Agreements, Currency Agreements and commodity agreements, securing
such Credit Facilities and obligations in an amount not to exceed $75 million in
the aggregate and permitted to be incurred under the Indenture, (xii) Liens
created or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, government contracts, performance bonds and other
obligations of a like nature incurred in the ordinary course of business, (xiii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods,
(xiv) Liens arising pursuant to Sale and Leaseback transactions entered into in
compliance with the Indenture, (xv) Liens incurred in the ordinary course of
business of the Issuer or any of its Subsidiaries with respect to $5 million at
any one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary and (xvi)
Liens on Property constituting Rolling Stock of any Person securing Indebtedness
otherwise permitted under the Indenture, provided that such Liens do not extend
to or cover any other Property and (xvii) any extension, renewal or replacement,
in whole or in part, of any Lien described in the foregoing clauses (i) through
(xvii); provided that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the Lien so extended, renewed or
replaced and shall not extend to any other Property of the Issuer or its
Subsidiaries other than such item of Property originally covered by such Lien or
by improvement thereon or additions or accessions thereto.
"Person" means any individual, corporation, partnership, limited liability
Company, joint venture, association, joint-stock Company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company or any
parent of shares of its Common Stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such Common
Stock.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance the cost (including the cost of construction, installation or
improvement) of an item of property used in the business, the principal amount
of which Indebtedness does not exceed the sum of (i) the lesser of (A) the Fair
Market Value of such property or (B) 100% of such cost and (ii) reasonable fees
and expenses of such Person incurred in connection therewith.
"Refinancing Indebtedness" means Indebtedness that replaces, refunds,
renews, refinances or extends any Indebtedness of the Issuer or a Restricted
Subsidiary outstanding on the Issue Date or other Indebtedness permitted to be
incurred by the Issuer or its Restricted Subsidiaries pursuant to the terms of
the Indenture, but
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only to the extent that (i) the Refinancing Indebtedness is subordinated to the
Notes to at least the same extent as the Indebtedness being replaced, refunded,
renewed, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is
scheduled to mature either (a) no earlier than the Indebtedness being replaced,
refunded, renewed, refinanced or extended, or (b) after the maturity date of the
Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a weighted
average life to maturity at the time such Refinancing Indebtedness is incurred
that is equal to or greater than the weighted average life to maturity of the
portion of the Indebtedness being replaced, refunded, renewed, refinanced or
extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding under the Indebtedness being replaced, refunded, renewed, refinanced
or extended, (b) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of preexisting prepayment provisions on such
Indebtedness being replaced, refunded, renewed, refinanced or extended and (c)
the amount of customary fees, expenses and costs related to the incurrence of
such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred
by the same Person that initially incurred the Indebtedness being replaced,
refunded, renewed, refinanced or extended, except that the Issuer may incur
Refinancing Indebtedness to refund, refinance or extend Indebtedness of any
Wholly-Owned Subsidiary of the Issuer.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Issuer or any Restricted Subsidiary of the Issuer or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock of the
Issuer or any Restricted Subsidiary of the Issuer (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) or in options, warrants or other rights to purchase such Capital Stock
(other than Disqualified Capital Stock), and (y) in the case of Restricted
Subsidiaries of the Issuer, dividends or distributions payable to the Issuer or
to a Wholly-Owned Subsidiary of the Issuer), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the Issuer or
any of its Restricted Subsidiaries (other than Capital Stock of a Restricted
Subsidiary owned by the Issuer or a Wholly-Owned Subsidiary of the Issuer) or
any options, warrants or other rights to purchase such Capital Stock) or any
options, warrants or other rights to purchase such Capital Stock, (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Notes (other than
Indebtedness of a Restricted Subsidiary held by the Issuer or a Wholly-Owned
Subsidiary), (iv) the making of any Investment or guarantee of any Investment in
any Person other than a Permitted Investment, (v) the designation of any
Subsidiary of the Issuer as an Unrestricted Subsidiary (a "Designation");
provided that the Designation of a Subsidiary of the Issuer as an Unrestricted
Subsidiary shall be deemed to include the Designation of all of the Subsidiaries
of such Subsidiary and (vi) the forgiveness of any Indebtedness of an Affiliate
of the Issuer (other than a Wholly-Owned Subsidiary of the Issuer) owed to the
Issuer or a Restricted Subsidiary of the Issuer. In determining the amount of
any Restricted Payment made under clause (v) above, the amount of such
Restricted Payment (the "Designation Amount") shall be equal to the greater of
(i) the book value or (ii) the Fair Market Value of the Issuer's proportionate
interest in such Subsidiary on such date.
"Restricted Subsidiary" means a Subsidiary of the Issuer other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Issuer
existing on the Issue Date. The Board of Directors of the Issuer may designate
any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Acquired Indebtedness as having been incurred at the time of such
action), (i) the Issuer could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to "--Certain
Covenants--Limitation on Additional Indebtedness" above and (ii) no Default or
Event of Default shall have occurred and be continuing.
"Rolling Stock" means mobile mining equipment.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Issuer or any Restricted Subsidiary of the
Issuer of any real or tangible personal property, which property has
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been or is to be sold or transferred by the Issuer or such Restricted Subsidiary
to such Person in contemplation of such leasing.
"Securities Act" means the Securities Act of 1933, as amended and the rules
and regulations of the Commission promulgated thereunder.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, limited liability company, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, joint venture, limited liability company, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"Taxes" means any present or future tax, duty, levy, impost, assessment or
other government charge (including penalties, interest and any other liabilities
related thereto) imposed or levied by or on behalf of a Taxing Authority.
"Taxing Authority" means any government or any political subdivision or
territory or possession of any government or any authority or agency therein or
thereof having power to tax.
"Tax Settlement" means a settlement between the Issuer and applicable
Taxing Authorities of disputed tax and penalty amounts for all periods up to and
including December 31, 1995.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Issuer which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Issuer; provided that a Subsidiary may be so classified as an
Unrestricted Subsidiary only if such classification is in compliance with
"--Certain Covenants--Limitation on Restricted Payments" above. The Trustee
shall be given prompt notice by the Issuer of each resolution adopted by the
Board of Directors of the Issuer under this provision, together with a copy of
each such resolution adopted.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares or
similar requirements of law) of which are owned, directly or indirectly, by the
Issuer.
BOOK-ENTRY, DELIVERY AND FORM
The Series B Senior Notes will initially be issued in the form of one or
more registered notes in global form (the "Exchange Global Note," and together
with the global notes representing the Senior Notes, the "Global Note") or in
certificated form. The Exchange Global Note will be deposited on the Exchange
Date with, or on behalf of, the Depository and registered in the name of the
Global Note Holder. See "The Exchange Offer."
DTC has advised the Company that DTC is a limited-purpose trust company
that was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchaser), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests and transfer of ownership
interests of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
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principal amount of the Global Note and (ii) ownership of such interests in the
Global Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Notes). Holder are advised
that the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be limited
to such extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Payments in respect of the principal of and premium and Additional
Interest, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global
Notes, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to the
actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Notes, and the Company and the
Trustees may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (a) notifies the Company that it is unwilling or
unable to continue as Depository for the Global Note and the Company thereupon
fails to appoint a successor Depository or (b) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be continuing
an Event of Default or any event which after notice or lapse of time or both
would be an Event of Default with respect to the Notes. In addition, beneficial
interests in a Global Note may be exchanged for certificated Notes upon request
but only upon at least 20 days prior written notice given to the Trustee by or
on behalf of DTC in accordance with its customary procedures. In all cases,
certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depository (in accordance with
its customary procedures) and will bear the applicable restrictive legend unless
the Company determines otherwise in compliance with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the Trustee
a written certificate (in the form provided in the Indenture) to the effect that
such transfer will comply with the appropriate transfer restrictions applicable
to such Notes.
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Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available same day funds to the accounts specified
by the Global Note Holder. With respect to Certificated Securities, the Company
will make all payments of principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. Secondary trading in long-term notes and debentures
of corporate issuers is generally settled in clearing-house or next-day funds.
In contract, the Notes represented by the Global Note are expected to be
eligible to trade in the PORTAL Market and to trade in the Depository's Same-Day
Funds Settlement System, and any permitted secondary market trading activity in
such Notes will, therefore, be required by the Depository to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
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REGISTRATION RIGHTS AGREEMENT
In connection with the Offering of the Senior Notes, the Company and the
Guarantors entered into the Exchange Offer Registration Rights Agreement dated
June 8, 1998, pursuant to which they have agreed, for the benefit of the holders
of the Senior Notes, that they will, at their cost, (i) within 75 days after the
Issue Date, file a registration statement (the "Exchange Offer Registration
Statement") with the Commission with respect to a registered offer to exchange
the Senior Notes for the Exchange Senior Notes, which will have terms
substantially identical in all material respects to the Senior Notes (except
that the Series B Senior Notes will not contain terms with respect to transfer
restrictions), and (ii) within 150 days after the Issue Date, use their
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Act. Upon the Exchange Offer Registration Statement
being declared effective, the Company will offer the Series B Senior Notes in
exchange for surrender of the Senior Notes. The Company will keep the Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Senior Notes. For each Senior Note surrendered to the Company pursuant to the
Exchange Offer, the holder of such Senior Note will receive an Series B Senior
Note having a principal amount at maturity equal to that of the surrendered
Senior Note. Interest on the Series B Senior Notes will accrue from (A) the
later of (i) the last interest payment date on which interest was paid on the
Senior Notes surrendered in exchange therefor or (ii) if the Senior Notes are
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange and
as to which interest will be paid, the date of such interest payment date or (B)
if no interest has been paid on the Senior Notes from the Issue Date.
Under existing Commission interpretations, the Series B Senior Notes would
in general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that, in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act be
delivered as required. The Company and the Guarantors have agreed for a period
of 180 days after consummation of the Exchange Offer to make available a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any resale of any such Series B Senior Notes acquired
as described below. A broker-dealer which delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act, and will be bound by the
provisions of the Exchange Offer Registration Rights Agreement (including a
certain indemnification rights and obligations).
Each holder of Senior Notes that wishes to exchange such Senior Notes for
Series B Senior Notes in the Exchange Offer will be required to make certain
representations including representations that (i) any Series B Senior Notes to
be received by it will be acquired in the ordinary course of its business, (ii)
it has no arrangement with any person to participate in the distribution of the
Series B Senior Notes and (iii) it is not an "affiliate," as defined in Rule 405
of the Securities Act, of the Company or any of the Guarantors, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the holder is
not a broker-dealer, it will be required to represent that it is not engaged in,
and does not intend to engage in, the distribution of the Series B Senior Notes.
If the holder is a broker-dealer that will receive Series B Senior Notes for its
own account in exchange for Senior Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Series B Senior Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the Issue Date
or, under certain circumstances, if the Initial Purchaser shall so request, the
Company and the Guarantors will, at their own expense, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Senior
Notes (the "Shelf Registration Statement"), (b) use their respective best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) use their respective best efforts to keep effective
the Shelf Registration Statement until the earlier of the disposition of the
Senior Notes covered by the Shelf Registration Statement or two years after the
Issue Date (or such earlier time when the Senior Notes are eligible for resale
pursuant to Rule 144(k) under the Securities Act). The Company will, in the
event of the Shelf Registration Statement, provide to each holder of the Senior
Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Senior Notes has become effective and take certain other actions as are required
to permit
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unrestricted resales of the Senior Notes. A holder of the Senior Notes that
sells such Senior Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Exchange Offer
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification rights and obligations).
If the Company and the Guarantors fail to comply with the above provisions
or if any such registration statement fails to become effective, then, as
liquidated damages, additional interest shall become payable in respect of the
Senior Notes as follows:
If (i) (A) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 75 days after the Issue Date or (B)
notwithstanding that the Company has consummated or will consummate an Exchange
Offer, the Company is required to file a Shelf Registration Statement and such
Shelf Registration Statement is not filed on or prior to the date required by
the Exchange Offer Registration Rights Agreement;
(ii) (A) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 150 days after the Issue Date or (B)
notwithstanding that the Company has consummated or will consummate an Exchange
Offer, the Company is required to file a Shelf Registration Statement and such
Shelf Registration Statement is not declared effective by the Commission on or
prior to the 90th day following the date such Shelf Registration Statement was
filed; or
(iii) either (A) the Company has not exchanged the Series B Senior Notes
for all Senior Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 30 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time that
the Exchange Offer is consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the second anniversary of the Issue
Date;
(each such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Senior
Notes will be the immediate assessment of additional interest ("Additional
Interest") as follows: the per annum interest rate on the Notes will increase by
.50%, and the per annum interest rate will increase by an additional .25% for
each subsequent 90-day period during which the Registration Default remains
uncured, up to a maximum additional interest rate of 2.0% per annum in excess of
the interest rate on the cover of the Prospectus. All Additional Interest will
be payable to holders of the Senior Notes in cash on each interest payment date,
commencing with the first such date occurring after any such Additional Interest
commences to accrue, until such Registration Default is cured. After the date on
which such Registration Default is cured, the interest rate on the Senior Notes
will revert to the interest rate originally borne by the Senior Notes (as shown
on the cover of the Prospectus).
The summary herein of certain provisions of the Exchange Offer Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Exchange
Offer Registration Rights Agreement, a copy of which will be available upon
request to the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of the Senior Notes for the Series B
Senior Notes, but does not purport to be a complete analysis of all potential
tax effects. The discussion is based upon the United States Internal Revenue
Code of 1986, as amended, (the "Code"), Treasury Regulations, Internal Revenue
Service ("IRS") rulings and pronouncements and judicial decisions now in effect,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Series B Senior Notes. The following
discussion assumes that holders hold the Senior Notes and the Series B Senior
Notes as capital assets within the meaning of Section 1221 of the Code.
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The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of the Senior Notes for the Series B Senior Notes
or that any such position would not be sustained.
The tax treatment of a holder may vary depending on his or its particular
situation or status. This summary does not address the tax consequences to
taxpayers who are subject to special rules such as insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
entities and individuals, persons holding Senior Notes or Series B Senior Notes
as a part of a hedging or conversion transaction or a straddle and holders whose
"functional currency" is not the U.S. dollar, or aspects of federal income
taxation that may be relevant to a prospective investor based upon such
investor's particular tax situation. In addition, the description does not
consider the effect of any applicable foreign, state, local or other tax laws.
EACH HOLDER SHOULD CONSULT HIS OR ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR HER OR IT OF EXCHANGING SENIOR NOTES FOR SERIES B
SENIOR NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
EXCHANGE
The exchange of the Series B Senior Notes for Senior Notes should not
constitute a recognition event for federal income tax purposes. Consequently, no
gain or loss should be recognized by holders upon receipt of the Series B Senior
Notes. For purposes of determining gain or loss upon the subsequent exchange of
Series B Senior Notes, a holder's basis in the Series B Senior Notes should be
the same as a holder's basis in the Senior Notes exchanged therefor. Holders
should be considered to have held the Series B Senior Notes from the time of
their original acquisition of the Senior Notes. As used herein, the term "Senior
Note" refers to both a Senior Note and a Series B Senior Note received in
exchange therefor.
INTEREST ON THE SERIES B SENIOR NOTES
A holder of a Series B Senior Note will be required to report as income for
federal income tax purposes interest earned on a Series B Senior Note in
accordance with the holder's method of tax accounting. A holder of a Series B
Senior Note using the accrual method of accounting for tax purposes is, as a
general rule, required to include interest in ordinary income as such interest
accrues. A cash basis holder must include interest in income when cash payments
are received by (or made available to) such holder.
MARKET DISCOUNT
If a holder acquired a Senior Note at a market discount (i.e., at a price
less than the stated redemption price at maturity of the Senior Note), the
Senior Note is subject to the market discount rules of the Code unless the
market discount is de minimis. Market discount is de minimis if it is less than
one quarter of one percent of the principal amount of the Senior Note multiplied
by the number of complete years to maturity after the holder acquired the Senior
Note. If the holder exchanges an Senior Note that has more than de minimis
market discount for a Series B Senior Note, the Series B Senior Note also will
be subject to the market discount rules of the Code. Series B Senior Notes
purchased by a subsequent purchaser also will be subject to the market discount
rules if the Series B Senior Notes are purchased with more than a de minimis
amount of market discount. Notes that have more than de minimis market discount
are herein referred to as "Market Discount Notes."
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on the Market Discount Note. Alternatively, a
holder may elect to include market discount in income currently over the life of
the Market Discount Note. Such an election shall apply to all debt instruments
with market discount acquired by the holder on or after the first day of the
first taxable year to which the election applies. This election may not be
revoked without the consent of the IRS.
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Market discount will accrue on a straight-line basis unless the holder
elects to accrue market discount on a constant yield to maturity basis. Such an
election shall apply only to the Market Discount Note with respect to which it
is made and may not be revoked without the consent of the IRS. A holder who does
not elect to include market discount in income currently generally will be
required to defer deductions for interest on borrowings allocable to a Market
Discount Note in an amount not exceeding the accrued market discount on the
Market Discount Note until the maturity or disposition of the Market Discount
Note.
AMORTIZABLE BOND PREMIUM
A holder that purchased a Senior Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium,"
in which case the amount required to be included in the holder's income each
year with respect to interest on the Senior Note will be reduced by the amount
of amortizable bond premium allocable (based on the yield to maturity of the
Senior Note) to such year. If a holder made an election to amortize bond premium
with respect to a Senior Note and exchanges the Senior Note for a Series B
Senior Note pursuant to the Exchange Offer, the election will apply to the
Series B Senior Note. A holder who exchanges a Senior Note for which an election
has not been made for a Series B Senior Note, and a subsequent purchaser of a
Series B Senior Note, may also elect to amortize bond premium if the holder
acquired the Note for an amount in excess of its principal amount. Any election
to amortize bond premium shall apply to all bonds (other than bonds the interest
on which is excludable from gross income) held by the holder at the beginning of
the first taxable year to which the election applies or thereafter acquired by
the holder, and is irrevocable without the consent of the IRS.
DISPOSITION OF THE SERIES B SENIOR NOTES
Subject to the market discount rules discussed above, a holder of Series B
Senior Notes will recognize gain or loss upon the sale. redemption, retirement
or other disposition of such securities equal to the difference between (i) the
amount of cash and the fair market value of the property received (except to the
extent attributable to the payment of accrued interest) and (ii) the holder's
adjusted tax basis in the securities. Gain or loss recognized will be capital
gain or loss provided the Series B Senior Notes are held as capital assets by
the holder, and will be long-term capital gain or loss if the holder has held
such securities (or is treated as having held such securities) for more than one
year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders of the Series B Senior Notes may be subject to backup withholding
at a rate of 31% with respect to interest paid on the Notes unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Notes and the IRS the amount
of any "reportable payment" for each calendar year and amount of tax withheld.
if any, with respect to payments on the Series B Senior Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT OF THE
ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE NOTES (INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Series B Senior Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series B Senior Notes received
in exchange for Senior Notes acquired as a result of
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market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus available to any broker-dealer for use in
connection with any such resale for a period of 180 days after the consummation
of the Exchange Offer or, if earlier, or until all participating broker-dealers
have so resold.
The Company will not receive any proceeds from any sale of Series B Senior
Notes by broker-dealers for their own account pursuant to the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the Series
B Senior Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concession from any such broker-dealer and/or the purchasers of
any Series B Senior Notes. Any broker-dealer that resells Series B Senior Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker-dealer that participates in a distribution of Series B Senior Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any resale of Series B Senior Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the Series B Senior Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Series B Senior Notes in
its ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the Series B Senior Notes to be
received in the Exchange Offer.
The Canadian Imperial Bank of Commerce ("CIBC"), an affiliate of CIBC
Oppenheimer Corp., the Initial Purchaser of the Senior Notes, is an agent and a
lender under the Exchange Credit Facility. In such capacities, CIBC will receive
customary fees and expenses and its proportionate share of any repayments of
borrowings under the Exchange Credit Facility. Pursuant to the Offering, CIBC
has received its proportionate share of repayment under the Original Credit
Facility and its proportionate share of proceeds from redemption of the Bank
Warrants.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the
Guarantors by Buchanan Ingersoll Professional Corporation, Pittsburgh,
Pennsylvania.
EXPERTS
The Company's consolidated financial statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, given on the authority of said firm as experts in
auditing and accounting.
The information appearing in this Prospectus concerning estimates of the
Company's reserves (other than the Company's Fork Creek reserves) has been
audited by Marshall Miller and has been included herein upon the authority of
that firm as experts. The information appearing in this Prospectus concerning
estimates of the Company's Fork Creek reserves has been audited by Stagg
Engineering and has been included herein upon the authority of that firm as
experts.
110
<PAGE> 112
PEN HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants...................... F-2
Consolidated Balance Sheet as of December 31, 1997 and
1996.................................................. F-3
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995...................... F-4
Consolidated Statement of Changes in Shareholders'
Equity for the Years Ended December 31, 1997, 1996 and
1995.................................................. F-5
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995................ F-6
Notes to Consolidated Financial Statements............. F-8
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1998
(Unaudited)........................................... F-22
Consolidated Statement of Income for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)............. F-23
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1998
(Unaudited)........................................... F-24
Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (Unaudited)...... F-25
Notes to Consolidated Financial Statements
(Unaudited)........................................... F-26
</TABLE>
F-1
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
of Pen Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Pen Holdings, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
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. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Nashville, Tennessee
February 20, 1998
F-2
<PAGE> 114
PEN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,151 $ 1,885
Accounts receivable (net of allowance for doubtful
accounts of $436 and $412 in 1997 and 1996,
respectively)........................................... 17,497 17,823
Inventories............................................... 4,760 7,134
Deferred income taxes..................................... 1,160 1,365
Net assets to be disposed (Note 7)........................ 4 851
Other assets.............................................. 2,315 1,321
-------- --------
Total current assets.................................... 31,887 30,379
Investment in unconsolidated affiliated companies........... 5,393 6,055
Coal reserves and mine development costs, net............... 138,502 126,329
Property, plant and equipment, net.......................... 34,013 53,781
Long-term investments....................................... 13,323 12,815
Net assets to be disposed (Note 7).......................... 566 716
Other assets................................................ 1,163 1,678
-------- --------
$224,847 $231,753
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans.................................... $ -- $ 3,378
Current maturities of long-term debt...................... 11,177 9,509
Current maturities of capital leases...................... 3,936 2,954
Accounts payable and accrued expenses..................... 12,794 14,598
Income taxes payable...................................... 1,047 943
-------- --------
Total current liabilities............................... 28,954 31,382
Long-term debt.............................................. 68,440 77,532
Long-term capital leases.................................... 2,818 3,500
Deferred income taxes....................................... 59,891 62,243
Other liabilities........................................... 3,817 3,841
-------- --------
Total liabilities....................................... 163,920 178,498
-------- --------
Guaranties, commitments and contingencies (Notes 16 and 17)
Mandatorily redeemable preferred stock (Note 11)............ 17,097 15,344
Redeemable common stock warrants (Note 12).................. 2,344 2,125
-------- --------
Shareholders' equity:
Class I common stock, $.01 par value; 7,800,000 shares
authorized, 4,290,000 shares issued and outstanding..... 43 43
Class II common stock, $.01 par value; 200,000 shares
authorized, 177,550 shares (200,000 shares in 1996)
issued and outstanding.................................. 2 2
Additional paid-in capital................................ 19 19
Retained earnings......................................... 41,422 35,722
-------- --------
Total shareholders' equity.............................. 41,486 35,786
-------- --------
$224,847 $231,753
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 115
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues................................................. $182,289 $182,469 $186,043
Operating expenses
Cost of sales.......................................... 164,670 164,963 167,111
Selling, general and administrative.................... 6,090 5,608 6,092
-------- -------- --------
Operating income......................................... 11,529 11,898 12,840
Other (income) expense
Interest expense....................................... 7,906 9,186 10,340
Interest income........................................ (1,224) (1,087) (1,572)
Other income........................................... (4,901) (1,797) (126)
-------- -------- --------
Income from continuing operations before income taxes.... 9,748 5,596 4,198
Provision for income taxes............................... 2,246 1,463 1,137
-------- -------- --------
Net income from continuing operations.................... 7,502 4,133 3,061
Discontinued operations:
Income (loss) from discontinued operations (less
applicable income tax credits of $393 in 1996 and $4 in
1995, and minority interest of $187 (loss) in 1996 and
$2 (income) in 1995.).................................. -- (750) 70
Loss on disposal of discontinued operations, including
provision of $502 for operating losses during phase-out
period (less applicable income tax credits of $105 in
1997 and $367 in 1996, and minority interest of $27 in
1997 and $125 loss in 1996.)........................... (35) (698) --
-------- -------- --------
Net income............................................... $ 7,467 $ 2,685 $ 3,131
======== ======== ========
Income per share of common stock:
Basic--
Continuing operations............................... $ 1.28 $ .56 $ .72
Discontinued operations............................. (.01) (.33) .02
-------- -------- --------
$ 1.27 $ .23 $ .74
======== ======== ========
Diluted--
Continuing operations............................... $ 1.00 $ .56 $ .72
Discontinued........................................ (.01) (.33) .02
-------- -------- --------
$ .99 $ .23 $ .74
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 116
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
CLASS I CLASS II
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ PAID-IN RETAINED
SHARES AMOUNTS SHARES AMOUNTS CAPITAL EARNINGS TOTAL
---------- ------- -------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.... 4,250,000 $42 $19 $ 61,252 $ 61,313
Dividends....................... (100) (100)
Recapitalization, issuance of
Class I Common Stock and
reissuance of treasury stock
(Note 13)..................... 40,000 1 (29,552) (29.551)
Net Income...................... 3,131 3,131
---------- --- -------- --- --- -------- --------
Balance at December 31, 1995.... 4,290,000 43 19 34,731 34,793
Issuance of Class II Common
Stock......................... 200,000 2 2
Accretion of Preferred Stock.... (1,694) (1,694)
Net Income...................... 2,685 2,685
---------- --- -------- --- --- -------- --------
Balance at December 31, 1996.... 4,290,000 43 200,000 2 19 35,722 35,786
Purchase of Treasury Stock and
concurrent cancellation....... (22,450) (14) (14)
Accretion of Preferred Stock.... (1,753) (1,753)
Net Income...................... 7,467 7,467
---------- --- -------- --- --- -------- --------
Balance at December 31, 1997.... 4,290,000 $43 177,550 $ 2 $19 $ 41,422 $ 41,486
========== === ======== === === ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 117
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 7,467 $ 2,685 $ 3,131
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization................ 15,406 14,921 14,188
Equity in net losses of affiliates...................... 167 111 (149)
Deferred income taxes................................... (1,027) (404) (741)
Gain on sale of equipment............................... (6,339) (731) (153)
Minority interest proportionate share of earnings....... (27) (312) 3
Interest income on long-term investments................ (1,070) (980) (970)
-------- -------- --------
Cash generated from operations, before changes in assets
and liabilities...................................... 14,577 15,290 15,309
Changes in assets and liabilities, net of effects from
dispositions:
Accounts receivable..................................... 3,236 (482) 2,400
Inventories............................................. 4,079 6,327 9,053
Accounts payable and accrued expenses................... (3,579) (3,897) (4,712)
Other................................................... (811) 1,736 1,126
-------- -------- --------
Net cash provided by operating activities............... 17,502 18,974 23,176
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit of escrowed funds............................... -- (499) 2,326
Capital expenditures.................................... (3,871) (2,321) (4,615)
Purchase of coal reserves (Note 14)..................... (5,000) -- --
Proceeds from sale of barges and equipment.............. 23,494 5,138 874
Distributions from affiliated companies................. 277 122 614
-------- -------- --------
Net cash provided (used) by investing activities........ 14,900 2,440 (801)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................ -- 2 42
Payment to minority shareholder for common stock........ -- (12,500) --
Dividend paid........................................... -- -- (100)
Proceeds from issuance of long-term debt................ 221 4,300 --
Repayment of long-term debt............................. (19,360) (14,187) (5,400)
Repayment of capital leases............................. (3,798) (5,486) (5,567)
Net borrowings (payments) under line of credit
agreements and current notes payable................. (5,185) 182 (7,702)
Distribution to minority partner........................ -- -- (682)
Purchase of treasury stock.............................. (14) -- --
-------- -------- --------
Net cash used for financing activities.................. (28,136) (27,689) (19,409)
-------- -------- --------
Net increase (decrease) in cash......................... 4,266 (6,275) 2,966
Cash and cash equivalents at beginning of year.......... 1,885 8,160 5,194
-------- -------- --------
Cash and cash equivalents at end of year................ $ 6,151 $ 1,885 $ 8,160
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 118
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................... $8,096 $10,793 $9,333
Income taxes........................................... 3,414 197 3,099
</TABLE>
SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS:
The Company leased certain machinery and equipment under capital leases as
more fully described in Note 10.
The Company purchased property containing coal reserves in December 1997
for consideration of $16,000,000 comprised of $5,000,000 paid at closing and an
$11,000,000 note payable.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 119
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS:
DESCRIPTION OF THE BUSINESS
Pen Holdings, Inc. (the Company) is primarily engaged in the mining and
sale of coal, selling predominantly to utility companies. The Company also
receives royalty income from coal reserves leased to other companies. The
Company's coal reserves and mining operations are in Kentucky and West Virginia.
The Company also processes, warehouses, and sells cotton and cottonseed.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority and wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Investments in affiliated enterprises in which the Company owns less than a
controlling interest are presented under the equity basis of accounting
representing the Company's investment in affiliates, reduced by goodwill
amortization and increased (decreased) by the Company's proportionate equity in
the net income (losses) of the unconsolidated affiliates.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid interest-bearing instruments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories, consisting of coal and cottonseed, are stated at the lower of
cost or market with cost being determined on the first-in, first-out method.
LONG-TERM INVESTMENTS
Long-term investments are considered as held to maturity and are carried at
amortized cost.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash, accounts receivable, long-term
investments and other off-balance sheet financial instruments. The Company
maintains cash and cash equivalents mostly in large financial institutions.
Concentration of credit risk with respect to trade receivables is limited due to
the diversity of the Company's business and customer base. Long-term investments
principally consist of U.S. Government obligations.
The Company performs continuing credit evaluations of its customers and
does not generally require collateral. Historically, the Company has not
experienced significant losses related to individual customers in any particular
industry or geographic region.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
short-term notes payable, revolving credit loans and accounts payable
approximate fair value due to the short-term maturities of these assets and
liabilities. The carrying amount of long-term debt approximates fair value as
the interest rates on substantially all long-term debt are variable. The
carrying amount of mandatorily redeemable stock approximates fair value as the
dividend rate is the equivalent of a market rate for securities of that type.
The market value of long-term
F-8
<PAGE> 120
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
investments in U.S. Government obligations was $15,550,000 and $14,156,000 at
December 31, 1997 and 1996, respectively, based on market quotes with a carrying
amount of $13,305,000 and $12,815,000, respectively.
DEBT ISSUANCE COSTS
Debt issuance costs are recorded as assets and amortized over the lives of
related debt.
COAL RESERVES AND MINE DEVELOPMENT COSTS
Depletion of coal reserves and certain mine development costs are
recognized based on tons mined during the year as a percentage of total
estimated recoverable tons.
PROPERTY, PLANT AND EQUIPMENT
Equipment and other properties are recorded at cost and depreciated over
the estimated useful lives of the respective assets using the straight-line
method. Amortization of capitalized lease assets is included in depreciation
expense and accumulated depreciation. Depreciation expense was $8,599,000 in
1997, $8,897,000 in 1996 and $8,695,000 in 1995. Estimated useful lives are as
follows:
<TABLE>
<S> <C>
Barges............................................ 25 years
Building and improvements......................... 10-20 years
River terminals................................... 10-20 years
Machinery and equipment........................... 5-10 years
</TABLE>
GOODWILL AND LONG-LIVED ASSETS
Goodwill related to the Company's investment in affiliated companies is
amortized using the straight-line method over 25 years. Amortization expense of
$219,000 was recognized in each of the years 1997, 1996, and 1995. Goodwill is
included in investment in unconsolidated affiliated companies in the
consolidated balance sheet. The Company periodically reviews the recoverability
of all long-lived assets using a cash flow analysis. If impairment of value
exists, a loss is recognized. No adjustment for impairment was necessary at
December 31, 1997 or 1996.
RECLAMATION COSTS
The Company is subject to various laws and regulations which require the
restoration and reclamation of mined properties. The Company accrues the
reclamation costs for surface mine restoration as the mining operations occur.
Reclamation costs associated with site restoration for the Company's coal
preparation plant are accrued over the estimated useful life of the plant using
the units of production method. The accrued reclamation costs, amounting to
$3,278,000 and $3,084,000 at December 31, 1997 and 1996, are substantially
included in other noncurrent liabilities, net of a current portion based on
management's estimate of funds to be disbursed within the following year.
COST OF SALES AND GENERAL AND ADMINISTRATIVE EXPENSES
Cost of sales includes direct and indirect cost of production, processing
and transportation. Selling, general and administrative expenses include selling
costs and general corporate expenses of the Company.
INCOME TAXES
Provisions for federal and state income taxes are calculated on reported
financial statement pretax income based on current tax law. Deferred income
taxes are provided for the temporary differences between the financial
F-9
<PAGE> 121
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reporting basis and income tax basis of the Company's assets and liabilities.
The Company's temporary differences consist primarily of excess financial
accounting basis over tax basis of acquired coal reserves, depreciation,
depletion and timing of certain revenue and expense recognition.
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 reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128--Earnings per Share ("SFAS 128"). SFAS
128 requires companies with complex capital structures that have common stock or
common stock equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. The presentation of basic EPS
replaces the presentation of primary EPS previously required by Accounting
Principles Board Opinion No. 15 ("APB 15"). Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
shares outstanding during the period. Diluted EPS (previously referred to as
fully diluted EPS) is calculated using the "if converted" method for convertible
securities and the treasury stock method for options and warrants as prescribed
by APB 15. All prior years EPS calculations have been restated to comply with
SFAS 128. Weighed average shares outstanding (in thousands) for computing income
per share are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ---------------------------
INCOME SHARES PER-SHARE INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR)
----------- ------------- --------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations............... $7,502 $4,133
Less: Preferred stock
dividends................ (1,753) (1,694)
------ ------
INCOME PER SHARE - BASIC
Income available to
common shareholders:
Continuing
operations........... 5,749 4,473 $1.28 2,439 4,332
Discontinued
operations........... (35) 4,473 (.01) (1,448) 4,332
------ ----- ------
5,714 $1.27 991
------ ----- ------
EFFECT OF DILUTIVE
SECURITIES
Convertible preferred
stock.................. 1,753 2,950
------ ------
Common stock warrants.... 219 326
------ ------
INCOME PER SHARE - DILUTED
Income available to
common shareholders plus
assumed conversions:
Continuing
operations........... 7,721 7,749 $1.00 2,439 4,332
Discontinued
operations........... (35) 7,749 (.01) (1,448) 4,332
------ ----- ------
$7,686 $ .99 $ 991
====== ===== ======
<CAPTION>
1996 1995
--------- ---------------------------------------
PER-SHARE INCOME SHARES PER-SHARE
AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
--------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income from continuing
operations............... $3,061
Less: Preferred stock
dividends................
------
INCOME PER SHARE - BASIC
Income available to
common shareholders:
Continuing
operations........... $ .56 3,061 4,250 $ .72
Discontinued
operations........... (.33) 70 4,250 .02
----- ------ -----
$ .23 3,131 $ .74
----- ------ -----
EFFECT OF DILUTIVE
SECURITIES
Convertible preferred
stock..................
Common stock warrants....
INCOME PER SHARE - DILUTED
Income available to
common shareholders plus
assumed conversions:
Continuing
operations........... $ .56 3,061 4,250 $ .72
Discontinued
operations........... (.33) 70 4,250 .02
----- ------ -----
$ .23 $3,131 $ .74
===== ====== =====
</TABLE>
The convertible preferred stock and common stock warrants were outstanding
during 1996, but were not included in the computation of diluted income per
share because their inclusion would have been anti-dilutive.
F-10
<PAGE> 122
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 3--INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------ ------
<S> <C> <C>
Coal......................................... $3,990 $6,444
Cottonseed................................... 770 690
------ ------
$4,760 $7,134
====== ======
</TABLE>
NOTE 4--COAL RESERVES AND MINE DEVELOPMENT COSTS:
Coal reserves and mine development costs consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Coal reserves............................ $147,953 $131,798
Mine development costs................... 10,387 9,843
-------- --------
158,340 141,641
Accumulated depletion.................... (19,838) (15,312)
-------- --------
$138,502 $126,329
======== ========
</TABLE>
Depletion expense was $6,055,000, $5,337,000, and $4,840,000 in 1997, 1996,
and 1995, respectively.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment.................. $ 46,453 $ 48,067
Barges................................... -- 22,623
River terminals.......................... 11,488 11,201
Buildings................................ 5,595 5,731
Coal preparation plant................... 6,351 6,389
Cotton gins and warehouses............... 1,349 1,322
Other.................................... 2,733 2,134
-------- --------
73,969 97,467
Accumulated depreciation................. (39,956) (43,686)
-------- --------
$ 34,013 $ 53,781
======== ========
</TABLE>
Machinery and equipment includes assets under capital leases with aggregate
cost of $14,856,000 and $23,918,000 at December 31, 1997 and 1996, respectively.
Accumulated amortization related to these capitalized leased assets was
$7,463,000 and $14,130,000 at December 31, 1997 and 1996, respectively.
Amortization expense was $3,379,000 in 1997, $4,470,000 in 1996 and $3,307,000
in 1995.
F-11
<PAGE> 123
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 6--LONG-TERM INVESTMENTS:
Long-term investments include zero coupon U.S. Treasury bonds held in
escrow in connection with the Company's purchase of Marine Terminals, Inc.
having maturity dates as follows (in thousands at December 31, 1997):
<TABLE>
<CAPTION>
CARRYING MARKET
VALUE VALUE
-------- -------
<S> <C> <C>
2000....................................... $ 6,176 $ 6,895
2006....................................... 7,129 8,655
------- -------
$13,305 $15,550
======= =======
</TABLE>
NOTE 7--NET ASSETS TO BE DISPOSED:
The Company is exiting the business segments unrelated to its core coal
operations. In line with this strategy, the following transactions occurred in
1996:
DISPOSAL OF OPERATING UNIT
In September 1996, the Company sold substantially all of the assets of Pen
Cotton Company, a wholly-owned subsidiary engaged in cotton ginning and
warehousing in west Tennessee. The selling price was $5,000,000, paid by
$4,500,000 cash at closing and the issuance of a $500,000 note receivable with a
five-year term. The Company continues to own and operate its cotton ginning
operations in South Carolina, therefore the disposition of assets in west
Tennessee is treated as a sale of assets. The gain of approximately $975,000
resulting from the sale is included in other income in 1996.
DISPOSAL OF BUSINESS SEGMENTS--DISCONTINUED OPERATIONS
In August 1996, the Company elected to dispose of its cotton merchandising
business conducted by a wholly-owned subsidiary, Pen Cotton Company of Alabama,
Inc. Since the decision to discontinue this segment of business, Pen Cotton
Company of Alabama, Inc. has incurred operating gains of $45,000 and operating
losses of $430,000 in 1997 and 1996, respectively. Expected future operating
losses at December 31, 1997 and 1996 have been recognized as discontinued
operations in the statement of income for the years then ended.
In October 1996, the Company made a decision to dispose of the hardwood
lumber operations of Pen Hardwood Company (a wholly-owned subsidiary which owns
a 78% interest in the general partnership Camden Hardwood Company). The
operations were terminated in 1997 and assets are currently being liquidated.
The lumber operations incurred operating losses of $80,000 and $454,000 in 1997
and 1996, respectively. Expected future losses on the ultimate sale of the
remaining assets have been recognized as discontinued operations in the
statement of income during 1997 and 1996.
NOTE 8--REVOLVING LINES OF CREDIT:
The Company has available revolving line of credit facilities totaling
$13,500,000, expiring August 1999, which are secured by inventories and
receivables. Borrowings bear interest at a variable rate based on either LIBOR
(an effective rate of 8.25% at December 31, 1997) or the bank's prime lending
rate (an effective rate of 8.50% at December 31, 1997). The revolving lines of
credit had no outstanding balance at December 31, 1997. There was a balance
outstanding of $3,378,000 at December 31, 1996. These agreements contain minimum
operating and financial ratios and covenants as defined in the agreements.
F-12
<PAGE> 124
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 9--LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- -------
<S> <C> <C>
Notes payable secured by coal reserves, land, buildings, and
equipment. Monthly payments of $708,000 plus interest are
due through August 2001, at which time any remaining
balance is due. Additional annual principal payments are
required if the Company's cash flow exceeds certain
amounts defined in the loan agreement. The interest rate
is variable based on LIBOR (an effective rate of 8.25% at
December 31, 1997)........................................ $ 63,271 $71,240
Notes payable secured by coal reserves. Payments of interest
only at the bank's prime lending rate (8.50% at 12/31/97)
are due monthly through December 1999. Monthly principal
payments of $42,000 plus interest are due beginning
January 2000 and increase to $125,000 per month in January
2001 through December 2007................................ 11,000 --
Notes payable secured by a lien on an office building which
serves as the Company's headquarters, with a net book
value of $3,219,000, payable in monthly installments of
$37,000 through 2016. Interest included in the monthly
installments is a fixed rate of 8.33%..................... 4,205 4,293
Notes payable secured by liens on land, buildings and
equipment of a cotton gin and warehouses with a net book
value of $2,296,000, payable in monthly installments of
$20,000 through 2000, including interest at fixed rates of
8.20%..................................................... 1,141 1,192
Notes payable retired in 1997............................... -- 10,316
-------- -------
Total long-term debt........................................ 79,617 87,041
Current maturities of long-term debt........................ (11,177) (9,509)
-------- -------
$ 68,440 $77,532
======== =======
</TABLE>
Certain of these loan agreements contain minimum operating and financial
ratios and covenants as defined in the separate agreements. The Company was in
compliance with all covenants in 1997.
F-13
<PAGE> 125
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 9--LONG-TERM DEBT: (CONTINUED)
Scheduled principal payments on these obligations as of December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1998................................................ $11,177
1999................................................ 8,319
2000................................................ 8,797
2001................................................ 38,286
2002................................................ 1,803
Thereafter.......................................... 11,235
-------
$79,617
=======
</TABLE>
NOTE 10--LEASES:
CAPITAL LEASES
Property, plant and equipment (Note 5) includes assets under capital leases
with a total cost of $14,856,000 and accumulated depreciation of $7,463,000.
Future minimum payments in the aggregate under these leases consist of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1998................................................ $ 4,302
1999................................................ 2,011
2000................................................ 711
2001................................................ 188
2002................................................ 56
-------
Total lease payments................................ 7,268
Amount representing interest........................ (514)
-------
Total long-term capital leases...................... 6,754
Current maturities of long-term capital leases...... (3,936)
-------
$ 2,818
=======
</TABLE>
Certain of these lease agreements contain minimum operating and financial
ratios and covenants as defined in the separate agreements. The Company was in
compliance with all covenants in 1997.
F-14
<PAGE> 126
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 10--LEASES: (CONTINUED)
OPERATING LEASES
The Company utilizes certain vehicles and equipment under noncancellable
operating lease agreements, with minimum payments as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1998................................................. $ 778
1999................................................. 769
2000................................................. 640
2001................................................. 527
2002................................................. 187
------
$2,901
======
</TABLE>
Total rent expense under these leases aggregated $636,000 in 1997, $284,000
in 1996 and $1,183,000 in 1995.
The Company leases its mining rights in certain coal reserves to other coal
companies. Amounts due to the Company under these leases are based on the
greater of fixed amounts per ton or a percentage of the selling price the lessee
receives for the coal when it is sold. The leases also provide for annual
minimum payments. Revenue recognized from leasing of mining rights was
$8,235,000 in 1997, $9,348,000 in 1996 and $10,738,000 in 1995.
The Company also leases office space to various commercial tenants in the
office building that serves as the Company's headquarters under five year
noncancellable operating leases, including renewal options ranging up to ten
years. Rental income was $678,000 in 1997, $598,000 in 1996 and $561,000 in
1995.
Future minimum lease payments to be received are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1998................................................ $ 4,500
1999................................................ 3,783
2000................................................ 3,381
2001................................................ 3,139
2002................................................ 2,929
Thereafter.......................................... 15,141
-------
$32,873
=======
</TABLE>
NOTE 11--MANDATORILY REDEEMABLE PREFERRED STOCK:
The Company issued 10,000 shares of convertible preferred stock with a face
value of $13,650,000 in January 1996. No dividends accrue from the date of
issuance through December 2000. Beginning in January 2001, dividends will accrue
at 25.25% for a five-year period. The aggregate amount of $17,233,000 in
dividends which will accrue from 2001 through 2006 is being recorded evenly from
the date of issuance in 1996 through the redemption date in 2006. The preferred
stock calls for mandatory redemption in 2006. The preferred stock will be
redeemed at that time by the issuance of a note payable which amortizes over the
ten years following the redemption. The preferred stock is convertible, at the
option of the holder, into 2,950,000 shares of Class I common stock. The
conversion feature is exercisable in January 2001 and expires in January 2002.
No dividends may be paid on any class of common stock prior to the full
redemption of the convertible preferred stock. The convertible preferred stock
does not contain any voting rights.
F-15
<PAGE> 127
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 12--SHAREHOLDERS' EQUITY:
COMMON STOCK
The Company has authorized 7,800,000 shares of Class I common stock and
200,000 shares of Class II common stock, both of which have a par value of $.01
per share. Additional paid-in capital of each class is included with the par
value of the common stock. The total shares issued and outstanding of Class I
and Class II common stock are 4,290,000 and 177,550, respectively, at December
31, 1997.
The Company has reserved 560,000 shares of Class I common stock for
issuance pursuant to option, warrant or other rights granted or which may be
granted to financial institutions with which the Company has a borrowing
relationship. As of December 31, 1997, no Class I common stock has been issued
with regard to these options. No other Class I common shares may be issued until
the convertible preferred stock is redeemed in full.
Each holder of Class I common stock has the option to sell to the Company
100% of the stock held at a price of $.01 per share. This option is exercisable
beginning January 2005 and lapses upon conversion of the convertible preferred
stock to Class I common stock.
The 200,000 shares of authorized Class II common stock were issued in 1996
under the Pen Holdings, Inc. Stock Purchase Plan dated June 1, 1996 to various
officers of the Company. In 1997, 22,450 shares were repurchased for $13,650 by
the Company from one of the officers who resigned. The shares were concurrently
canceled.
STOCK WARRANTS
The Company issued warrants to purchase 326,772 shares of Class I common
stock in January 1996. The exercise price of the warrants equaled the fair value
of the Class I common stock at the date of issuance. The warrants are
exercisable beginning January 2001 at $.01 per share. The warrants expire
January 2006. The Company may, at its option, repurchase the warrants at any
time after January 3, 1997 at the fair value of the Class I common stock
existing on the date the Company exercises this option, subject to a minimum
value of $3,000,000.
The warrants may be put to the Company, at the option of the holder,
beginning January 2001, at the fair value of the Class I common stock existing
on the date this option is exercised, subject to a minimum value of $3,000,000.
The number of shares under warrant and the exercise price are subject to
adjustment in the event of issuance of new shares of the Company's Class I
common stock or a decline in its fair value. The Company has recorded the
present value of its minimum obligation for repurchase of the warrants as
redeemable common stock warrants and a corresponding discount in the underlying
debt. The discount is being amortized as additional interest expense on a
straight-line basis through January 2001.
NOTE 13--RECAPITALIZATION:
The Company completed a recapitalization on December 29, 1995 whereby
4,250,000 shares of the Company's outstanding common stock held by the former
majority shareholder were converted into 4,250,000 shares of Class I common
stock and 10,000 shares of convertible preferred stock with a redemption value
of $13,650,000 (Note 11). The Company then reacquired 4,000,000 shares of Class
I common stock in exchange for cash of $12,500,000, 100% of the Company's
investment in the common stock of Pen Development of California, Inc., which had
a book value of $3,339,000, and company assets with a book value of $63,000. The
recapitalization was accounted for as a treasury stock transaction and resulted
in carryover of the historical basis of the Company's assets and liabilities
existing prior to the recapitalization.
Concurrent with the recapitalization, 4,040,000 shares of Class I common
stock were issued to the Company's Chief Executive Officer for $.01 per share,
representing the fair value of the Class I common stock after the
recapitalization.
F-16
<PAGE> 128
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 14--SIGNIFICANT TRANSACTIONS:
The Company sold its fleet of 98 barges on December 1, 1997, recognizing a
gain of $3,574,000, which is included in other income. Loans secured by the
barges were retired with proceeds from the sale. Revenue recognized from rental
of the barge fleet totaled $2,300,000 in 1997, $2,321,000 in 1996 and $2,122,000
in 1995.
The Company purchased property containing coal reserves in November 1997
for consideration of $16,000,000 comprised of $5,000,000 paid at closing and an
$11,000,000 note payable (Note 9).
NOTE 15--EMPLOYEE BENEFIT PLANS:
The Company maintains a contributory, defined contribution 401(k) salary
deferral plan to provide retirement and other benefits for its employees. All
employees become eligible after attaining the age of 21, completing one year of
service and working 1,000 hours during the preceding 12 months. The Company
contributes by matching a percentage of employee voluntary contributions.
Company contributions aggregated $431,000 in 1997, $397,000 in 1996 and $322,000
in 1995.
NOTE 16--INCOME TAXES:
Income tax expense for continuing operations consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current
Federal............................................ $ 3,571 $1,727 $1,909
State.............................................. 161 18 (19)
------- ------ ------
$ 3,732 $1,745 $1,890
------- ------ ------
Deferred
Federal............................................ $(1,486) $ (282) $ (753)
State.............................................. -- -- --
------- ------ ------
$(1,486) $ (282) $ (753)
------- ------ ------
$ 2,246 $1,463 $1,137
======= ====== ======
</TABLE>
Deferred tax benefits of $105,000 and $98,000 have been recognized in the
1997 and 1996 discontinued operations, respectively.
The income tax expense effective rates of 23.1% and 26.1% for 1997 and
1996, respectively, reconcile with the federal statutory tax rate of 34% as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate................... $ 3,314 34.0% $1,903 34.0% $1,427 34.0%
State income taxes (net of federal
income tax benefit)................... 106 1.1 12 0.2 57 1.3
Statutory depletion in excess of cost
depletion............................. (1,259) (12.9) (492) (8.8) (413) (9.8)
Goodwill amortization................... 75 0.8 75 1.3 75 1.8
Other................................... 10 0.1 (35) (0.6) (9) (0.3)
------- ----- ------ ---- ------ ----
$ 2,246 23.1% $1,463 26.1% $1,137 27.0%
======= ===== ====== ==== ====== ====
</TABLE>
F-17
<PAGE> 129
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 16--INCOME TAXES: (CONTINUED)
The net, noncurrent deferred tax liability in the accompanying balance
sheet includes the following amounts of deferred tax assets and liabilities (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax liability:
Depletion of coal reserves............... $45,165 $46,092
Accelerated depreciation................. 10,178 14,871
Mine development costs................... 3,877 3,368
Other.................................... 3,473 4,433
------- -------
$62,693 $68,764
Deferred tax asset......................... (2,802) (6,521)
------- -------
Net deferred tax liability................. $59,891 $62,243
======= =======
</TABLE>
At December 31, 1997, the Company has alternative minimum tax credit
carryforwards of $2,638,000 available to offset future regular tax liabilities.
Deferred taxes primarily result from differences between the financial
accounting and tax basis of acquired coal reserves and differences between the
methods used for computing depreciation and depletion and in the timing of
certain revenue and expense recognition for financial reporting and income tax
purposes. At December 31, 1997, the Company has alternative minimum tax credit
carryforwards of $2,638,000 available to offset future regular tax liabilities.
The IRS, in its examination of the Company's federal income tax returns for
the years 1982 through 1989, proposed adjustments aggregating substantially more
than the Company recognized as income tax expense for the years examined.
Certain of these issues could also be raised with respect to the Company's
federal income tax returns for the years 1990 through 1993, which are currently
under audit.
In 1995, the Company filed a petition in U.S. Tax Court requesting a
determination on the issues raised by the IRS in its examinations for the years
1982 through 1989. In 1997, the IRS conceded to the Company's position on
certain previously asserted claims. If necessary, it is anticipated that a trial
date will be set in 1998. Management believes the Company will prevail on all
substantive issues raised by the IRS and has made provision for any additional
taxes that may ultimately be due upon final resolution of this matter for all
years through December 31, 1997.
NOTE 17--GUARANTIES, COMMITMENTS AND CONTINGENCIES:
The Company is a guarantor of $7,667,000 of International Marine Terminals'
debt (IMT, a partnership in which the Company has a 1/3 interest). The debt is
current. The Company intends to make a capital infusion to IMT to repay
one-third of the partnership's debt ($21,000,000, which includes the $7,667,000
described above) at its scheduled maturity. The Company has escrowed an amount
sufficient to fund this infusion (Note 6).
The Company has been assigned responsibility for specific beneficiaries
under the Coal Industry Retiree Health Benefit Act of 1992 (the "Act"). These
beneficiaries are former employees of The Elk Horn Coal Corporation, acquired by
the Company in 1994. An estimate of total costs for those individuals and
qualifying dependents covered by the Act is recorded as a liability on the
balance sheet of the Company. It is possible that additional individuals will be
assigned to the Company; however, management believes the likelihood that
significant additional liability under the Act will be incurred is remote. The
Company is a guarantor of a loan in the amount of $186,000 to the Company's
partner in Camden Hardwood Company for the partner's capital contribution. The
loan is current.
F-18
<PAGE> 130
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 17--GUARANTIES, COMMITMENTS AND CONTINGENCIES: (CONTINUED)
There are legal proceedings pending against the Company arising from the
normal course of business. Management of the Company and its legal counsel
handling such matters do not expect any of these matters to have a material
effect on the Company's financial position or results of operations.
NOTE 18--OTHER RELATED PARTY TRANSACTIONS:
Related party transactions not otherwise disclosed in the financial
statements include fees paid to International Marine Terminals for coal loading
of $1,988,000 in 1997, $1,864,000 in 1996 and $2,115,000 in 1995. At December
31, 1997 and 1996, $134,000 and $75,000, respectively, was included in accounts
payable and accrued expenses relating to coal loading fees described above.
NOTE 19--LONG-TERM COAL SUPPLY CONTRACTS:
The Company is committed under several long-term coal supply contracts. The
contracts require the Company to supply specified tonnages and quality of coal
during the term of the agreements which extend three to nine years. The
contracts stipulate the base prices at inception, which are subject to periodic
escalation based on specified indices. One of the contracts is subject to
adjustment to an agreed-upon market price annually. Approximately 73% of
revenues in 1997, 66% in 1996, and 68% in 1995 were derived from seven customers
supplied under long-term contracts. The Company had sales to significant
customers as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ---------------------
PERCENTAGE PERCENTAGE PERCENTAGE
DOLLAR OF TOTAL DOLLAR OF TOTAL DOLLAR OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- ---------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................... $ 40,131 22% $35,041 19% $ 52,628 28%
Customer B................... 38,740 21 32,579 18 34,398 18
Customer C................... 27,209 15 27,366 15 21,636 12
-------- -- ------- -- -------- --
$106,080 58% $94,986 52% $108,662 58%
======== == ======= == ======== ==
</TABLE>
In 1997, 4,347,000 tons were shipped on long-term coal supply contracts.
Future minimum tonnage commitments under long-term coal supply contracts are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR SHORT TONS
- ---- ----------
<S> <C>
1998................................................. 3,982
1999................................................. 3,773
2000................................................. 2,862
2001................................................. 2,190
2002................................................. 2,040
</TABLE>
F-19
<PAGE> 131
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 20--BUSINESS SEGMENT INFORMATION:
The Company's operations, exclusive of discontinued operations, have been
classified into two business segments: coal and cotton. The coal segment
involves the mining, sale, transportation and leasing of coal. The cotton
segment involves the ginning and warehousing of cotton. There were no
intersegment sales or transfers during the three years ended December 31, 1997.
Operating income by business segment excludes interest income, interest expense
and other nonoperating income. Summarized financial information by business
segment is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Coal..................................................... $171,996 $165,873 $160,029
Cotton................................................... 10,293 16,596 26,014
-------- -------- --------
$182,289 $182,469 $186,043
======== ======== ========
OPERATING INCOME
Coal..................................................... $ 11,482 $ 11,112 $ 12,109
Cotton................................................... 47 786 731
-------- -------- --------
$ 11,529 $ 11,898 $ 12,840
======== ======== ========
TOTAL ASSETS (AT PERIOD END):
Coal..................................................... $219,162 $225,065 $236,538
Cotton................................................... 5,685 6,688 12,400
-------- -------- --------
$224,847 $231,753 $248,938
======== ======== ========
DEPRECIATION, DEPLETION, AND AMORTIZATION
Coal..................................................... $ 14,948 $ 14,302 $ 13,210
Cotton................................................... 342 440 765
-------- -------- --------
$ 15,290 $ 14,742 $ 13,975
======== ======== ========
CAPITAL EXPENDITURES
Coal..................................................... $ 3,632 $ 2,235 $ 4,311
Cotton................................................... 239 86 304
-------- -------- --------
$ 3,871 $ 2,321 $ 4,615
======== ======== ========
</TABLE>
F-20
<PAGE> 132
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 21--INVESTMENT IN AFFILIATED COMPANIES:
The Company's primary investment in affiliated companies is the one-third
interest in the general partnership International Marine Terminals (IMT), an
ocean marine loading facility located in Louisiana. Components of the investment
in affiliated companies and equity in net earnings (losses) of affiliated
companies are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INVESTMENT IN AFFILIATED COMPANIES:
Equity in partnership interest at time of purchase........ $ 5,977 $ 5,977 $ 5,977
Earnings since acquisition................................ 98 265 376
Net distributions since acquisition....................... (3,514) (3,238) (3,065)
------- ------- -------
2,561 3,004 3,288
Goodwill less accumulated amortization of $2,648 and
$2,429 at December 31, 1997 and 1996, respectively..... 2,832 3,051 3,271
------- ------- -------
$ 5,393 $ 6,055 $ 6,559
======= ======= =======
EQUITY IN NET EARNINGS (LOSSES) OF AFFILIATED COMPANIES:
Company's share of affiliate earnings (losses)............ $ (167) $ (111) $ 150
Amortization of goodwill.................................. (219) (219) (219)
------- ------- -------
$ (386) $ (330) $ (69)
======= ======= =======
</TABLE>
The above net losses are reported as a component of other income in the
statement of income.
Condensed financial information for the affiliated company, IMT, is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
BALANCE SHEET
Current assets............................................ $ 2,908 $ 2,981 $ 2,860
Noncurrent assets......................................... 70,472 72,300 72,976
------- ------- -------
Total assets.............................................. $73,380 $75,281 $75,836
======= ======= =======
Current liabilities....................................... $ 2,646 $ 3,223 $ 2,920
Noncurrent liabilities.................................... 63,045 63,046 63,046
------- ------- -------
Total liabilities...................................... 65,691 66,269 65,966
------- ------- -------
Equity.................................................... 7,689 9,012 9,870
------- ------- -------
Total liabilities and equity........................... $73,380 $75,281 $75,836
======= ======= =======
STATEMENT OF INCOME
Revenues.................................................. $21,968 $21,307 $20,036
======= ======= =======
Earnings (loss)........................................... $ (444) $ (258) $ 536
======= ======= =======
</TABLE>
F-21
<PAGE> 133
PEN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,496
Accounts receivable (net of allowance for doubtful
accounts of $446)...................................... 18,950
Inventories............................................... 5,461
Deferred income taxes..................................... 1,160
Net assets to be disposed................................. 11
Other assets.............................................. 2,277
--------
Total current assets................................... 30,355
Investment in unconsolidated affiliated companies........... 5,229
Coal reserves and mine development costs, net............... 137,113
Property, plant and equipment, net.......................... 33,175
Long-term investments....................................... 13,604
Net assets to be disposed................................... 566
Other assets................................................ 1,091
--------
$221,133
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans.................................... $ 285
Current maturities of long-term debt...................... 11,041
Current maturities of capital leases...................... 3,530
Accounts payable.......................................... 7,685
Accrued liabilities....................................... 4,067
Income taxes payable...................................... 774
--------
Total current liabilities.............................. 27,382
Long-term debt.............................................. 66,515
Long-term capital leases.................................... 2,056
Deferred income taxes....................................... 59,689
Other liabilities........................................... 3,561
--------
Total liabilities...................................... 159,203
--------
Guaranties, commitments and contingencies (Note 10)
Mandatorily redeemable preferred stock (Note 8)............. 17,527
Redeemable common stock warrants (Note 9)................... 2,399
--------
Shareholders' equity:
Class I common stock, $.01 par value; 7,800,000 shares
authorized, 4,290,000 shares issued and outstanding.... 43
Class II common stock, $.01 par value; 200,000 shares
authorized, 177,550 shares issued and outstanding...... 2
Additional paid-in capital................................ 19
Retained earnings......................................... 41,940
--------
Total shareholders' equity............................. 42,004
--------
$221,133
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 134
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $40,548 $44,646
Operating expenses:
Cost of sales............................................. 37,223 41,719
Selling, general and administrative....................... 1,310 1,623
------- -------
Operating income............................................ 2,015 1,304
Other (income) expense:
Interest expense.......................................... 1,746 2,170
Interest income........................................... (386) (291)
Other income.............................................. (729) (1,302)
------- -------
Income from continuing operations before income taxes....... 1,384 727
Provision for income taxes.................................. 436 247
------- -------
Net income from continuing operations....................... 948 480
Loss on disposal of discontinued operations (less applicable
income tax credits of $53 and minority interest of $14)... (18)
------- -------
Net income.................................................. $ 948 $ 462
------- -------
Income per share of common stock (Note 2):
Basic and Diluted --
Continuing operations.................................. $ .12 $ .01
Discontinued operations................................
------- -------
$ .12 $ .01
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 135
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
CLASS I CLASS II
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ PAID-IN RETAINED
SHARES AMOUNTS SHARES AMOUNTS CAPITAL EARNINGS TOTAL
---------- ------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997... 4,290,000 $43 177,550 $ 2 $19 $41,422 $41,486
Accretion of Preferred Stock
(unaudited).................. (430) (430)
Net Income (unaudited)......... 948 948
---------- --- -------- --- --- ------- -------
Balance at March 31, 1998
(unaudited).................. 4,290,000 $43 177,550 $ 2 $19 $41,940 $42,004
========== === ======== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 136
PEN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 948 $ 462
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization.................. 3,582 3,845
Equity in net losses of affiliates........................ (521) (118)
Deferred income taxes..................................... (202) (186)
Gain on sale of equipment................................. (795)
Interest income on long-term investments.................. (281) (250)
------- -------
Cash generated from operations, before changes in assets
and liabilities........................................ 3,526 2,958
Changes in assets and liabilities, net of effects from
dispositions:
Accounts receivable....................................... (1,453) 1,172
Inventories............................................... (701) 205
Accounts payable and accrued expenses..................... (1,315) 1,663
Other..................................................... (222) 1,450
------- -------
Net cash provided (used) by operating activities.......... (165) 7,448
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,231) (713)
Proceeds from sale of equipment........................... 1,202
Distributions from affiliated companies................... 630
------- -------
Net cash provided (used) by investing activities.......... (601) 489
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (2,006) (2,593)
Repayment of capital leases............................... (1,168) (872)
Net borrowings (payments) under line of credit agreements
and current notes payable.............................. 285 (4,955)
------- -------
Net cash used for financing activities.................... (2,889) (8,420)
------- -------
Net increase (decrease) in cash........................... (3,655) (483)
Cash and cash equivalents at beginning of period.......... 6,151 1,885
------- -------
Cash and cash equivalents at end of period................ $ 2,496 $ 1,402
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................... $ 2,181 $ 1,530
Income taxes........................................... 919 1,006
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 137
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS:
DESCRIPTION OF THE BUSINESS
Pen Holdings, Inc. (the Company) is primarily engaged in the mining and
sale of coal, selling predominantly to utility companies. The Company also
receives royalty income from coal reserves leased to other companies. The
Company's coal reserves and mining operations are in Kentucky and West Virginia.
The Company also processes, warehouses, and sells cotton and cottonseed.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority and wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Investments in affiliated enterprises in which the Company owns less than a
controlling interest are presented under the equity basis of accounting
representing the Company's investment in affiliates, reduced by goodwill
amortization and increased (decreased) by the Company's proportionate equity in
the net income (losses) of the unconsolidated affiliates.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements have been prepared without
audit, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures herein are adequate to make information presented not
misleading. These statements should be read in conjunction with the Company's
financial statements for the year ended December 31, 1997. The results of
operations for the three month period is not necessarily indicative of results
for the full year.
In the opinion of management, the accompanying interim financial statements
contain all adjustments of a normal and recurring nature necessary for a fair
presentation of the Company's financial position as of March 31, 1998, its
results of operations and its cash flows for the three months ended March 31,
1998 and 1997.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid interest-bearing instruments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories, consisting of coal and cottonseed, are stated at the lower of
cost or market with cost being determined on the first-in, first-out method.
LONG-TERM INVESTMENTS
Long-term investments are considered as held to maturity and are carried at
amortized cost.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash, accounts receivable, long-term
investments and other off-balance sheet financial instruments. The Company
maintains cash and cash equivalents mostly in large financial institutions.
Concentration of credit risk with respect to trade receivables is limited due to
the diversity of the Company's business and customer base. Long-term investments
principally consist of U.S. Government obligations.
F-26
<PAGE> 138
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company performs continuing credit evaluations of its customers and
does not generally require collateral. Historically, the Company has not
experienced significant losses related to individual customers in any particular
industry or geographic region.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
short-term notes payable, revolving credit loans and accounts payable
approximate fair value due to the short-term maturities of these assets and
liabilities. The carrying amount of long-term debt approximates fair value as
the interest rates on substantially all long-term debt are variable. The
carrying amount of mandatorily redeemable stock approximates fair value as the
dividend rate is the equivalent of a market rate for securities of that type.
DEBT ISSUANCE COSTS
Debt issuance costs are recorded as assets and amortized over the lives of
related debt.
COAL RESERVES AND MINE DEVELOPMENT COSTS
Depletion of coal reserves and certain mine development costs are
recognized based on tons mined during the year as a percentage of total
estimated recoverable tons.
PROPERTY, PLANT AND EQUIPMENT
Equipment and other properties are recorded at cost and depreciated over
the estimated useful lives of the respective assets using the straight-line
method. Amortization of capitalized lease assets is included in depreciation
expense and accumulated depreciation. Depreciation expense was $3,458,000 and
$3,597,000 in the three months ended March 31, 1998 and 1997, respectively.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Barges............................................ 25 years
Building and improvements......................... 10-20 years
River terminals................................... 10-20 years
Machinery and equipment........................... 5-10 years
</TABLE>
GOODWILL AND LONG-LIVED ASSETS
Goodwill related to the Company's investment in affiliated companies is
amortized using the straight-line method over 25 years. Amortization expense of
$55,000 was recognized in each of the three months ended March 31, 1998 and
1997. Goodwill is included in investment in unconsolidated affiliated companies
in the consolidated balance sheet. The Company periodically reviews the
recoverability of all long-lived assets using a cash flow analysis. If
impairment of value exists, a loss is recognized. No adjustment for impairment
was necessary at March 31, 1998.
RECLAMATION COSTS
The Company is subject to various laws and regulations which require the
restoration and reclamation of mined properties. The Company accrues the
reclamation costs for surface mine restoration as the mining operations occur.
Reclamation costs associated with site restoration for the Company's coal
preparation plant are accrued over the estimated useful life of the plant using
the units of production method.
F-27
<PAGE> 139
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COST OF SALES AND GENERAL AND ADMINISTRATIVE EXPENSES
Cost of sales includes direct and indirect cost of production, processing
and transportation. Selling, general and administrative expenses include selling
costs and general corporate expenses of the Company.
INCOME TAXES
Provisions for federal and state income taxes are calculated on reported
financial statement pretax income based on current tax law. Deferred income
taxes are provided for the temporary differences between the financial reporting
basis and income tax basis of the Company's assets and liabilities. The
Company's temporary differences consist primarily of excess financial accounting
basis over tax basis of acquired coal reserves, depreciation, depletion and
timing of certain revenue and expense recognition.
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 reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128 Earnings per Share ("SFAS 128"). SFAS
128 requires companies with complex capital structures that have common stock or
common stock equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. The presentation of basic EPS
replaces the presentation of primary EPS previously required by Accounting
Principles Board Opinion No. 15 ("APB 15"). Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
shares outstanding during the period. Diluted EPS (previously referred to as
fully diluted EPS) is calculated using the "if converted" method for convertible
securities and the treasury stock method for options and warrants as prescribed
by APB 15. Weighted-average shares outstanding for computing income per share
are as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income......................... $ 948 $ 462
Less: Preferred stock dividends.... (430) (424)
------ ------
INCOME PER SHARE -- BASIC AND
DILUTED
Income available to common
shareholders....................... 518 4,468 $ .12 38 4,490 $ .01
====== ====== ===== ====== ====== =====
</TABLE>
The mandatorially redeemable preferred stock (Note 8) and common stock
warrants (Note 9) were outstanding during the three months ended March 31, 1998
and 1997, but were not included in the computation of diluted income per share
because their inclusion would have been anti-dilutive. The effect on income per
share from discontinued operations was insignificant.
F-28
<PAGE> 140
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 3--INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Coal............................................... $ 4,788
Cottonseed......................................... 673
--------
$ 5,461
========
</TABLE>
NOTE 4--COAL RESERVES AND MINE DEVELOPMENT COSTS:
Coal reserves and mine development costs consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Coal reserves.......................................... $147,786
Mine development costs................................. 10,384
--------
158,170
Accumulated depletion.................................. (21,057)
--------
$137,113
========
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Machinery and equipment................................ $ 46,904
River terminals........................................ 11,488
Buildings.............................................. 5,596
Coal preparation plant................................. 6,351
Cotton gins and warehouses............................. 1,348
Other.................................................. 3,663
--------
75,350
Accumulated depreciation............................... (42,175)
--------
$ 33,175
========
</TABLE>
NOTE 6--REVOLVING LINES OF CREDIT:
The Company has available revolving line of credit facilities totaling
$13,500,000, expiring August 1999, which are secured by inventories and
receivables. Borrowings bear interest at a variable rate based on either LIBOR
(an effective rate of 7.91% at March 31, 1998) or the bank's prime lending rate
(an effective rate of 8.50% at March 31, 1998). The revolving lines of credit
had an outstanding balance of $285,000 at March 31, 1998. These agreements
contain minimum operating and financial ratios and covenants as defined in the
agreements.
F-29
<PAGE> 141
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 7--LONG TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Notes payable secured by coal reserves, land, buildings, and
equipment. Monthly payments of $708,000 plus interest are
due through August 2001, at which time any remaining
balance is due. Additional annual principal payments are
required if the Company's cash flow exceeds certain
amounts defined in the loan agreement. The interest rate
is variable based on LIBOR (an effective rate of 7.91% at
March 31, 1998)........................................... $61,278
Notes payable secured by coal reserves. Payments of interest
only at the bank's prime lending rate (8.50% at March 31,
1998) are due monthly through December 1999. Monthly
principal payments of $42,000 plus interest are due
beginning January 2000 and increase to $125,000 per month
in January 2001 through December 2007..................... 11,000
Notes payable secured by a lien on an office building which
serves as the Company's headquarters, with a net book
value of $3,219,000, payable in monthly installments of
$37,000 through 2016. Interest included in the monthly
installments is a fixed rate of 8.33%..................... 4,182
Notes payable secured by liens on land, buildings and
equipment of a cotton gin and warehouses with a net book
value of $2,296,000, payable in monthly installments of
$20,000 through 2000, including interest at fixed rates of
8.20%..................................................... 1,096
-------
Total long-term debt........................................ 77,556
Current maturities of long-term debt........................ (11,041)
-------
$66,515
=======
</TABLE>
Certain of these loan agreements contain minimum operating and financial
ratios and covenants as defined in the separate agreements. The Company was in
compliance with all covenants, or has obtained appropriate waivers, during the
three months ended March 31, 1998.
NOTE 8--MANDATORILY REDEEMABLE PREFERRED STOCK:
The Company issued 10,000 shares of convertible preferred stock with a face
value of $13,650,000 in January 1996. No dividends accrue from the date of
issuance through December 2000. Beginning in January 2001, dividends will accrue
at 25.25% for a five-year period. The aggregate amount of $17,233,000 in
dividends which will accrue from 2001 through 2006 is being recorded evenly from
the date of issuance in 1996 through the redemption date in 2006. The preferred
stock calls for mandatory redemption in 2006. The preferred stock will be
redeemed at that time by the issuance of a note payable which amortizes over the
ten years following the redemption. The preferred stock is convertible, at the
option of the holder, into 2,950,000 shares of Class I common stock. The
conversion feature is exercisable in January 2001 and expires in January 2002.
No dividends may be paid on any class of common stock prior to the full
redemption of the convertible preferred stock. The convertible preferred stock
does not contain any voting rights.
NOTE 9--SHAREHOLDERS' EQUITY:
COMMON STOCK
The Company has reserved 560,000 shares of Class I common stock for
issuance pursuant to option, warrant or other rights granted or which may be
granted to financial institutions with which the Company has a borrowing
relationship. As of March 31, 1998, no Class I common stock has been issued with
regard to these options. No other Class I common shares may be issued until the
mandatorily redeemable preferred stock is redeemed in full.
F-30
<PAGE> 142
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 9--SHAREHOLDERS' EQUITY: (CONTINUED)
Each holder of Class I common stock has the option to sell to the Company
100% of the stock held at a price of $.01 per share. This option is exercisable
beginning January 2005 and lapses upon conversion of the convertible preferred
stock to Class I common stock.
The 200,000 shares of authorized Class II common stock were issued in 1996
under the Pen Holdings, Inc. Stock Purchase Plan dated June 1, 1996 to various
officers of the Company. In 1997, 22,450 shares were repurchased for $13,650 by
the Company from one of the officers who resigned. The shares were concurrently
canceled.
STOCK WARRANTS
The Company issued warrants to purchase 326,772 shares of Class I common
stock in January 1996 to its primary lenders in connection with the
recapitalization in 1995. The exercise price of the warrants equaled the fair
value of the Class I common stock at the date of issuance. The warrants are
exercisable beginning January 2001 at $.01 per share. The warrants expire
January 2006. The Company may, at its option, repurchase the warrants at any
time after January 3, 1997 at the fair value of the Class I common stock
existing on the date the Company exercises this option, subject to a minimum
value of $3,000,000.
The warrants may be put to the Company, at the option of the holder,
beginning January 2001, at the fair value of the Class I common stock existing
on the date this option is exercised, subject to a minimum value of $3,000,000.
The number of shares under warrant and the exercise price are subject to
adjustment in the event of issuance of new shares of the Company's Class I
common stock or a decline in its fair value. The Company has recorded the
present value of its minimum obligation for repurchase of the warrants as
redeemable common stock warrants and a corresponding discount in the underlying
debt. The discount is being amortized as additional interest expense on a
straight-line basis through January 2001.
NOTE 10--GUARANTIES, COMMITMENTS AND CONTINGENCIES:
The Company has been assigned responsibility for specific beneficiaries
under the Coal Industry Retiree Health Benefit Act of 1992 (the "Act"). These
beneficiaries are former employees of The Elk Horn Coal Corporation, acquired by
the Company in 1994. An estimate of total costs for those individuals and
qualifying dependents covered by the Act is recorded as a liability on the
balance sheet of the Company. It is possible that additional individuals will be
assigned to the Company; however, management believes the likelihood that
significant additional liability under the Act will be incurred is remote.
The Company has filed a petition in U.S. Tax Court challenging the Internal
Revenue Service deficiency notices related to disputes involving the Company's
federal income tax returns for the years 1982-1989. This matter is more fully
described in the Company's annual financial statements included herein.
There are legal proceedings pending against the Company arising from the
normal course of business. Management of the Company and its legal counsel
handling such matters do not expect any of these matters to have a material
effect on the Company's financial position or results of operations.
F-31
<PAGE> 143
ANNEX A
CERTAIN DEFINITIONS
ASH. Non-combustible solid matter consisting of silica, iron, alumina and
other material similar to ordinary sand, silt, rock or clay.
BITUMINOUS COAL. A rank or classification of coal which yields, when
heated, a considerable amount of volatile bituminous (gaseous hydrocarbons)
matter. Bituminous coal generally has a Btu content that ranges from
approximately 10,500 to 14,000 Btu per pound.
BTU (BRITISH THERMAL UNIT.) A measure of heat required to raise the
temperature of one pound of water one degree Fahrenheit under controlled
conditions. The gross heating value of coal is commonly reported as "Btu per
pound."
CAPTIVE PRODUCTION. Coal produced or contracted to be produced from Company
controlled reserves.
CENTRAL APPALACHIA. A region consisting of southern West Virginia, eastern
Kentucky and Virginia which contains substantial bituminous coal deposits. The
reserves in this region generally contain coal that is low in sulfur (typically
0.7%-1.5%) and high in Btu content (typically 12,000-13,500 Btu). A large
portion of the coal reserves in this region exceed the requirements of Phase I
of the Clean Air Act Amendments and meet the requirements of Phase II of the
Clean Air Act Amendments.
COAL SEAM. A layer of coal deposit below the earth's surface. Each seam is
identified by a name or number based on its geographical location.
COMPLIANCE COAL. Coal which, when burned, emits less than 1.2 pounds of
sulfur dioxide per million Btu (0.72% for 12,000 Btu). This coal exceeds the
requirements of Phase I of the Clean Air Act Amendments and meets the proposed
requirements of Phase II of such legislation.
CONTINUOUS MINING. An underground mining method that utilizes a continuous
mining machine which cuts or rips coal from the face and loads it into shuttle
cars or conveyors in one operation. A continuous mining machine typically has a
turning "drum" with sharp bits that cut and dig out the coal for 20 to 40 feet
before mining stops so that the mined area can be supported with roof bolts.
CONTRACT MINING. The contractual engagement of a third-party mining company
by the mineral rights holder to mine coal. Contract mining companies are
typically paid on a set price per ton of coal mined. Under most contract mining
arrangements the mineral rights holder is responsible for the permitting of the
mine site. The contract miner is generally responsible for providing all
equipment, financing for its operation, internal mine capital needs, employee
benefits and all other requirements associated with an independent business.
CONTOUR MINING. A surface mining method in which coal is mined by side-hill
cuts to expose and extract coal. The mining follows the contour of the hillside.
CONVENTIONAL MINING. An underground mining method that utilizes a cutting
machine to cut beneath a coal seam. Such undercuts allow explosive charges to be
set in the coal seam to separate the coal from surrounding materials. Once
separated, the coal is loaded into shuttle cars and removed from the mine.
EXTRACTION. The process of removing coal from a seam for commercial use.
HEAVY MEDIA. High density material such as magnetite used in the gravity
separation process to clean coal.
LOW-SULFUR COAL. Coal which, when burned, emits less than 1.6 pounds of
sulfur dioxide per million Btu (0.96% for 12,000 Btu). This coal exceeds the
requirements of Phase I of the Clean Air Act Amendments.
METALLURGICAL COAL. The various grades of coal suitable for carbonization
to make coke for the manufacture of steel. 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.
A-1
<PAGE> 144
OVERBURDEN. Layers of earth and rock covering a coal seam. In surface
mining operations, overburden is removed prior to coal extraction.
OVERBURDEN RATIO. The amount of overburden that must be removed to extract
a given quantity of coal. The ratio is commonly expressed as the number of cubic
yards of overburden to be removed to yield one ton of coal.
OWNERSHIP IN FEE. The holder of the mineral rights has outright absolute
ownership of the mineral (as opposed to leasing the mineral rights from the
mineral owner).
POINT REMOVAL MINING. A mining method used in contour mining when the
overburden ratio makes it economically feasible to mine using the mountaintop
removal method.
PREPARATION PLANT. A facility that crushes, sizes and washes coal to
prepare it for commercial use. The washing process separates ash from the coal
and may have the added benefit of removing a portion of the coal's sulfur
content. Most of the coal washed in a preparation plant is extracted from
underground mines.
RECLAMATION. The restoration of land and environment at a mining site after
the coal is extracted. Reclamation operations are usually underway in locations
where the coal has already been extracted from a mine, even as mining operations
are continuing elsewhere at the site. The process commonly includes
"recontouring" or reshaping the land to its approximate original appearance,
restoring topsoil and planting native grass and ground covers. Reclamation is
closely regulated by both state and federal law.
RECOVERY RATES. The amount of clean coal produced by weight from the amount
of raw coal processed expressed as a percentage of the coal available for
extraction.
ROOM AND PILLAR MINING. A mining method used in underground mining which
uses either continuous or conventional mining that cuts out a block of coal in
18- to 20-foot wide passages as high as the coal seam. Roof bolters, by
installing conventional or resin grouted rods, stabilize the mine roof prior to
mine advancement. Pillars (typically 50 feet by 50 feet) are left to provide
additional primary roof support.
SPOT MARKET. Sales of coal pursuant to an agreement or purchase order for
shipments for a period of less than one year. Spot market sales are generally
obtained via a competitive bidding process.
SPREAD. The amount and type of equipment necessary to extract the coal from
a localized reserve area in a surface mine.
STEAM COAL. Coal used by power plant and industrial steam boilers to
produce electricity or steam.
SURFACE MINE. A mine in which the coal lies near the surface and can be
extracted by removing the covering layer of soil. See "--Overburden."
TON. 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 the Offering Memorandum.
UNDERGROUND MINE. A mine which is typically located several hundred feet
below the earth's surface.
UNIT TRAIN. A train of 70 to 150 cars carrying coal designated to one
particular location. A typical unit train can carry 7,000 to 15,000 tons of coal
in a single shipment.
A-2
<PAGE> 145
ANNEX B
AUDIT OF DEMONSTRATED RESERVES
CONTROLLED BY
PEN HOLDINGS, INC.
May 1998
Prepared for:
PEN HOLDINGS, INC.
5110 Maryland Way, 3rd Floor
Brentwood, TN 37027
Prepared by:
MARSHALL MILLER & ASSOCIATES
P.O. Box 848
Bluefield, VA 24605
B-1
<PAGE> 146
May 7, 1998
Board of Directors
PEN HOLDINGS, INC.
5110 Maryland Way, 3rd Floor
Brentwood, TN 37027
Ladies and Gentlemen of the Board:
Enclosed is the report, "Audit of Demonstrated Reserves Controlled by Pen
Holdings, Inc. - "May 1998." This independent audit is based on an update of
previous reports by MARSHALL MILLER & ASSOCIATES (MM&A), which encompassed
significant portions of the PEN HOLDINGS, INC. (PEN) reserve base. For those
portions of the reserve base not previously evaluated by MM&A, an audit was
conducted based on current maps and information supplied by Pen. The enclosed
summary report briefly conveys the conclusions, reserve criteria, definitions,
methodology, and qualifications pertinent to the Pen reserve audit.
This audit has confirmed that Pen controls a total demonstrated reserve and
resource base estimated at approximately 222.4 million potentially recoverable
product tons of coal. Of this total, 147.9 million tons are classified as
demonstrated reserves and consist of 42.0 million recoverable product tons
assigned to Pen operators and contractors, 62.6 million recoverable tons of
unassigned reserve, and 43.2 million recoverable product tons which are leased
to various other coal mining companies. Of the total demonstrated reserve and
resource base, the remaining 74.5 million potentially recoverable product tons
of coal are classified as resources. Of the total resources, 15.4 million
recoverable tons are assigned to Pen contractors and operators, 46.3 million
recoverable product tons are unassigned, and 12.8 million recoverable product
tons are leased to various other coal mining companies.
It has been a pleasure to be of service to Pen Holdings, Inc. in this
matter. If you have any further questions or requirements, please do not
hesitate to contact us at any time.
Sincerely,
MARSHALL MILLER & ASSOCIATES
/s/ RONALD H. MULLENNEX
- ------------------------------------------
Ronald M. Mullennex, C.P.G., C.G.W.P.
Senior Vice President
/s/ WARREN A. EVENSON
- ------------------------------------------
Warren A. Evenson, C.P.G.
Senior Geologist
/s/ STEVEN B. STANSFIELD
- ------------------------------------------
Steven B. Stansfield, P.G.
Project Geologist
/s/ K. SCOTT KEIM
- ------------------------------------------
K. Scott Keim, C.P.G.
Senior Vice President
/s/ J. SCOTT NELSON
- ------------------------------------------
J. Scott Nelson, C.P.G.
Vice President
/s/ MARK S. SMITH
- ------------------------------------------
Mark S. Smith, P.G.
Project Geologist
/s/ ROBERT J. HALE
-------------------------------------------------------------------
Robert J. Hale
Project Geologist
B-2
<PAGE> 147
EXECUTIVE SUMMARY
INTRODUCTION
PEN HOLDINGS, INC. (PEN) controls reserves in Kentucky and West Virginia
through its two wholly owned subsidiaries, THE ELK HORN COAL CORPORATION (EHCC)
and PEN COAL CORPORATION (PCC), respectively. MARSHALL MILLER & ASSOCIATES
(MM&A) has completed an audit of the EHCC and PCC reserves as presented in the
two subsequent sections of this report. This section of the report provides a
summary of the findings, definitions, methodology, and qualifications.
This audit has confirmed that Pen controls a total demonstrated reserve and
resource base estimated at approximately 222.4 million tons of potentially
recoverable coal. Of this total, 136.2 million recoverable product tons are
controlled through Pen's EHCC subsidiary; and 86.1 million recoverable product
tons are controlled through Pen's PCC subsidiary. Of the total 222.4 million ton
demonstrated/resource base, 147.9 million tons are classified as demonstrated
reserves and 74.5 million tons are classified as resources.
The reserves have been further defined by three reserve status categories:
those assigned to Pen operators and contractors, those unassigned (or unleased)
to any operator, and those leased to various other coal mining companies. Of the
total demonstrated reserve base (exclusive of resources), 42.0 million
recoverable product tons are assigned to Pen's operators and contractors; 62.6
million recoverable product tons are unassigned, and 43.2 million recoverable
product tons are leased to other mining companies. The following table
summarizes the subject reserve base with additional details provided in the two
subsequent report sections.
PEN HOLDINGS, INC.
SUMMARY OF RESERVES AND RESOURCES
<TABLE>
<CAPTION>
DEMONSTRATED RESERVES TOTAL
(RECOVERABLE TONS) RESOURCES DEMONSTRATED
-------------------------------------- (POTENTIAL RESERVES & RESOURCES
STATUS TOTAL MEASURED INDICATED RECOVERABLE TONS) (RECOVERABLE TONS)
------ ----- -------- --------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
ASSIGNED RESERVES
Deep Mineable...... 23,926,000 21,484,000 2,442,000 8,955,000 32,881,000
Surface Mineable... 18,107,000 16,057,000 2,050,000 6,412,000 24,519,000
----------- ----------- ---------- ---------- -----------
Total
Assigned: .... 42,033,000 37,541,000 4,492,000 15,367,000 57,400,000
UNASSIGNED RESERVES
Deep Mineable...... 52,000,000 33,919,000 18,081,000 40,675,000 92,675,000
Surface Mineable... 10,647,000 8,726,000 1,921,000 5,648,000 16,295,000
----------- ----------- ---------- ---------- -----------
Total
Assigned: .... 62,647,000 42,645,000 20,002,000 46,323,000 108,970,000
LEASED TO VARIOUS
COAL MINING
COMPANIES
Deep Mineable...... 37,996,000 26,093,000 11,903,000 11,893,000 49,889,000
Surface Mineable... 5,216,000 3,825,000 1,391,000 910,000 6,126,000
----------- ----------- ---------- ---------- -----------
Total
Assigned: .... 43,212,000 29,918,000 13,294,000 12,803,000 56,015,000
TOTAL RESERVES
Deep Mineable...... 113,922,000 81,496,000 32,426,000 61,523,000 175,445,000
Surface Mineable... 33,970,000 28,608,000 5,362,000 12,970,000 46,940,000
----------- ----------- ---------- ---------- -----------
Grand Total: ... 147,892,000 110,104,000 37,788,000 74,493,000 222,385,000
=========== =========== ========== ========== ===========
</TABLE>
In addition to the demonstrated reserves previously discussed, Pen also
controls an estimated 74.5 million potentially recoverable tons of product coal
in the resource category. Of this total, 42.3 million recoverable product tons
are controlled through Pen's EHCC subsidiary, and 32.2 million recoverable
product tons are controlled through Pen's PCC subsidiary. Of the total resource
base, 15.4 million recoverable product tons are assigned to Pen's operators and
contractors, 46.3 million recoverable product tons are unassigned, and 12.8
million recoverable product tons are leased to various other coal mining
companies. These resources have certain
B-3
<PAGE> 148
limitations or hindrances that, under current market conditions, create
subeconomic conditions for extraction. It is emphasized that, with favorable
results of future exploration or property acquisition and with more favorable
future market conditions, some of the identified coal resources may achieve
economic reserve status.
DEFINITIONS
Definitions(1) of key terms and criteria applied in our audit are as
follows:
- ASSIGNED RESERVES--Assigned reserves, as defined and used herein, include
those reserves currently being mined by an active operation; currently
under permit or in the permitting process; or reserves which, by
situation, must be developed with one of the above.
- RESOURCES--Resources are defined as naturally occurring concentrations or
deposits of coal in the earth's crust, in such forms and amounts that
economic extraction is currently or potentially feasible. IDENTIFIED
RESOURCES are those resources whose location, rank, quality, and quantity
are known or estimated from specific geologic evidence. Identified coal
resources include economic, marginally economic, and subeconomic
components. To reflect varying distances from points of control or
reliability, these subdivisions can be divided into demonstrated and
inferred, or preferably into measured, indicated, and inferred.
- RESERVE BASE--The reserve base is defined as those parts of identified
resources that meet specified minimum physical and chemical criteria
related to current mining and production practices, including those for
quality, depth, thickness, rank, and distance from point of measurement.
The RESERVE BASE is the in-place demonstrated (measured plus indicated)
resource from which reserves are estimated.
- RESERVE--Reserve is defined as virgin and/or accessed parts of a coal
reserve base that could be economically extracted or produced at the time
of determination considering environmental, legal, and technological
constraints. DEMONSTRATED RESERVES are the sum of coal reserves
classified as measured and indicated as explained below.
- RESERVE RELIABILITY CATEGORIES--The reliability categories are related to
the level of geologic assurance for the existence of a quantity of
resources. Assurance is based on the distance from points where coal is
measured or sampled and on the abundance and quality of geologic data as
related to thickness of overburden, rank, quality, thickness of coal,
areal extent, geologic history, structure, and correlation of coal beds
and enclosing rocks. The degree of assurance increases as the proximity
to points of control, abundance, and quality of geologic data increase.
The reserve reliability categories include:
- MEASURED COAL--Reserve estimates in this category have the
highest degree of geologic assurance. Measured coal lies within
1/4 mile of a valid point of measurement or point of
observation (such as previously mined areas) supporting such
measurements. The sites for thickness measurement are so
closely spaced, and the geologic character is so well defined,
that the average thickness, areal extent, size, shape, and
depth of coal beds are well established.
- INDICATED COAL--Reserve estimates in this category have a
moderate degree of geologic assurance. There are no sample and
measurement sites in areas of indicated coal. However, a
single measurement can be used to classify coal lying beyond
measured as indicated. Indicated coal lies more than 1/4 mile,
but less than 3/4 mile, from a point of thickness measurement.
Further exploration is necessary to place indicated coal into
the measured category.
- ---------------
1Source: U.S. Geological Survey Circular 891, "Coal Resource Classification
of the U.S. Geological Survey," 1983.
B-4
<PAGE> 149
METHODOLOGY AND QUALIFICATIONS
Our audit of the Pen reserve base was planned and performed to obtain
reasonable assurance on the subject coal properties. The audit included
examination by certified professional geologists and engineers of all supplied
reserve maps and supporting data using industry-accepted standards. Although the
audit methodology is inherently not as exhaustive as a detailed reserve
evaluation, in our opinion the audit was conducted in sufficient detail and with
independent verification on a test basis of the underlying supporting evidence
to provide reasonable assurance for the subject estimate. The reserve audit did
not include independent verification of property ownership; we have relied on
property information supplied by Pen and have considered this information to be
accurate.
B-5
<PAGE> 150
ANNEX C
[LOGO OF STAGG ENGINEERING SERVICES, INC.]
(304) 776-6660
Fax: (304) 776-7867
E-mail: SESI
[email protected]
SENT VIA UPS OVERNIGHT DELIVERY
May 7, 1998
Board of Directors
Pen Holdings, Inc.
3rd Floor
5110 Maryland Way
Brentwood, TN 37027
Project: Estimation of Reserves
Fork Creek Property
Boone, Kanawha, and Lincoln Counties, West Virginia
Job No. E372-148-103A
Gentlemen:
Enclosed is a copy of the Executive Summary from a report titled Summary Report,
Underground Reserves and Resources, Drummond Coal Company Properties, Boone,
Kanawha, and Lincoln Counties, West Virginia.
If you have any questions or require additional copies of the Executive Summary,
please call.
Sincerely,
STAGG ENGINEERING SERVICES, INC.
/s/ GREGORY C. SMITH
- ------------------------------------------
Gregory C. Smith, R.P.G.
Vice President, Geology
Eastern Region
STAGG ENGINEERING SERVICES, INC.
5457 Big Tyler Road - P.O. Box 7028 - Cross Lanes, West Virginia 25356
<PAGE> 151
EXECUTIVE SUMMARY
Pen Coal Corporation ("Pen Coal") authorized Stagg Engineering Services,
Inc. ("SESI") to conduct a geologic assessment and to prepare tonnage estimates
("the Study") of the reserves and resources present in the underground category
of mining on the Drummond Company, Inc. properties ("Drummond"). The Property is
located in Boone, Lincoln, and Kanawha Counties, West Virginia, some 20 miles
south southwest of Charleston, West Virginia.
Based on data obtained from record searches and from previous reserve and
resource studies of the Property, SESI has estimated the Property contains
approximately 104.7 million tons of recoverable, shippable coal in the
underground category of mining. The tonnage estimates have been divided into the
classifications of reserves, marginal reserves, and identified resources. The
distribution of tonnage on a shippable basis between these classifications is
presented in the table below.
SUMMARY OF UNDERGROUND RESERVES AND RESOURCES BY COAL BED
DRUMMOND COMPANY, INC. PROPERTIES
BOONE, KANAWHA, AND LINCOLN COUNTIES, WEST VIRGINIA
(000'S SHORT TONS)
<TABLE>
<CAPTION>
% OF MARGINAL % OF % OF
RESERVES TOTAL RESERVES TOTAL RESOURCES TOTAL TOTAL(1)
-------- ----- -------- ----- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
No. 5 Block.......................... 8,375 8 1,560 1 -- -- 9,935
Stockton............................. 23,627 23 2,484 2 -- -- 26,111
Cedar Grove.......................... 4,878 5 -- -- 14,602 14 19,480
No. 2 Gas............................ 36,022 34 2,589 2 10,610 10 49,221
------ ----- ------ -------
TOTAL................................ 72,903 6,633 25,212 104,748
</TABLE>
- ---------------
(1) Note: numbers may not add due to rounding.
In work conducted previously, SESI conducted a geologic assessment of and
prepared tonnage estimates for certain surface mineable areas located in the
southern portion of the Property. Based on this earlier work, SESI has estimated
the Property contains on the order of 13.4 million tons of shippable coal in the
mountaintop and point removal categories of mining. The surface tonnage
estimates have been divided into the classifications of reserves, marginal
reserves, and identified resources. The distribution of tonnage on a
recoverable, shippable basis between these classifications is presented in the
following table.
SUMMARY OF MOUNTAINTOP AND POINT REMOVAL
RESERVES AND RESOURCES
DRUMMOND COMPANY, INC. PROPERTIES
<TABLE>
<CAPTION>
MARGINAL
RESERVES RESERVES RESOURCES TOTAL(1)
- -------- -------- --------- --------
<S> <C> <C> <C>
7,068 2,742 3,636 13,446
</TABLE>
- ---------------
(1) Note: numbers may not add due to rounding.
All of the tonnage estimates prepared was for coal in the classification of
demonstrated, the combination of measured and indicated, which reflects varying
degrees of geologic assurance as to the presence, quantity, and quality of the
beds estimated.
Detailed summaries, by coal bed, of the reserves and resources estimated
for the Property are contained in the respective coal bed discussions presented
in Section VI-IX. Tonnage estimates are presented in detail in Appendices A-1
through A-4.
Coal from the Property is classified as high-volatile A or B bituminous in
rank, with there being considerable variation in sulfur and ash content on an
as-received basis. Analyses from sink-float testing of drill
<PAGE> 152
cores from the Property indicate that the major portion of the tonnage present
will yield a low- to medium-ash, low- to medium-sulfur product when washed.
Sulfur content varies considerably on a bed-by-bed basis across the
Property, although some of the variation observed is due to the presence or
absence of certain individual coal benches within a mining unit. This is
particularly true for coal from the Stockton and No. 2 Gas coal zones, in which
the presence or absence of an upper coal bench appears to determine overall
sulfur content.
Ash content varies considerably across the Property on a bed-by bed basis
with several of the coal beds exhibiting high ash content on a raw basis. This
is particularly true for coal from the No. 5 Block and Stockton zones, which are
comprised of multiple-benched coal beds which sometimes contain significant
in-bed parting material.
CSX Transportation Systems' ("CSX") Big Coal River branch line parallels
the Big Coal River adjacent to the northern portion of the Property. CSX's
Little Coal River branch line parallels the Little Coal River, which passes
through the west-central portion of the Property.
At the time of the Study, mining was not being conducted on the Property.
WHILE THE ESTIMATES OF THE COAL RESERVES AND RESOURCES CONTAINED IN THIS
REPORT HAVE BEEN DONE IN ACCORDANCE WITH SOUND PROFESSIONAL PRACTICES CURRENTLY
ACCEPTED FOR USE IN ESTIMATING COAL RESOURCES, THIS IN NO WAY ASSURES THAT THE
TONNAGES OF COAL LISTED HEREIN ARE ACTUALLY PRESENT OR CAN BE ECONOMICALLY
EXTRACTED.
The estimation of tonnage conducted by SESI was focused on certain
underground mine blocks identified by Pen Coal and which met certain criteria.
Additional tonnage is likely present in the underground category of mining in
beds which did not meet Pen Coal's minimum bed thickness criteria. Additional
tonnage is also likely present in the contour strip, auger, and highwall miner
categories of mining, but the assessment of this tonnage was beyond the scope of
the Study.
STAGG ENGINEERING SERVICES, INC.
/s/ GREGORY C. SMITH
- ------------------------------------------
Gregory C. Smith, R.P.G.
Vice President, Geology
Eastern Region
/s/ ALAN K. STAGG
- ------------------------------------------
Alan K. Stagg, R.P.G.
President
September 1997
<PAGE> 153
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PEN SINCE THE DATE
HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 3
Prospectus Summary........................ 4
Risk Factors.............................. 15
The Exchange Offer........................ 25
Use of Proceeds........................... 33
Capitalization............................ 34
Capital Development Program............... 35
Unaudited Pro Forma Condensed Financial
Statements.............................. 36
Selected Consolidated Financial Data...... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 42
The Coal Industry......................... 51
Business.................................. 57
Management................................ 74
Certain Related Party Transactions........ 76
Description of Capital Stock.............. 77
Security Ownership of Principal
Stockholders and Management............. 78
Description of New Credit Facility........ 79
Description of Notes...................... 81
Registration Rights Agreement............. 106
Certain Federal Income Tax
Considerations.......................... 107
Plan of Distribution...................... 109
Legal Matters............................. 110
Experts................................... 110
Index to Financials....................... F-1
Annex A................................... A-1
Annex B................................... B-1
Annex C................................... C-1
</TABLE>
UNTIL 1998, ALL DEALERS EFFECTING TRANSACTIONS IN SERIES B SENIOR
NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD
ALLOTMENTS ON SUBSCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PEN HOLDINGS LOGO]
PEN HOLDINGS, INC.
$100,000,000 OF 9 7/8%
SENIOR SERIES B NOTES DUE 2008
----------------
PROSPECTUS
----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 154
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Pen Holdings, Inc. ("Pen"), Pen Coal Corporation ("Pen Coal"), Pen
Cotton Company ("Pen Cotton") and Pen Hardwood Company ("Pen Hardwood") (each a
Tennessee Corporation).
The Tennessee Business Corporation Act (the "TBCA") grants corporations the
power to indemnify an individual made a party to a proceeding because he or she
is or was a director against liability incurred in the proceeding if: (i) the
director conducted himself in good faith, (ii) he or she reasonably believed (a)
in the case of conduct in official capacity, the conduct was in the best
interests of the corporation and (b) in all other cases, that the conduct was at
the least not opposed to the best interests of the corporation, and (iii) in the
case of any criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful. A corporation may not indemnify a director (i) if the
director was adjudged liable to the corporation or (ii) if the director was
adjudged liable on the basis that personal benefit was improperly received. The
TBCA mandates that unless limited by its charter, a corporation must indemnify a
director who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which he or she was a party because he or she is or was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding. The TBCA generally provides that a
corporation indemnify an officer to the same extent as a director.
The Restated Charters of Pen, as amended (the "Pen Holdings Charter"), Pen
Coal (the "Pen Coal Charter"), Pen Cotton (the "Pen Cotton Charter") and Pen
Hardwood (the "Pen Hardwood Charter", and together with the Pen Holdings
Charter, the Pen Coal Charter and the Pen Cotton Charter, the "Charters")
provide that to the fullest extent permitted by the TBCA, a director of these
corporations shall not be liable to the corporation or its shareholders for
monetary damages for breach of duty as a director. If the TBCA is amended after
approval by the shareholders of this provision to authorize corporate action,
further eliminating or limiting the personal liability of directors, then the
liability of a director of the company shall be eliminated or limited to the
fullest extent permitted by the TBCA as so amended from time to time. The
Charters also provide that Pen shall, to the maximum extent permitted by the
TBCA, have power to indemnify each of such corporation's agents (as defined
below) against expenses, judgments, fines settlements and other amounts actually
and reasonably incurred in connection with any proceeding arising by reason of
the fact that any such person is or was an agent of such corporation and shall
have the power to advance to each such agent expenses incurred in defending any
such proceeding to the maximum extent permitted by that law. For the purposes of
this provision of the Charters an "agent" of such corporation includes any
person who is or was a director, officer, employee or other agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of such corporation
or of another enterprise serving at the request of such predecessor corporation.
The Bylaws of Pen, Pen Coal, Pen Cotton and Pen Hardwood do not contain any
indemnification provisions.
The TBCA also permits a corporation to purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee or agent of
the corporation, or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have the power to indemnify him against the
same under the other provisions of the TBCA.
(b) The Elk Horn Coal Corporation ("Elk Horn") and River Marine Terminals,
Inc. ("River Marine Terminals") (each a West Virginia Corporation).
Sections 31-1-9(a) and (b) of the West Virginia Corporation Act ("WVCA")
provide that a corporation may indemnify any person who is or was a party or is
threatened to be made a party to any threatened, pending or
II-1
<PAGE> 155
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of an action or suit by or in the right of the corporation,
the corporation may not indemnify such persons against judgments and fines and
no person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the court in which the action or suit was brought determines upon application
that such person is fairly and reasonably entitled to indemnity for proper
expenses. Section 31-1-9(c) of the WVCA provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful in
the defense of any such action, suit or proceeding or any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred in connection with such action, suit or
proceeding.
The WVCA also provides that a corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him against such liability under the
provisions of the WVCA.
The Elk Horn Articles of Incorporation, as amended, effectively provide
that Elk Horn shall indemnify its directors, officers, employees or agents to
the full extent permitted by the WVCA.
River Marine Terminals. Neither the Articles of Incorporation nor the
Bylaws of River Marine Terminals contain any indemnification or limitation of
liability provisions.
(c) Pen Cotton Company of South Carolina (a South Carolina corporation)
("Pen Cotton South Carolina").
Chapter 8, Article 5 of Title 33 of the South Carolina Business Corporation
Act (the "SCBCA") grants corporations the power to indemnify an individual made
a party to a proceeding because he or she is or was a director against liability
incurred in the proceeding if: (i) the director conducted himself in good faith,
(ii) he or she reasonably believed (a) in the case of conduct in official
capacity, the conduct was in the best interests of the corporation and (b) in
all other cases, that the conduct was at the least not opposed to the best
interests of the corporation, and (iii) in the case of any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. A corporation
may not indemnify a director (i) if the director was adjudged liable to the
corporation or (ii) if the director was adjudged liable on the basis that
personal benefit was improperly received. The SCBCA mandates that unless limited
by its articles of incorporation, a corporation must indemnify a director who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he or she was a party because he or she is or was a director
of the corporation against reasonable expenses incurred by the director in
connection with the proceeding. The SCBCA generally provides that a corporation
indemnify an officer to the same extent as a director.
Neither the Articles of Incorporation nor the Bylaws of Pen Cotton South
Carolina contain any indemnification or limitation of liability provisions.
The SCBCA also permits a corporation to purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee or agent of
the corporation, or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have the power to indemnify him against the
same under the other provisions of the SCBCA.
II-2
<PAGE> 156
(d) Marine Terminals Incorporated (a Missouri corporation) ("Marine
Terminals").
Sections 351.355(1) and (2) of The General and Business Law of the State of
Missouri (the "MGBCL") provide that a corporation may indemnify any person who
was a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of an action or suit by or in the right of the corporation,
the corporation may not indemnify such persons against judgments and fines and
no person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the court in which the action or suit was brought determines upon application
that such person is fairly and reasonably entitled to indemnity for proper
expenses. Section 351.355(3) of the MGBCL provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful in
the defense of any such action, suit or proceeding or any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred in connection with such action, suit or
proceeding. Section 351.355(7) of the MGBCL provides that a corporation may
provide additional indemnification to any person indemnifiable under subsection
(1) or (2), provided such additional indemnification is authorized by the
corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
The Marine Terminals Articles of Incorporation, as amended, effectively
provide that Marine Terminals shall indemnify its directors, officers, employees
or agents to the full extent permitted by the MGBCL.
The MGBCL provides that a Missouri corporation may include any provision in
its articles of incorporation that is not inconsistent with the law, but does
not specifically prohibit or allow a provision limiting the liability of
directors in the articles of incorporation or bylaws of a Missouri corporation.
Other than in regard to the indemnification of directors, the Marine Terminals
Articles and Bylaws do not contain a provision regarding the liability of
directors.
A Missouri corporation also has the power to purchase and maintain
insurance on behalf of any person against any liability asserted against such a
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of the MGBCL.
The Marine Terminals Bylaws provide that it may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
Marine Terminals, or is or was serving at the request of Marine Terminals as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not Marine Terminals would have the power to indemnify him against
such liability under its Bylaws.
(e) In addition, pursuant to a directors' and officers' liability insurance
policy, Pen Holdings' and each of the Guarantor's directors and officers are
insured, subject to the limits, retention, exceptions and other terms and
conditions of such policy, against liability for, among other things, any actual
or alleged misrepresentation, act or omission, or neglect or breach of duty by
the directors or officers of Pen Holdings' and each of the Guarantors,
individually or collectively, or any matter claimed against them solely by
reason of their being directors or officers of Pen Holdings' and each of the
Guarantors.
II-3
<PAGE> 157
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1* Purchase Agreement, dated as of June 3, 1998, by and among
Pen Holdings, the Guarantors and CIBC Oppenheimer Corp.
3.1* Form of Restated Charter of Pen Holdings, as amended
3.2* Form of Amended and Restated Bylaws of Pen Holdings, as
amended
3.3* Form of Restated Charter of Pen Coal Corporation
3.4* Amended and Restated Bylaws of Pen Coal Corporation
3.5* Form of Restated Charter of Pen Cotton Company, as amended
3.6* Bylaws of Pen Cotton Company
3.7* Form of Charter of Pen Hardwood Company, as amended
3.8* Bylaws of Pen Hardwood Company
3.9** Form of Amended and Restated Certificate of Incorporation of
The Elk Horn Coal Corporation
3.10** Bylaws of The Elk Horn Coal Corporation
3.11* Form of Certificate of Incorporation of River Marine
Terminals, Inc., as amended
3.12* Bylaws of River Marine Terminals, Inc.
3.13* Form of Articles of Incorporation of Pen Cotton Company of
South Carolina, as amended
3.14* Bylaws of Pen Cotton Company of South Carolina
3.15* Form of Articles of Incorporation of Marine Terminals
Incorporated
3.16* Bylaws of Marine Terminals Incorporated
4.1* Indenture, dated as of June 8, 1998, by and among Pen
Holdings, the Guarantors and The Bank of New York
4.2** Form of Note
4.3* Registration Rights Agreement, dated as of June 8, 1998, by
and among Pen Holdings, the Guarantors and CIBC Oppenheimer
Corp.
5** Opinion of Counsel
10.1* Amended and Restated Credit Agreement, dated as of June 3,
1998, by and among Pen Holdings, Mellon Bank, N.A., CIBC,
Inc. and other banks later made a party to such Agreement
10.2* Coal Supply Agreement, dated as of June 15, 1989 by and
between Taiwan Power Company and Pen Coal Corporation, as
amended
10.3* Coal Supply Agreement between Pen Coal Corporation and
Dayton Power and Light Company, dated effective July 1,
1992, as amended
12* Calculation of Ratio of Earnings to Fixed Charges
21* Subsidiaries of the Registrant
23.1 Consent of Counsel (contained within Exhibit 5)
23.2* Consent of PricewaterhouseCoopers LLP
23.3* Consent of Stagg Engineering Services, Inc.
23.4* Consent of Marshall Miller & Associates
24 Power of Attorney (appearing on Signature Pages)
25.1** Form F-1 Statement of Eligibility of Trustee
27.1* Financial Data Schedule
27.2* Financial Data Schedule
27.3* Financial Data Schedule
27.4* Financial Data Schedule
27.5* Financial Data Schedule
99.1** Form of Letter of Transmittal
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
(b) Financial Statement Schedules.
II-4
<PAGE> 158
SCHEDULE II
PEN HOLDINGS, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
YEARS ENDED DECEMBER 31, OF PERIOD ADDITIONS (1) DEDUCTIONS (2) OF PERIOD
------------------------ ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
1995............................ $327,000 $14,000 $ -- $341,000
1996............................ $341,000 $71,000 $ -- $412,000
1997............................ $412,000 $24,000 $ -- $436,000
</TABLE>
- ---------------
(1) Additions represent amounts charged to expense during the respective
periods.
(2) Deductions represent actual writeoffs recorded by the Company during the
respective periods.
ITEM 22. UNDERTAKINGS
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 Securities Act
of 1933 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11, or 13 of this form, within one business day of receipt of such request, and
to send the incorporated documents by first-class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
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 a
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed part of the Registration
Statement as of the time it was declared effective.
(2) For purposes 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 such time shall be deemed to be
the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-5
<PAGE> 159
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (3)(i) and (3)(ii) above do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(6) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement 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-6
<PAGE> 160
PEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
PEN HOLDINGS, INC.
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PEN HOLDINGS, INC.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President, Chief August 4, 1998
- ------------------------------------ Executive Officer (Principal Executive
WILLIAM E. BECKNER Officer) and Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer and August 4, 1998
- ------------------------------------ Chief Financial Officer (Principal
MARK A. OLDHAM Financial Officer)
/s/ STEPHEN G. CAPELLI Director August 4, 1998
- ------------------------------------
STEPHEN G. CAPELLI
/s/ JOSEPH A. DAVIS, JR. Director August 4, 1998
- ------------------------------------
JOSEPH A. DAVIS, JR.
</TABLE>
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
THE ELK HORN COAL CORPORATION
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
THE ELK HORN COAL CORPORATION
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER President and Chief Executive Officer August 4, 1998
- ------------------------------------ (Principal Executive Officer) and
WILLIAM E. BECKNER Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ STEPHEN G. CAPELLI Director August 4, 1998
- ------------------------------------
STEPHEN G. CAPELLI
</TABLE>
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
PEN COAL CORPORATION
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PEN COAL CORPORATION
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President, Chief August 4, 1998
- ------------------------------------ Executive Officer (Principal Executive
WILLIAM E. BECKNER Officer) and Director
/s/ MARK A. OLDHAM Senior Vice President and Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer)
MARK A. OLDHAM
/s/ STEPHEN G. CAPELLI Director August 4, 1998
- ------------------------------------
STEPHEN G. CAPELLI
/s/ JOSEPH A. DAVIS, JR. Director August 4, 1998
- ------------------------------------
JOSEPH A. DAVIS, JR.
</TABLE>
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
MARINE TERMINALS INCORPORATED
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
MARINE TERMINALS INCORPORATED
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President, Chief August 4, 1998
- ------------------------------------ Executive Officer (Principal Executive
WILLIAM E. BECKNER Officer) and Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ JOSEPH A. DAVIS, JR. Director August 4, 1998
- ------------------------------------
JOSEPH A. DAVIS, JR.
</TABLE>
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
RIVER MARINE TERMINALS, INC.
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
RIVER MARINE TERMINALS INC.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER President and Chief Executive Officer August 4, 1998
- ------------------------------------ (Principal Executive Officer)
WILLIAM E. BECKNER
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ STEPHEN G. CAPELLI Director August 4, 1998
- ------------------------------------
STEPHEN G. CAPELLI
/s/ JOSEPH A. DAVIS, JR. Director August 4, 1998
- ------------------------------------
JOSEPH A. DAVIS, JR.
</TABLE>
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
PEN COTTON COMPANY OF SOUTH CAROLINA
By: /s/ WILLIAM E. BECKNER
---------------------------------------
William E. Beckner
President and Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PEN COTTON COMPANY OF SOUTH CAROLINA
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President, Chief August 4, 1998
- ------------------------------------ Executive Officer (Principal Executive
WILLIAM E. BECKNER Officer) and Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ W. SHERROD RHODES Director August 4, 1998
- ------------------------------------
W. SHERROD RHODES
</TABLE>
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
PEN HARDWOOD COMPANY
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PEN HARDWOOD COMPANY
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President August 4, 1998
- ------------------------------------ (Principal Executive Officer) and
WILLIAM E. BECKNER Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ W. SHERROD RHODES Director August 4, 1998
- ------------------------------------
W. SHERROD RHODES
</TABLE>
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on the 4th day of August, 1998.
PEN COTTON COMPANY
By: /s/ WILLIAM E. BECKNER
------------------------------------
William E. Beckner
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William E. Beckner, Stephen G. Capelli and Mark
A. Oldham, and each of them singly, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
amendments (including post-effective amendments to this Registration Statement)
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PEN COTTON COMPANY
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. BECKNER Chairman of the Board, President, Chief August 4, 1998
- ------------------------------------ Operating Officer (Principal Executive
WILLIAM E. BECKNER Officer) and Director
/s/ MARK A. OLDHAM Senior Vice President, Treasurer August 4, 1998
- ------------------------------------ (Principal Financial Officer) and
MARK A. OLDHAM Director
/s/ W. SHERROD RHODES Director August 4, 1998
- ------------------------------------
W. SHERROD RHODES
</TABLE>
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<C> <S> <C>
1* Purchase Agreement, dated as of June 3, 1998, by and among
Pen Holdings, the Guarantors and CIBC Oppenheimer Corp.
3.1* Form of Restated Charter of Pen Holdings, as amended
3.2* Form of Amended and Restated Bylaws of Pen Holdings, as
amended
3.3* Form of Restated Charter of Pen Coal Corporation
3.4* Amended and Restated Bylaws of Pen Coal Corporation
3.5* Form of Restated Charter of Pen Cotton Company, as amended
3.6* Bylaws of Pen Cotton Company
3.7* Form of Charter of Pen Hardwood Company, as amended
3.8* Bylaws of Pen Hardwood Company
3.9** Form of Amended and Restated Certificate of Incorporation of
The Elk Horn Coal Corporation
3.10** Bylaws of The Elk Horn Coal Corporation
3.11* Form of Certificate of Incorporation of River Marine
Terminals, Inc., as amended
3.12* Bylaws of River Marine Terminals, Inc.
3.13* Form of Articles of Incorporation of Pen Cotton Company of
South Carolina, as amended
3.14* Bylaws of Pen Cotton Company of South Carolina
3.15* Articles of Certificate of Incorporation of Marine Terminals
Incorporated
3.16* Bylaws of Marine Terminals Incorporated
4.1* Indenture, dated as of June 8, 1998, by and among Pen
Holdings, the Guarantors and The Bank of New York
4.2** Form of Note
4.3* Registration Rights Agreement, dated as of June 8, 1998, by
and among Pen Holdings, the Guarantors and CIBC Oppenheimer
Corp.
5** Opinion of Counsel
10.1* Amended and Restated Credit Agreement, dated as of June 3,
1998, by and among Pen Holdings, Mellon Bank, N.A., CIBC,
Inc. and other banks later made a party to such Agreement
10.2* Coal Supply Agreement, dated as of June 15, 1989 by and
between Taiwan Power Company and Pen Coal Corporation, as
amended
10.3* Coal Supply Agreement between Pen Coal Corporation and
Dayton Power and Light Company, dated effective July 1,
1992, as amended.
12* Calculation of Ratio of Earnings to Fixed Charges
21* Subsidiaries of the Registrant
23.1 Consent of Counsel (contained within Exhibit 5)
23.2* Consent of PriceWaterhouseCoopers LLP
23.3* Consent of Stagg Engineering Services, Inc.
23.4* Consent of Marshall Miller & Associates
24 Power of Attorney (appearing on Signature Pages)
25.1** Form F-1 Statement of Eligibility of Trustee
27.1* Financial Data Schedule
27.2* Financial Data Schedule
27.3* Financial Data Schedule
27.4* Financial Data Schedule
27.5* Financial Data Schedule
99.1** Form of Letter of Transmittal
</TABLE>
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* Filed herewith.
** To be filed by Amendment.
<PAGE> 1
Exhibit 1
Pen Holdings, Inc.
$100,000,000
9-7/8% Senior Notes due 2008
PURCHASE AGREEMENT
June 3, 1998
CIBC OPPENHEIMER CORP.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Ladies and Gentlemen:
Pen Holdings, Inc., a Tennessee corporation (the "Company"), and each
of the Company's subsidiaries set forth on the signature pages hereto (each, a
"Guarantor" and, collectively, the "Guarantors" and, together with the Company,
the "Issuers") hereby confirm their agreement with you (the "Initial
Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchaser
$100,000,000 aggregate principal amount of its 9-7/8% Senior Notes due 2008 (the
"Notes"). The obligations of the Company under the Indenture (defined below) and
the Notes will be unconditionally guaranteed (the "Guarantees"), on a joint and
several basis, by each Guarantor. The Notes and the Guarantees are to be issued
pursuant to the Indenture (the "Indenture"), dated as of June 8, 1998 among the
Company, the Guarantors and the Bank of New York, as trustee (the "Trustee").
The Notes and the Guarantees are hereinafter referred to collectively as the
"Securities."
The Notes will be offered and sold to the Initial Purchaser without
such offers and sales being registered under the Securities Act of 1933, as
amended (together with the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, the "Securities Act"), in
reliance on exemptions therefrom.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum dated May 11, 1998 (including the documents
annexed thereto, the "Preliminary Memorandum") and a final offering memorandum
dated June 3, 1998
<PAGE> 2
(including the documents annexed thereto, the "Final Memorandum"; the
Preliminary Memorandum and the Final Memorandum each herein being referred to as
a "Memorandum"), each setting forth or including a description of the terms of
the Securities, the terms of the offering of the Notes, a description of the
Company and its subsidiaries and any material developments relating to the
Company and its subsidiaries occurring after the date of the most recent
historical financial statements included therein. All references in this
Agreement to financial statements and schedules and other information which is
"contained," "included" or "stated" in any Memorandum (or other references of
like import) shall be deemed to mean and include all such financial statements
and schedules and in any Memorandum.
The Company and the Guarantors understand that the Initial Purchaser
proposes to make an offering of the Notes only on the terms and in the manner
set forth in the Memorandum and Section 9 hereof as soon as the Initial
Purchaser deems advisable after this Agreement has been executed and delivered,
to persons in the United States whom the Initial Purchaser reasonably believes
to be qualified institutional buyers ("QIBs") as defined in Rule 144A under the
Securities Act, as such rule may be amended from time to time ("Rule 144A"), in
transactions under Rule 144A, and outside the United States to certain persons
in reliance on Regulation S under the Securities Act.
The Initial Purchaser and its direct and indirect transferees of the
Notes will be entitled to the benefits of the Registration Rights Agreement
dated as of June 8, 1998 among the parties hereto (the "Registration Rights
Agreement") pursuant to which the Issuers have agreed, among other things, to
file (i) a registration statement (the "Registration Statement") with the
Commission registering the Notes or the Exchange Notes (as defined in the
Registration Rights Agreement) under the Securities Act or (ii) a shelf
registration statement pursuant to Rule 415 under the Securities Act relating to
the resale of the Notes by holders thereof or, if applicable, relating to the
resale of Private Exchange Notes (as defined in the Registration Rights
Agreement) by the Initial Purchaser pursuant to an exchange of the Notes for
Private Exchange Notes.
The Securities, the Exchange Notes, the Private Exchange Notes, the
Indenture, the Registration Rights Agreement and this Agreement are herein
collectively referred to as the "Basic Documents". The Issuers propose to issue
the Securities contemporaneously with (i) the repayment of $62.7 million of
-2-
<PAGE> 3
indebtedness outstanding at March 31, 1998 under the Credit Agreement, dated as
of August 16, 1994, by and between the Company's and certain of its subsidiaries
and Mellon Bank, N.A., as agent, and the lenders named therein, as amended (the
"Existing Credit Facility"), (ii) the repayment of an $11.0 million note issued
to the seller as partial consideration of the Company's acquisition of the
Company's Fork Creek reserves (the "Fork Creek Note"), (iii) the repayment of
$1.4 million of certain other indebtedness of the Company or its subsidiaries,
and (iv) the redemption for $3.0 million of outstanding warrants (the "Bank
Warrants") to purchase the Company's common stock issued to the lenders in
connection with an amendment to the Existing Credit Facility (collectively, the
"Transactions"). The Existing Credit Facility, Fork Creek Note, documents
governing the indebtedness referred to in clause (iii) of the preceding
sentence, the letter dated May 11, 1998 among the Company and holders of the
Bank Warrants regarding valuation of the Bank Warrants and the New Credit
Facility (defined below) shall be referred to herein as the "Transaction
Documents".
In addition, concurrently with the issuance of the Securities the
Company and certain of its subsidiaries will enter into a revolving credit
facility (the "New Credit Facility") with Mellon Bank, N.A. and Canadian
Imperial Bank of Commerce, as agents, providing for an aggregate amount of
borrowings of up to $40 million.
2. Representations and Warranties of the Issuers. The Issuers, jointly
and severally, represent and warrant to and agree with the Initial Purchaser
that:
(a) Neither the Preliminary Memorandum as of the date thereof
nor the Final Memorandum nor any amendment or supplement thereto as of
the date thereof and at all times subsequent thereto up to the Closing
Date (as defined in Section 3 below) contained or contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this Section 2 do not
apply to statements or omissions made in reliance upon and in
conformity with information relating to the Initial Purchaser furnished
to the Company in writing by the Initial Purchaser expressly for use in
the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
-3-
<PAGE> 4
(b) Each of the Company and its subsidiaries set forth in
Exhibit A-1 hereto (the "Subsidiaries") has been duly incorporated and
each of the Company and the Subsidiaries is validly existing in good
standing as a corporation under the laws of its jurisdiction of
incorporation, with the requisite corporate power and authority to own
its properties and conduct its business as now conducted as described
in the Final Memorandum and is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where
the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, condition
(financial or other), properties, prospects or results of operations of
the Company and the Subsidiaries, taken as a whole (any such event, a
"Material Adverse Effect"); as of the Closing Date, the Company will
have the authorized, issued and outstanding capitalization set forth in
the Final Memorandum; except as set forth in Exhibit A-2 hereto, the
Company does not have any subsidiaries or own directly or indirectly
any of the capital stock or long-term debt securities of or have any
equity interest in any other person; all of the outstanding shares of
capital stock of the Company and the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights and
are owned free and clear of all liens, encumbrances, equities and
restrictions on transferability (other than those imposed by the
Securities Act, the state securities or "Blue Sky" laws and, in the
case of the Company's Class II Common Stock, transfer restrictions
contained therein) or voting except for those imposed or created by the
New Credit Facility, the Existing Credit Facility or the Pen Holdings,
Inc. Stock Purchase Plan; except as set forth in the Final Memorandum,
all of the outstanding shares of capital stock of the Subsidiaries are
owned, directly or indirectly, by the Company; except as set forth in
the Final Memorandum, no options, warrants or other rights to purchase
from the Company or any Subsidiary, agreements or other obligations of
the Company or any Subsidiary to issue or other rights to convert any
obligation into, or exchange any securities for, shares of capital
stock of or ownership interests in the Company or any Subsidiary are
outstanding and no holder of securities of the Company or any
Subsidiary is entitled to have such securities registered under the
Registration Statement; and
-4-
<PAGE> 5
except as set forth in the Final Memorandum, there is no agreement,
understanding or arrangement among the Company or any Subsidiary and
each of their respective stockholders or any other person relating to
the ownership or disposition of any capital stock of the Company or any
Subsidiary or the election of directors of the Company or any
Subsidiary or the governance of the Company's or any Subsidiary's
affairs, and, if any, such agreements, understandings and arrangements
will not be breached or violated as a result of the execution and
delivery of, or the consummation of the transactions contemplated by,
this Agreement, the other Basic Documents and the Transaction
Documents.
(c) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under the
Securities, the Exchange Notes and the Private Exchange Notes. The
Notes, the Exchange Notes and the Private Exchange Notes have each been
duly and validly authorized by the Company for issuance and, when
executed by the Company and authenticated by the Trustee in accordance
with the provisions of the Indenture, and, in the case the Notes,
delivered to and paid for by the Initial Purchaser in accordance with
the terms hereof, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms except that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
fraudulent conveyance, implied covenant of good faith and fair dealing,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally or (ii)
general principles of equity and the discretion of the court before
which any proceeding therefor may be brought (regardless of whether
such enforcement is considered in a proceeding at law or in equity)
(collectively, the "Enforceability Exceptions"); the Guarantees
endorsed on the Notes and the guarantees to be endorsed on the Exchange
Notes and the Private Exchange Notes have each been duly and validly
authorized by each of the Guarantors and, when the Notes are executed
by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture, and delivered to and paid for by the
Initial Purchaser in accordance with the terms hereof, will have been
duly executed, issued and delivered and will constitute valid and
legally binding obligations of the Guarantors, entitled to the benefits
of the Indenture
-5-
<PAGE> 6
and enforceable against the Guarantors in accordance with their terms
except that the enforcement thereof may be limited by the
Enforceability Exceptions; the documents evidencing the Securities are
in the form contemplated by the Indenture.
(d) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under the
Indenture. The Indenture has been duly and validly authorized by the
Issuers and meets the requirements for qualification under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and,
when executed and delivered by the Issuers (assuming the due
authorization, execution and delivery by the Trustee), will constitute
a valid and legally binding agreement of the Issuers, enforceable
against the Issuers in accordance with its terms except that the
enforcement thereof may be limited by the Enforceability Exceptions.
(e) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly and validly authorized by the
Issuers and, when executed and delivered by the Issuers, will
constitute a valid and legally binding agreement of the Issuers,
enforceable against the Issuers in accordance with its terms except
that the enforcement thereof may be limited by the Enforceability
Exceptions and except as any rights to indemnity or contribution
hereunder may be limited by federal and state securities laws and
public policy considerations.
(f) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has
been duly and validly authorized by the Issuers and, when executed and
delivered by the Issuers, will constitute a valid and legally binding
agreement of the Issuers, enforceable against the Issuers in accordance
with its terms except that the enforcement thereof may be limited by
the Enforceability Exceptions and except as any rights to indemnity or
contribution hereunder may be limited by federal and state securities
laws and public policy considerations. The Securities, the Indenture
and the Registration Rights Agreement conform in all material respects
to the descriptions thereof in the Final Memorandum.
-6-
<PAGE> 7
(g) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under the New
Credit Facility. The New Credit Facility has been duly and validly
authorized by the Issuers and, when executed and delivered by the
Issuers, will constitute valid and legally binding obligations of the
Issuers, enforceable against the Issuers in accordance with its terms
except that the enforcement thereof may be limited by the
Enforceability Exceptions. Each of the Transaction Documents conforms
in all material respects to the description thereof in the Final
Memorandum.
(h) (i) The Issuers have delivered or made available to the
Initial Purchaser a true and correct copy of each of the Transaction
Documents that have been executed and delivered prior to the date of
this Agreement and each other Transaction Document in the form
substantially as it will be executed and delivered on or prior to the
Closing Date, together with all related agreements and all schedules
and exhibits thereto, and as of the date hereof there have been no
amendments, alterations, modifications or waivers of any of the
provisions of any of the Transaction Documents since their date of
execution or from the form in which any such Transaction Document has
been delivered to the Initial Purchaser; and (ii) there exists as of
the date hereof (after giving effect to the Transactions) no event or
condition that would constitute a default or an event of default (in
each case as defined in each of the Transaction Documents) under any of
the Transaction Documents that would result in a Material Adverse
Effect or materially adversely affect the ability of the Company to
consummate the Transactions.
(i) No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency
or body or third party is required for the performance of this
Agreement, the Registration Rights Agreement, the Securities, the
Indenture by the Issuers or for the consummation by the Issuers of any
of the Transactions, or the application of the proceeds of the issuance
of the Securities as described in the Final Memorandum, except as has
already been acquired or as may be required under state securities or
"Blue Sky" laws in connection with the purchase and distribution of the
Securities by the Initial Purchaser; all such consents, approvals,
authorizations, licenses, qualifications, exemptions and orders set
forth in the Final Memorandum which are required to be obtained by the
Closing Date have been obtained
-7-
<PAGE> 8
or made, as the case may be, and are in full force and effect
and not the subject of any pending or, to the best knowledge of the
Issuers, threatened attack by appeal or direct proceeding or otherwise.
(j) None of the Company or the Subsidiaries is (i) in
violation of its certificate of incorporation or bylaws (or similar
organizational document), (ii) in breach or violation of any statute,
judgment, decree, order, rule or regulation applicable to it or any of
its properties or assets, which breach or violation would, individually
or in the aggregate, have a Material Adverse Effect, or (iii) in
default (nor has any event occurred which with notice or passage of
time, or both, would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition
contained in this Agreement, the Registration Rights Agreement, the
Securities or the Indenture or any other contract, indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which it
is a party or to which it is subject, which default would, individually
or in the aggregate, have a Material Adverse Effect.
(k) The execution, delivery and performance by the Issuers of
this Agreement, the Registration Rights Agreement, the Securities and
the Indenture and the consummation by the Issuers of the transactions
contemplated hereby and thereby and by the Final Memorandum and the
fulfillment of the terms hereof and thereof will not (a) violate,
conflict with or constitute or result in a breach of or a default under
(or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or
provisions of any contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit,
certificate or agreement or instrument to which any of the Company or
the Subsidiaries is a party or to which any of their respective
properties or assets are subject, (ii) the certificate of incorporation
or bylaws of any of the Company or the Subsidiaries (or similar
organizational document) or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency
or other body applicable to the Company or the Subsidiaries or any of
their respective properties or assets or (b) result in the imposition
of any lien upon or with respect to any of the properties or
-8-
<PAGE> 9
assets now owned or hereafter acquired by the Company or any
of the Subsidiaries, which violation, conflict, breach, default or lien
would, individually or in the aggregate, have a Material Adverse
Effect.
(l) The audited consolidated financial statements included in
the Final Memorandum present fairly the consolidated financial
position, results of operations and cash flows of such entities at the
dates and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis; the interim unaudited consolidated financial
statements included in the Final Memorandum present fairly the
consolidated financial position, results of operations and cash flows
of such entities at the dates and for the periods to which they relate
subject to year-end audit adjustments and, except as disclosed in the
Final Memorandum, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis with the
audited consolidated financial statements included therein; the summary
and selected financial and statistical data included in the Final
Memorandum present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and
Price Waterhouse LLP, which has examined certain of such financial
statements as set forth in its reports included in the Final
Memorandum, is an independent public accounting firm as required by the
Securities Act.
(m) The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Final Memorandum (A) except for the information presented in the
"Supplemental Historical Unaudited and Pro Forma Financial Data" and
the information set forth in the "Unaudited Pro Forma Condensed
Combined Statements of Operations and Other Data" for the year ended
December 31, 1997 (which information, in each case, has been compiled
on the pro forma basis described in the notes thereto) have been
prepared in accordance with applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended
(together with the rules and regulations of the Commission promulgated
thereunder, the "Exchange Act") and (B) have been properly computed on
the bases described therein; and the assumptions used in the
preparation of the pro forma financial statements and other pro forma
financial information
-9-
<PAGE> 10
included in the Final Memorandum are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(n) Except as described in the Final Memorandum, there is not
pending or, to the best knowledge of the Issuers, threatened any
action, suit, proceeding, inquiry or investigation, governmental or
otherwise, to which any of the Company or the Subsidiaries is a party,
or to which their respective properties or assets are subject, before
or brought by any court, arbitrator or governmental agency or body,
that, if determined adversely to the Company or any such Subsidiary
would, individually or in the aggregate, have a Material Adverse Effect
or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the Transactions or the issuance or sale of the
Securities to be sold hereunder or the application of the proceeds
therefrom or the other transactions described in the Final Memorandum.
(o) None of the Company or the Subsidiaries has, and, after
giving effect to the Transactions and the issuance and sale of the
Securities, will not have, any liability for any prohibited transaction
or funding deficiency or any complete or partial withdrawal liability
with respect to any pension, profit sharing or other plan which is
subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which any of the Company or the Subsidiaries
makes or ever has made a contribution and in which any employee of any
of the Company or the Subsidiaries is or has ever been a participant.
With respect to such plans, the Company and the Subsidiaries are, and,
after giving effect to the Transactions and the issuance and sale of
the Securities, will be, in compliance in all material respects with
all provisions of ERISA.
(p) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights and know-how that are necessary to conduct
their business as described in the Final Memorandum. None of the
Company or the Subsidiaries has received any notice of infringement of
or conflict with (or knows of any such infringement of or conflict
with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if
such assertion of
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<PAGE> 11
infringement or conflict were sustained, would, individually
or in the aggregate, have a Material Adverse Effect.
(q) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals
presently required or necessary to own or lease, as the case may be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Final
Memorandum ("Permits"), except where the failure to obtain such Permits
would not, individually or in the aggregate, have a Material Adverse
Effect; each of the Company and the Subsidiaries has fulfilled and
performed all of its obligations with respect to such Permits and no
event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit,
except where such revocation, termination or impairment would not have
a Material Adverse Effect; and none of the Company or the Subsidiaries
has received any notice of any proceeding relating to revocation or
modification of any such Permit, except as described in the Final
Memorandum and except where such revocation or modification would not,
individually or in the aggregate, have a Material Adverse Effect.
(r) Subsequent to the respective dates as of which information
is given in the Final Memorandum and except as described therein, (i)
the Company and the Subsidiaries have not incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, in either case whether or not in the ordinary
course of business, (ii) the Company and the Subsidiaries have not
purchased any of their respective outstanding capital stock, or
declared, paid or otherwise made any dividend or distribution of any
kind on any of their respective capital stock or otherwise (other than,
with respect to any of such Subsidiaries, the purchase of, or dividend
or distribution on, capital stock owned by the Company) and (iii) there
shall not have been any change in the capital stock or long-term
indebtedness of the Company or any of the Subsidiaries other than
indebtedness for equipment incurred in the ordinary course as permitted
by the Indenture.
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<PAGE> 12
(s) There are no legal or governmental proceedings, nor are
there any contracts or other documents required by the Securities Act
to be described in a prospectus that are not described in the Final
Memorandum. Except as described in the Final Memorandum, none of the
Company or the Subsidiaries is in default under any of the contracts
described in the Final Memorandum, has received a notice or claim of
any such default or has knowledge of any breach of such contracts by
the other party or parties thereto, except such defaults or breaches as
would not, individually or in the aggregate, have a Material Adverse
Effect.
(t) None of the Company or the Subsidiaries has taken or will
take any action that would cause this Agreement or the issuance or sale
of the Securities to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or
as the same may hereafter be in effect, on the Closing Date.
(u) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Final Memorandum
as being owned by it and good and marketable title to the leasehold
estate in the real property described therein as being leased by it,
free and clear of all liens, charges, encumbrances or restrictions,
except, in each case, as referenced in the Final Memorandum and except
for liens for taxes not yet due and payable or such as would not,
individually or in the aggregate, have a Material Adverse Effect. All
leases, contracts and agreements, including those referred to in the
Final Memorandum to which the Company or any of the Subsidiaries is a
party or by which any of them is bound are valid and enforceable
against the Company or any such Subsidiary, are, to the knowledge of
the Issuers, valid and enforceable against the other party or parties
thereto and are in full force and effect.
(v) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns,
except where the failure to so file such returns would not,
individually or in the aggregate, have a Material Adverse Effect, and
have paid all taxes shown as due thereon; and other than tax
deficiencies disclosed in the Final Memorandum which the Company or any
Subsidiary is contesting in good faith and for which adequate reserves
have been provided in accordance with generally accepted accounting
principles, there is no other
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<PAGE> 13
tax deficiency that has been asserted against the Company or any
Subsidiary that would, individually or in the aggregate, have a
Material Adverse Effect.
(w) (i) Immediately after the consummation of the Transactions
and the other transactions contemplated by this Agreement and the other
Basic Documents, the fair value and present fair saleable value of the
assets of each of the Company and the Subsidiaries will exceed the sum
of its stated liabilities and identified contingent liabilities; and
(ii) each of the Company and the Subsidiaries is not, nor will it be,
after giving effect to the execution, delivery and performance of this
Agreement and the other Basic Documents, and the consummation of the
Transactions and the other transactions contemplated hereby and
thereby, (a) left with unreasonably small capital with which to carry
on its business as it is proposed to be conducted, (b) unable to pay
its debts (contingent or otherwise) as they mature or (c) otherwise
insolvent.
(x) Except as disclosed in the Final Memorandum and except as
would not, individually or in the aggregate, have a Material Adverse
Effect, (A) each of the Company and the Subsidiaries is in compliance
with all applicable Environmental Laws, (B) each of the Company and the
Subsidiaries has made all filings and provided all notices required
under any applicable Environmental Law, and has all permits,
authorizations and approvals required under any applicable
Environmental Laws and is in compliance with their requirements, (C)
there is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter or request for information pending or, to the best
knowledge of the Issuers, threatened against the Company or any of the
Subsidiaries under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any Environmental
Law with respect to any assets, facility or property owned, operated,
leased or controlled by the Company or any of the Subsidiaries, (E)
neither the Company nor any of the Subsidiaries has received notice
that it has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA") or any comparable state law, and (F)
no property or facility of the Company or any of the Subsidiaries is
(i) listed or proposed for listing on the National Priorities List
under CERCLA or (ii) listed in the Comprehensive Environmental
Response, Compensation, Liability
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<PAGE> 14
Information System List promulgated pursuant to CERCLA, or on any
comparable list maintained by any state or local governmental
authority.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any federal, state,
local or municipal statute, law, rule, regulation, ordinance, code,
policy or rule of common law and any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment binding on any of the Company or the
Subsidiaries, relating to pollution or protection of the environment or
health or safety or any chemical, material or substance, that is
subject to regulation thereunder. "Environmental Claims" means any and
all administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, notices of responsibility, information
requests, liens, notices of noncompliance or violation, investigations
or proceedings relating in any way to any Environmental Law.
(y) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment
company" or a company "controlled by" an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(z) None of the Company or the Subsidiaries or any of such
entities' directors, officers, employees, agents or controlling persons
has taken, directly or indirectly, any action designed, or that might
reasonably be expected, to cause or result, under the Securities Act or
otherwise, in, or that has constituted, stabilization or manipulation
of the price of the Securities.
(aa) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Securities Act) directly, or through any agent, (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect of
any "security" (as defined in the Securities Act) which is or could be
integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or
(ii) engaged in any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) in
connection with the offering of the Securities or in any manner
involving a public offering within the meaning
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<PAGE> 15
of Section 4(2) of the Securities Act. Assuming (i) the accuracy of the
representations and warranties of the Initial Purchaser in Section 9
hereof, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchaser in the manner
contemplated by this Agreement to register any of the Securities under
the Securities Act or to qualify the Indenture under the Trust
Indenture Act.
(bb) No securities of any Issuer are of the same class (within
the meaning of Rule 144A under the Securities Act) as the Securities
and listed on a national securities exchange registered under Section 6
of the Exchange Act, or quoted in a U.S. automated inter-dealer
quotation system.
(cc) Except as set forth in the Final Memorandum, there is no
strike, labor dispute, slowdown or work stoppage with the employees of
the Company or any of the Subsidiaries which is pending or, to the best
knowledge of the Company or any of the Subsidiaries, threatened.
(dd) Each of the Company and the Subsidiaries carries
insurance (including self-insurance) in such amounts and covering such
risks as in its reasonable determination is adequate for the conduct of
its business and the value of its properties.
(ee) Each of the Company and the Subsidiaries (i) makes and
keeps accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(ff) No holder of securities of the Company or any Subsidiary
will be entitled to have such securities registered under the
registration statements required to be filed by the Company pursuant to
the Registration Rights Agreement other than as expressly permitted
thereby.
(gg) The statistical and market and industry-related data
included in the Final Memorandum are based on or derived
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<PAGE> 16
from sources which the Issuers believe to be reliable and accurate or
represent the Issuers' good faith estimates that are made on the basis
of data derived from such sources.
(hh) Except as stated in the Final Memorandum, the Company
does not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the offering of
the Securities and the transactions contemplated by the Final
Memorandum.
(ii) None of the Company, the Subsidiaries, any of their
respective Affiliates or any person acting on its or their behalf
(other than the Initial Purchaser) has engaged in any directed selling
efforts (as that term is defined in Regulation S under the Securities
Act ("Regulation S")) with respect to the Securities and the Company,
the Subsidiaries and their respective Affiliates and any person acting
on its or their behalf have acted in accordance with the offering
restrictions requirement of Regulation S.
Any certificate signed by any officer of the Company or any
Subsidiary and delivered to the Initial Purchaser or to counsel for the Initial
Purchaser shall be deemed a joint and several representation and warranty by the
Issuers to the Initial Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis
of the representations, warranties, agreements and covenants herein contained
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, the Notes, at 97.375% of the total price to investors
set forth on the cover of the Final Memorandum.
One or more certificates in definitive form for the Notes and
the related Guarantees that the Initial Purchaser has agreed to purchase
hereunder, and in such denomination or denominations and registered in such name
or names as the Initial Purchaser requests upon notice to the Company at least
48 hours prior to the Closing Date (as defined) shall be delivered by or on
behalf of the Company, against payment by or on behalf of the Initial Purchaser,
of the purchase price therefor by wire transfer of immediately available funds
to the account of the Company previously designated by it in writing. Such
delivery of and payment for the Notes and the related Guarantees shall
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<PAGE> 17
be made at the offices of Buchanan Ingersoll Professional Corporation, One
Oxford Centre, Pittsburgh, PA 15219, at 9:00 a.m. Pittsburgh time, on June 8,
1998, or at such date as the Initial Purchaser and the Company may agree upon,
such time and date of delivery against payment being herein referred to as the
"Closing Date." The Company will make such certificate or certificates for the
Notes and the related Guarantees available for checking and packaging by the
Initial Purchaser at the offices in New York, New York of CIBC OPPENHEIMER CORP.
at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser
proposes to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchaser is advisable.
5. Certain Covenants. The Issuers jointly and severally
covenant and agree with the Initial Purchaser that:
(i) The Issuers will not amend or supplement the Final
Memorandum or any amendment or supplement thereto unless the Initial
Purchaser shall have been advised and furnished a copy for a reasonable
period of time prior to the proposed amendment or supplement and as to
which the Initial Purchaser shall not have given its consent (which
consent shall not be unreasonably withheld). The Issuers will promptly,
upon the reasonable request of the Initial Purchaser or counsel for the
Initial Purchaser, make any amendments or supplements to the
Preliminary Memorandum or the Final Memorandum that may be necessary in
connection with the resale of the Securities by the Initial Purchaser.
(ii) The Issuers will cooperate with the Initial Purchaser in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may designate and will continue such qualifications
in effect for as long as may be necessary to complete the resale of the
Securities by the Initial Purchaser; provided, however, that in
connection therewith none of the Issuers shall be required to qualify
as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or to take any other action that would
subject it to general service of process or to taxation in excess of a
nominal amount in respect of doing business in any jurisdiction in
which it is not otherwise subject.
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<PAGE> 18
(iii) If, at any time prior to the completion of the resale by
the Initial Purchaser of the Notes or the Private Exchange Notes, any
event shall occur as a result of which it is necessary, in the opinion
of counsel for the Initial Purchaser, to amend or supplement the Final
Memorandum in order to make such Final Memorandum not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if for any other reason it shall be necessary to amend or
supplement the Final Memorandum in order to comply with applicable
laws, rules or regulations, the Issuers shall (subject to Section 5(i))
forthwith amend or supplement such Final Memorandum at their own
expense so that, as so amended or supplemented, such Final Memorandum
will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading and will comply with all
applicable laws, rules or regulations.
(iv) The Issuers will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of
each Preliminary Memorandum or Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(v) None of the Issuers or any of their respective
Affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the
Securities Act) which could be integrated with the sale of the
Securities in a manner which would require the registration under the
Securities Act of the Securities.
(vi) For so long as any of the Securities remain outstanding,
the Company will furnish to the Initial Purchaser (a) as soon as
available, a copy of each report or other communication (financial or
otherwise) of the Company mailed to the Trustee or holders of the
Securities or stockholders or filed with the Commission or any national
securities exchange on which any class of securities of the Company may
be listed, and (b) from time to time such other information concerning
the Issuers as the Initial Purchaser may reasonably request.
(vii) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the Final
Memorandum.
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<PAGE> 19
(viii) Prior to the Closing Date, the Company will furnish to
the Initial Purchaser, as soon as they have been prepared by or are
available to the Company, a copy of any unaudited interim consolidated
financial statements of the Company and the Subsidiaries, for any
period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum.
(ix) The Company will not, and will not permit any of
Subsidiaries to, engage in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) in connection with the offering of the Securities or in
any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(x) For so long as any of the Securities remain outstanding,
the Company will make available at its expense, upon request, to any
holder of Securities and any prospective purchasers thereof the
information specified in Rule 144A(d)(4) under the Securities Act,
unless the Company is then subject to Section 13 or 15(d) of the
Exchange Act.
(xi) The Issuers will use their best efforts to (i) permit
the Securities to be designated PORTAL securities in accordance with
the rules and regulations adopted by the National Association of
Securities Dealers, Inc. (the "NASD") relating to trading in the
Private Offerings, Resales and Trading through Automated Linkages
market (the "Portal Market") and (ii) permit the Securities to be
eligible for clearance and settlement through The Depository Trust
Company.
(xii) In connection with Securities offered and sold in an
offshore transaction (as defined in Regulation S), the Issuers will not
register any transfer of such Securities not made in accordance with
the provisions of Regulation S and will not, except in accordance with
the provisions of Regulation S, if applicable, issue any such
Securities in the form of definitive securities.
(xiii) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provision hereof (other than by reason
of a default or omission by the Initial Purchaser of its obligations
hereunder or pursuant to Section 11(i)-(v), in which case each party is
responsible for its own expenses) or if this Agreement
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<PAGE> 20
shall be terminated by the Initial Purchaser because of any failure or
refusal on the part of the Issuers to comply with the material terms or
fulfill any of the material conditions of this Agreement, the Company
agrees to reimburse the Initial Purchaser for all reasonable
out-of-pocket expenses (including fees and expenses of counsel for the
Initial Purchaser) incurred by the Initial Purchaser in connection
herewith, but in no event will the Company be liable to the Initial
Purchaser for damages on account of loss of anticipated profits from
the sale of the Securities.
(xiv) The Issuers will use their commercially reasonable best
efforts to do and perform all things required to be done and performed
by them under this Agreement and the other Basic Documents prior to or
after the Closing Date and to satisfy all conditions precedent on their
part to the obligations of the Initial Purchaser to purchase and accept
delivery of the Securities.
6. Expenses. Notwithstanding any termination of this Agreement
(pursuant to Section 11 or otherwise), the Issuers jointly and severally agree
to pay the following costs and expenses and all other costs and expenses
incident to the performance by the Issuers of their obligations hereunder: (i)
the negotiation, preparation, printing, typing, reproduction, execution and
delivery of this Agreement and of the other Basic Documents, any amendment or
supplement to or modification of any of the foregoing and any and all other
documents furnished pursuant hereto or thereto or in connection herewith or
therewith; (ii) the preparation, printing or reproduction of each Preliminary
Memorandum, the Final Memorandum and each amendment or supplement to any of
them; (iii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of each
Preliminary Memorandum, the Final Memorandum and all amendments or supplements
to any of them as may be reasonably requested for use in connection with the
offering and sale of the Securities; (iv) the preparation, printing,
authentication, issuance and delivery of certificates for the Notes and the
related Guarantees, including any stamp taxes in connection with the original
issuance and sale of the Securities and trustees' fees; (v) the reproduction and
delivery of the preliminary and supplemental "Blue Sky" memoranda and all other
agreements or documents reproduced and delivered in connection with the offering
of the Securities; (vi) the registration or qualification of the Securities for
offer and sale under the securities or Blue Sky laws of the several states
(including filing fees
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<PAGE> 21
and the reasonable fees, expenses and disbursements of Cahill Gordon & Reindel,
counsel to the Initial Purchaser, relating to such registration and
qualification); (vii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Securities; (viii) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Issuers; (ix) fees and expenses of the Trustee
including fees and expenses of its counsel; (x) all expenses and listing fees
incurred in connection with the application for quotation of the Securities on
the PORTAL Market; and (xi) any fees charged by investment rating agencies for
the rating of the Securities.
7. Conditions of the Initial Purchaser's Obligations. The
obligation of the Initial Purchaser to purchase and pay for the Securities is
subject to the accuracy of the representations and warranties contained herein,
to the performance by the Issuers of their respective covenants and agreements
hereunder and to the following additional conditions unless waived in writing by
the Initial Purchaser:
(i) The Initial Purchaser shall have received an opinion of
Buchanan Ingersoll Professional Corporation, counsel to the Issuers, in
form and substance satisfactory to the Initial Purchaser and Cahill
Gordon & Reindel, counsel to the Initial Purchaser, dated the Closing
Date, substantially in the form of Exhibit B hereto. In rendering such
opinion, Buchanan Ingersoll Professional Corporation, shall have
received and may rely solely upon such certificates and other documents
and information, including one or more opinions of local counsel
reasonably acceptable to the Initial Purchaser and Cahill Gordon &
Reindel, counsel to the Initial Purchaser, as they may reasonably
request to pass upon such matters. In addition, in rendering its
opinion, Buchanan Ingersoll Professional Corporation may state that its
opinion is limited to matters of Pennsylvania, New York, Kentucky,
Delaware corporate and federal law.
(ii) The Initial Purchaser shall have received an opinion of
Morgan, Lewis & Bockius LLP, tax counsel to the Company, dated the
Closing Date, in form and substance satisfactory to the Initial
Purchaser and Cahill Gordon & Reindel, that, as of its date and the
date hereof, disclosure of tax matters and proceedings under the
headings "Risk Factors--Risks Associated with IRS Matters" and
"Business--Legal Proceedings--IRS Proceedings" in the Final
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<PAGE> 22
Memorandum does not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(iii) The Initial Purchaser shall have received an opinion,
dated the Closing Date, of Cahill Gordon & Reindel, counsel to the
Initial Purchaser, with respect to the sufficiency of certain legal
matters relating to this Agreement and such other related matters as
the Initial Purchaser may require. In rendering such opinion, Cahill
Gordon & Reindel shall have received and may rely upon such
certificates and other documents and information as they may reasonably
request to pass upon such matters. In addition, in rendering their
opinion, Cahill Gordon & Reindel may state that their opinion is
limited to matters of New York, Delaware corporate and federal law.
(iv) The Initial Purchaser shall have received from Price
Waterhouse LLP, independent public accountants for the Issuers,
"comfort" letters dated the date hereof and the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchaser and
Cahill Gordon & Reindel, counsel to the Initial Purchaser.
(v) The representations and warranties of the Issuers
contained in this Agreement shall be true and correct on and as of the
Closing Date; the Issuers shall have complied in all material respects
with all agreements and satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date.
(vi) There shall not have been any change in the capital
stock of the Company or the Subsidiaries or any material increase in
the consolidated short-term or long-term debt of the Company from that
set forth or contemplated in the Final Memorandum and (b) the Company
and the Subsidiaries shall not have any liabilities or obligations,
contingent or otherwise (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken
as a whole, other than those reflected in the Final Memorandum.
(vii) None of the issuance and sale of the Securities pursuant
to this Agreement or any of the transactions contemplated by any of the
other Basic Documents or the Transaction Documents shall be enjoined
(temporarily or permanently) and no restraining order or other
injunctive
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<PAGE> 23
order shall have been issued; and there shall not have been any legal
action, order, decree or other administrative proceeding instituted or
threatened against any of the Issuers or against the Initial Purchaser
relating to the issuance of the Securities or the Initial Purchaser's
activities in connection therewith or any other transactions
contemplated by this Agreement or the Final Memorandum, the other Basic
Documents or the Transaction Documents.
(viii) Subsequent to the date of this Agreement and since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), there shall not have occurred (i) any change, or any
development involving a prospective change, in or affecting the general
affairs, management, business, condition (financial or other),
properties, prospects or results of operations of the Company and the
Subsidiaries, taken as a whole, not contemplated by the Final
Memorandum that, in the opinion of the Initial Purchaser, would
materially adversely affect the market for the Securities, or (ii) any
event or development relating to or involving any of the Company or the
Subsidiaries or any of the officers or directors of the Company or the
Subsidiaries that makes any material statement made in the Final
Memorandum untrue or that, in the opinion of the Issuers and their
counsel or the Initial Purchaser and its counsel, requires the making
of any addition to or change in the Final Memorandum in order to state
a material fact required by any applicable law, rule or regulation to
be stated therein or necessary in order to make the statements made
therein not misleading.
(ix) The Initial Purchaser shall have received certificates,
dated the Closing Date and signed by the chief executive officer and
the chief financial officer of each Issuer, to the effect that:
a. All of the representations and warranties of the
Issuers set forth in this Agreement are true and
correct as if made on and as of the Closing Date and
the Issuers have complied in all material respects
with all agreements and satisfied all conditions on
their part to be performed or satisfied under this
Agreement at or prior to the Closing Date.
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<PAGE> 24
b. The issuance and sale of the Securities pursuant to
this Agreement or any of the transactions
contemplated by the Transaction Documents have not
been enjoined (temporarily or permanently) and no
restraining order or other injunctive order has been
issued and there has not been any legal action,
order, decree or other administrative proceeding
instituted or threatened against any of the Issuers
relating to the issuance of the Securities or the
Initial Purchaser's activities in connection
therewith or in connection with any other
transactions contemplated by this Agreement or the
Final Memorandum, the other Basic Documents or the
Transaction Documents.
c. Subsequent to the date of this Agreement and since
the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or
supplement thereto after the date hereof), there has
not occurred (i) any change, or any development
involving a prospective change, in or affecting the
general affairs, management, business, condition
(financial or other), properties, prospects or
results of operations of the Company and the
Subsidiaries, taken as a whole, not contemplated by
the Final Memorandum that would materially adversely
affect the market for the Securities, or (ii) any
event or development relating to or involving any of
the Company or the Subsidiaries or any of the
respective officers or directors of the Company or
the Subsidiaries that makes any material statement
made in the Final Memorandum untrue or that requires
the making of any addition to or change in the Final
Memorandum in order to state a material fact required
by any applicable law, rule or regulation to be
stated therein or necessary in order to make the
statements made therein not misleading.
d. There has not been any material change in the capital
stock of the Company or the Subsidiaries nor any
material increase in the consolidated short-term or
long-term debt of the Company from that set forth or
contemplated in the Final Memorandum and (b) the
Company and the Subsidiaries have no liabilities or
obligations,
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<PAGE> 25
contingent or otherwise (whether or not in the
ordinary course of business), that are material to
the Company and the Subsidiaries, taken as a whole,
other than those reflected in the Final Memorandum.
e. At the Closing Date and after giving effect to the
consummation of the transactions contemplated by this
Agreement and the other Basic Documents and the
Transactions, there exists no Default or Event of
Default (as defined in the Indenture).
(x) On the Closing Date, the New Credit Facility shall
provide for revolving credit borrowings of not less than $40 million,
of which at least $40 million shall be available on the Closing Date.
(xi) All proceedings taken in connection with the issuance of
the Securities and the transactions contemplated by this Agreement and
the other Basic Documents and all documents and papers relating thereto
shall be reasonably satisfactory to the Initial Purchaser and counsel
to the Initial Purchaser. The Initial Purchaser and counsel to the
Initial Purchaser shall have received copies of such papers and
documents as they may reasonably request in connection therewith, all
in form and substance reasonably satisfactory to them.
(xii) The Company shall apply the proceeds from the issuance
and sale of the Notes as described under "Use of Proceeds" in the Final
Memorandum.
(xiii) There shall not have been any announcement by any
"nationally recognized statistical rating organization," as defined for
purposes of Rule 436(g) under the Securities Act, that (A) it is
downgrading its rating assigned to any debt securities of the Company,
or (B) it is reviewing its rating assigned to any debt securities of
the Company with a view to possible downgrading, or with negative
implications, or direction not determined.
(xiv) On or before the Closing Date, the Initial Purchaser
shall have received the Registration Rights Agreement executed by the
Company and such agreement shall be in full force and effect at all
times from and after the Closing Date.
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<PAGE> 26
(xv) The Issuers shall have furnished or caused to be
furnished to the Initial Purchaser such further certificates and
documents as the Initial Purchaser shall have reasonably requested.
All such opinions, certificates, letters, schedules, documents
or instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchaser and counsel to the Initial Purchaser. The
Issuers shall furnish to the Initial Purchaser such conformed copies of such
opinions, certificates, letters, schedules, documents and instruments in such
quantities as the Initial Purchaser shall reasonably request.
8. Indemnification and Contribution. (a) Each Issuer jointly
and severally agrees to indemnify and hold harmless the Initial Purchaser, each
director, officer, employee or agent of the Initial Purchaser and each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses to which the Initial Purchaser or such
director, officer, employee, agent or controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as any such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) any Preliminary Memorandum or the Final
Memorandum or any amendment or supplement thereto or (B) any of the
Basic Documents or any application or other document, or any amendment
or supplement thereto, executed by any Issuer or based upon written
information furnished by or on behalf of any Issuer filed in any
jurisdiction in order to qualify the Securities under the securities or
"Blue Sky" laws thereof or filed with the Commission or any securities
association or securities exchange (collectively, the "Documents"); or
(ii) the omission or alleged omission to state, in any
Preliminary Memorandum or the Final Memorandum or any amendment or
supplement thereto, or any of the Documents, a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and will reimburse, as incurred, the Initial Purchaser and
each such director, officer, employee, agent or controlling person for
any legal or other expenses reasonably incurred by the Initial
Purchaser or such director, officer, employee, agent or controlling
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<PAGE> 27
person in connection with investigating, defending against or appearing
as a third-party witness in connection with any such loss, claim,
damage, liability, expense or action; provided, however, that none of
the Issuers will be liable in any such case to the Initial Purchaser or
any director, officer, employee, agent or controlling person of the
Initial Purchaser to the extent that any such loss, claim, damages,
liability expense or action arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Memorandum or the Final Memorandum or any
amendment or supplement thereto, or any Document, in reliance upon and
in conformity with written information furnished to the Issuers by or
on behalf of the Initial Purchaser specifically for use therein; and
provided, further, that none of the Issuers will be liable to the
Initial Purchaser or any director, officer, employee, agent or any
person controlling the Initial Purchaser with respect to any such
untrue statement or omission made in any Preliminary Memorandum that is
corrected in the Final Memorandum (or any amendment or supplement
thereto) if the person asserting any such loss, claim, damage, expense
or liability purchased Securities from the Initial Purchaser in
reliance upon the Preliminary Memorandum but was not sent or given a
copy of the Final Memorandum (as amended or supplemented) that was made
available by the Issuers to the Initial Purchaser at or prior to the
written confirmation of the sale of the Securities to such person in
any case where such delivery of such Final Memorandum (as so amended or
supplemented) is required by the Securities Act, unless such failure to
deliver such Final Memorandum (as amended or supplemented) was a result
of noncompliance by the Issuers with Section 5(iv) of this Agreement.
This indemnity agreement will be in addition to any liability that the
Issuers may otherwise have to the indemnified parties. The Issuers
further agree that the indemnification, contribution and reimbursement
commitments set forth in this Section 8 shall apply whether or not the
Initial Purchaser is a formal party to any such lawsuits, claims or
other proceedings. None of the Issuers will, without the prior written
consent of the Initial Purchaser, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification by the Initial
Purchaser may be sought hereunder (whether or not the Initial Purchaser
or
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<PAGE> 28
any person who controls the Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of
the Initial Purchaser and each such director, officer, employee, agent
or controlling person from all liability arising out of such claim,
action, suit or proceeding.
(b) The Initial Purchaser will indemnify and hold harmless the
Issuers, their respective directors, officers, employees and agents and each
person, if any, who controls any of the Issuers within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which any of the Issuers or any such director,
officer, employee, agent or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Memorandum or the Final Memorandum or any amendment
or supplement thereto or any Document, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement was made in
reliance upon and in conformity with written information furnished to any of the
Issuers by or on behalf of the Initial Purchaser specifically for use therein;
and, subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by any
of the Issuers or any such director, officer, employee, agent or controlling
person in connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action in respect thereof. This indemnity agreement will be in addition to
any liability that the Initial Purchaser may otherwise have to the indemnified
parties.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability that it may have to any indemnified party except to the extent
that such omission results in the forfeiture by the indemnifying party of
substantial rights and defenses. In case any such action is brought against any
indemnified party, and such indemnified party notifies
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<PAGE> 29
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the named parties in any such action (including any
impleaded parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be one
or more legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to any such indemnifying party,
then the indemnifying parties shall not have the right to direct the defense of
such action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable out-of-pocket costs of investigation, incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
representing the indemnified parties under such paragraph (a) or paragraph (b),
as the case may be, who are parties to such action or actions); (ii) the
indemnifying party has authorized in writing the employment of counsel for the
indemnified party at the expense of the indemnifying parties; or (iii) the
indemnifying party shall have failed to assume the defense or retain counsel
reasonably satisfactory to the indemnified party. After such notice from the
indemnifying parties to such indemnified party (so long as the indemnified party
shall have informed the indemnifying parties of such action in accordance with
this Section 8 on a timely basis prior to the indemnified party seeking
indemnification hereunder), the indemnifying parties will not be liable under
this Section 8 for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying
party, unless such indemnified party waived its rights under this Section 8, in
which case the indemnified party may effect such a settlement without such
consent.
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<PAGE> 30
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 8 is unavailable or insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages,
expenses or liabilities (or actions in respect thereof), each indemnifying
party, in order to provide for just and equitable contribution, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect (i) the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages, expenses or
liabilities (or actions in respect thereof). The relative benefits received by
the Issuers on the one hand and the Initial Purchaser on the other shall be
deemed to be in the same proportion as the total proceeds from the offering of
the Securities (before deducting expenses) received by the Issuers bear to the
total discounts and commissions received by the Initial Purchaser. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses incurred by
such party in connection with investigating or defending any such claim. The
Issuers and the Initial Purchaser agree that it would not be equitable if the
amount of such contribution were determined by pro rata or per capita allocation
(even if the Issuers on the one hand and the Initial Purchaser on the other hand
were treated as one entity for such purpose) or by any other method of
allocation that does not take into account the equitable considerations referred
to in the first sentence of this paragraph (d). Notwithstanding any
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<PAGE> 31
other provision of this paragraph (d), the Initial Purchaser shall not be
obligated to make contributions hereunder that in the aggregate exceed the total
discounts and commissions received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that the Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements, and 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. For purposes of this paragraph (d), each director, officer,
employee or agent of and each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director, officer, employee and agent of any of the Issuers
and each person, if any, who controls any of the Issuers within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Issuers.
(e) Notwithstanding anything to the contrary in this Section
8, the indemnification and contribution provisions of the Registration Rights
Agreement shall govern any claim with respect thereto.
9. Offering of Securities; Restrictions on Transfer. (a) The
Initial Purchaser represents and warrants to the Issuers that it is a QIB. The
Initial Purchaser represents, warrants and covenants to the Issuers and agrees
that (i) it is not acquiring the Notes with a view to any distribution that
would violate the Securities Act or the securities laws of any state of the
United States or any other applicable jurisdiction, (ii) it has not and will not
solicit offers for, or offer or sell, the Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act; and (iii) it has and will
solicit offers for the Securities only from, and will offer the Securities only
to, (A) in the case of offers inside the United States, persons whom the Initial
Purchaser reasonably believes to be QIBs or, if any such person is buying for
one or more institutional accounts for which such person is acting as fiduciary
or agent, only when such person has represented to the Initial Purchaser that
each such account is a QIB, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A and, in each case, in
transactions under Rule 144A and (B) in
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<PAGE> 32
the case of offers outside the United States, to persons other than U.S. persons
("foreign purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)), with such knowledge and
experience in financial and business matters as necessary in order to evaluate
the risks and merits of an investment in the Notes.
(b) The Initial Purchaser represents and warrants with respect
to offers and sales outside the United States that (i) it has and will comply
with all applicable laws and regulations in each jurisdiction in which it
acquires, offers, sells or delivers Securities or has in its possession or
distributes any Memorandum or any such other material, in all cases at its own
expense; (ii) the Securities have not been and will not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except in accordance with Regulation S under the Securities Act or pursuant to
an exemption from the registration requirements of the Securities Act; (iii) it
has offered the Securities and will offer and sell the Securities (A) as part of
its distribution at any time and (B) otherwise until 40 days after the later of
the commencement of the offering and the Closing Date, only in accordance with
Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on
its behalf have engaged or will engage in any directed selling efforts (within
the meaning of Regulation S) with respect to the Securities, and any such
persons have complied and will comply with the offering restrictions requirement
of Regulation S; and (iv) it agrees that, at or prior to confirmation of sales
of the Securities, it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
Securities from it during the restricted period a confirmation or notice to
substantially the following effect:
"The securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of the distribution of the
securities at any time or (ii) otherwise until 40 days after the later
of the commencement of the offering and the closing date of the
offering, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used above have
the meaning given to them in Regulation S."
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<PAGE> 33
Terms used in this Section 9 and not defined in this Agreement have the meanings
given to them in Regulation S.
10. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Issuers, their respective officers and the Initial Purchaser set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Issuers, any of their respective
officers or directors, the Initial Purchaser or any controlling person referred
to in Section 8 hereof and (ii) delivery of, payment for or disposition of the
Securities, and shall be binding upon and shall inure to the benefit of any
successors, assigns, heirs or personal representatives of the Issuers, the
Initial Purchaser and indemnified parties referred to in Section 8 hereof. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the
sole discretion of the Initial Purchaser by notice to the Issuers given in the
event that the Issuers shall have failed, refused or been unable to satisfy all
conditions on their part to be performed or satisfied hereunder on or prior to
the Closing Date or if at or prior to the Closing Date:
(i) any of the Company or the Subsidiaries shall have
sustained any loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, which
loss or interference, in the sole judgment of the Initial Purchaser,
has had or has a Material Adverse Effect, or there shall have been any
material adverse change, or any development involving a prospective
material adverse change (including without limitation a change in
management or control of the Company or any Subsidiary), in the general
affairs, management, business, condition (financial or other),
properties, prospects or results of operations of the Company and the
Subsidiaries, taken as a whole, except as described in or contemplated
by the Final Memorandum (exclusive of any amendment or supplement
thereto);
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<PAGE> 34
(ii) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange;
(iii) a banking moratorium shall have been declared by New
York or United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial
markets of the United States that, in the case of (A), (B) or (C)
above, in the sole judgment of the Initial Purchaser, makes it
impracticable or inadvisable to proceed with the delivery of the
Securities as contemplated by the Final Memorandum, as amended as of
the date hereof; or
(v) any securities of the Company or any of the Subsidiaries
shall have been downgraded or placed on any "watch list" for possible
downgrading by any nationally recognized statistical rating
organization.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchaser, shall be hand delivered, mailed by
first-class mail, couriered by next-day air courier or telecopied and confirmed
in writing to CIBC OPPENHEIMER CORP., 425 Lexington Avenue, 3rd Floor, New York,
New York 10017, Attention: Corporate Finance Department, and with a copy to
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention:
Roger Meltzer, Esq. If sent to any of the Issuers, shall be mailed, delivered or
telecopied and confirmed in writing, to Pen Holdings, Inc., Center Court
Building, 5110 Maryland Way, Brentwood, Tennessee 37027, Attention: William E.
Beckner, and with a copy to Buchanan Ingersoll Professional Corporation, One
Oxford Centre, Pittsburgh, Pennsylvania 15219, Attention: Ronald Basso, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the
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<PAGE> 35
mail, postage prepaid, if mailed; one business day after being timely delivered
to a next-day air courier guaranteeing overnight delivery; and when receipt is
acknowledged by the addressee, if telecopied.
13. Successors. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchaser and Each of the Issuers and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Issuers contained in Section 8 of this Agreement shall
also be for the benefit of the directors, officers, employees and agents and any
person or persons who control the Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 8 of this Agreement
shall also be for the benefit of the directors, officers, employees and agents
of the Issuers and any person or persons who control any Issuer within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
No purchaser of Securities from the Initial Purchaser will be deemed a successor
because of such purchase.
14. No Waiver; Modifications in Writing. No failure or delay
on the part of any Issuer or the Initial Purchaser in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any Issuer or the Initial Purchaser at law or
in equity or otherwise. No waiver of or consent to any departure by any Issuer
or the Initial Purchaser from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the Issuers and the Initial Purchaser. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to
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<PAGE> 36
any departure by the Issuers or the Initial Purchaser from the terms of any
provision of this Agreement shall be effective only in the specific instance and
for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the Issuers
in any case shall entitle the Issuers to any other or further notice or demand
in similar or other circumstances.
15. Information Supplied by the Initial Purchaser. The
statements set forth in the last paragraph on the front cover page of the Final
Memorandum; the last two sentences of the third paragraph; the fifth paragraph;
the third and fourth sentences of the sixth paragraph; and the second, third,
fourth and last sentences of the final paragraph in each case under the heading
"Plan of Distribution" in the Final Memorandum (to the extent such statements
relate to the Initial Purchaser) constitute the only information furnished by
the Initial Purchaser to the Issuers for purposes of Section 8 hereof.
16. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto with
respect to the subject matter hereof.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. Joint and Several Obligations. All of the obligations of
the Issuers hereunder shall be joint and several obligations of each of them.
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<PAGE> 37
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this Agreement shall constitute a binding agreement among the
Issuers and the Initial Purchaser.
Very truly yours,
PEN HOLDINGS, INC.
By: /s/ WILLIAM E. BECKNER
----------------------------------
Name: William E. Beckner
Title: President
Guarantors:
THE ELK HORN COAL CORPORATION
PEN COAL CORPORATION
MARINE TERMINALS INCORPORATED
RIVER MARINE TERMINALS, INC.
PEN COTTON COMPANY OF SOUTH CAROLINA
PEN HARDWOOD COMPANY
PEN COTTON COMPANY
By: /s/ WILLIAM E. BECKNER
----------------------------------
Name: William E. Beckner
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
CIBC OPPENHEIMER CORP.
By: /s/ HEINZ NOEDING
--------------------------------
Name: Heinz Noeding
Title: Managing Director
S-1
<PAGE> 38
Exhibit A-1
Majority-Owned Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Formation
---- -------------------------
<S> <C> <C>
The Elk Horn Coal Corporation West Virginia
Pen Coal Corporation Tennessee
Marine Terminals Incorporated Missouri
River Marine Terminals, Inc. West Virginia
Pen Cotton Company of South Carolina South Carolina
Pen Hardwood Company Tennessee
Pen Cotton Company Tennessee
Buck Coal, Inc. Virginia
The Elk Horn Corporation West Virginia
Ram Processing, Inc. West Virginia
Big River Mining Company Kentucky
Pen Sales Company, Inc. U.S. Virgin Islands
Pen Trading Company Tennessee
Pen Cotton Company of Alabama, Inc. Alabama
</TABLE>
<PAGE> 39
Exhibit A-2
Minority Interests
<TABLE>
<CAPTION>
Name Jurisdiction of Formation
---- -------------------------
<S> <C> <C>
International Marine Terminal a Louisiana partnership
Osceola Products
</TABLE>
<PAGE> 40
Exhibit B
Form of Opinion of Buchanan Ingersoll
Opinion, dated the Closing Date and addressed to the Initial
Purchaser, of Buchanan Ingersoll Professional Corporation, counsel to the
Issuers, to the effect that:
(i) The Company has been duly incorporated and each of the
Company and the Subsidiaries is validly existing in good standing as a
corporation under the laws of its jurisdiction of incorporation, with
the requisite corporate power and authority to own its properties and
conduct its business as now conducted as described in the Final
Memorandum and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
(ii) The Company has the authorized, issued and outstanding
capitalization set forth in the Final Memorandum; to the best knowledge
of such counsel, except as set forth in Exhibit A to the Purchase
Agreement, the Company does not have any subsidiaries or own directly
or indirectly any of the capital stock or other equity or long-term
debt securities of or have any equity interest in any other person; all
of the outstanding shares of capital stock of the Company and the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge,
were not issued in violation of any preemptive or similar rights and,
in the case of Subsidiary capital stock, are owned free and clear of
all liens, encumbrances, equities and restrictions on transferability
(except as set forth in the Final Memorandum and other than those
imposed by the Securities Act and the state securities or "Blue Sky"
laws) or voting; except as set forth in the Final Memorandum, all of
the outstanding shares of capital stock of the Subsidiaries are owned,
directly or indirectly, by the Company.
(iii) Except as set forth in the Final Memorandum, to the best
of such counsel's knowledge, no options, warrants or other rights to
purchase from the Company or any Subsidiary,
<PAGE> 41
agreements or other obligations of the Company or any Subsidiary to
issue or other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of or ownership interests in
the Company or any Subsidiary are outstanding and no holder of
securities of the Company or any Subsidiary is entitled to have such
securities registered under the Registration Statement; and except as
set forth in the Final Memorandum, to the best knowledge of such
counsel there is no agreement, understanding or arrangement among the
Company or any Subsidiary and each of their respective stockholders or
any other person relating to the ownership or disposition of any
capital stock of the Company or any Subsidiary or the election of
directors of the Company or any Subsidiary or the governance of the
Company's or any Subsidiary's affairs, and, if any, such agreements,
understandings and arrangements will not be breached or violated as a
result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Purchase Agreement and the other
Basic Documents or the consummation of the Transactions.
(iv) Each of the Issuers has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Securities, the Exchange Notes (as defined in the Registration Rights
Agreement) and the Private Exchange Notes (as defined in the
Registration Rights Agreement). The Notes, the Exchange Notes and the
Private Exchange Notes have each been duly and validly authorized by
the Company for issuance and, when executed by the Company and
authenticated by the Trustee in accordance with the provisions of the
Indenture, and, in the case the Notes, delivered to and paid for by the
Initial Purchaser in accordance with the terms of the Purchase
Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms; the Guarantees endorsed on the
Notes and the guarantees to be endorsed on the Exchange Notes and the
Private Exchange Notes have each been duly and validly authorized by
each of the Guarantors and, when the Notes are executed by the Company
and authenticated by the Trustee in accordance with the provisions of
the Indenture, and delivered to and paid for by the Initial Purchaser
in accordance with the terms of the Purchase Agreement, will have been
duly executed, issued and delivered and will constitute valid and
legally binding obligations of the
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<PAGE> 42
Guarantors, entitled to the benefits of the Indenture and enforceable
against the Guarantors in accordance with their terms.
(v) Each of the Issuers has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Indenture. The Indenture has been duly and validly authorized by the
Issuers and meets the requirements for qualification under the Trust
Indenture Act, and, when executed and delivered by the Issuers
(assuming the due authorization, execution and delivery by the
Trustee), will constitute a valid and legally binding agreement of the
Issuers, enforceable against the Issuers in accordance with its terms.
(vi) Each of the Issuers has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Purchase Agreement. The Purchase Agreement has been duly and validly
authorized by the Issuers.
(vii) Each of the Issuers has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has
been duly and validly authorized by the Issuers and, when executed and
delivered by the Issuers, will constitute a valid and legally binding
agreement of the Issuers. The Securities, the Indenture and the
Registration Rights Agreement conform in all material respects to the
descriptions thereof in the Final Memorandum.
(viii) Each of the Issuers has the requisite corporate power
and authority to execute, deliver and perform its obligations under New
Credit Facility. The New Credit Facility been duly and validly
authorized by the Issuers party thereto and, when executed and
delivered by the Issuers party thereto, and assuming the due
authorization, execution and delivery by and enforceability against all
parties thereto other than the Issuers party thereto, will constitute
valid and legally binding agreements of the Issuers party thereto,
enforceable against such of the Issuers in accordance with their terms.
The New Credit Facility conforms in all material respects to the
description thereof in the Final Memorandum.
(ix) To the best knowledge of such counsel, no consent,
approval, authorization, license, qualification, exemption
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<PAGE> 43
or order of any court or governmental agency or body or third party is
required for the performance by the Issuers of the Purchase Agreement,
the Registration Rights Agreement, the Securities or the Indenture or
for the consummation by the Issuers of any of the transactions
contemplated thereby, or the application of the proceeds of the
issuance of the Securities as described in the Final Memorandum, except
as has already been acquired or as may be required under state
securities or "Blue Sky" laws in connection with the purchase and
distribution of the Securities by the Initial Purchaser (as to which
such counsel need express no opinion), except for the filing of a
registration statement under the Securities Act and qualification of
the Indenture under the Trust Indenture Act of 1939, as amended, in
connection with the Registration Rights Agreement, and except where the
failure to obtain any such consent, approval, authorization, license,
qualification, exemption or order would not have a Material Adverse
Effect; to the best knowledge of such counsel, all such consents,
approvals, authorizations, licenses, qualifications, exemptions and
orders set forth in the Final Memorandum which are required to be
obtained by the Closing Date have been obtained or made, as the case
may be, and are in full force and effect and not the subject of any
pending or threatened attack by appeal or direct proceeding or
otherwise.
(x) The execution, delivery and performance by the Issuers
of the Purchase Agreement, the Registration Rights Agreement, the
Securities and the Indenture and the consummation by the Issuers of the
transactions contemplated thereby and by the Final Memorandum and the
fulfillment by the Issuers of the terms thereof will not (a) violate,
conflict with or constitute or result in a breach of or a default under
(or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or
provisions of any contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit,
certificate or agreement or instrument identified by the Company to
such counsel as a material document (collectively, the "Documents") to
which any of the Company or the Subsidiaries is a party or to which any
of their respective properties or assets are subject, (ii) the
certificate of incorporation or bylaws of any of the Company or the
Subsidiaries (or similar organizational document) or (iii) (assuming
compliance with all applicable state securities or "Blue Sky" laws) any
statute, judgment, decree,
-4-
<PAGE> 44
order, rule or regulation of any court or governmental agency or other
body applicable to the Company or the Subsidiaries or any of their
respective properties or assets or (b) result in the imposition of any
lien upon or with respect to any of the properties or assets now owned
or hereafter acquired by the Company or any of the Subsidiaries, which
violation, conflict, breach, default or lien would, individually or in
the aggregate, have a Material Adverse Effect.
(xi) Except as described in the Final Memorandum, to the best
knowledge of such counsel, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, governmental or
otherwise, that seeks to restrain, enjoin, prevent the consummation of
or otherwise challenge the Transactions or the issuance or sale of the
Securities or the application of the proceeds therefrom or the other
transactions described in the Final Memorandum.
(xii) To the best knowledge of such counsel, none of the
Company or the Subsidiaries has received any notice of infringement of
or conflict with (or knows of any such infringement of or conflict
with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if
such assertion of infringement or conflict were sustained, would,
individually or in the aggregate, have a Material Adverse Effect.
(xiii) None of the execution, delivery or performance of the
Purchase Agreement, the issuance or sale of the Securities, or the
application of the proceeds of the Securities as described in the Final
Memorandum will violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
(xiv) None of the Company or the Subsidiaries is, or
immediately after the Closing Date will be, required to register as an
"investment company" or a company "controlled by" an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(xv) No securities of any Issuer are of the same class
(within the meaning of Rule 144A under the Securities Act) as the
Securities and listed on a national securities exchange registered
under Section 6 of the Exchange Act, or quoted in a U.S. automated
inter-dealer quotation system.
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<PAGE> 45
(xvi) The statements set forth under the captions "Risk
Factors--Reliance on Long-Term Sales Contracts," "Risk Factors--Impact
of Clean Air Act Amendments on Coal Consumption," "Risk
Factors--Adequacy of Coal Industry Retiree Health Benefits Reserves,"
"Business--Long Term Coal Sales Contracts," "Description of Capital
Stock," "Description of New Credit Facility," "Description of the
Notes" and "Exchange Offer; Registration Rights" in the Final
Memorandum, insofar as such statements purport to summarize legal
documents, are fair summaries of the documents so summarized and,
insofar as such statements are summaries of matters of law or legal
conclusions, are accurate summaries in all material respects.
(xvii) Assuming the accuracy of the factual matters contained
in the representations of each of the Issuer, and of the Initial
Purchaser in the Purchase Agreement, it is not necessary in connection
with the offer, sale and delivery of the Securities to the Initial
Purchaser under the Purchase Agreement or in connection with the
initial resale of the Securities by the Initial Purchaser in accordance
with Section 9 of the Purchase Agreement (i) to register the Securities
under the Securities Act or (ii) to qualify the Indenture under the
Trust Indenture Act, it being understood that no opinion is expressed
as to any subsequent resale of any of the Securities.
Such counsel shall additionally state that in its capacity as
counsel to the Issuers, it has participated in conferences with officers and
other representatives of the Issuers, representatives of the independent public
accountants for the Issuers and representatives of the Initial Purchaser at
which the contents of the Final Memorandum and related matters were discussed
and, although it is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the Final
Memorandum (except as indicated in clause (xvi) above) and has not made any
independent check or verification thereof, on the basis of the foregoing
(relying as to materiality to a large extent upon the statements of officers and
other representatives of the Issuers) no facts have come to its attention that
have caused it to believe that the Final Memorandum as of its date and as of the
date hereof, or any amendment or supplement thereto as of its date and as of the
date hereof, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel
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<PAGE> 46
need express no opinion on the financial statements or other financial and
statistical data included in the Final Memorandum).
Such opinions may contain qualifications as to enforceability
that are typical in an opinion of this type. In addition, in rendering such
opinions, such counsel may state that, (i) its opinions are limited to and
concern only the internal laws of the Commonwealths of Pennsylvania and Kentucky
and the State of New York, the corporate laws of Delaware and the laws of the
United States, without regard to conflict or choice of law provisions, in each
case as they currently exist, (ii) it is relying as to matters of fact, to the
extent that it deems proper, on certificates of executive officers of the
Company and of public officials, (iii) it is relying, as to corporate matters of
jurisdictions other than West Virginia, Missouri and Kentucky, solely on one or
more opinions of local counsel and (iv) it is assuming, with the consent of the
Initial Purchaser, that the corporate laws of the States of Missouri and West
Virginia are the same as the corporate laws of the State of Delaware. To the
extent that such counsel relies solely on the certificates and opinions set
forth in clauses (ii) and (iii) of this paragraph, such counsel shall further
state that nothing has come to such counsel's attention that would lead them to
believe that such certificates, documents, other information and opinions state
incorrect information or fail to state correct information necessary for such
counsel to render its opinions.
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<PAGE> 1
Exhibit 3.1
FORM OF RESTATED CHARTER OF PEN HOLDINGS, INC., AS AMENDED
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
restated charter:
1) The name of the corporation is Pen Holdings, Inc.
2) The corporation is authorized to issue:
a. Ten Thousand (10,000) shares of Convertible Preferred stock;
b. Seven Million Eight Hundred Thousand (7,800,000) shares of
Class I Common stock; and,
c. Two Hundred Thousand (200,000) shares of Class II Common
stock.
3) The street address and zip code of the corporation's initial
registered office, the county in which the office is located, and
the name of its initial registered agent at that office is:
David G. Gray
Vice President & General Counsel
3rd Floor - Center Court Bldg.
5110 Maryland Way
Brentwood, Tennessee 37027
County of Williamson
4) The address of the principal office of the corporation is:
3rd Floor - Center Court Bldg.
5110 Maryland Way
Brentwood, Tennessee 37027
5) The number and classification of the shares the corporation is
authorized to issue and the powers, designations, preferences,
and other rights of such shares shall be as follows:
a. Convertible Preferred Stock. The Convertible Preferred stock
shall have the following powers, designations, preferences,
and other rights:
i. Unless earlier converted into Class I Common stock as
provided herein, Convertible Preferred stock shall be
redeemed in whole and not in part by the corporation on
January 3, 2006.
<PAGE> 2
ii. Upon any redemption of the Convertible Preferred stock,
the corporation shall pay to the holders of such
Convertible Preferred stock an amount equal to the
Stated Value of such shares, Thirteen Million Six
Hundred Fifty Thousand Dollars ($13,650,000), reduced,
but not below Zero (-0-), in accordance with paragraph
(c) (such amount referred to herein as the "Redemption
Price") of such shares by delivering to each of such
holders One (1) or more promissory notes executed by
the corporation having an aggregate original principal
balance equal to the Redemption Price. Such note or
notes shall bear interest until paid at a rate equal to
Two and Twenty-five One Hundredths percent (2.25%)
above the rate payable on Five (5) year U.S. Treasury
obligations as of the date of such redemption and shall
be payable in Forty (40) substantially equal
quarter-annual installments of principal plus accrued
but unpaid interest. In the event of the redemption of
Convertible Preferred stock before the final settlement
of all of the corporation's income tax liability for
all tax periods beginning before the Closing, such
promissory notes shall be and remain subject to
reduction as determined under paragraph (c). The term
"final settlement" of the corporation's income tax
liability with respect to any taxing authority for any
tax period shall include a final unappealable judgment
by a court of competent jurisdiction, as well as an
agreement between the corporation and such taxing
authority, fixing such tax liability for such period.
iii. Holders of Convertible Preferred stock shall have
preference upon the liquidation, dissolution, or
winding up of the corporation, whether voluntary or
involuntary, over the holders of all other classes of
stock issued by the corporation until holders of
Convertible Preferred stock shall have received
distribution in the aggregate equal to the sum of (i)
all accrued but unpaid dividends on such shares and
(ii) their Redemption Price, sometimes referred to as
the Convertible Preferred stock "Liquidation
Preference". No distributions shall be made upon the
liquidation, dissolution, or winding up of the
corporation, whether voluntary or involuntary, to the
holders of any other class of capital stock, unless and
until the holders of Convertible Preferred stock shall
have first received an amount equal to the Liquidation
Preference of such shares. All distributions on such
Convertible Preferred Stock shall be allocated among
the holders thereof based upon the number of such
shares held by each such holder.
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<PAGE> 3
iv. The consolidation or merger of the corporation into or
with any other entity or entities that results in the
exchange or conversion of outstanding shares of the
corporation for securities or other consideration
issued or paid or caused to be issued or paid by any
such entity or affiliate thereof, other than a merger
to reincorporate the corporation in a different
jurisdiction, and the sale, lease, assignment,
abandonment, transfer, or other disposition by the
corporation of all or substantially all of its assets,
shall, unless the Convertible Preferred stock shall
have been converted into Class I Common stock, be
deemed to be a liquidation, dissolution, or winding up
of the corporation within the meaning of the provisions
of this paragraph (a) and shall entitle the holders of
the convertible Preferred stock to receive at the
closing of such event cash, securities, or other
consideration to be delivered thereat in an amount
equal to the Liquidation Preference, provided that the
Liquidation Preference shall be paid in cash to the
extent any cash is delivered at the closing.
v. Dividends shall not accrue on Convertible Preferred
stock from the date such shares are issued through
January 3, 2001; dividends shall accrue on Convertible
Preferred stock from and after that date at the rate of
Twenty-five and Twenty-five One Hundredths percent
(25.25%) per annum, based in the aggregate upon their
initial Stated Value of Thirteen Million Six Hundred
Fifty Thousand Dollars ($13,650,000), reduced, but not
below Zero (0), as determined under paragraph (c).
vi. Dividends on Convertible Preferred stock not paid shall
accumulate, but unpaid dividends shall not bear
interest. Any dividends of Convertible Preferred stock
accumulated but unpaid at the time of the redemption of
such Convertible Preferred stock shall thereafter bear
interest until paid at a rate equal to Two and
Twenty-five One Hundredths percent (2.25%) above the
rate payable on Five (5) year U.S. Treasury obligations
as of the date of such redemption and shall be paid in
Forty (40) substantially equal quarter annual
installments of principal plus accrued interest with
the first of such payments being due Three (3) months
following the redemption. The aggregate amount of
accumulated but unpaid dividends shall be reduced as
provided under paragraph (c). Distributions of
dividends on Convertible Preferred stock shall be
allocated among the holders of such stock based upon
their relative ownership of such shares.
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<PAGE> 4
vii. for so long as any shares of Convertible Preferred
stock are issued and outstanding no cash, stock, or
other dividends or distributions shall be declared or
made with respect to any shares of capital stock other
than the Convertible Preferred stock and the
corporation shall not purchase, redeem or otherwise
acquire, any shares of capital stock of the corporation
other than the Convertible Preferred stock and any
Class I common stock issued to and held by a financial
institution (or an affiliate or nominee thereof( that
has loaned money to the corporation in good faith and
in the ordinary course of such institution's business.
viii. Except as provided by this Charter or otherwise
required by law, the holders of Convertible Preferred
stock shall not be entitled to notice of meetings of
the corporation's shareholders and shall not be
entitled to vote in the election of the corporation's
directors or on any other matter or question.
ix. At any time (y) when shares of Convertible Preferred
Stock are issued and outstanding, except where the vote
or written consent of the holders of a greater number
of shares of the corporation is required by law or by
this charter, and in addition to any other vote
required by law or this Charter, without the approval
of the holders of at least a majority of the then
outstanding shares of Convertible Preferred Stock,
given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class, or
(z) following a conversion of Convertible Preferred
stock, without the approval of the holders of at least
Seventy-five percent (75%) of the outstanding Common
stock, the corporation will not:
A. Consent to any liquidation, dissolution, or
winding up of the corporation; or
B. Amend, alter, or repeal this Charter (including an
amendment to authorize additional shares of
capital stock).
x. At the option of the holders of the corporation's
Convertible Preferred stock, all, but not less than
all, of the Ten Thousand (10,000) shares of Convertible
Preferred stock, may be converted into Two Million Nine
Hundred Fifty Thousand (2,950,000) shares of the
corporation's Class I Common stock. The option to
convert such shares shall be exercisable, at the
earlier of (A) the period beginning
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<PAGE> 5
January 4, 2001 and ending January 3, 2002 or (B)
immediately prior to a merger, consolidation, or share
exchange involving the corporation, or the sale, lease,
or conveyance of all or substantially all of the
corporation's assets. Such right of conversion shall be
exercised, if at all, by written notice to the
corporation, signed by each and all of the holders of
such Convertible Preferred stock. Notice of the
exercise of such option shall be accompanied by
certificates representing, in the aggregate, Ten
Thousand (10,000) shares of the corporation's
Convertible Preferred stock. All such certificates
shall be duly endorsed in blank or delivered with
appropriate stock powers executed in blank. Upon
receipt by the corporation of such notice and
certificates in proper form within the proper period,
the corporation shall issue certificates representing
in the aggregate Two Million Nine Hundred Fifty
Thousand (2,950,000) shares of the corporation's Class
I Common stock; such shares shall be issued to the
converting holders of such Convertible Preferred stock,
proportionately among them based upon their relative
ownership of such shares. Upon any such conversion, the
Convertible Preferred stock shall be cancelled and the
corporation's obligation to pay any accumulated and
accrued but unpaid dividends on Convertible Preferred
stock shall lapse.
xi. Cumulative distributions on Convertible Preferred stock
shall not in any event exceed the Liquidation
Preference of such shares.
xii. The corporation shall at all times reserve and keep
available out of its authorized but unissued shares of
Class I Common stock, solely for the purpose of
effecting the conversion of the shares of the
Convertible Preferred stock, such number of its shares
of Class I Common stock, as shall from time to time be
sufficient to effect the conversion of all outstanding
shares of the Convertible Preferred stock.
xiii. If the corporation shall propose at any time to merge,
consolidate, or enter into a share exchange with or
into any other corporation, or sell, lease, or convey
all of substantially all of its assets, or to
liquidate, dissolve, or wind up, then, in connection
with each such event, the corporation shall send to the
holders of the Convertible Preferred stock at least
Sixty (60) days' prior written notice of the date when
such event shall take place.
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<PAGE> 6
b. Common Stock. The powers and rights of the corporation's
Common stock shall be as follows:
i. Class I and Class II Common stock shall have unlimited
voting rights and, except as otherwise required by law,
Class I and Class II Common stock shall vote together
as a single class and not separately on matters coming
before the corporation's shareholders.
ii. Class I and Class II Common stock shall have the right,
together as a single class and not separately, to
receive the net assets of the corporation remaining
upon its dissolution or liquidation after satisfaction
of the Liquidation Preference on all classes and series
of the corporation's preferred shares.
iii. Shares of Class I and Class II Common stock shall have
a par value of $0.001 each.
c. Reduction of Liquidation Preference Amounts . The
Liquidation Preference of the Convertible Preferred stock
shall be reduced by the sum of (i) all federal, state, and
other income taxes, however denominated, penalties, and
interest paid or payable by the corporation for all tax
periods beginning before the Closing which arise as a result
of or in connection with any change or adjustment made or
asserted by any taxing authority to the amount of tax as
reflected on a return filed by the corporation and which
have not been paid at or prior to Closing and (ii) all
amounts paid by the corporation on such preferred stock in
excess of dividends accrued on such stock. Provided,
however, that the amount of any such reduction arising out
of the resolution of any such tax matter which is solely an
issue of timing among tax years shall be limited to the
present value of the cost of such timing difference to the
corporation. The amount of all such reductions shall be
applied to reduce the Convertible Preferred stock
Liquidation Preference and shall be allocated first to
reduce the amount of any accumulated but unpaid dividends on
such stock and then to reduce the Stated Value of such
shares. The effective date of such reduction shall be the
date or dates of payment by the corporation of such tax
amounts. The amount of the reduction shall be allocated
proportionately among the holders of such class of preferred
stock based upon their relative ownership of such shares. In
the event any Convertible Preferred stock shall have been
redeemed but any portion of the redemption price thereof or
any accumulated but unpaid dividends thereon remains due and
owing by the corporation at the time of any such payment of
tax,
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<PAGE> 7
penalty, or interest, whether such amount is evidenced by a
note or otherwise, then the amount of any such payment shall
be applied to reduce the amount so due and owing, the amount
being first applied to reduce any accrued but unpaid
interest, then to reduce any accumulated but unpaid
dividends, and then to reduce the principal amount of such
obligation.
6) The corporation is for profit.
7) The purpose or purposes for which the corporation is organized
are: To purchase, own, and hold the stock of other corporations
and to do every act and thing covered generally by the
denomination "Holding Corporation" and to direct the operations
of other corporations through the ownership of stock therein: To
Purchase, hold, sell, exchange, assign, create security interest
in, pledge, or otherwise dispose of shares of capital stock or
any prints, notes, securities or evidence of indebtedness created
by any other corporation or corporations organized under the laws
of this state or any other state or district: To exercise all the
rights, powers, and privileges of owner, including the right to
vote any shares of stock so owned: To perform the functions of a
headquarters company for the corporation so owned, including, but
without limitation, the provision of facilities, office space,
furniture and fixtures, automobiles, and equipment, or any other
thing necessary or useful in the transaction of the subsidiaries'
affairs: To provide financial service to the subsidiary
companies, including, without limitation, the loan of monies and
the guarantee of bonds, notes, evidences of indebtedness,
contracts, or other obligations of the subsidiary companies, and
to provide accounting services and financial consultation and
advice of all types: To provide managerial and administrative
services, without limitation, and to engage in such other lawful
activities as the stockholders elect.
8) There shall be no preemptive rights with respect to the issuance
of stock of any class of capital stock of the corporation.
9) To the fullest extent permitted by the Tennessee Business
Corporation Act, a Director of the Company shall not be liable to
the company or its shareholders for monetary damages for breach
of fiduciary duty as a Director. If the Tennessee Business
Corporation Act is amended after approval by the shareholders of
this provision to authorize corporate action, further eliminating
or limiting the personal liability of Directors, then the
liability of a Director of the company shall be eliminated or
limited to the fullest extent permitted by the Tennessee Business
Corporation Act as so amended from time to time.
10) The corporation shall, to the maximum extent permitted by the
Tennessee Business Corporation Act, have power to indemnify each
of its Agents against expenses, judgments, fines, settlements and
other amounts
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<PAGE> 8
actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that any such person is
or was an agent of the corporation and shall have power to
advance to each such agent expenses incurred in defending any
such proceeding to the maximum extent permitted by that law. For
the purposes of this section an "Agent" of the corporation
includes any person who is or was a Director, Officer, Employee
or other Agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, Officer, Employee or
Agent of another corporation, partnership, joint venture, trust
or other enterprise, or was a Director, Officer, Employee or
Agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise serving at the request of
such predecessor corporation.
8
<PAGE> 1
Exhibit 3.2
FORM OF AMENDED AND RESTATED BY-LAWS OF PEN HOLDINGS, INC., AS
AMENDED
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1 - The annual meeting of stockholders of the corporation for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held on the ______ Monday in ______ of
each year, if not a legal holiday, and if a legal holiday, on the next following
secular day, and if the election of Directors is not held at the annual meeting,
then the Board of Directors shall call a special meeting for that purpose as
soon thereafter as conveniently may be.
Sec. 2 - Special Meetings - Special meetings of the stockholders may be
called at any time by the President or by a majority of the Board of Directors,
or by stockholders holding together not less than one-tenth of the outstanding
capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Meetings of the stockholders may be held within or without the
State of Tennessee at such place as the Board of Directors may from time to time
determine, and until otherwise determined, shall be held in the offices of the
Company.
Sec. 4 - Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
of record of the corporation entitled to vote at such meeting, at least ten (10)
days before the date on which the meeting is to be held, by personal service of
such notice or by mailing such notice by United States Mail, postage prepaid,
addressed to him at his last known post office address. No publication of notice
of such meeting shall be required, and no notice of any meeting of stockholders
shall be required to be given to any stockholder who shall attend such meeting
in person or by proxy, or if any such stockholder shall waive notice of the
meeting in writing. No notice of any adjourned meeting of stockholders need be
given.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the corporation entitled to vote shall be
present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later date,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President, or In his absence, a Chairman chosen by stockholders holding a
majority interest in stock represented at such meeting, shall act as Chairman.
The Secretary of the corporation shall act as Secretary at all meetings of the
stockholders, or in his absence, the Chairman of the meeting may appoint any
person to act as Secretary.
<PAGE> 2
Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name of the books of the corporation at the time of such meeting, unless
otherwise provided by the Articles of Incorporation or these By-Laws. The vote
on stock of the corporation may be given by the stockholders entitled thereto,
in person or by his proxy appointed by an instrument in writing, subscribed by
such stockholder and delivered to the Secretary of the meeting. And at all
meetings of the stockholders all questions shall be decided by a vote of the
majority in interest of the stockholders of the corporation present in person or
by proxy and entitled to vote, a quorum being present, unless otherwise
specifically provided by law. In all voting for Directors, the voting shall be
by ballot signed by the stockholders or their proxy, unless such voting shall be
waived by unanimous consent of those present.
ARTICLE II
BOARD OF DIRECTORS
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Board of Directors.
Sec. 2 - Number, term, and Qualification of Directors - The number of
Directors that shall constitute the entire Board of Directors shall be not less
than Three (3) nor more than Seven (7), the exact number of Directors to be
fixed and determined by the stockholders from time to time at any meeting of
stockholders at which Directors are to be elected. No decrease in the number of
Directors shall reduce or shorten the term of any Director then in office.
A) Except as provided below, Directors shall service for terms of Two
(2) years each and their terms shall be staggered by dividing the
Directors into Two (2) groups so that approximately one-half of
the Directors are elected each year. At the initial election of
Directors following the adoption of this provision dividing the
Directors into Two (2) groups, approximately one-half of the
Directors shall be elected for terms of One (1) year each and the
remaining Directors shall be elected for terms of Two (2) years
each.
B) Despite the expiration of the term of a Director, he shall
continue to serve in such capacity until his successor is elected
and qualified, his resignation, or there is a reduction in the
number of Directors.
C) Directors need not be residents of Tennessee and need not be
shareholders, employees, or officers of the Company.
Sec. 3 - Election of Directors - At all meetings of the stockholders
for the election of Directors, at which a quorum is present, the persons
receiving the greatest number of votes shall be the Directors.
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<PAGE> 3
Sec. 4 - Organization - At all meetings of the Board of Directors, the
President shall preside, or in his absence, a Chairman chosen by a majority of
the Directors present, shall preside. The Secretary of the corporation shall act
as Secretary of the Board of Directors. In the absence of the Secretary, the
Chairman may appoint any person to act as Secretary of the meeting.
Sec. 5 - Resignations - Any Director of the corporation may resign at
any time by giving written notice to the President or to the Secretary of the
corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Sec. 6 - Vacancies - Any vacancy on the Board of Directors, whether
created as a result of a newly created directorship or the death, resignation,
or removal of a Director, may be filled by the stockholders, by the Board of
Directors, of, if the number of Directors remaining in office does not
constitute a quorum of the entire Board of Directors, by the affirmative vote of
those Directors then in office.
Sec. 7 - Place of Meetings, etc. - The Board of Directors may hold its
meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of Tennessee as
the Board may from time to time determine. In case the original stock and
transfer books of the corporation are kept without said State, a duplicate of
each thereof shall be kept at the principal office in this State.
Sec. 8 - Officers - The Board of Directors shall have power to elect or
appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Directors may be
held without notice at such places and times as shall be determined from time to
time by resolution of the Board.
Sec. 10 - Special Meetings - Special meetings of the Board may be
called by the President or by the Secretary, upon the written request of any two
Directors, upon two (2) days notice thereof to each Director.
Sec. 11 - Quorum and Manner of Acting - A majority of the Directors at
the time of any meeting of the Board of Directors shall constitute a quorum for
the transaction of business at such meeting. Directors may attend meetings in
person or by telephone or other means of communication allowing all Directors
participating to simultaneously hear each other during such meeting. The acts of
a majority of the Directors at such meeting, whether in person or otherwise,
shall constitute and be the acts of the Board of Directors, except on such
matters where the corporation's charter, these laws, or the laws of the State of
Tennessee require the vote of a greater number of Directors. The Directors shall
act only as a Board and the individual Directors shall have no powers as such.
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<PAGE> 4
Sec. 12 - Removal of Directors - Any Director at any time may be
removed from office, with or without cause, by the affirmative vote of a
majority in interest of the stockholders of record of the corporation entitled
to vote, given at a special meeting of the stockholders called for the purpose.
And the vacancy in the Board of Directors caused by any such removal may be
filled by the stockholders at such meeting.
ARTICLE III
OFFICERS
Sec. 1 - The officers of the corporation shall be a President, an
Executive Vice President of Sales and Operations, an Executive Vice-President of
Corporate Development, an Executive Vice-President of Finance and
Administration, a Vice-President of Governmental and International Relations, a
Vice-President and General Counsel, a Secretary and a Treasurer. The same person
may be elected to fill more than one of said offices at the same time, except
the same person may not be President and Secretary. The Directors may from time
to time elect such additional Vice-Presidents and such Assistant Secretaries or
Assistant Treasurers as they may choose, and such officers shall have such
powers as the Directors may from time to time delegate to them.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Board of Directors annually at the first meeting of the Board after the
annual election of the Directors. They shall hold office, unless sooner removed
by the Directors, until the election or appointment of their successors.
Sec. 3 - President - The President shall, when present, preside at all
meetings of the directors, and act as temporary Chairman at and call to order
all meetings of the stockholders; he shall have power to call special meetings
of the stockholders and Board of Directors for any purpose or purposes; appoint
and discharge, subject to the approval of the Directors, employees and agents of
the corporation and fix their compensation; and together with the Secretary,
make and sign contracts and agreements in the name and on behalf of the
corporation; and while the Directors are not in session he shall have the
general management and control of the business and affairs of the corporation;
and he shall generally do and perform all acts incident to the office of
President, or which are authorized or required by law.
Sec. 4 - Vice-Presidents:
A) Executive Vice-President of Sales and Operations shall be vested
with the primary responsibility for oversight of all of the coal
operations and sales of the subsidiary companies.
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B) Executive Vice-President of Corporate Development shall be
primarily responsible for new directions and initiatives of the
parent company.
C) Executive Vice-President of Finance and Administration shall be
primarily responsible for preparation of the budget and the
oversight of the preparation of the budgets of the operating
subsidiaries together with oversight and staffing of subsidiary
activities. He shall be the Chief Operating Officer.
D) Vice-President of Governmental and International Relations shall
be primarily responsible for the relations of the company and of
its subsidiaries with foreign governments, states, companies, and
individuals.
E) Vice-President and General Counsel shall be primarily responsible
for providing legal counsel and advice to the Directors and
Officers of the company and of its subsidiaries; to provide or
arrange for representation in litigation, arbitrations, or
administrative procedures involving the company affairs or the
affairs of its subsidiaries and to coordinate the efforts of
outside counsel on the company's behalf; to advise with the Board
of Directors on settlement or the disposition of adversary
proceedings involving the company or its subsidiaries. He shall be
a non-voting ex officio member of the Board of Directors.
Sec. 5 - Secretary - The Secretary shall give or cause to be given
notice of all meetings of stockholders and Directors, and all other notices
required to be given by law or these By-Laws, and in case of his absence,
refusal or neglect so to do, any such notice may be given by any person directed
to do so by the President or by the Board of Directors or stockholders, upon
whose request the meeting is called, as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
Directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Directors or the President. He shall
have the custody of the seal of the corporation, if any, and shall affix the
same to all instruments requiring it, when authorized by the Directors or the
President, and attest the same, and he shall, unless otherwise determined by the
Directors, have charge of the original stock books and stock ledger, and act as
transfer agent in respect of the stock and securities of the corporation, and he
shall perform all other duties incident to the office of a Secretary.
Sec. 6 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidences of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Board of Directors; he shall
receive and give or cause to be given receipts and acquittances for money paid
in on account of the corporation and shall pay out of the funds on hand all just
debts of the corporation, of whatever nature, upon the maturity of same, except
as otherwise provided by the board of Directors; he shall enter or cause to be
entered in the books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the corporation, and
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whenever required by the President or the Directors, he shall render a statement
of his cash account and such other statements as the board of Directors or
President may from time to time direct. The Treasurer shall keep, or cause to be
kept, such other books as will show a true record of the expenses, gains,
losses, assets and liabilities of the corporation, and he shall, if required,
give the corporation a bond for the faithful discharge of his duties, in such
amount and with such surety as the Board of Directors shall prescribe.
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Sec. 1 - Contracts - The President or any two of the Executive
Vice-Presidents acting jointly shall have the power to sign contracts, but the
Board of Directors may authorize any other officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or confined
to specific instances.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Sec. 3 - Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the President may select, unless a depository
or depositories be specifically designated by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, or Vice-President, and the Secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Directors may designate, by whom they
shall be cancelled, and
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new certificate shall thereupon be issued. A record shall be made of each
transfer. The Directors may close the transfer book for not exceeding twenty
(20) days next preceding the day appointed for the payment of any dividend.
ARTICLE VI
SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A Tennessee Corporation", but until the Board of Directors adopts such a seal,
the corporation may operate without a corporate seal.
ARTICLE VII
AMENDMENTS
The stockholders, by the affirmative vote of the holders of a majority
of the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of same.
ARTICLE VIII
WAIVER OF NOTICE
Whenever notice is required to be given to stockholders or Directors,
and such notice may legally be waived, a waiver thereof, signed by the
stockholders or Directors as the case may be, shall have the same force and
effect as though notice had been duly given.
ARTICLE IX
PROVISION RELATING TO COMPENSATION OF OFFICERS
Any payments made to an officer of the corporation, such as salary,
commission, expense reimbursement, or otherwise, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Directors, proportionate amounts may be withheld from his future
compensation until the amount owed to the corporation shall have been recovered.
Upon his election, each officer shall be notified of this By-Law provision.
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ARTICLE X
The Board of Directors is authorized to act without meeting, upon
written consent, as provided in Section 48-18-202, Tennessee Code Annotated,
when and as the Board deems necessary.
These By-Laws approved by the stockholders.
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Exhibit 3.3
FORM OF RESTATED CHARTER OF PEN COAL CORPORATION
(f/n/a P & C "BITUMINOUS COAL", INC.)
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
restated charter:
1) The name of the corporation is Pen Coal Corporation (f/n/a P & C
"Bituminous Coal", Inc.).
2) The number of shares the corporation is authorized to issue is
10,000 shares.
3) The street address and zip code of the corporation's initial
registered office, the county in which the office is located, and
the name of its initial registered agent at that office is:
David G. Gray
Vice President & General Counsel
3rd Floor - Center Court Bldg.
5110 Maryland Way
Brentwood, Tennessee 37027
County of Williamson
4) The address of the principal office of the corporation is:
3rd Floor - Center Court Bldg.
5110 Maryland Way
Brentwood, Tennessee 37027
5) There shall be issued only one class of shares, all of which
shall have unlimited voting rights and which shall be entitled to
receive the net assets of the corporation upon dissolution.
6) The corporation is for profit.
7) The purposes for which the corporation is organized are to carry
on and conduct a general agency business in this country and
abroad. To acquire, purchase, lease, option, own, sell and
mortgage coal lands, or supposed coal lands or mineral estates;
to buy and sell real estate; to prospect for coal and mine coal
and other minerals for mineral products, and, generally, to
import and export and deal in the market in coal of all kinds; to
purchase, acquire and contract all kinds of machinery, buildings,
cars and appliances for mining and marketing coal; to construct
and operate railways and tramways for mining and moving coal; and
to build and lease houses for the use of miners. To carry on its
own name or through subsidiaries the business of receiving,
loading, unloading, delivering, weighing, testing, gauging, and
measuring coal destined for, or
<PAGE> 2
unloaded from, steam vessels, ships, and every other kind of
water craft and cargo container; to perform in connection,
therewith, services ordinarily performed by stevedores, tally and
dock clerks. To issue and take receipt for such goods as
Principle, Agent or otherwise; or otherwise acquire, operate and
control in its name, or through subsidiary companies wharves,
docks, piers, slips, bulkheads, jetties or other wharf or storage
property and, in general, to do the business of dock or terminal
company and any and all acts that may be necessary, convenient,
or pertinent to any one of the above mentioned objects.
8) Other Provisions
a. The shareholders in this corporation shall have preemptive
rights with respect to the issuance of stock unless such
right is waived in writing.
b. The right to fill vacancies in the Board of Directors is
reserved to the shareholders.
c. The right to amend the Charter or the Corporate By-Laws is
reserved to the shareholders.
9) To the fullest extent permitted by the Tennessee Business
Corporation Act, a Director of the Company shall not be liable to
the company or its shareholders for monetary damages for breach
of fiduciary duty as a Director. If the Tennessee Business
Corporation Act is amended after approval by the shareholders of
this provision to authorize corporate action, further eliminating
or limiting the personal liability of Directors, then the
liability of a Director of the company shall be eliminated or
limited to the fullest extent permitted by the Tennessee Business
Corporation Act as so amended from time to time.
10) The corporation shall, to the maximum extent permitted by the
Tennessee Business Corporation Act, have power to indemnify each
of its Agents against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with
any proceeding arising by reason of the fact that any such person
is or was an agent of the corporation and shall have power to
advance to each such agent expenses incurred in defending any
such proceeding to the maximum extent permitted by that law. For
the purposes of this section an "Agent" of the corporation
includes any person who is or was a Director, Officer, Employee
or other Agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, Officer, Employee or
Agent of another corporation, partnership, joint venture, trust
or other enterprise, or was a Director, Officer, Employee or
Agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise serving at the request of
such predecessor corporation.
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS OF
PEN COAL CORPORATION
January 18, 1988
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1 - The annual meeting of stockholders of the corporation for the
election of Management Committee Members and for the transaction of such other
business as may properly come before the meeting shall be held on the _____
Monday in ______ of each year, if not a legal holiday, and if a legal holiday,
on the next following secular day, and if the election is not held at the annual
meeting, then the Management Committee shall call a special meeting for that
purpose as soon thereafter as conveniently may be.
Sec. 2 - Special Meetings - Special meetings of the stockholders may be
called at any time by the President or by a majority of the Management
Committee, or by stockholders holding together not less than one-tenth of the
outstanding capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Meetings of the stockholders may be held within or without the
State of Tennessee at such place as the Management Committee may from time to
time determine, and until otherwise determined, shall be held in the offices of
the Company.
Sec. 4 - Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
of record of the corporation entitled to vote at such meeting, at least ten (10)
days before the date on which the meeting is to be held, by personal service of
such notice or by mailing such notice by United States Mail, postage prepaid,
addressed to him at his last known post office address. No publication of notice
of such meeting shall be required, and no notice of any meeting of stockholders
shall be required to be given to any stockholder who shall attend such meeting
in person or by proxy, or if any such stockholder shall waive notice of the
meeting in writing. No notice of any adjourned meeting of stockholders need be
given.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the corporation entitled to vote shall be
present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later date,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President, or in his absence, a Chairman chosen by stockholders holding a
majority interest in stock represented at such meeting, shall act as Chairman.
The Secretary of the corporation shall act as Secretary at all meetings of the
stockholders, or in his absence, the Chairman of the meeting may appoint any
person to act as Secretary.
<PAGE> 2
Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name of the books of the corporation at the time of such meeting, unless
otherwise provided by the Articles of Incorporation or these By-Laws. The vote
on stock of the corporation may be given by the stockholders entitled thereto,
in person or by his proxy appointed by an instrument in writing, subscribed by
such stockholder and delivered to the Secretary of the meeting. And at all
meetings of the stockholders all questions shall be decided by a vote of the
majority in interest of the stockholders of the corporation present in person or
by proxy and entitled to vote, a quorum being present, unless otherwise
specifically provided by law. In all voting for the Management Committee, the
voting shall be by ballot signed by the stockholders or their proxy, unless such
voting shall be waived by unanimous consent of those present.
ARTICLE II
MANAGEMENT COMMITTEE
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Management Committee which shall perform for
all purposes the function and with the powers of a Board of Directors.
Sec. 2 - Number, term of office, qualifications - The number of Members
shall be five (5). The Members shall be elected annually and shall continue to
hold office until their successors are respectively elected and qualified, or
until resignation or removal in the manner hereinafter provided. In case of an
increase in the number of Members, the additional Members shall serve until the
first annual meeting of the stockholders held after such increase.
Sec. 3 - Election of Members - At all meetings of the stockholders for
the election of the Management Committee, at which a quorum is present, the
persons receiving the greatest number of votes shall be the elected Members.
Sec. 4 - Organization - At all meetings of the Management Committee,
the President shall preside, or in his absence, a Chairman chosen by a majority
of the Members present, shall preside. The Secretary of the corporation shall
act as Secretary of the Management Committee. In the absence of the Secretary,
the Chairman may appoint any person to act as Secretary of the meeting.
Sec. 5 - Resignations - Any Management Committee Member of the
corporation may resign at any time by giving written notice to the President or
to the Secretary of the corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
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Sec. 6 - Vacancies - Any vacancy in the Management Committee because of
death, resignation, disqualification, or other cause, may be filled only by the
stockholders at a special meeting thereof held for that purpose or at any
regular meeting.
Sec. 7 - Place of Meetings, etc. - The Management Committee may hold
its meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of Tennessee as
the Committee may from time to time determine. In case the original stock and
transfer books of the corporation are kept without said State, a duplicate of
each thereof shall be kept at the principal office in this State.
Sec. 8 - Officers - The Management Committee shall have power to elect
or appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Management
Committee may be held without notice at such places and times as shall be
determined from time to time by resolution of the Management Committee.
Sec. 10 - Special Meetings - Special meetings of the Management
Committee may be called by the President or by the Secretary, upon the written
request of any two Committee Members, upon two (2) days notice thereof to each
Member.
Sec. 11 - Quorum and Manner of Acting - A majority of the Members in
office at the time of any regular or special meeting of the Management Committee
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business at such meeting, and, except matters the manner of
deciding which is expressly regulated by statute, the act of a majority of the
Members present at any such meeting, at which a quorum is present, shall be the
act of the Management Committee. In the absence of a quorum, a majority of the
Members present may adjourn the meeting from time to time until a quorum is had.
Notice of an adjourned meeting need not be given. The Committee Members shall
act only as a Committee and the individual Members shall have no powers as such.
Sec. 12 - Removal of Committee Members - Any Member at any time may be
removed from office, with or without cause, by the affirmative vote of a
majority in interest of the stockholders of record of the corporation entitled
to vote, given at a special meeting of the stockholders called for the purpose.
And the vacancy in the Management Committee caused by any such removal may be
filled by the stockholders at such meeting.
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ARTICLE III
OFFICERS
Sec. 1 - The officers of the corporation shall be a President, an
Executive Vice-President and Chief Operating Officer, a Vice-President of
Finance, a Vice-President of Operations, a Vice-President of Sales, and a
Vice-President and General Counsel, a Secretary and a Treasurer. The same person
may be elected to fill more than one of said offices at the same time, except
the same person may not be President and Secretary. The Management Committee may
from time to time elect such additional Vice-Presidents and such Assistant
Secretaries or Assistant Treasurers as they may choose, and such officers shall
have such powers as the Management Committee may from time to time delegate to
them.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Management Committee annually at the first meeting of the Committee after
the annual election. They shall hold office, unless sooner removed by the
Management Committee, until the election or appointment of their successors.
Sec. 3 - President - The President shall, when present, preside at all
meetings of the Management Committee, and act as temporary Chairman at and call
to order all meetings of the stockholders; he shall have power to call special
meetings of the stockholders and Management Committee for any purpose or
purposes; appoint and discharge, subject to the approval of the Management
Committee, employees and agents of the corporation and fix their compensation;
and together with the Secretary, make and sign contracts and agreements in the
name and on behalf of the corporation; and while the Management Committee is not
in session he shall have the general management and control of the business and
affairs of the corporation; and he shall generally do and perform all acts
incident to the office of President, or which are authorized or required by law.
Sec. 4 - Vice-Presidents:
A) Executive Vice-President and Chief Operating Officer shall be
vested with the primary responsibility for day to day oversight of
all of the coal operations and sales, and preside at meetings in
the absence of the President.
B) Vice-President of Finance shall be primarily responsible for the
preparation of the budget and oversight of the financial
operations of the company.
C) Vice-President of Operations shall be primarily responsible for
acquisition and oversight of all of the mining operations of the
company, the acquisition and operation of loading and
transportation facilities, and the determination of qualities of
coal purchased and sold by the companies.
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<PAGE> 5
D) Vice-President of Sales shall be primarily responsible for coal
sales, both domestic and international.
E) Vice-President and General Counsel shall be primarily responsible
for providing legal counsel and advice to the Committee Members
and Officers of the company and of its subsidiaries; to provide or
arrange for representation in litigation, arbitrations, or
administrative procedures involving the company affairs or the
affairs of its subsidiaries and to coordinate the efforts of
outside counsel on the company's behalf; to advise with the
Management Committee on settlement or the disposition of adversary
proceedings involving the company or its subsidiaries. He shall be
a non-voting ex officio member of the Management Committee.
Sec. 5 - Secretary - The Secretary shall give or cause to be given
notice of all meetings of the stockholders and Management Committee, and all
other notices required to be given by law or these By-Laws, and in case of his
absence, refusal or neglect so to do, any such notice may be given by any person
directed to do so by the President or by the Management Committee or
stockholders, upon whose request the meeting is called, as provided in these
By-Laws. He shall record all the proceedings of the meetings of the corporation
and of the Management Committee in a book to be kept for that purpose, and shall
perform such other duties as may be assigned to him by the Management Committee
or the President. He shall have the custody of the seal of the corporation, if
any, and shall affix the same to all instruments requiring it, when authorized
by the Management Committee or the President, and attest the same, and he shall,
unless otherwise determined by the Management Committee, have charge of the
original stock books and stock ledger, and act as transfer agent in respect of
the stock and securities of the corporation, and he shall perform all other
duties incident to the office of a Secretary.
Sec. 6 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidences of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Management Committee; he shall
receive and give or cause to be given receipts and acquittances for money paid
in on account of the corporation and shall pay out of the funds on hand all just
debts of the corporation, of whatever nature, upon the maturity of same, except
as otherwise provided by the Management Committee; he shall enter or cause to be
entered in the books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the corporation, and
whenever required by the President or the Management Committee, he shall render
a statement of his cash account and such other statements as the Management
Committee or President may from time to time direct. The Treasurer shall keep,
or cause to be kept, such other books as will show a true record of the
expenses, gains, losses, assets and liabilities of the corporation, and he
shall, if required, give the corporation a bond for the faithful discharge of
his duties, in such amount and with such surety as the Management Committee
shall prescribe.
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ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Sec. 1 - Contracts - The President or the Executive Vice-President and
Chief Operating Officer shall have the power to sign all contracts for which
provision has been made in the budget for the year. The Management Committee may
authorize any other officer or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the corporation, and such authority may be general or confined to specific
instances.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Management Committee.
Sec. 3 - -Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the President may select, unless a depository
or depositories be specifically designated by the Management Committee.
ARTICLE V
CAPITAL STOCK
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, or Vice-President, and the Secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Management Committee may designate, by
whom they shall be cancelled, and new certificate shall thereupon be issued. A
record shall be made of each transfer. The Management Committee may close the
transfer book for not exceeding twenty (20) days next preceding the day
appointed for the payment of any dividend.
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ARTICLE VI
SEAL
The Management Committee may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A Tennessee Corporation", but until the Management Committee adopts such a
seal, the corporation may operate without a corporate seal.
ARTICLE VII
AMENDMENTS
The stockholders, by the affirmative vote of the holders of a majority
of the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of the same.
ARTICLE VIII
WAIVER OF NOTICE
Whenever notice is required to be given to stockholders or the
Management Committee, and such notice may legally be waived, a waiver thereof,
signed by the stockholders or Management Committee as the case may be, shall
have the same force and effect as though notice had been duly given.
ARTICLE IX
PROVISION RELATING TO COMPENSATION OF OFFICERS
Any payments made to an officer of the corporation, such as salary,
commission, expense reimbursement, or otherwise, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Management Committee, proportionate amounts may be withheld from his
future compensation until the amount owed to the corporation shall have been
recovered. Upon his election, each officer shall be notified of this By-Law
provision.
ARTICLE X
The Management Committee is authorized to act without meeting, upon
written consent, as provided in Section 48-18-202, Tennessee Code Annotated,
when and as the Management Committee deems necessary.
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Exhibit 3.5
FORM OF RESTATED CHARTER OF PEN COTTON COMPANY, AS AMENDED
The undersigned Corporation hereby amends and restates its Charter
pursuant to Tennessee Code Annotated 48-20-107 and states as follows:
1) The name of the Corporation is Pen Cotton Company.
2) The number of shares the Corporation is authorized to issue is
100 shares.
3) The street address and zip code of the Corporation's registered
office, the county in which the office is located, and the name
of its registered agent at that office is Mark A. Oldham, 5110
Maryland Way, Suite 300, Brentwood, Tennessee 37027, County of
Williamson.
4) The address of the principal office of the Corporation is 5110
Maryland Way, Suite 300, Brentwood, Tennessee 37027.
5) There shall be issued only one class of shares, all of which
shall have unlimited voting rights and which shall be entitled to
receive the net assets of the Corporation upon dissolution.
6) The Corporation is for profit.
7) The purpose or purposes for which the Corporation is organized
are: to carry on a general trade, domestically and abroad, in
cotton and other agricultural commodities; to own, or otherwise
acquire, and to operate cotton gins and warehouses and to provide
other agricultural services; to manufacture, buy and sell
agricultural tools and equipment and to carry on a general
business in agricultural.
8) Other Provisions:
a. The shareholders in this Corporation shall have preemptive
rights with respect to the issuance of stock unless such
right is waived in writing.
b. The right to fill vacancies in the Board of Directors is
reserved to the shareholders.
c. The right to amend the Charter or the Corporate By-Laws is
reserved to the shareholders.
9) To the fullest extent permitted by the Tennessee Business
Corporation Act, a Director of the Company shall not be liable to
the company or its shareholders for monetary damages for breach
of fiduciary duty as a Director. If the Tennessee Business
Corporation Act is amended after approval by the shareholders of
this provision to authorize corporate
<PAGE> 2
action, further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the company shall
be eliminated or limited to the fullest extent permitted by the
Tennessee Business Corporation Act as so amended from time to
time.
10) The corporation shall, to the maximum extent permitted by the
Tennessee Business Corporation Act, have power to indemnify each
of its Agents against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with
any proceeding arising by reason of the fact that any such person
is or was an agent of the corporation and shall have power to
advance to each such agent expenses incurred in defending any
such proceeding to the maximum extent permitted by that law. For
the purposes of this section and "Agent" of the corporation
includes any person who is or was a Director, Officer, Employee
or other Agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, Officer, Employee or
Agent of another corporation, partnership, joint venture, trust
or other enterprise, or was a Director, Officer, Employee or
Agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise serving at the request of
such predecessor corporation.
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Exhibit 3.6
BY-LAWS OF PEN COTTON COMPANY
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1 - The annual meeting of stockholders of the corporation for the
election of Management Committee Members and for the transaction of such other
business as may properly come before the meeting shall be held on the ______
Monday in ______ of each year, if not a legal holiday, and if a legal holiday,
on the next following secular day, and if the election is not held at the annual
meeting, then the Management Committee shall call a special meeting for that
purpose as soon thereafter as conveniently may be.
Sec. 2 - Special Meetings - Special meetings of the stockholders may be
called at any time by the President or by a majority of the Management
Committee, or by stockholders holding together not less than one-tenth of the
outstanding capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Meetings of the stockholders may be held within or without the
State of Tennessee at such place as the Management Committee may from time to
time determine, and until otherwise determined, shall be held in the offices of
the Company.
Sec. 4 - Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
of record of the corporation entitled to vote at such meeting, at least ten (10)
days before the date on which the meeting is to be held, by personal service of
such notice or by mailing such notice by United States Mail, postage prepaid,
addressed to him at his last known post office address. No publication of notice
of such meeting shall be required, and no notice of any meeting of stockholders
shall be required to be given to any stockholder who shall attend such meeting
in person or by proxy, or if any such stockholder shall waive notice of the
meeting in writing. No notice of any adjourned meeting of stockholders need be
given.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the corporation entitled to vote shall be
present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later date,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President, or in his absence, a Chairman chosen by stockholders holding a
majority interest in stock represented at such meeting, shall act as Chairman.
The Secretary of the corporation shall act as Secretary at all meetings of the
stockholders, or in his absence, the Chairman of the meeting may appoint any
person to act as Secretary.
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Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name of the books of the corporation at the time of such meeting, unless
otherwise provided by the articles of Incorporation or these By-Laws. The vote
on stock of the corporation may be given by the stockholders entitled thereto,
in person or by his proxy appointed by an instrument in writing, subscribed by
such stockholder and delivered to the Secretary of the meeting. And at all
meetings of the stockholders all questions shall be decided by a vote of the
majority in interest of the stockholders of the corporation present in person or
by proxy and entitled to vote, a quorum being present, unless otherwise
specifically provided by law. In all voting for the Management Committee, the
voting shall be by ballot signed by the stockholders or their proxy, unless such
voting shall be waived by unanimous consent of those present.
ARTICLE II
MANAGEMENT COMMITTEE
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Management Committee which shall perform for
all purposes the functions and with the powers of a Board of Directors.
Sec. 2 - Number, term of office, qualifications - The number of voting
Members shall be four (4). The Members shall be elected annually and shall
continue to hold office until their successors are respectively elected and
qualified, or until resignation or removal in the manner hereinafter provided.
Sec. 3 - Election of Members - At all meetings of the stockholders for
the election of the Management Committee, at which a quorum is present, the
persons receiving the greatest number of votes shall be the elected Members.
Sec. 4 - Organization - At all meetings of the Management Committee,
the President shall preside, or in his absence, a Chairman chosen by a majority
of the Members present, shall preside. The Secretary of the corporation shall
act as Secretary of the Management Committee. In the absence of the Secretary,
the Chairman may appoint any person to act as Secretary of the meeting.
Sec. 5 - Resignations - Any Management Committee Member of the
corporation may resign at any time by giving written notice to the President or
to the Secretary of the corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Sec. 6 - Vacancies - Any vacancy in the Management Committee because of
death, resignation, disqualification, or other cause, may be filled only by the
stockholders at a special meeting thereof held for that purpose or at any
regular meeting.
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Sec. 7 - Place of Meetings, etc. - The Management Committee may hold
its meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of Tennessee as
the Committee may from time to time determine. In case the original stock and
transfer books of the corporation are kept without said State, a duplicate of
each thereof shall be kept at the principal office in this State.
Sec. 8 - Officers - The Management Committee shall have power to elect
or appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Management
Committee may be held without notice at such places and times as shall be
determined from time to time by resolution of the Management Committee.
Sec. 10 - Special Meetings - Special meetings of the Committee may be
called by the President or by the Secretary, upon the written request of any two
Committee Members, upon two (2) days notice thereof to each Member.
Sec. 11 - Quorum and Manner of Acting - A majority of the Members in
office at the time of any regular or special meeting of the Management Committee
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business at such meeting, and, except matters the manner of
deciding which is expressly regulated by statute, the act of a majority of the
Members present at any such meeting, at which a quorum is present, shall be the
act of the Management Committee. In the absence of a quorum, a majority of the
Members present may adjourn the meeting from time to time until a quorum is had.
Notice of an adjourned meeting need not be given. The Committee Members shall
act only as a Committee and the individual Members shall have no powers as such.
Sec. 12 - Removal of Committee Members - Any Member at any time may be
removed from office, with or without cause, by the affirmative vote of a
majority in interest of the stockholders of record of the corporation entitled
to vote, given at a special meeting of the stockholders called for the purpose.
And the vacancy in the Management Committee caused by any such removal may be
filled by the stockholders at such meeting.
ARTICLE III
OFFICERS
Sec. 1 - The officers of the corporation shall be a President, an
Executive Vice-President and Chief Operating Officer, an Executive
Vice-President of Finance, a Vice-President and General Counsel, a Secretary,
and a Treasurer. The same person may be elected to fill more than one of said
offices at the same time, except the same person may not be President and
Secretary. The Directors may from time to time elect such
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additional Vice-Presidents and such Assistant Secretaries or Assistant
Treasurers as they may choose, and such officers shall have such powers as the
Directors may from time to time delegate to them.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Management Committee annually at the first meeting of the Committee after
the annual election. They shall hold office, unless sooner removed by the
Management Committee, until the election or appointment of their successors.
Sec. 3 - President - The President shall, when present, preside at all
meetings of the Management Committee, and act as temporary Chairman at and call
to order all meetings of the stockholders; he shall have power to call special
meetings of the stockholders and Management Committee for any purpose or
purposes; appoint and discharge, subject to the approval of the Management
Committee, employees and agents of the corporation and fix their compensation;
and together with the Secretary, make and sign contracts and agreements in the
name and on behalf of the corporation; and while the Management Committee is not
in session he shall have the general management and control of the business and
affairs of the corporation; and he shall generally do and perform all acts
incident to the office of President, or which are authorized or required by law.
Sec. 4 - Vice-Presidents:
A) Executive Vice-President and Chief Operating Officer shall be
vested with the primary responsibility for day to day oversight of
all operations and sales, and preside at meetings in the absence
of the President.
B) Executive Vice-President of Finance shall be primarily responsible
for preparation of the budget and the oversight of the preparation
of the budgets of the operating subsidiaries together with
oversight and staffing of subsidiary activities.
C) Vice-President and General Counsel shall be primarily responsible
for providing legal counsel and advice to the Management Committee
Members and Officers of the company and of its subsidiaries; to
provide or arrange for representation in litigation, arbitrations,
or administrative procedures involving the company affairs or the
affairs of its subsidiaries and to coordinate the efforts of
outside counsel on the company's behalf; to advise the Management
Committee on settlement or the disposition of adversary
proceedings involving the company or its subsidiaries. He shall be
a non-voting ex officio member of the Management Committee.
Sec. 5 - Secretary - The Secretary shall give or cause to be given
notice of all meetings of stockholders and the Management Committee, and all
other notices required to be given by law or these By-Laws, and in case of his
absence, refusal or neglect so to do, any such notice may be given by any person
directed to do so by the President or by the Management Committee or
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stockholders, upon whose request the meeting is called, as provided in these
By-Laws. He shall record all the proceedings of the meetings of the corporation
and of the Management Committee in a book to be kept for that purpose, and shall
perform such other duties as may be assigned to him by the Management Committee
or the President. He shall have the custody of the seal of the corporation, if
any, and shall affix the same to all instruments requiring it, when authorized
by the Management Committee or the President, and attest the same, and he shall,
unless otherwise determined by the Management Committee, have charge of the
original stock books and stock ledger, and act as transfer agent in respect of
the stock and securities of the corporation, and he shall perform all other
duties incident to the office of a Secretary.
Sec. 6 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidences of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Management Committee; he shall
receive and give or cause to be given receipts and acquittances for money paid
in on account of the corporation and shall pay out of the funds on hand all just
debts of the corporation, of whatever nature, upon the maturity of same, except
as otherwise provided by the Management Committee; he shall enter or cause to be
entered in the books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the corporation, and
whenever required by the President or the Management Committee, he shall render
a statement of his cash account and such other statements as the Management
Committee or President may from time to time direct. The Treasurer shall keep,
or cause to be kept, such other books as will show a true record of the
expenses, gains, losses, assets and liabilities of the corporation, and he
shall, if required, give the corporation a bond for the faithful discharge of
his duties, in such amount and with such surety as the Management Committee
shall prescribe.
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Sec. 1 - Contracts - The President or the following officers when
acting jointly, the Executive Vice-President and Chief Operating Officer and the
Vice-President of Finance, shall have the power to sign contracts for matters
for which provision has been made in the annual budget. The Management Committee
may authorize any other officer or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the corporation, and such authority may be general or confined to specific
instances.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name
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of the corporation shall be signed by such officer or officers, agent or agents
of the corporation, and in such manner as shall from time to time be determined
by resolution of the Management Committee.
Sec. 3 - Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the President may select, unless a depository
or depositories be specifically designated by the Management Committee.
ARTICLE V
CAPITAL STOCK
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, or Vice-President, and the Secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Management Committee may designate, by
whom they shall be cancelled, and new certificate shall thereupon be issued. A
record shall be made of each transfer. The Management Committee may close the
transfer book for not exceeding twenty (20) days next preceding the day
appointed for the payment of any dividend.
ARTICLE VI
SEAL
The Management Committee may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A Tennessee Corporation", but until the Management Committee adopts such a
seal, the corporation may operate without a corporate seal.
ARTICLE VII
AMENDMENTS
The stockholders, by the affirmative vote of the holders of a majority
of
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the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of same.
ARTICLE VIII
WAIVER OF NOTICE
Whenever notice is required to be given to stockholders or the
Management Committee, and such notice may legally be waived, a waiver thereof,
signed by the stockholders or Management Committee as the case may be, shall
have the same force and effect as though notice had been duly given.
ARTICLE IX
PROVISION RELATING TO COMPENSATION OF OFFICERS
Any payments made to an officer of the corporation, such as salary,
commission, expense reimbursement, or otherwise, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Management Committee, proportionate amounts may be withheld from his
future compensation until the amount owed to the corporation shall have been
recovered. Upon his election, each officer shall be notified of this By-Law
provision.
ARTICLE X
The Management Committee is authorized to act without meeting, upon
written consent, as provided in Section 48-18-202, Tennessee Code Annotated,
when and as the Management Committee deems necessary.
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Exhibit 3.7
FORM OF CHARTER OF PEN HARDWOOD COMPANY, AS AMENDED
The undersigned person under the Tennessee Business Corporation Act
adopts the following charter for the above listed corporation:
1. The name of the corporation is Pen Hardwood Company.
2. The number of shares of stock the corporation is authorized to
issue is 100,000 shares.
3. (a). The complete business address of the corporation's initial
registered office in Tennessee is Third Floor, Center Court
Building, 5110 Maryland Way, Brentwood, Tennessee 37027, County
of Williamson.
(b). The name of the initial registered agent, to be located at
the address listed in 3(a), is David G. Gray, Attorney.
4. The name and complete address of the incorporater is Jere P.
Griggs whose address is Third Floor, Center Court Building, 5110
Maryland Way, Brentwood, Tennessee 37027.
5. The complete address of the corporation's principal office is
Third Floor, Center Court Building, 5110 Maryland Way, Brentwood,
Tennessee 37027.
6. The corporation is for profit.
7. (a). The corporation shall issue only one class of shares, to
wit, common voting shares of nominal, no par value.
(b). The shareholders shall have preemptive rights in the event
of issuance of additional shares of stock unless waived in
writing.
(c). The right to fill vacancies in the Board of Directors is
reserved to the shareholders.
(d). The right to amend the Charter or the corporate By-Laws is
reserved to the shareholders.
(e). To the fullest extent permitted by the Tennessee Business
Corporation Act, no director of the company shall be liable to
the company or its shareholders for monetary damages for breach
of fiduciary duty as a director. If the Tennessee Business
Corporation Act is amended after approval by the shareholders of
this provision to authorize corporate action, further eliminating
or limiting the personal liabilities of directors, then the
liability of a
<PAGE> 2
director of the company shall be eliminated or limited to the
fullest extent permitted by the Tennessee Business Corporation
Act as so amended from time to time.
(f). The corporation shall, to the maximum extent permitted by
the Tennessee Corporation Business Act, have power to indemnify
each of its agents against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact that
any such person is or was an agent of the corporation, and shall
have power to advance to each such agent expenses incurred in
defending any such proceeding to the maximum extent permitted by
that law. For the purpose of this subsection an "Agent" of the
corporation, includes any person who is or was a director,
officer, employee or other agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer,
employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise serving
at the request of such predecessor corporation.
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Exhibit 3.8
BYLAWS
OF PEN HARDWOOD COMPANY
ARTICLE I
Meeting of Stockholders
Sec. 1 - The annual meeting of stockholders of the corporation for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held on the ______ Monday in each
______ of each year, if not a legal holiday, and if a legal holiday, on the next
following secular day, and if the election of Directors is not held at the
annual meeting, then the Board of Directors shall call a special meeting for
that purpose as soon thereafter as conveniently may be.
Sec. 2 - Special Meeting - Special meeting of the stockholder may be
called at any time by the President or by a majority of the Board of Directors,
or by stockholders holding together not less than one-tenth of the outstanding
capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Meetings of the stockholder may be held within or without the
State of Tennessee at such place as the Board of Directors may from time to time
determine, and until otherwise determined, shall be held in the offices of the
Company.
Sec. 4 - Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
or record of the corporation entitled to vote at such meeting, at least ten (10)
days before the date on which the meeting is to be held, by personal service of
such notice or by mailing such notice by United States Mail, postage prepaid,
addressed to him at his last known post office address. No publication of notice
of such meeting shall be required, and no notice of any meeting of stockholders
shall be required to be given to any stockholder who shall attend such meeting
in person or by proxy, or if any such stockholder shall waive notice of the
meeting in writing. No notice of any adjourned meeting of stockholders need be
given.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the corporation entitled to vote shall be
present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later day,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President, or in his absence, the Vice-President, or a Chairman chosen by
stockholders holding a majority interest in stock represented at such meeting,
shall act as Chairman. The Secretary of the corporation shall act as Secretary
at all
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meetings of the stockholders, or in his absence, the Chairman of the meeting may
appoint any person to act as Secretary.
Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name on the books of the corporation at the time of such meeting, unless
otherwise provided by the Articles of Incorporation or these By-Laws. The vote
on stock of the corporation may be given by the stockholders entitled thereto,
in person or by his proxy appointed by an Instrument in writing, subscribed by
such stockholder and delivered to the Secretary of the meeting. And at all
meetings of the stockholders all questions shall be decided by a vote of the
majority in interest of the stockholder of the corporation present in person or
by proxy and entitled to vote, a quorum being present, unless otherwise
specifically provided by law. In all voting for Directors, the voting shall be
by ballot signed by the stockholders or their proxy, unless such voting shall be
waived by unanimous consent of those present.
ARTICLE II
Board of Directors
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Board of Directors, which shall be denominated
by the Management Committee.
Sec. 2 - Number, Term of Office, Qualifications - The number of
Management Committee Members shall be three (3), but the number may be increased
to five (5) or seven (7) by a majority vote of the Committee, without amending
these By-Laws. The Management Committee shall be elected annually and shall
continue to hold office until their successors are respectively elected and
qualified or until resignation or removal in the manner hereinafter provided. In
case of an increase in the number of Members, the additional Members shall serve
until the first annual meeting of the stockholders held after such increase.
Where all shares in the corporation are owned by less than three (3)
shareholders, the number of Members may coincide with the number of
shareholders.
Management Committee Members
Sec. 3 - Election of Management Committee Members - At all meetings of
the stockholders for the election of Members, at which a quorum is present, the
persons receiving the greatest number of votes shall be the Members.
Sec. 4 - Organization - At all meetings of the Management Committee,
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the President, or in his absence, the Vice-President, or, in the absence of both
the President and Vice-President, a Chairman chosen by a majority of the Members
present, shall preside. The Secretary of the corporation shall act as Secretary
of the Management Committee. In the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
Sec. 5 - Resignations - Any Member of the Management Committee may
resign at any time by giving written notice to the President or to the Secretary
of the corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Sec. 6 - Vacancies - Any vacancy in the Management Committee because of
death, resignation, disqualification, or other cause, may be filled by the
remaining Members at any regular or special meeting thereof; and any such
vacancy resulting from any cause whatsoever may be filled by the stockholders at
a special meeting thereof held for that purpose.
Sec. 7 - Place of Meetings, etc. - The Management Committee may hold
its meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of Tennessee as
the Committee may from time to time determine. In case the original stock and
transfer books of the corporation are kept without said State, a duplicate of
each thereof shall be kept at the principal office in this State.
Sec. 8 - Officers - The Management Committee shall have power to elect
or appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Management
Committee may be held without notice at such places and times as shall be
determined from time to time by resolution of the Committee.
Sec. 10 - Special Meetings - Special meetings of the Committee may be
called by the President or by the Secretary, upon the written request of any two
Members, upon two (2) days' notice thereof to each Member.
Sec. 11 - Quorum and Manner of Acting - A majority of the Members in
office at the time of any regular or special meeting of the Management Committee
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business at such meeting, and, except matters the manner of
deciding which is expressly regulated by statute, the act of a majority of the
Members present at any such meeting, at which a quorum is present, shall be the
act of the Management Committee. In the absence of quorum, a majority
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of the Members present may adjourn the meeting from time to time until a quorum
is had. Notice of an adjourned meeting need not be given. The Members shall act
only as a Committee and the individual Members shall have no powers as such.
Sec. 12 - Removal of Members - Any Members, at any time, may be removed
from office, with or without cause, by the affirmative vote of a majority in
interest of the stockholders of record of the corporation entitled to vote,
given at a special meeting of the stockholders called for removal may be filled
by the stockholders at such meeting.
ARTICLE III
Officers
Sec. 1 - The officers of the corporation shall be a President, a Vice
President, a Secretary and Treasurer. The same person may be elected to fill
more than one of said offices at the same time, except the same person may not
be President and Secretary. The Management Committee may from time to time elect
such additional Vice Presidents and such Assistant Secretaries or Assistant
Treasurers as they may choose, and such officers shall have such powers as the
Management Committee may from time to time delegate to them.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Management Committee annually at the first meeting of the Board after the
annual election of the Members. They shall hold office, unless sooner removed by
the Management Committee, until the election or appointment of their successors.
Sec. 3 - President - The President of the corporation shall be the
corporation's principal executive officer and shall exercise general supervision
and control of all the business and affairs of the corporation. The President
shall have the following specific powers and duties:
(a) To preside at all meetings of the stockholders at which he is
present.
(b) To have general and active management of the business of the
corporation.
(c) To see that all orders and resolutions of the Management
Committee are carried into effect.
(d) To execute bonds, mortgages, deeds of trust and other contracts.
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(e) To vote the shares of stock of any other corporations that are
held by this corporation or to appoint proxies for such purpose
unless other provisions are made by the Management Committee.
(f) To have general supervision and direction of all the other
officers of the corporation and of the agents and employees
thereof, and to see that their respective duties are properly
performed.
(g) To operate and conduct the business and affairs of the
corporation according to the orders and resolutions of the
Management Committee and according to his own discretion whenever
and wherever it is not expressly limited by such orders and
resolutions.
(h) To report the operations of the corporation to the Management
Committee and to the stockholders.
In addition to the foregoing, the President may sign Certificates of Stock and
shall have such other powers, duties, and authority as may be set forth
elsewhere in these By-Laws and as may be described by the Management Committee
from time to time.
Sec. 4 - Vice Presidents - The Vice Presidents of the corporation
shall be elected by the Management Committee as they deem necessary. Each Vice
President shall have the authority and duties and shall perform the functions
consistent with his department and area of interest specified by the Management
Committee.
Sec. 5 - Secretary - The Secretary shall give or cause to be given
notice of all meetings of stockholders and Members, and all other notices
required to be given by law or these By-Laws, and in case of his absence,
refusal or neglect so to do, any such notice may be given by any person directed
to do so by the President or by the Management Committee or stockholders, upon
whose request the meeting is called, as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the Members
in a book to be kept for that purpose, and shall perform such other duties as
may be assigned to him by the Management Committee or the President. He shall
have the custody of the seal of the corporation, if any, and shall affix the
same to all instruments requiring it, when authorized by the Management
Committee or the President, and attest the same, and he shall, unless otherwise
determined by the Management Committee, have charge of the original stock books
and stock ledger, and act as transfer agent in respect of the stock and
securities of the corporation, and he shall perform all other duties incident to
the office of a Secretary.
Sec. 6 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidence of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Management Committee; he
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shall receive and give, or cause to be given, receipts and acquittances
for money paid in on account of the corporation and shall pay out of
the funds on hand all just debts of the corporation, of whatsoever
nature, upon the maturity of same, except as otherwise provided by the
Management Committee; he shall enter or cause to be entered in the
books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the
corporation, and whenever required by the President or the Management
Committee; he shall render a statement of his cash account and such
other statements as the Treasurer shall keep, or cause to be kept, such
other books as will show a true record of the expenses, gains, losses,
assets and liabilities of the corporation, and he shall, if required,
give the corporation a bond for the faithful discharge of his duties,
in such amount and with such surety as the Board or Management
Committee shall prescribe.
ARTICLE IV
Contracts, Checks, Drafts, Bank Accounts, Etc.
Sec. 1 - Contracts - The President or the Vice President shall have the
power to sign contracts, but the Management Committee may authorize any other
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Management Committee.
Sec. 3 - Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such bank, trust companies
or other depositaries as the President may select, unless a depositary or
depositaries be specifically designated by the Management Committee.
ARTICLE V
Capital Stock
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, or Vice President, and the Secretary of the
corporation, certifying the number of shares owned by him in the corporation.
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Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Management Committee may designate, by
whom they shall be canceled, and a new certificate shall thereupon be issued. A
record shall be made of each transfer. The Management Committee may close the
transfer book for not exceeding twenty (20) days next preceding the day
appointed for the payment of any dividend.
ARTICLE VI
Seal
The Management Committee may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A Tennessee Corporation", but until the Management Committee adopts such a
seal, the corporation may operate without a corporate seal.
ARTICLE VII
Amendments
The stockholders, by the affirmative vote of the holders of majority of
the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of same.
ARTICLE VIII
Waiver of Notice
Whenever notice is required to be given to stockholders or Management
Committee, and such notice may legally be waived, a waiver thereof, signed by
the stockholders or Management Committee, as the case may be, shall have the
same force and effect as though notice had been duly given.
ARTICLE IX
Provision Relation to Compensation of Officers
Any payments made to an officer of the corporation, such as salary,
commission,
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expense reimbursement, or otherwise, which shall be disallowed in whole or in
part as a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Management Committee, proportionate amounts may be withheld from his
future compensation until the amount owed to the corporation shall have been
recovered. Upon his election, each officer shall be notified of this By-Law
provision.
ARTICLE X
The Management Committee is authorized to act without meeting, upon
written consent, as provided in Section 48-1402, Tennessee Code Annotated, when
and as the Board deems necessary.
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Exhibit 3.11
FORM OF WEST VIRGINIA
ARTICLES OF INCORPORATION
OF
RIVER MARINE TERMINALS, INC., AS AMENDED
The undersigned, acting as Incorporator(s) of a corporation under
Chapter 31, Article 1, Section 27 of the West Virginia Code, adopt(s) the
following Articles of Incorporation for such corporation:
1. The undersigned agree to become a West Virginia corporation by
the name of River Marine Terminals, Inc. (The name of the
corporation shall contain one of the words "corporation,"
"company," "incorporated," "limited" or shall contain an
abbreviation of one of such words. (Section 31-1-11, W. Va.
Code).
2. A. The address at the physical location of the principal office
of the corporation will be Highway 52, in the city, town or
village of Cyrus, county of Wayne, State of West Virginia, Zip
Code 25570.
The mailing address of the above location will be the same as 2A.
B. The address at the physical location of the principal place
of business in West Virginia of the corporation will the
same as 2A.
The mailing address of the above location will be the same as 2A.
3. This corporation is organized as stock, for profit, and the
aggregate value of the authorized capital stock of said profit
corporation will be $1,000.00, which shall be divided into 1,000
shares of the par value of without par value dollars each. (If
the shares are to be divided into more than one class or if the
corporation is to issue shares in any preferred or special class
in series, additional statements are required within the articles
of incorporation). (As provided by law, for the purpose of
assessment of the license tax, and for no other purpose, shares
of stock having no par value shall be presumed to be of the par
value of $25 each; but, if such stock was originally issued for a
consideration greater than $25 per share, the annual license
taxes as are required to be paid to the Tax Commissioner shall be
computed upon the basis of the consideration for which such stock
was issued. W. Va. Code Section 11-12-78).
4. The period of duration of the corporation, which may be
perpetual, is perpetual.
<PAGE> 2
5. The purpose(s) for which this corporation is formed (which may be
stated to be, or to include "the transaction of any or all lawful
business for which corporation may be incorporated in West
Virginia), is (are) as follows:
Land Owning
Land Transactions
6. The provisions for the regulation of the Internal affairs of the
corporation, which the incorporators elect to set forth in the
articles of incorporation, are as follows:
N/A
7. The provisions granting, limiting, or denying preemptive rights
to shareholders, if any, are as follows:
N/A
8. The full name(s) and address(es) of the incorporator(s),
including street and street numbers, if any, and the city, town
or village, including the zip code, and the number of shares
subscribed for by each is (are) as follows:
Number of Shares
NAME ADDRESS (Optional)
Kimberly A. Johnson, 1380 One Valley Square, Charleston
Mark A. Carter, 1380 One Valley Square, Charleston
Marilyn S. Baroni, 1380 One Valley Square, Charleston
9. The number of directors constituting the initial board of
directors of the corporation is four (4) and the names and
addresses of the persons who are to serve as director until the
first annual meeting of shareholders/members, or until their
successors are elected and shall qualify, are as follows:
NAME ADDRESS
Eddie Pen, P.O. Box 2128, Brentwood, TN 37027
William Beckner, P.O. Box 2128, Brentwood, TN 37027
Mark Oldham, P.O. Box 2128, Brentwood, TN 37027
Sherrod Rhodes, P.O. Box 2128, Brentwood, TN 37027
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<PAGE> 3
10. The name and address of the appointed person to whom notice of
process may be sent is David S. Gray, 3rd Floor, Center Court
Bldg., 5110 Maryland Way, Brentwood, TN 37024.
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Exhibit 3.12
BY-LAWS OF RIVER MARINE TERMINALS, INC.
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1 - The annual meeting of stockholders of the corporation for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the ______ Monday in ______ of
each year, if not a legal holiday, and if a legal holiday, on the next following
secular day, and if the election of directors is not held at the annual meeting,
then the Board of Directors shall call a special meeting for that purpose as
soon thereafter as conveniently may be.
Sec. 2 - Special Meetings - Special meetings of the stockholders may be
called at any time by the President or by a majority of the Board of Directors,
or by stockholders holding together not less than one-tenth of the outstanding
capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Meetings of the stockholders may be held within or without the
State of West Virginia at such place as the Board of Directors may from time to
time determine, and until otherwise determined, shall be held in the offices of
the Company.
Sec. 4 - Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
of record of the corporation entitled to vote at such meeting, at least ten (10)
days before the date on which the meeting is to be held, by personal service of
such notice or by mailing such notice by United States Mail, postage prepaid,
addressed to him at his last known post office address. No publication of notice
of such meeting shall be required, and no notice of any meeting of stockholders
shall be required to be given to any stockholder who shall attend such meeting
in person or by proxy, or if any such stockholder shall waive notice of the
meeting in writing. No notice of any adjourned meeting of stockholders need be
given.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the corporation entitled to vote shall be
present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later date,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President, or in his absence, a Chairman chosen by stockholders holding a
majority interest in stock represented at such meeting, shall act as Chairman.
The Secretary of the corporation shall act as Secretary at all meetings of the
stockholders, or in his absence, the Chairman of the meeting may appoint any
person to act as Secretary.
<PAGE> 2
Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name of the books of the corporation at the time of such meeting, unless
otherwise provided by the Articles of Incorporation or these By-Laws. The vote
on stock of the corporation may be given by the stockholders entitled thereto,
in person or by his proxy appointed by an instrument in writing, subscribed by
such stockholder and delivered to the Secretary of the meeting. And at all
meetings of the stockholders all questions shall be decided by a vote of the
majority in interest of the stockholders of the corporation present in person or
by proxy and entitled to vote, a quorum being present, unless otherwise
specifically provided by law. In all voting for Directors, the voting shall be
by ballot signed by the stockholders or their proxy, unless such voting shall be
waived by unanimous consent of those present.
ARTICLE II
BOARD OF DIRECTORS
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Board of Directors.
Sec. 2 - Number, term of office, qualifications - The number of
Directors shall be three (3), who need not be stockholders and who need not be
residents of the state of West Virginia. The Directors shall be elected
annually, and shall continue to hold office until their successors are
respectively elected and qualified, or until resignation or removal in the
manner hereinafter provided.
Sec. 3 - Election of Directors - At all meetings of the stockholders
for the election of Directors, at which a quorum is present, the persons
receiving the greatest number of votes shall be the Directors.
Sec. 4 - Organization - At all meetings of the Board of Directors, the
President, or in his absence, a Chairman chosen by a majority of the Directors
present, shall preside. The Secretary of the corporation shall act as Secretary
of the Board of Directors. In the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
Sec. 5 - Resignations - Any Director of the corporation may resign at
any time by giving written notice to the President or to the Secretary of the
corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Sec. 6 - Vacancies - Any vacancy in the Board of Directors because of
death, resignation, disqualification, or other cause, shall be filled only by
the stockholders at any regular or special meeting thereof.
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Sec. 7 - Place of Meetings, etc. - The Board of Directors may hold its
meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of West
Virginia as the board may from time to time determine. In case the original
stock and transfer books of the corporation are kept without said State, a
duplicate of each thereof shall be kept at the principal office in this State.
Sec. 8 - Officers - The Board of Directors shall have power to elect or
appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Directors may be
held without notice at such places and times as shall be determined from time to
time by resolution of the Board, but the Directors shall meet not less regularly
than monthly.
Sec. 10 - Special Meetings - Special meetings of the Board may be
called by the President or by the Secretary, upon the written request of any two
Directors, upon two (2) days notice thereof to each Director.
Sec. 11 - Quorum and Manner of Acting - A majority of the Directors in
office at the time of any regular or special meeting of the Board of Directors
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business at such meeting, and except matters the manner of
deciding which is expressly regulated by statute, the act of a majority of the
Directors present at any such meeting, at which a quorum is present, shall be
the act of the Board of Directors. In the absence of a quorum, a majority of the
Directors present may adjourn the meeting from time to time until a quorum is
had. Notice of an adjourned meeting need not be given. The Directors shall act
only as a Board and the individual Directors shall have no powers as such.
Sec. 12 - Removal of Directors - Any Director at any time may be
removed from office, with or without cause, by the affirmative vote of a
majority in interest of the stockholders of record of the corporation entitled
to vote, given at a special meeting of the stockholders called for the purpose.
And the vacancy in the Board of Directors caused by any such removal may be
filled by the stockholders at such meeting.
ARTICLE III
OFFICERS
Sec. 1 - The officers of the corporation shall be a President, a
Secretary, and a Treasurer. The same person may be elected to fill more than one
of said offices at the same time, except that the same person may not be
President and Secretary. The Stockholder may from time to time create such
offices as Vice-Presidents as they deem
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appropriate, and those offices shall be filled by the Directors from time to
time. The Directors may elect such Assistant Secretaries and Assistant
Treasurers as they may choose.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Board of Directors annually at the first meeting of the Board after the
annual election of the Directors. They shall hold office, unless sooner removed
by the Directors, until the election or appointment of their successors.
Sec. 3 - President - The President shall, when present, preside at all
meetings of the Directors, and act as temporary Chairman at and call to order
all meetings of the stockholders; he shall have power to call special meetings
of the stockholders and Board of Directors for any purpose or purposes; pursuant
to the direction of the Directors he may appoint and discharge employees and
agents of the corporation and fix their compensation; together with the
Secretary, the President may make and sign contracts and agreements for which
provision has been made in the annual budget; and while the Directors are not in
session he shall have the general management and control of the business and
affairs of the corporation; and he shall generally do and perform all acts
incident to the office of President or which are authorized or required by law.
Sec. 4 - Secretary - The Secretary shall give or cause of be given
notice of all meetings of stockholders and Directors, and all other notices
required to be given by law or these By-Laws, and in case of his absence,
refusal or neglect so to do, any such notice may be given by any person directed
to do so by the President or by the Board of Directors or stockholders, upon
whose request the meeting is called, as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
Directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Directors or the President. He shall
have the custody of the seal of the corporation, if any, and shall affix the
same to all instruments requiring it, when authorized by the Directors or the
President, and attest the same, and he shall, unless otherwise determined by the
Directors, have charge of the original stock books and stock ledger, and act as
transfer agent in respect of the stock and securities of the corporation, and he
shall perform all other duties incident to the office of a Secretary.
Sec. 5 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidences of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Board of Directors; he shall
receive and give or cause to be given receipts and acquittances for money paid
in on account of the corporation and shall pay out of the funds on hand all just
debts of the corporation, of whatever nature, upon the maturity of same, except
as otherwise provided by the Board of Directors; he shall enter or cause to be
entered in the books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the corporation, and
whenever required by the President or the Directors, he shall render a statement
of his cash account and such other statements as the Board of Directors or
President may from time to time direct. The Treasurer shall keep, or cause to be
kept,
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such other books as will show a true record of the expenses, gains, losses,
assets and liabilities of the corporation, and he shall, if required, give the
corporation a bond for the faithful discharge of his duties, in such amount and
with such surety as the Board of directors shall prescribe.
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Sec. 1 - Contracts - The President shall have the power with the
Secretary to sign contracts for capital acquisitions or improvements which have
been provided for in the capital budget, but the Board of Directors shall first
have authorized the execution of any contract in the name of and in behalf of
the Corporation, except that authority for the conduct of the day to day affairs
of the Company may be generally authorized at the discretion of the Directors.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Sec. 3 - Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the President may select, unless a depository
or depositories be specifically designated by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, and the Secretary of the corporation,
certifying the number of shares owned by him in the corporation.
Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Directors may designate, by whom they
shall be cancelled, and new certificate shall thereupon be issued. A record
shall be made of each transfer. The Directors may close the transfer book for
not exceeding twenty (20) days next preceding the day appointed for the payment
of any dividend.
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ARTICLE VI
SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A West Virginia Corporation", but until the Board of Directors adopts such a
seal, the corporation may operate without a corporate seal.
ARTICLE VII
AMENDMENTS
The stockholders, by the affirmative vote of the holders of a majority
of the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of same.
ARTICLE VIII
WAIVER OF NOTICE
Whenever notice is required to be given to stockholders or Directors,
and such notice may legally be waived, a waiver thereof, signed by the
stockholders or Directors as the case may be, shall have the same force and
effect as though notice had been duly given.
ARTICLE IX
PROVISION RELATING TO COMPENSATION OF OFFICERS
Any payments made to an officer of the corporation, such as salary,
commission, expense reimbursement, or otherwise, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Directors, proportionate amounts may be withheld from his future
compensation until the amount owed to the corporation shall have been recovered.
Upon his election, each officer shall be notified of this By-Law provision.
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ARTICLE X
The Stockholders and Board of Directors are authorized to act without
meeting, provided all of the Stockholders or Directors, as the case may be,
shall agree in writing to such corporate action being taken, as provided in
Section 31-1-73, West Virginia Code, when and as they deem appropriate.
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Exhibit 3.13
FORM OF ARTICLES OF INCORPORATION
FOR
PEN COTTON COMPANY OF SOUTH CAROLINA, AS AMENDED
1. The name of the proposed corporation is Pen Cotton Company of South
Carolina.
2. The initial registered office of the corporation is 75 Beattie Place, 2
Insignia Financial Plaza, Greenville, South Carolina 29601 and the initial
registered agent at such address is CT Corporation System.
3. The corporation is authorized to issue shares of stock as follows. Complete
a or b whichever is applicable.
a. /X/ The corporation is authorized to issue a single class of shares, and
the total number of shares authorized is 1,000, with no par value.
b. /_/ The corporation is authorized to issue more than one class of shares.
Class of Shares Authorized No. of Each Class
-------------------------------- -----------------------------------
-------------------------------- -----------------------------------
-------------------------------- -----------------------------------
If shares are divided into two or more classes or if any class of shares is
divided into series within a class, the relative rights, preferences, and
limitations of the shares of each class, and of each series within a class,
are as follows: Not Applicable.
4. The existence of the corporation shall begin as of the filing date with the
Secretary of State unless otherwise indicated (See Section
33-1-230(b))__________
5. The optional provisions which the corporation elects to include in the
articles of incorporation are as follows (see Section 330-2-102 and the
applicable comments thereto; and Sections 35-2-105 and 35-2-221 of the 1976
South Carolina Code, as amended): None
6. The name and address of each incorporator is as follows (only one is
required):
Name Address Signature
Jere P. Griggs Center Court Building, 3rd Flr.
5110 Maryland Way
Brentwood, Tennessee 37027
<PAGE> 2
7. I, Frank W. Cureton, an attorney licensed to practice in the State of South
Carolina, certify that the corporation, to whose articles of incorporation
this certificate is attached, has complied with the requirements of Chapter
2, Title 33 of the 1976 South Carolina Code relating to the articles of
incorporation.
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<PAGE> 1
Exhibit 3.14
BY-LAWS OF PEN COTTON COMPANY OF SOUTH CAROLINA
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1 - Annual Meeting - The initial annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on May _____,
1993. Thereafter, the annual meeting of stockholders shall be held on the ______
Monday in May of each year, if not a legal holiday, and if a legal holiday, on
the next following secular day, and if the election is not held at the annual
meeting, then the Board of Directors shall call a special meeting for that
purpose as soon thereafter as conveniently may be.
Sec. 2 - Special Meetings - Special meetings of the stockholders may be
called at any time by the President or by a majority of the Board of Directors,
or by stockholders holding together not less than one-tenth of the outstanding
capital stock of the corporation entitled to vote at such meeting.
Sec. 3 - Place of Meeting - Meetings of the stockholders may be held
within or without the State of South Carolina at such place as the Board of
Directors may from time to time determine.
Sec. 4 - Notice - Except as otherwise provided by law, notice of each
meeting of the stockholders, whether annual or special, shall be given to each
stockholder of record of the corporation entitled to vote at such meeting, at
least ten (10) days before the date on which the meeting is to be held, by
personal service of such notice or by mailing such notice by United States Mail,
postage prepaid, addressed to him at his last known post office address. No
publication of notice of such meeting shall be required, and no notice of any
meeting of stockholders shall be required to be given to any stockholder who
shall attend such meeting in person or by proxy, or if any such stockholder
shall waive notice of the meeting in writing. No notice of any adjourned meeting
of stockholders need be given if the date, time and place of the adjourned
meeting are announced at the meeting before adjournment.
Sec. 5 - Quorum - At all meetings of the stockholders of the
corporation, a majority in interest of the stockholders entitled to vote shall
be present in person or by proxy to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of those present in
person or by proxy entitled to vote may adjourn the meeting to any later date,
and at such adjourned meeting, at which a quorum may be present, any business
may be transacted as might have been transacted at the meeting as originally
called.
Sec. 6 - Organization - At all meetings of the stockholders, the
President or, in his absence, a Chairman chosen by stockholders holding a
majority interest in stock represented at such meeting, shall act as Chairman.
The Secretary of the corporation shall act as Secretary at all meetings of the
stockholders or, in his absence, the Chairman of the meeting may appoint any
person to act as Secretary.
<PAGE> 2
Sec. 7 - Voting - At each meeting of the stockholders, every
stockholder of the corporation shall be entitled to one vote for each share of
the capital stock of the corporation held by him and registered in his or her
name on the books of the corporation at the time of such meeting, unless
otherwise provided by the Articles of Incorporation or these By-Laws. A
stockholder may vote his shares in person or by a proxy appointed by an
instrument in writing, subscribed by such stockholder and delivered to the
Secretary of the meeting. And at all meetings of the stockholders, all questions
shall be decided by a vote of the majority in interest of the stockholders of
the corporation present in person or by proxy and entitled to vote, a quorum
being present, unless otherwise specifically provided by law. In all voting for
the Board of Directors, the voting shall be by ballot signed by the stockholders
or their proxy, unless such voting shall be waived by unanimous consent of those
present.
Sec. 8 - Action Without Meeting - Any action required or permitted to
be taken at a stockholders' meeting may be taken without a meeting if the action
is taken by all the stockholders entitled to vote on such action, and the action
is evidenced by over more written consents describing the action taken, signed
by the stockholders entitled to vote on such action and delivered to the
corporation for inclusion in the corporate records.
ARTICLE II
BOARD OF DIRECTORS
Sec. 1 - General Powers - The property, affairs and business of the
corporation shall be managed by a Board of Directors.
Sec. 2 - Number, term of office, qualifications - The number of
directors shall be three (3). The directors shall be elected annually and shall
continue to hold office until their successors are respectively elected and
qualified, or until resignation or removal in the manner hereinafter provided.
Sec. 3 - Election of Members - At all meetings of the stockholders for
the election of the Board of Directors, at which a quorum is present, the
persons receiving the greatest number of votes shall be the elected directors.
Sec. 4 - Organization - At all meetings of the Board of Directors, the
President or in his absence, a Chairman chosen by a majority of the directors
present, shall preside. The Secretary of the corporation shall act as Secretary
of the Board of Directors. In the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
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Sec. 5 - Resignations - Any director may resign at any time by giving
written notice to the President or to the Secretary of the corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Sec. 6 - Vacancies - Any vacancy in the Board of Directors because of
death, resignation, disqualification, or other cause, may be filled only by the
stockholders at a special meeting thereof held for that purpose or at any
regular meeting.
Sec. 7 - Place of Meetings, etc. - The Board of Directors may hold its
meetings, have one or more offices, and keep books and records of the
corporation, at such place or places within or without the State of South
Carolina as the Board of Directors may from time to time determine. In case the
original stock and transfer books of the corporation are kept without said
State, a duplicate of each thereof shall be kept at the principal office in this
State.
Sec. 8 - Officers - The Board of Directors shall have power to elect or
appoint all necessary officers and committees, to employ agents, to prescribe
their duties, to remove any officer or employee, and generally to control all
the officers of the corporation.
Sec. 9 - Regular Meetings - Regular meetings of the Board of Directors
may be held without notice at such places and times as shall be determined from
time to time by resolution of the Board of Directors.
Section 10 - Special Meetings - Special meetings of the Board of
Directors may be called by the President or by the Secretary, upon the written
request of any two directors, upon two (2) days notice thereof to each director.
Sec. 11 - Quorum and Manner of Acting - A majority of the directors in
office at the time of any regular or special meeting of the Management Committee
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business at such meeting, and, except for matters the manner
of deciding which is expressly regulated by statute, the act of a majority of
the directors present at any such meeting, at which a quorum is present, shall
be the act of the Board of Directors. In the absence of a quorum, a majority of
the directors present may adjourn the meeting from time to time until a quorum
is had. Notice of an adjourned meeting need not be given. The Board of Directors
shall act only as a Board and the individual directors shall have no powers as
such.
Sec. 12 - Removal of Directors - Any director at any time may be
removed from office, with or without cause, by the affirmative vote of a
majority in interest of the stockholders of record of the corporation entitled
to vote, given at a
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special meeting of the stockholders called for the purpose. And the vacancy in
the Board of Directors caused by any such removal may be filled by the
stockholders at such meeting.
Sec. 13 - Action Without Meeting - Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if the action is assented to by all of the directors.
ARTICLE III
OFFICERS
Sec. 1 - The officers of the corporation shall be a President and Chief
Executive Officer, and Executive Vice-President and Chief Operating Officer, a
Secretary and a Treasurer. The same person may be elected to fill more than one
of said offices at the same time, except the same person may not be President
and Secretary. The directors may from time to time elect such additional
Vice-Presidents and such Assistant Secretaries or Assistant Treasurers as they
may choose, and such officers shall have such powers as the directors may from
time to time delegate to them.
Sec. 2 - Election and Tenure of Office - The officers shall be elected
by the Board of Directors annually. In the first year, the officers shall be
elected by the initial directors at the organizational meeting, and in
subsequent years, the officers shall be elected at the first meeting of the
Board after the annual election. They shall hold office, unless sooner removed
by the Board of Directors, until the election or appointment of their
successors.
Sec. 3 - President and Chief Executive Officer - The President and
Chief Executive Officer shall, when present, preside at all meetings of the
Board of Directors, and act as temporary chairman at and call to order all
meetings of the stockholders; he shall have power to call special meetings of
the stockholders and Board of Directors for any purpose or purposes; appoint and
discharge, subject to the approval of the Board of Directors, employees and
agents of the corporation and fix their compensation; and together with the
Secretary, make and sign contracts and agreements in the name and on behalf of
the corporation; and while the Board of Directors is not in session he shall
have the general management and control of the business and affairs of the
corporation; and he shall generally do and perform all acts incident to the
office of President or which are authorized or required by law.
Sec. 4 - Executive Vice-President and Chief Operating Officer - The
Executive Vice-President and Chief Operating Officer shall be vested with the
primary responsibility for day to day oversight of all operations and sales, and
preside at meetings in the absence of the President.
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Sec. 5 - Secretary - The Secretary shall give or cause to be given
notice of all meetings of stockholders and the Board of Directors, and all other
notices required to be given by law or these By-Laws, and in case of his
absence, refusal or neglect so to do, any such notice may be given by any person
directed to do so by the President or by the Board of Directors or stockholders,
upon whose request the meeting is called, as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the Board
of Directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Board of Directors or the President. He
shall have the custody of the seal of the corporation, if any, and shall affix
the same to all instruments requiring it, when authorized by the Board of
Directors or the President, and attest the same, and he shall, unless otherwise
determined by the Board of Directors, have charge of the original stock books
and stock ledger, and act as transfer agent in respect of the stock and
securities of the corporation, and he shall perform all other duties incident to
the office of a Secretary.
Sec. 6 - Treasurer - The Treasurer shall have custody of the funds,
securities, evidences of indebtedness and other valuable endorsements of the
corporation, except as otherwise provided by the Board of Directors; he shall
receive and give or cause to be given receipts and acquittances for money paid
in on account of the corporation and shall pay out of the funds on hand all just
debts of the corporation, of whatever nature, upon the maturity of same, except
as otherwise provided by the Board of Directors; he shall enter or cause to be
entered in the books of the corporation kept for that purpose full and accurate
accounts of all monies received and paid out on account of the corporation, and
whenever required by the President or the Board of Directors, he shall render a
statement of his cash account and such other statements as the Board of
Directors or President may from time to time direct. The Treasurer shall keep,
or cause to be kept, such other books as will show a true record of the
expenses, gains, losses, assets and liabilities of the corporation, and he
shall, if required, give the corporation a bond for the faithful discharge of
his duties, in such amount and with such surety as the Board of Directors shall
prescribe.
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Sec. 1 - Contracts - The President shall have the power to sign
contracts for matters for which provision has been made in the annual budget.
The Board of Directors may authorize any other officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
Sec. 2 - Drafts, Checks, Etc. - All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name
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of the corporation shall be signed by such officer or officers, agent or agents
of the corporation, and in such manner as shall from time to time be determined
by resolution of the Board of Directors.
Sec. 3 - Deposits - All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the President may select, unless a depository
or depositories be specifically designated by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Sec. 1 - Issue of Certificates of Stock - Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation, by the President, or Executive Vice-President and Chief
Operating Officer, and the Secretary of the corporation, certifying the number
of shares owned by him in the corporation.
Sec. 2 - Transfer of Shares - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof, in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificate shall thereupon be issued. A
record shall be made of each transfer. The Board of Directors may close the
transfer book for not exceeding twenty (20) days next preceding the day
appointed for the payment of any dividend.
ARTICLE VI
SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall bear the full name of the corporation, and the words,
"A South Carolina Corporation." But until the Board of Directors adopts such a
seal, the corporation may operate without a corporate seal.
ARTICLE VII
AMENDMENTS
The stockholders, by the affirmative vote of the holders of a majority
of
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the stock represented at any meeting at which there is a quorum, may at any
meeting, provided the substance of the proposed amendment shall have been stated
in the notice of meeting, amend or alter any of these By-Laws. A copy of such
amended By-Laws shall be sent to each stockholder within ten (10) days after the
adoption of same.
ARTICLE VIII
WAIVER OF NOTICE
Whenever notice is required to be given to stockholders or the Board of
Directors, and such notice may legally be waived, a waiver thereof, signed by
the stockholder or director, as the case may be, shall have the same force and
effect as though notice had been duly given.
ARTICLE IX
PROVISION RELATING TO COMPENSATION OF OFFICERS
Any payments made to an officer of the corporation, such as salary,
commission, expense reimbursement, or otherwise, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. In lieu of repayment by the officer, subject to the determination
of the Board of Directors, proportionate amounts may be withheld from his future
compensation until the amount owed to the corporation shall have been recovered.
Upon his election, each officer shall be notified of this By-Law provision.
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Exhibit 3.15
ARTICLES OF INCORPORATION
OF
MARINE TERMINALS INCORPORATED
The undersigned natural person of the age of eighteen (18) years or
more for the purpose of forming a corporation under The General and Business
Corporation Law of Missouri adopts the following Articles of Incorporation:
ARTICLE I
The name of the Corporation is Marine Terminals Incorporated.
ARTICLE II
The address, including street and number of the Corporation's initial
registered office in this State is One Mercantile Center, St. Louis, Missouri
63101, and the name of its initial registered agent at such address is DAVID F.
ULMER.
ARTICLE III
The aggregate number of shares which the Corporation shall have
authority to issue shall be thirty thousand (30,000) shares of Common Stock
having a par value of One Dollar ($1.00) each, amounting to a total par value of
Thirty Thousand Dollars ($30,000).
ARTICLE IV
No holder of any share or shares of stock of any kind, series or class
now or hereafter authorized shall be entitled as such as a matter of right to
subscribe for or purchase any stock of any kind, series or class, whether now or
hereafter authorized or outstanding, which may hereafter be issued or sold by
this Corporation, or any securities including, but without limitation,
debentures convertible into stock of any class, and whether issued or sold for
cash, property, services or otherwise.
<PAGE> 2
ARTICLE V
The name and place of residence of the incorporator is DAVID F. ULMER,
248 Lindeman Road, Kirkwood, Missouri 63122.
ARTICLE VI
The number of Directors to constitute the initial Board of Directors
shall be three (3), who need not be shareholders. Thereafter, the number of
Directors to serve on the Board of Directors shall be set by the By-Laws of this
Corporation.
ARTICLE VII
The duration of the Corporation is perpetual.
ARTICLE VIII
The primary purpose of the Corporation is to own real and personal
property, to engage in the business of operating a marine terminal for coal and
other products and to engage in all other legal acts permitted general and
business corporations.
ARTICLE IX
The power to make, alter, amend or repeal the By-Laws of the
Corporation shall be vested in the Board of Directors.
The Board of Directors shall have and exercise such further powers as
are provided it under present or future laws of the State of Missouri.
ARTICLE X
This Corporation shall indemnify those persons, including but not
limited to its directors and officers, as are set forth in the By-Laws of this
Corporation to the full extent such indemnification is provided in said By-Laws.
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Exhibit 3.16
BY-LAWS
OF
MARINE TERMINALS INCORPORATED
ARTICLE I. OFFICES
The principal office of the corporation in the State of Missouri shall
be located at 611 East Marceau, St. Louis, Missouri. The corporation may have
such other offices, either within or without the State of Missouri, as the Board
of Directors may designate or as the business of the corporation may require
from time to time.
The registered office of the corporation required by The General and
Business Corporation Law of Missouri to be maintained in the State of Missouri
may be, but need not be, identical with the principal office in the State of
Missouri, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the third Wednesday in the month of April in each year, beginning
with the year 1977, at the hour of 10:00 o'clock A.M., for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Missouri, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be arranged.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President, by the Board of Directors, or by the holders of not less than
one-fifth of all outstanding shares of the corporation entitled to vote at a
meeting.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Missouri, as the place of meeting
for any annual meeting of the shareholders or for any special meeting of the
shareholders called by the Board of Directors, except that a meeting called
expressly for the purpose of removal of directors shall be held at the
registered office or principal business office of the corporation in the State
of Missouri or in the city or county of the State of Missouri in which the
principal business office of the corporation is located. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or without the State of Missouri, as the place for the
holding of such meeting unless such meeting is called expressly for the purpose
of removal of directors, in which event the place for the holding of such
meeting shall be at the registered office or principal business office of the
corporation in the State of Missouri or in the city or county
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of the State of Missouri in which the principal business office of the
corporation is located. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the registered office of the
corporation in the State of Missouri.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or the persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the records of the corporation, with
postage thereon prepaid. Notice of any annual or special meeting shall be waived
by the attendance of a shareholder at a meeting.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than fifty days and, in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders only the
shareholders who are shareholders of record at the close of business on the
twentieth day preceding the date of the meeting shall be entitled to notice of,
and to vote at the meeting; except that, if prior to the meeting written waivers
of notice of the meeting are signed and delivered to the corporation by all of
the shareholders of record at the time the meeting is convened, only the
shareholders who are shareholders of record at the time the meeting is convened
shall be entitled to vote at the meeting. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof. If the
stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to receive payment of a dividend or
entitled to an allotment of rights or entitled to exercise rights in respect of
a change, conversion or exchange of shares, the date on which the resolution of
the Board of Directors declaring such dividend or rights is adopted shall be the
record date for such determination of shareholders.
Section 6. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the corporation shall produce and keep open
such books at the time
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and place of the meeting for the purpose of inspection by any shareholder during
the whole time of the meeting. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at such meeting.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
The shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Subject to the provisions of Section 12 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of the shareholders.
Section 10. Voting of Shares by Certain Holders.
Shares standing in the name of another corporation may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation may
determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in the
name of a guardian, curator, or trustee may be voted by such fiduciary, either
in person or by proxy, but no guardian, curator, or trustee shall be entitled to
vote shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the corporation, nor those held
by another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
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Section 11. Shareholder Action Without a Meeting. Any action required
to be taken at a meeting of the shareholders, or any action which may be taken
at a meeting of the shareholders, may be taken without a meeting if consents in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Section 12. Cumulative Voting. In all elections for directors each
shareholder entitled to vote shall have the right to cast as many votes in the
aggregate as shall equal the number of voting shares held by him, multiplied by
the number of directors to be elected, and each shareholder may cast the whole
number of votes, either in person or by proxy, for one candidate, or distribute
them among two or more candidates.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The property and business of the corporation
shall be controlled and managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be three. Each director shall hold office until the
next annual meeting of shareholders and until his successor shall have been
elected and qualified. Directors need not be residents of the State of Missouri
nor shareholders of the corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this by-law immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Missouri, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or any two directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Missouri, as the place
for holding any special meeting of the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be given at
least two days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
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Section 6. Quorum. A majority of the full Board of Directors shall
constitute a quorum for the transaction of business, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. Action Without a Meeting. Any action that may be taken at a
meeting of the Board of Directors may be taken without a meeting if consents in
writing, setting forth the action so taken, shall be signed by all of the
directors.
Section 9. Removal. Any director or directors may be removed at a
meeting of the shareholders called expressly for that purpose.
Section 10. Vacancies. In case of the death or resignation of one or
more of the directors, a majority of the surviving or remaining directors may
fill the vacancy or vacancies until the successor or successors are elected at a
shareholders' meeting.
Section 11. Compensation. By resolution of the Board of Directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 12. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
ARTICLE IV. OFFICERS
Section 1. Number. The officers of the corporation shall be a
President, one or more Vice-Presidents (the number thereof to be determined by
the Board of Directors), a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices may be held by the same person, except the offices of
President and Secretary.
Section 2. Election and Term of Office. The officers of the corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the
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shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be arranged.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interest of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. President. The President shall be the principal executive
officer of the corporation and shall in general supervise and control all of the
business and affairs of the corporation. He shall preside at all meetings of the
shareholders and of the Board of Directors. He may sign, with the Secretary or
any other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed. He may vote in person or by proxy
shares in other corporations standing in the name of this corporation. He shall
in general perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 6. The Vice-Presidents. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice-President (or in
the event there be more than one Vice-President, the Vice-Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice-President may sign, with
the Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer,
certificates for shares of the corporation; and shall perform such other duties
as from time to time may be assigned to him by the President or by the Board of
Directors.
Section 7. The Secretary. The Secretary shall (a) keep the minutes of
the proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder
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which shall be furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice-President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 8. The Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and payable to the corporation from
any source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article V of these By-Laws; and
(c) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Section 9. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the
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<PAGE> 8
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary and sealed with the corporate seal or a facsimile thereof. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
ARTICLE VII. FISCAL YEAR.
The fiscal year of the corporation shall begin on the first day of
January and end on the thirty-first day of December in each year.
ARTICLE VIII. DIVIDENDS
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law.
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Section 1. This corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, other then an action by or in the right of this corporation,
by reason of the fact that he is or was a director, officer, employee or agent
of this corporation, or is or was serving at the request of this corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorney's
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable
8
<PAGE> 9
cause to believe his conduct was unlawful. The termination of any action, suit,
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that this conduct was unlawful.
Section 2. This corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of this corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of this corporation, or is or was serving at the
request of this corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including attorneys; fees, actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the court in which
the action or suit was brought determines upon application that, despite the
adjudication of liability and in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnification for such expenses
which the court shall deem proper.
Section 3. To the extent that a director, officer, employee or agent of
this corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 1 and 2 of this Article
IX, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the action, suit, or proceeding.
Section 4. Any indemnification under Sections 1 and 2 of this Article
IX, unless ordered by a court, shall be made by this corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in this Article IX. The
determination shall be made by the board of directors by a majority vote of a
quorum consisting of directors who were not parties to the action, suit or
proceeding, or if such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the stockholders.
Section 5. Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by this corporation in advance of the final
disposition of the action, suit, or proceeding as authorized by the board of
directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by this
corporation as authorized in this Article IX.
9
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Section 6. The indemnification provided by this Article IX shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. This corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
this corporation, or is or was serving at the request of this corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not this corporation would have the power to indemnify him against
such liability under the provisions of this Article IX.
Section 8. For the purpose of this Article IX, references to "this
corporation" include all constituent corporations absorbed in a consolidation or
merger as well as the resulting or surviving corporation so that any person who
is or was a director, officer, employee or agent of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise shall stand in the same position under
the provisions of this section with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
Section 9. The foregoing sections of this Article IX are intended to
provide indemnification to the full extent permitted by, and in accordance with,
section 351.355 RSMo. 1969, as amended effective August 13, 1972 and September
28, 1975, and such further indemnification shall be provided to the full extent
permitted by Missouri law as the same hereafter may be amended.
ARTICLE X. CORPORATE SEAL.
The Board of Directors shall provide a corporate seal in the form
affixed hereto.
ARTICLE XI. WAIVER OF NOTICE.
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these By-Laws or of the
Articles of Incorporation or of The General and Business corporation Law of
Missouri, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
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ARTICLE XII. AMENDMENTS.
These By-Laws may be altered, amended or repealed and new By-Laws
adopted by action of a majority of the directors at any regular or special
meeting of the directors.
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<PAGE> 1
Exhibit 4.1
PENN HOLDINGS, INC.
THE GUARANTORS named herein
and
THE BANK OF NEW YORK, as Trustee
INDENTURE
Dated as of June 8, 1998
$100,000,000
9-7/8% Senior Notes due 2008
<PAGE> 2
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
1 TIA Indenture
2 Section Section
3 ------- -------
<S> <C> <C>
4 310 (a)(1)............................................................... 7.10
5 (a)(2)............................................................... 7.10
6 (a)(3)............................................................... N.A.
7 (a)(4)............................................................... N.A.
8 (b).................................................................. 7.08; 7.10; 11.02
9 (b)(1)............................................................... 7.10
10 (b)(9)............................................................... 7.10
11 (c).................................................................. N.A.
12 311 (a).................................................................. 7.11
13 (b).................................................................. 7.11
14 (c).................................................................. N.A.
15 312 (a).................................................................. 2.05
16 (b).................................................................. 11.03
17 (c).................................................................. 11.03
18 313 (a).................................................................. 7.06
19 (b)(1)............................................................... 7.06
20 (b)(2)............................................................... 7.06
21 (c).................................................................. 11.02
22 (d).................................................................. 7.06
23 314 (a).................................................................. 4.02; 4.04; 11.02
24 (b).................................................................. N.A.
25 (c)(1)............................................................... 11.04; 11.05
26 (c)(2)............................................................... 11.04; 11.05
27 (c)(3)............................................................... N.A.
28 (d).................................................................. N.A.
29 (e).................................................................. 11.05
30 (f).................................................................. N.A.
31 315 (a).................................................................. 7.01; 7.02
32 (b).................................................................. 7.05; 11.02
33 (c).................................................................. 7.01
34 (d).................................................................. 6.05; 7.01; 7.02
35 (e).................................................................. 6.11
36 316 (a) (last sentence).................................................. 11.06
37 (a)(1)(A)............................................................ 7.01; 7.02; 8.02
38 (a)(1)(B)............................................................ 6.04
39 (a)(2)............................................................... 8.02
40 (b).................................................................. 6.08
41 (c).................................................................. 8.04
42 317 (a)(1)............................................................... 6.08
43 (a)(2)............................................................... 6.09
44 (b).................................................................. 7.12
45 318 (a).................................................................. 11.01
</TABLE>
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N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be
deemed to be part of the Indenture
<PAGE> 3
TABLE OF CONTENTS
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ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions...............................................................1
SECTION 1.02. Other Definitions........................................................23
SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................24
SECTION 1.04. Rules of Construction....................................................24
ARTICLE TWO
THE NOTES
SECTION 2.01. Amount of Notes..........................................................25
SECTION 2.02. Form and Dating..........................................................25
SECTION 2.03. Execution and Authentication.............................................26
SECTION 2.04. Registrar and Paying Agent...............................................27
SECTION 2.05. Paying Agent To Hold Money in Trust......................................27
SECTION 2.06. Noteholder Lists.........................................................28
SECTION 2.07. Transfer and Exchange....................................................28
SECTION 2.08. Replacement Notes........................................................29
SECTION 2.09. Outstanding Notes........................................................29
SECTION 2.10. Treasury Notes...........................................................30
SECTION 2.11. Temporary Notes..........................................................30
SECTION 2.12. Cancellation.............................................................30
SECTION 2.13. Defaulted Interest.......................................................30
SECTION 2.14. CUSIP Number.............................................................31
SECTION 2.15. Deposit of Moneys........................................................31
SECTION 2.16. Book-Entry Provisions for Global Notes...................................31
SECTION 2.17. Special Transfer Provisions..............................................33
SECTION 2.18. Computation of Interest..................................................35
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election To Redeem; Notices to Trustee...................................36
SECTION 3.02. Selection by Trustee of Notes To Be Redeemed.............................36
SECTION 3.03. Notice of Redemption.....................................................36
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SECTION 3.04. Effect of Notice of Redemption...........................................37
SECTION 3.05. Deposit of Redemption Price..............................................37
SECTION 3.06. Notes Redeemed in Part...................................................38
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.........................................................38
SECTION 4.02. Reports to Holders.......................................................39
SECTION 4.03. Waiver of Stay, Extension or Usury Laws..................................39
SECTION 4.04. Compliance Certificate...................................................40
SECTION 4.05. Taxes....................................................................40
SECTION 4.06. Limitation on Additional Indebtedness....................................40
SECTION 4.07. Limitation on Restricted Payments........................................41
SECTION 4.08. Limitations on Liens.....................................................43
SECTION 4.09. Limitation on Transactions with Affiliates...............................44
SECTION 4.10. Limitation on Creation of Subsidiaries...................................45
SECTION 4.11. Limitation on Certain Asset Sales........................................45
SECTION 4.12. Limitation on Capital Stock of Restricted Subsidiaries...................46
SECTION 4.13. Limitation on Sale and Lease-Back Transactions...........................47
SECTION 4.14. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries..........................................................47
SECTION 4.15. Payments for Consent.....................................................48
SECTION 4.16. Legal Existence..........................................................48
SECTION 4.17. Change of Control Offer..................................................48
SECTION 4.18. [Intentionally Omitted]..................................................50
SECTION 4.19. Maintenance of Properties; Insurance; Books and Records; Compliance
with Law..............................................................50
SECTION 4.20. Further Assurance to the Trustee.........................................51
SECTION 4.21. Limitation on Conduct of Business........................................51
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitation on Consolidation, Amalgamation, Merger and Sale of Assets....52
SECTION 5.02. Successor Person Substituted.............................................53
</TABLE>
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ARTICLE SIX
DEFAULTS AND REMEDIES
<S> <C> <C>
SECTION 6.01. Events of Default........................................................53
SECTION 6.02. Acceleration.............................................................56
SECTION 6.03. Other Remedies...........................................................57
SECTION 6.04. Waiver of Past Defaults and Events of Default............................57
SECTION 6.05. Control by Majority......................................................58
SECTION 6.06. Limitation on Suits......................................................58
SECTION 6.07. No Personal Liability of Directors, Officers, Employees and
Stockholders..........................................................58
SECTION 6.08. Rights of Holders To Receive Payment.....................................59
SECTION 6.09. Collection Suit by Trustee...............................................59
SECTION 6.10. Trustee May File Proofs of Claim.........................................59
SECTION 6.11. Priorities...............................................................60
SECTION 6.12. Undertaking for Costs....................................................60
SECTION 6.13. Restoration of Rights and Remedies.......................................60
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee........................................................61
SECTION 7.02. Rights of Trustee........................................................62
SECTION 7.03. Individual Rights of Trustee.............................................63
SECTION 7.04. Trustee's Disclaimer.....................................................63
SECTION 7.05. Notice of Defaults.......................................................63
SECTION 7.06. Reports by Trustee to Holders............................................63
SECTION 7.07. Compensation and Indemnity...............................................64
SECTION 7.08. Replacement of Trustee...................................................65
SECTION 7.09. Successor Trustee by Consolidation, Merger, etc..........................66
SECTION 7.10. Eligibility; Disqualification............................................66
SECTION 7.11. Preferential Collection of Claims Against Issuer.........................66
SECTION 7.12. Paying Agents............................................................66
ARTICLE EIGHT
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 8.01. Without Consent of Holders...............................................67
</TABLE>
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<S> <C> <C>
SECTION 8.02. With Consent of Holders..................................................68
SECTION 8.03. Compliance with Trust Indenture Act......................................69
SECTION 8.04. Revocation and Effect of Consents........................................69
SECTION 8.05. Notation on or Exchange of Notes.........................................70
SECTION 8.06. Trustee To Sign Amendments, etc..........................................70
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture...................................................71
SECTION 9.02. Legal Defeasance.........................................................71
SECTION 9.03. Covenant Defeasance......................................................72
SECTION 9.04. Conditions to Defeasance or Covenant Defeasance..........................72
SECTION 9.05. Deposited Money and U.S. Government Obligations To Be Held in Trust;
Other Miscellaneous Provisions........................................74
SECTION 9.06. Reinstatement............................................................75
SECTION 9.07. Moneys Held by Paying Agent..............................................75
SECTION 9.08. Moneys Held by Trustee...................................................75
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Guarantee................................................................76
SECTION 10.02. Execution and Delivery of Guarantee......................................78
SECTION 10.03. Limitation of Guarantee..................................................78
SECTION 10.04. Additional Guarantors....................................................79
SECTION 10.05. Release of Guarantor.....................................................79
SECTION 10.06. Waiver of Subrogation....................................................80
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.............................................80
SECTION 11.02. Notices..................................................................80
SECTION 11.03. Communications by Holders with Other Holders.............................82
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......................82
SECTION 11.05. Statements Required in Certificate and Opinion...........................82
SECTION 11.06. Rules by Trustee and Agents..............................................83
</TABLE>
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<S> <C> <C>
SECTION 11.07. Business Days; Legal Holidays............................................83
SECTION 11.08. Governing Law............................................................83
SECTION 11.09. Submission to Jurisdiction; Waiver of Immunities.........................83
SECTION 11.10. No Adverse Interpretation of Other Agreements............................84
SECTION 11.11. No Recourse Against Others...............................................84
SECTION 11.12. Successors...............................................................84
SECTION 11.13. Multiple Counterparts....................................................84
SECTION 11.14. Table of Contents, Headings, etc.........................................85
SECTION 11.15. Separability.............................................................85
EXHIBITS
Exhibit A. Form of Note............................................................A-1
Exhibit B. Form of Legend for Rule 144A............................................B-1
Exhibit C. Form of Legend and Assignment Language for Regulation S Note............C-1
Exhibit D. Form of Legend for Global Note..........................................D-1
Exhibit E. Form of Certificate to Be Delivered in Connection with Transfers to
Non-QIB Accredited Investors.........................................E-1
Exhibit F. Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S.............................................F-1
Exhibit G. Form of Guarantee.......................................................G-1
</TABLE>
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<PAGE> 8
INDENTURE, dated as of June 8, 1998, among PEN HOLDINGS, INC.
a corporation incorporated under the laws of Tennessee, as issuer (the
"Issuer"), the Guarantors (as hereinafter defined) and THE BANK OF NEW YORK, a
New York banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person
(including an Unrestricted Subsidiary) existing at the time such Person becomes
a Restricted Subsidiary or is merged into or consolidated with the Issuer or a
Restricted Subsidiary or which is assumed in connection with the acquisition of
assets from such Person and, in each case, not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary or such merger, consolidation or acquisition.
"Additional Interest" means additional interest on the Notes
which the Issuer and the Guarantors, jointly and severally, agree to pay to the
Holders pursuant to Section 4 of the Registration Rights Agreement.
"Affiliate" means, with respect to any specific Person, any
other Person (including, without limitation, such Person's issue, siblings and
spouse) that directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person;
provided that for purposes of this Indenture, the term "Affiliate" shall not
include CIBC Oppenheimer Corp. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that, for
purposes of the covenant described under Section 4.09 herein, beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
<PAGE> 9
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"Agent" means any Registrar, Paying Agent, or agent for
service or notices and demands.
"Asset Acquisition" means (a) an Investment by the Issuer or
any Restricted Subsidiary of the Issuer in any other Person pursuant to which
such Person becomes a Restricted Subsidiary of the Issuer, or shall be merged
with or into the Issuer or any Restricted Subsidiary of the Issuer or (b) the
acquisition by the Issuer or any Restricted Subsidiary of the Issuer of the
assets of any Person (other than a Restricted Subsidiary of the Issuer) which
constitute all or substantially all of the assets of such Person or comprise any
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, assignment, transfer, lease or other disposition (including any Sale
and Lease-Back Transaction), other than to the Issuer or any of its Wholly-Owned
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of any Restricted Subsidiary of the Issuer or (b) any other
property or assets of the Issuer or of any Restricted Subsidiary thereof outside
of the ordinary course of business; provided that Asset Sales shall not include
(i) a transaction or series of related transactions for which the Issuer or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million (provided that the Issuer or such Restricted Subsidiary received
consideration equal to the Fair Market Value of any such property or assets so
sold, conveyed, assigned, transferred, leased or otherwise disposed of), (ii)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Issuer as permitted under Section 5.01,
(iii) sales of property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use or no longer useful or productive in
connection with the business of the Issuer or any Restricted Subsidiary, as the
case may be, (iv) the sale of inventory in the ordinary course of business, (v)
any transaction consummated in compliance with Section 4.07 hereof, (vi) the
sale of the Issuer's Big Sandy River Terminal located in Kentucky, and (vii) the
sale of the stock, partnership interests or assets of Pen Cotton Company of
South Carolina, Pen Cotton Company, Pen Cotton Company of Alabama, Inc., Pen
Hardwood Company (including its 78% partnership interest in Camden Hardwood
Company), and Marine Terminals Incorporated (including its one-third partnership
interest in International Marine Terminals).
"Asset Sale Proceeds" means, with respect to any Asset Sale,
cash or Cash Equivalents received by the Issuer or any Restricted Subsidiary of
the Issuer from such Asset Sale, after (a) provision for all income or other
taxes resulting from such Asset Sale, (b) payment of all brokerage commissions
and other fees and expenses, including, without limitation, legal, accounting
and appraisal fees, related to such Asset Sale, (c) provision for minority
interest holders in any Restricted Subsidiary of the Issuer as a result of such
Asset Sale, (d) repayment of Indebtedness that is required to be repaid in
connection with such Asset
<PAGE> 10
-3-
Sale and (e) deduction of appropriate amounts to be provided by the Issuer or a
Restricted Subsidiary of the Issuer as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Issuer or a Restricted Subsidiary after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with the assets sold or disposed of
in such Asset Sale.
"Attributable Indebtedness" in respect of a Sale and
Lease-Back Transaction means, as at the time of determination the present value
(discounted according to GAAP at the cost of indebtedness implied in the Sale
and Lease-Back Transaction) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any
Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not
been applied or that have not been deemed to have been applied in accordance
with clause (iii), and which have not yet been the basis for an Excess Proceeds
Offer in accordance with clause (iii)(c), in each case, of the first paragraph
of Section 4.11.
"Bank Warrants" means the warrants to initially purchase an
aggregate of three hundred twenty-six thousand, seven hundred seventy-two shares
of the common stock of the Issuer issued to the lenders in connection with the
establishment of the Issuer's Existing Credit Facility.
"Board of Directors" with respect to any Person means, (i) at
any time such Person is a limited liability Issuer, the board of directors of
its managing member or, if such managing member is a limited liability Issuer,
the board of directors of such managing member's managing member, and (ii)
otherwise the board of directors of such Person or any committee authorized to
act therefor.
"Board Resolution" means a copy of a resolution certified
pursuant to an Officers' Certificate to have been duly adopted by the Board of
Directors of the Issuer or a Guarantor, as appropriate, and to be in full force
and effect, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, Common Stock and Preferred Stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
<PAGE> 11
-4-
"Capitalized Lease Obligations" means with respect to any
Person, Indebtedness represented by obligations under a lease that is required
to be capitalized for financial reporting purposes in accordance with GAAP, and
the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state, as the case may be, or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state, as the case may be,
thereof or the District of Columbia or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
A "Change of Control" of the Issuer will be deemed to have
occurred at such time as (i) any Person (including a Person's Affiliates), other
than a Permitted Holder, becomes the beneficial owner (as defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange Act) of
50% or more of the total voting power of the Issuer or otherwise becomes able to
exercise the right to give directions with respect to the operating and
financial policies of the Issuer or (ii) there shall be consummated any
consolidation or merger of the Issuer in which the Issuer is not the continuing
or surviving corporation or pursuant to which the Common Stock of the Issuer
would be converted into cash, securities or other property, other than a merger
or consolidation of the Issuer in which the holders of the Common Stock of the
Issuer outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger.
"Commission" means the Securities and Exchange Commission.
<PAGE> 12
-5-
"Common Stock" of any Person means all Capital Stock of such
Person that is generally entitled to (i) vote in the election of directors of
such Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to any Person, the ratio of EBITDA of such Person for the four most recent
consecutive fiscal quarters for which financial statements are available (the
"Four Quarter Period") ending on or prior to the date of determination to
Consolidated Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis to (i) the incurrence of any Indebtedness of
such Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation, (ii), any
incurrence of other Indebtedness (and the application of the proceeds thereof),
in each case set forth in clauses (i) and (ii), occurring on or after the first
day of the Four Quarter Period and on or prior to the date of determination, as
if such incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and
(iii) any Asset Sales or Asset Acquisitions (including the increase or decrease,
as the case may be, in the EBITDA directly attributable to such Asset Sale or
Asset Acquisition, as the case may be) occurring on or after the first day of
the Four Quarter Period and on or prior to the date of determination, as if such
Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period.
"Consolidated Fixed Charges" means, with respect to any
Person, for any period, the sum, without duplication, of (i) Consolidated
Interest Expense, plus (ii) the product of (x) the amount of all dividend
payments (to any Person other than the Issuer or a Restricted Subsidiary) on any
series of Disqualified Capital Stock of such Person (other than dividends paid
in Capital Stock (other than Disqualified Capital Stock)) paid, accrued or
scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any
Person, for any period, without duplication, (i) the aggregate amount of
interest charges, whether expensed or capitalized, incurred or accrued by such
Person and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP for such period (including non-cash interest payments),
plus (ii) to the extent not included in clause (i) above, an amount equal to the
sum of: (A) imputed interest included in Capitalized Lease Obligations, (B) all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (C) the net costs associated with
Interest Rate Agreements and other hedging
<PAGE> 13
-6-
obligations, (D) amortization of deferred financing costs and expenses, (E) the
interest portion of any deferred payment obligations, (F) amortization of
discount or premium on Indebtedness, if any, (G) all capitalized interest and
all accrued interest, (H) all non-cash interest expense and (I) all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person minus to the
extent included in clauses (i) or (ii) above, fees and expenses (cash or
non-cash) incurred in connection with the Offering, the termination of the
Existing Credit Facility, including the redemption of the Bank Warrants, and the
establishment of the New Credit Facility). For purposes of calculating
Consolidated Interest Expense on a pro forma basis, the interest on Indebtedness
bearing a floating rate of interest shall be the interest rate in effect at the
time of determination, taking into account on a pro forma basis any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term at the date of determination of at least 12 months.
"Consolidated Net Income" means, with respect to any Person,
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (a) the Net Income of any Person, other than
a Restricted Subsidiary of the referent Person, shall be excluded, except to the
extent of the amount of cash dividends or distributions actually received by the
referent Person, (b) the Net Income of any Restricted Subsidiary of the Person
in question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions (other than pursuant to the Notes
or this Indenture or the New Credit Facility) shall be excluded to the extent of
such restriction or limitation, (c)(i) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (ii) any net gain (but not loss) resulting
from an Asset Sale by the Person in question or any of its Restricted
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary gains and losses and any foreign exchange gains and losses
shall be excluded, (e) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued) shall be
excluded, (f) the cumulative effect of a change in accounting principles after
the Issue Date shall be excluded, (g) any restoration to income or any
contingency reserve of an extraordinary, non-recurring or unusual nature shall
be excluded, except to the extent that provision for such reserve was made out
of Consolidated Net Income accrued at any time subsequent to the Issue Date and
(h) in the case of a successor to the referent Person by consolidation or merger
or as a transferee of the referent Person's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of assets
shall be excluded.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its Restricted Subsidiaries determined
on a consolidated basis in
<PAGE> 14
-7-
accordance with GAAP, less (to the extent included) amounts attributable to
Disqualified Capital Stock of such Person.
"Convertible Preferred Stock" means the convertible preferred
stock of the issuer with a face value of $13,650,000, convertible to common
stock of the Issuer at the holder's option between January 2001 and January
2002. If not earlier converted to common stock of the Issuer, the Convertible
Preferred Stock will be mandatorily redeemable in 2006, along with accrued
dividends thereon, such amounts to be paid in 40 quarterly payments over ten
years at a rate of 2.25% above the rate payable on five-year U.S. Treasury
obligations.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 101 Barclay Street, Floor 21 West, New York, New York 10286, attention:
Corporate Trust Administration.
"Credit Facilities" means the Credit Agreement dated as of
June 8, 1998, among the Issuer, the guarantors named therein, the lenders party
thereto in their capacities as lenders thereunder and Mellon Bank, N.A. and
Canadian Imperial Bank of Commerce, as co-agents, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by Section 4.06 hereof) or adding Subsidiaries of the Issuer as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Issuer or any Restricted Subsidiary of the Issuer against
fluctuations in currency values.
"Default" means any event that is, or with the passing of time
or giving of notice or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the
form of one or more Global Notes, The Depository Trust Issuer or another Person
designated as Depository by the Issuer, which Person must be a clearing agency
registered under the Exchange Act.
"Designation" shall have the meaning set forth in the
definition of "Restricted Payment."
<PAGE> 15
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"Designation Amount" shall have the meaning set forth in the
definition of "Restricted Payment."
"Disqualified Capital Stock" means any Capital Stock of a
Person or a Restricted Subsidiary thereof which, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable at
the option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof (except, in each case, in
accordance with a change of control provision, which provision has substantially
the same effect as the provisions of this Indenture described under Section 4.17
hereof), in whole or in part, or is exchangeable into Indebtedness on or prior
to the final maturity date of the Notes.
"EBITDA" means, with respect to any Person and its Restricted
Subsidiaries, for any period, an amount equal to (a) the sum of (i) Consolidated
Net Income for such period, plus (ii) the provision for taxes for such period
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense for such period, plus (iv) depreciation and depletion for such period on
a consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, plus (vii) charges resulting from fees and expenses
(cash or non-cash) incurred in connection with the Offering of the Notes, the
termination of the Existing Credit Facility, including the redemption of the
Bank Warrants, and the establishment of the New Credit Facility, and charges
resulting from prepayment penalties incurred in connection with the early
retirement of Indebtedness out of the net proceeds from the Offering of the
Notes minus (b) all non-cash items increasing Consolidated Net Income for such
period, minus (c) to the extend not included above, interest income accruing on
restricted cash and Cash Equivalents that the Issuer has deposited in escrow to
fund guarantees of indebtedness of International Marine Terminals, minus (d) all
cash payments during such period relating to non-cash charges that were added
back in determining EBITDA in any prior period, all for such Person and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" has the meaning provided in the Registration
Rights Agreement or, with respect to Notes issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.01, a registration rights
agreement substantially identical to the Registration Rights Agreement.
"Existing Credit Facility" means the Issuer's senior secured
credit facility pursuant to the Credit Agreement, dated as of August 16, 1994,
by and among the Issuer, Pen
<PAGE> 16
-9-
Coal Corporation, River Marine Terminals, Inc., The Elk Horn Coal Corporation,
and Mellon Bank, N.A., as agent and a lender, and the lenders named therein, as
amended.
"Fair Market Value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair Market Value shall be determined by the Board of Directors of
the Issuer acting reasonably and in good faith and, in the case of determination
involving assets or property in excess of $500,000 shall be evidenced by a
resolution of the Board of Directors of the Issuer delivered to the Trustee.
"Foreign Credit Facility" means a working capital facility
available to a Foreign Restricted Subsidiary; provided that the Indebtedness
incurred under such facility is denominated and payable in U.S. or Canadian
dollars or the local currencies of the jurisdictions of the operations of the
Foreign Restricted Subsidiary incurring such Indebtedness.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary
whose jurisdiction of incorporation or formation is other than the United
States, any state thereof or the District of Columbia or Canada or any province
or territory thereof.
"GAAP" means generally accepted accounting principles
consistently applied as in effect in the United States on the Issue Date.
"Guarantee" means, as the context may require, individually, a
guarantee, or collectively, any and all guarantees, of the obligations of the
Issuer with respect to the Notes by each Guarantor pursuant to the terms of
Article 10 hereof, substantially in the form set forth in Exhibit G.
"Guarantors" means (i) each Subsidiary of the Issuer existing
on the Issue Date with assets or shareholders' equity in excess of $25,000 on
the Issue Date and (ii) each other Restricted Subsidiary of the Issuer formed,
created or acquired after the Issue Date.
"Holder", "holder" or "Noteholder" means the Person in whose
name a Note is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurable," and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP that
results in
<PAGE> 17
-10-
an obligation of such Person that existed prior to such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to
any Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, and shall also include, to the extent
not otherwise included (i) any Capitalized Lease Obligations of such Person (but
excluding any obligations under operating leases), (ii) obligations of others
secured by a lien to which any property or assets owned or held by such Person
are subject, whether or not the obligation or obligations secured thereby shall
have been assumed, provided that, for the purposes of determining the amount of
Indebtedness described in this clause, if recourse with respect to such
Indebtedness is limited to such asset, the amount of such Indebtedness shall be
limited to the Fair Market Value for such asset, (iii) guarantees of items of
other Persons which would be included within this definition for such other
Persons (whether or not such items would appear upon the balance sheet of the
guarantor), provided that guarantees of indebtedness of International Marine
Terminals shall be included only to the extent that such guarantees exceed the
amount of restricted cash and Cash Equivalents that the Issuer has deposited in
escrow to fund such guarantees, (iv) all obligations for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price (for the purposes hereof "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture), (vi) obligations of any such Person under any
Currency Agreement or any Interest Rate Agreement applicable to any of the
foregoing (if and to the extent such Currency Agreement or Interest Rate
Agreement obligations would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP) and (vii) Attributable Indebtedness.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that (i)
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the accreted value of such Indebtedness at such time as
determined in conformity with GAAP and (ii) Indebtedness shall not
<PAGE> 18
-11-
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Issuer or any
of its Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Indenture" means this Indenture as amended, restated or
supplemented from time to time.
"Independent Financial Advisor" means an investment banking
firm of national reputation in the United States (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Issuer or any of its Affiliates; provided,
that notwithstanding the foregoing, CIBC Oppenheimer Corp. shall be deemed to be
an Independent Financial Advisor and (ii) which, in the judgment of the Board of
Directors of the Issuer, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Purchaser" means CIBC Oppenheimer Corp.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3)
or (7) promulgated under the Securities Act.
"Interest Rate Agreement" means, with respect to any Person,
any interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement or other similar agreement designed to protect the party
indicated therein against fluctuations in interest rates.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Notes.
"Investments" means, with respect to any Person, directly or
indirectly, any advance, account receivable (other than an account receivable
arising in the ordinary course of business of such Person), loan or capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others or otherwise), the
purchase of any Capital Stock, bonds, notes, debentures, partnership or joint
venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person and
(ii) the repurchase of securities of any Person by such Person. For the purposes
of the "Limitation on Restricted Payments" covenant, the amount of any
Investment shall be the original cost of such
<PAGE> 19
-12-
Investment plus the cost of all additional Investments by the Issuer or any of
its Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. In determining the amount of any
Investment involving the transfer of any property or assets other than cash,
such property shall be valued at its Fair Market Value at the time of such
transfer, as determined in good faith by the Board of Directors of the Person
making such transfer.
"Issue Date" means the date the Notes are first issued by the
Issuer and authenticated by the Trustee under this Indenture.
"Issuer" means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Issuer Request" means any written request signed in the name
of the Issuer by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer or the
Treasurer of the Issuer and attested to by the Secretary or any Assistant
Secretary of the Issuer.
"Lien" means, with respect to any property or assets of any
Person, any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same economic
effect as any of the foregoing).
"Material Subsidiary" means, at any date of determination, (a)
any Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Issuer
accounted for more than 5.0% of the consolidated revenues of the Issuer and the
Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned more
than 5.0% of the consolidated assets of the Issuer and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Issuer and the Restricted Subsidiaries for such year prepared in conformity with
GAAP, and (b) any Restricted Subsidiary which, when aggregated with all other
Restricted Subsidiaries that are not otherwise Material Restricted Subsidiaries
and as to which any event described in clause (g) of "Events of Default" above
has occurred, would constitute a Material Restricted Subsidiary under clause (a)
of this definition.
<PAGE> 20
-13-
"Maturity Date" means June 15, 2008.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person, for any
period, the net income (loss) of such Person determined in accordance with GAAP.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.
"Notes" means the 9-7/8% Senior Notes due 2008 issued by the
Issuer, including, without limitation, the Private Exchange Notes, if any, and
the Exchange Notes, treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Offering" means the offering of the Notes as described in the
Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum dated June
3, 1998 pursuant to which the Notes issued on the Issue Date were offered.
"Officer", with respect to any Person (other than the
Trustee), means the Chairman of the Board of Directors, Chief Executive Officer,
the President, any Vice President and the Chief Financial Officer, the Treasurer
or the Secretary of such Person, or any other officer of such Person designated
by the Board of Directors of such Person and set forth in an Officers'
Certificate delivered to the Trustee.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion reasonably
satisfactory in form and substance to the Trustee from legal counsel, which
counsel is reasonably acceptable to the Trustee, stating the matters required by
Section 11.05 and delivered to the Trustee.
"Outsourcing Transaction" means a Sale and Lease-Back
Transaction relating solely to properties purchased by the Issuer or any of its
Restricted Subsidiaries immediately prior to or substantially concurrent with
such Sale and Lease-Back Transaction; provided that the price at which such
properties are sold in such Sale and Lease-Back Transaction is at least equal to
the price at which the Issuer or any of its Restricted Subsidiaries purchased
such properties.
<PAGE> 21
-14-
"Payment Default" means any default, whether or not any
requirement for the giving of notice, the lapse of time or both, or any other
condition to such default becoming an event of default has occurred, in the
payment of principal of (or premium, if any) or interest on or any other amount
payable in connection with Designated Senior Indebtedness.
"Permitted Holders" means William E. Beckner or any Affiliate
of William E. Beckner including any trust established and controlled by William
E. Beckner for the principal benefit of himself or his family members.
"Permitted Indebtedness" means:
(i) Indebtedness, including letters of credit, arising under
or in connection with the Credit Facility in an aggregate principal
amount not to exceed $40.0 million outstanding at any time and less
any mandatory prepayments actually made thereunder (to the extent, in
the case of payments of revolving credit borrowings, that the
corresponding commitments have been permanently reduced) or scheduled
payments actually made thereunder;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness which is outstanding on the Issue Date;
(iv) Indebtedness of the Issuer owed to and held by any
Wholly-Owned Subsidiary which is unsecured and subordinated in right
of payment to the payment and performance of the Issuer's obligations
under this Indenture and the Notes and Indebtedness of any Subsidiary
owed to and held by the Issuer or another Wholly-Owned Subsidiary;
provided that (a) any sale or other disposition of any Indebtedness of
the Issuer or any Restricted Subsidiary referred to in this clause
(iv) to a Person (other than the Issuer or a Wholly-Owned Subsidiary),
(b) any sale or other disposition of Capital Stock of any Restricted
Subsidiary which holds Indebtedness of the Issuer or another
Restricted Subsidiary such that such Restricted Subsidiary ceases to
be a Subsidiary of the Issuer and (c) the Designation of a Restricted
Subsidiary that holds Indebtedness of the Issuer or any other
Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to
be an incurrence of Indebtedness not constituting Permitted
Indebtedness by the Issuer;
(v) Purchase Money Indebtedness and Capitalized Lease
Obligations incurred to acquire, lease, construct or improve property
used in the business or other Indebtedness secured by Liens on
Property constituting Rolling Stock which Purchase Money Indebtedness,
Capitalized Lease Obligations and other Indebtedness referenced above
do not in the aggregate exceed, at any one time outstanding, the sum
of
<PAGE> 22
-15-
$10 million plus the amount of borrowings permitted under clause
(i) hereof minus the amount of outstanding borrowings under clause (i)
hereof;
(vi) Interest Rate Agreements relating to Indebtedness of the
Issuer (which Indebtedness (a) bears interest at fluctuating interest
rates and (b) is otherwise permitted to be incurred under Section 4.06
hereof; provided that (a) such Interest Rate Agreements have been
entered into for bona fide business purposes and not for speculation
and (b) the notional principal amount of such Interest Rate
Agreements, at the time of the incurrence thereof, does not exceed the
principal amount of the Indebtedness to which such Interest Rate
Agreements relate;
(vii) Indebtedness Under Currency Agreements; provided that in
the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the principal amount of
Indebtedness of the Issuer and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities or compensation payable
thereunder;
(viii) Refinancing Indebtedness;
(ix) Indebtedness resulting from the redemption of the
Convertible Preferred Stock and payment of accumulated dividends
thereon, in each case after January 1, 2006 and in accordance with the
Articles of Amendment to the Restated Charter of the Issuer in effect
on the Issue Date; provided, however, that Indebtedness incurred
pursuant to this clause (ix) that could not be incurred pursuant to
the "Limitation on Additional Indebtedness" covenant shall reduce the
aggregate sum of the amounts otherwise available under clauses (i) and
(v) hereof;
(x) Indebtedness incurred in respect of performance, surety,
and similar bonds and the completion guarantees provided by the Issuer
or any Restricted Subsidiary in the ordinary course of business;
(xi) Indebtedness represented by the guarantee by the Issuer
or any of the Guarantors of Indebtedness of the Company or a Guarantor
that was permitted to be incurred under this Indenture;
(xii) additional Indebtedness of the Issuer and its Restricted
Subsidiaries not to exceed $7.0 million at any one time outstanding.
<PAGE> 23
-16-
"Permitted Investments" means Investments made on or
after the Issue Date consisting of
(i) Investments by the Issuer, or by a Restricted Subsidiary
thereof, in the Issuer or a Wholly-Owned Subsidiary;
(ii) Investments by the Issuer, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such
Person becomes a Restricted Subsidiary of the Issuer or (b) such
Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or a Wholly-Owned Subsidiary thereof;
(iii) Investments in Cash Equivalents;
(iv) reasonable and customary loans and advances made to
employees in connection with their relocation not to exceed $1.0
million in the aggregate at any one time outstanding;
(v) an Investment that is made by the Issuer or a Restricted
Subsidiary thereof in the form of any Capital Stock, bonds, notes,
debentures or other securities that are issued by a third party to the
Issuer or such Restricted Subsidiary solely as partial consideration
for the consummation of an Asset Sale that is permitted under Section
4.11 hereof;
(vi) Investments paid for solely in Capital Stock (other than
Disqualified Capital Stock) of the Issuer;
(vii) Interest Rate Agreements and Currency Agreements entered
into in the ordinary course of the Issuer's or its Restricted
Subsidiaries' business;
(viii) Investments in International Marine Terminals (a) to
repay indebtedness to Mellon Bank, N.A. of approximately $7.7 million
due in 2000 and to repay approximately $13.3 million of bonds due 2006
issued by International Marine Terminals, provided, however, that such
Investments shall only be Permitted Investments to the extent they are
derived from Investments that the Issuer had deposited in escrow as of
the Issue Date to fund such obligations of International Marine
Terminals and (b) in accordance with the Issuer's partnership
obligations existing on the Issue Date with respect to International
Marine Terminals;
(ix) Investments in existence on the Issue Date; and
<PAGE> 24
-17-
(x) other Investments that do not exceed $3.0 million in the
aggregate at any one time outstanding.
"Permitted Liens" means (i) Liens on Property or assets of, or
any Capital Stock of, any corporation existing at the time such assets are
acquired by the Issuer or any of its Subsidiaries, whether by merger,
amalgamation, consolidation, purchase of assets or otherwise; provided that such
Liens (x) are not created, incurred or assumed in connection with, or in
contemplation of, such assets being acquired by the Issuer or its Subsidiaries
and (y) that any such Lien does not extend to or cover any property, Capital
Stock or Indebtedness other than the property, assets, Capital Stock or
Indebtedness of such corporation or a Subsidiary of such corporation, (ii) Liens
securing Refinancing Indebtedness; provided that any such Lien does not extend
to or cover any Property, Capital Stock or Indebtedness other than the Property,
Capital Stock or Indebtedness securing the Indebtedness so refunded, refinanced
or extended, (iii) Liens in favor of the Issuer or any of its Restricted
Subsidiaries, (iv) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under this Indenture; provided that (a) any such Lien is created
solely for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including sales and excise taxes,
installation and delivery charges and other direct costs of, and other direct
expenses paid or charged in connection with, such purchase or construction) of
such Property, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such costs, and (c) such Lien does not extend to or
cover any Property other than such item of Property and any improvements on such
item, (v) statutory liens or landlords', carriers', warehousemen's, unemployment
insurance, surety or appeal bonds, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (vi)
Liens existing on the Issue Date, (vii) Liens securing only the Notes or the
Guarantees, (viii) easements, reservation of rights of way, restrictions
(including, but not limited to, zoning and building restrictions) and other
similar easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Issuer and its
Restricted Subsidiaries, (ix) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings;
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor, (x) Liens securing
Capitalized Lease Obligations otherwise permitted under this Indenture; provided
that such Lien does not extend to any property other than that subject to the
underlying lease, (xi) Liens under the Credit Facilities and obligations under
Interest Rate Agreements, Currency Agreements and commodity agreements, securing
such Credit Facilities and obligations in an amount not to exceed $75 million in
the aggregate and permitted to be incurred under this Indenture, (xii) Liens
created or deposits made to secure the performance of tenders, bids,
<PAGE> 25
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leases, statutory obligations, government contracts, performance bonds and other
obligations of a like nature incurred in the ordinary course of business, (xiii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods,
(xiv) Liens arising pursuant to Sale and Leaseback transactions entered into in
compliance with this Indenture, (xv) Liens incurred in the ordinary course of
business of the Issuer or any of its Subsidiaries with respect to $5 million at
any one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary and (xvi)
Liens on Property constituting Rolling Stock of any Person securing Indebtedness
otherwise permitted under this Indenture, provided that such Liens do not extend
to or cover any other Property and (xvii) any extension, renewal or replacement,
in whole or in part, of any Lien described in the foregoing clauses (i) through
(xvii); provided that any such extension, renewal or replacement shall be no
more restrictive in any material respect than the Lien so extended, renewed or
replaced and shall not extend to any other Property of the Issuer or its
Subsidiaries other than such item of Property originally covered by such Lien or
by improvement thereon or additions or accessions thereto.
"Person" means any individual, corporation, partnership,
limited liability Company, joint venture, association, joint-stock Company,
trust, unincorporated organization or government (including any agency or
political subdivision thereof).
"Physical Notes" means certificated Notes in registered form
in substantially the form set forth in Exhibit A.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Private Exchange" has the meaning set forth in the
Registration Rights Agreement or, with respect to Notes issued under this
Indenture subsequent to the Issue Date pursuant to Section 2.01, a registration
rights agreement substantially identical to the Registration Rights Agreement.
"Private Exchange Notes" has the meaning set forth in the
Registration Rights Agreement or, with respect to Notes issued under this
Indenture subsequent to the Issue Date pursuant to Section 2.01, a registration
rights agreement substantially identical to the Registration Rights Agreement.
<PAGE> 26
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"Private Placement Legend" means the legend initially set
forth on the Rule 144A Notes in the form set forth in Exhibit B.
"Property" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person and its
Subsidiaries under GAAP.
"Public Equity Offering" means a public offering by the Issuer
or any parent of shares of its Common Stock (however designated and whether
voting or non-voting) and any and all rights, warrants or options to acquire
such Common Stock.
"Purchase Agreement" means the Securities Purchase Agreement
dated June 3, 1998 by and among the Issuer, the Guarantors and the Initial
Purchaser.
"Purchase Money Indebtedness" means any Indebtedness incurred
by a Person to finance the cost (including the cost of construction,
installation or improvement) of an item of property used in the business, the
principal amount of which Indebtedness does not exceed the sum of (i) the lesser
of (A) the Fair Market Value of such property or (B) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A promulgated under the Securities Act.
"Redemption Date" when used with respect to any Note to be
redeemed means the date fixed for such redemption pursuant to the terms of the
Notes.
"Refinancing Indebtedness" means Indebtedness that replaces,
refunds, renews, refinances or extends any Indebtedness of the Issuer or a
Restricted Subsidiary outstanding on the Issue Date or other Indebtedness
permitted to be incurred by the Issuer or its Restricted Subsidiaries pursuant
to the terms of this Indenture, but only to the extent that (i) the Refinancing
Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being replaced, refunded, renewed, refinanced or extended, if at
all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being replaced, refunded, renewed, refinanced or
extended, or (b) after the maturity date of the Notes, (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Notes has a weighted average life to maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the weighted average life to maturity of the portion of the Indebtedness being
replaced, refunded, renewed, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Notes, (iv) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the sum of (a) the aggregate principal amount then outstanding under the
Indebtedness being replaced, refunded, renewed, refinanced or extended, (b) the
amount of accrued and unpaid interest, if any, and
<PAGE> 27
-20-
premiums owed, if any, not in excess of preexisting prepayment provisions on
such Indebtedness being replaced, refunded, renewed, refinanced or extended and
(c) the amount of customary fees, expenses and costs related to the incurrence
of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is
incurred by the same Person that initially incurred the Indebtedness being
replaced, refunded, renewed, refinanced or extended, except that the Issuer may
incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of
any Wholly-Owned Subsidiary of the Issuer.
"Registration Rights Agreement" means the Registration Rights
Agreement dated June 8, 1998 among the Issuer, the Guarantors and the Initial
Purchasers, as amended from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Related Business" means the business of the Issuer or any of
its Restricted Subsidiaries as conducted on the Issue Date or businesses similar
or ancillary thereto.
"Responsible Officer" when used with respect to the Trustee,
means an officer or assistant officer assigned to the corporate trust department
of the Trustee (or any successor group of the Trustee) with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Note" has the same meaning as "Restricted
Security" set forth in Rule 144(a)(3) promulgated under the Securities Act;
provided, that the Trustee shall be entitled to request and conclusively rely
upon an Opinion of Counsel with respect to whether any Note is a Restricted
Note.
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution or payment on
Capital Stock of the Issuer or any Restricted Subsidiary of the Issuer or any
payment made to the direct or indirect holders (in their capacities as such) of
Capital Stock of the Issuer or any Restricted Subsidiary of the Issuer (other
than (x) dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
such Capital Stock (other than Disqualified Capital Stock), and (y) in the case
of Restricted Subsidiaries of the Issuer, dividends or distributions payable to
the Issuer or to a Wholly-Owned Subsidiary of the Issuer), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Issuer or any of its Restricted Subsidiaries (other than Capital Stock of a
Restricted Subsidiary owned by the Issuer or a Wholly-Owned Subsidiary of the
Issuer) or any options, warrants or other rights to purchase such Capital Stock)
or any options, warrants or other rights to purchase such Capital Stock, (iii)
the making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value,
<PAGE> 28
-21-
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to the
Notes (other than Indebtedness of a Restricted Subsidiary held by the Issuer or
a Wholly-Owned Subsidiary), (iv) the making of any Investment or guarantee of
any Investment in any Person other than a Permitted Investment, (v) the
designation of any Subsidiary of the Issuer as an Unrestricted Subsidiary (a
"Designation"); provided that the Designation of a Subsidiary of the Issuer as
an Unrestricted Subsidiary shall be deemed to include the Designation of all of
the Subsidiaries of such Subsidiary and (vi) the forgiveness of any Indebtedness
of an Affiliate of the Issuer (other than a Wholly-Owned Subsidiary) owed to the
Issuer or a Restricted Subsidiary of the Issuer. In determining the amount of
any Restricted Payment made under clause (v) above, the amount of such
Restricted Payment (the "Designation Amount") shall be equal to the greater of
(i) the book value or (ii) the Fair Market Value of the Issuer's proportionate
interest in such Subsidiary on such date.
"Restricted Subsidiary" means a Subsidiary of the Issuer other
than an Unrestricted Subsidiary and includes all of the Subsidiaries of the
Issuer existing on the Issue Date. The Board of Directors of the Issuer may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), (i) the Issuer could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.06 of this Indenture and (ii) no Default or Event of Default shall have
occurred and be continuing.
"Rolling Stock" means mobile mining equipment.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Sale and Lease-Back Transaction" means any arrangement with
any Person providing for the leasing by the Issuer or any Restricted Subsidiary
of the Issuer of any real or tangible personal property, which property has been
or is to be sold or transferred by the Issuer or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"S&P" means Standard & Poor's Ratings Services and its
successors.
"Securities Act" means the Securities Act of 1933, as amended
and the rules and regulations of the Commission promulgated thereunder.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, limited liability company, association or other
business entity, whether now existing or hereafter organized or acquired, (i) in
the case of a corporation, of which more than 50% of
<PAGE> 29
-22-
the total voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, officers or
trustees thereof is held by such first-named Person or any of its Subsidiaries;
or (ii) in the case of a partnership, joint venture, limited liability company,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
"Taxes" means any present or future tax, duty, levy, impost,
assessment or other government charge (including penalties, interest and any
other liabilities related thereto) imposed or levied by or on behalf of a Taxing
Authority.
"Taxing Authority" means any government or any political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Tax Settlement" means a settlement between the Issuer and
applicable Tax Authorities of disputed tax and penalty amounts for all periods
up to and including December 31, 1995.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section 77aaa-77bbbb) as in effect on the date of this Indenture (except as
provided in Section 9.03 hereof).
"Trustee" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"Unrestricted Subsidiary" means (a) any Subsidiary of an
Unrestricted Subsidiary and (b) any Subsidiary of the Issuer which is classified
after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by
the Board of Directors of the Issuer; provided that a Subsidiary may be so
classified as an Unrestricted Subsidiary only if such classification is in
compliance with Section 4.07 hereof. The Trustee shall be given prompt notice by
the Issuer of each resolution adopted by the Board of Directors of the Issuer
under this provision, together with a copy of each such resolution adopted.
"U.S. Government Obligations" means (a) securities that are
direct obligations of the United States of America for the payment of which its
full faith and credit are pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as
<PAGE> 30
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custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or a specific payment of principal or interest on any such
U.S. Government Obligation held by such custodian for the account of the holder
of such depository receipt.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
similar requirements of law) of which are owned, directly or indirectly, by the
Issuer.
SECTION 1.02. Other Definitions.
The definitions of the following terms may be found in the
sections indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Affiliate Transaction".......................................... 4.09
"Agent Members".................................................. 2.16(a)
"Bankruptcy Law"................................................. 6.01
"Business Day"................................................... 11.07
"CEDEL".......................................................... 2.16(a)
"Change of Control Offer"........................................ 4.17
"Change of Control Purchase Price"............................... 4.17
"Change of Control Payment Date"................................. 4.17
"Covenant Defeasance"............................................ 9.03
"Custodian"...................................................... 6.01
"Euroclear"...................................................... 2.16(a)
"Events of Default".............................................. 6.01
"Excess Proceeds Offer".......................................... 4.11
"Excluded Holder"................................................ 4.18
"Fifth Anniversary".............................................. 4.11
"Global Notes"................................................... 2.16(a)
"Legal Defeasance"............................................... 9.02
"Legal Holiday".................................................. 11.07
"Offer Period"................................................... 4.11
"Other Notes".................................................... 2.02
"Paying Agent"................................................... 2.04
"Registrar"...................................................... 2.04
</TABLE>
<PAGE> 31
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<TABLE>
<CAPTION>
<S> <C>
"Regulation S Global Notes"...................................... 2.16(a)
"Regulation S Notes"............................................. 2.02
"Replacement Assets.............................................. 4.11
"Restricted Global Note"......................................... 2.16(a)
"Rule 144A Notes"................................................ 2.02
"25% Available Asset Sale Proceeds............................... 4.11
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
portion of such provision required to be incorporated herein in order for this
Indenture to be qualified under the TIA is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"indenture securities" means the Notes.
"indenture securityholder" means a Holder or Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor on the indenture securities" means the Issuer, the
Guarantors or any other obligor on the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined in the TIA by reference to another statute or defined by Commission
rule have the meanings therein assigned to them.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether
defined expressly or by reference;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and in the
plural include the singular;
(4) words used herein implying any gender shall apply to
both genders;
<PAGE> 32
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(5) "herein" "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section or
other Subsection;
(6) unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP as in effect from time to time,
applied on a basis consistent with the most recent audited consolidated
financial statements of the Issuer;
(7) whenever in this Indenture there is mentioned, in any
context, principal, interest or any other amount payable under or with respect
to any Note, such mention shall be deemed to include mention of the payment of
Additional Interest to the extent that, in such context, Additional Interest is,
was or would be payable in respect thereof.
ARTICLE TWO
THE NOTES
SECTION 2.01. Amount of Notes.
The Trustee shall authenticate Notes for original issue on the
Issue Date in the aggregate principal amount of $100,000,000 upon a written
order of the Issuer in the form of an Officers' Certificate of the Issuer. Such
written order shall specify the amount of Notes to be authenticated and the date
on which the Notes are to be authenticated.
Upon receipt of a Issuer Request and an Officers' Certificate
certifying that a registration statement relating to an exchange offer specified
in the Registration Rights Agreement or, with respect to Notes issued under this
Indenture subsequent to the Issue Date, a registration rights agreement
substantially identical to the Registration Rights Agreement, is effective and
that the conditions precedent to a private exchange thereunder have been met,
the Trustee shall authenticate an additional series of Notes in an aggregate
principal amount not to exceed $100,000,000 for issuance in exchange for the
Notes tendered for exchange pursuant to such exchange offer registered under the
Securities Act or pursuant to a Private Exchange. Exchange Notes or Private
Exchange Notes may have such distinctive series designations and such changes in
the form thereof as are specified in the Issuer Request referred to in the
preceding sentence.
<PAGE> 33
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SECTION 2.02. Form and Dating.
The Notes and the Trustee's certificate of authentication with
respect thereto shall be substantially in the form set forth in Exhibit A, which
is incorporated in and forms a part of this Indenture. The Notes may have
notations, legends or endorsements required by law, rule or usage to which the
Issuer is subject. Without limiting the generality of the foregoing, Notes
offered and sold to Qualified Institutional Buyers in reliance on Rule 144A
("Rule 144A Notes") shall bear the legend and include the form of assignment set
forth in Exhibit B, Notes offered and sold in offshore transactions in reliance
on Regulation S ("Regulation S Notes") shall bear the legend and include the
form of assignment set forth in Exhibit C, and Notes offered and sold to
Institutional Accredited Investors in transactions exempt from registration
under the Securities Act not made in reliance on Rule 144A or Regulation S
("Other Notes") may be represented by a Restricted Global Note or, if such an
investor may not hold an interest in the Restricted Global Note, a Physical
Note, in each case, bearing the Private Placement Legend. Each Note shall be
dated the date of its authentication.
The terms and provisions contained in the Notes shall
constitute, and are expressly made, a part of this Indenture and, to the extent
applicable, the Issuer, the Guarantors and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and
agree to be bound thereby.
The Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
SECTION 2.03. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one
Officer (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Notes for the Issuer by manual
or facsimile signature.
If an Officer whose signature is on a Note was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Note, the Note shall be valid nevertheless.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Notwithstanding the foregoing, if
any Note shall have been authenticated and delivered hereunder but never issued
and sold by the Issuer, and the Issuer shall deliver such Note to the Trustee
for cancellation as provided in Section 2.12, for all purposes of this Indenture
such Note shall be deemed never to have been
<PAGE> 34
-27-
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Issuer to authenticate the Notes. Unless otherwise provided in
the appointment, an authenticating agent may authenticate the Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Issuer and Affiliates of the Issuer.
Each Paying Agent is designated as an authenticating agent for purposes of this
Indenture.
The Notes shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.04. Registrar and Paying Agent.
The Issuer shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New York)
where Notes may be presented for registration of transfer or for exchange (the
"Registrar"), and an office or agency where Notes may be presented for payment
(the "Paying Agent") and an office or agency where notices and demands to or
upon the Issuer, if any, in respect of the Notes and this Indenture may be
served. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Issuer may have one or more additional Paying Agents. The term
"Paying Agent" includes any additional Paying Agent. Neither the Issuer nor any
Affiliate thereof may act as Paying Agent.
The Issuer shall enter into an appropriate agency agreement,
which shall incorporate the provisions of the TIA, with any Agent that is not a
party to this Indenture. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Issuer shall notify the Trustee of the
name and address of any such Agent. If the Issuer fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Issuer initially appoints the Trustee as Registrar, Paying
Agent and Agent for service of notices and demands in connection with the Notes
and this Indenture.
SECTION 2.05. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal of or premium or interest on the Notes (whether such money has been
paid to it by the Issuer or any other obligor on the Notes or the Guarantors),
and the Issuer and the Paying Agent shall notify the Trustee
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of any default by the Issuer (or any other obligor on the Notes) in making any
such payment. Money held in trust by the Paying Agent need not be segregated
except as required by law and in no event shall the Paying Agent be liable for
any interest on any money received by it hereunder. The Issuer at any time may
require the Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed and the Trustee may at any time during the continuance
of any Event of Default specified in Section 6.01 (1) or (2), upon written
request to the Paying Agent, require such Paying Agent to pay forthwith all
money so held by it to the Trustee and to account for any funds disbursed. Upon
making such payment, the Paying Agent shall have no further liability for the
money delivered to the Trustee.
SECTION 2.06. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Noteholders. If the Trustee is not the Registrar, the Issuer
shall furnish to the Trustee at least five Business Days before each Interest
Payment Date, and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Noteholders.
SECTION 2.07. Transfer and Exchange.
Subject to Sections 2.16 and 2.17, when Notes are presented to
the Registrar with a request from the Holder of such Notes to register a
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations, the Registrar shall register the transfer as
requested. Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or be accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Registrar, duly executed by
the Holder thereof or his attorneys duly authorized in writing. To permit
registrations of transfers and exchanges, the Issuer shall issue and execute and
the Trustee shall authenticate new Notes (and the Guarantors shall execute the
guarantee thereon) evidencing such transfer or exchange at the Registrar's
request. No service charge shall be made to the Noteholder for any registration
of transfer or exchange. The Issuer may require from the Noteholder payment of a
sum sufficient to cover any transfer taxes or other governmental charge that may
be imposed in relation to a transfer or exchange, but this provision shall not
apply to any exchange pursuant to Section 2.11, 3.06, 4.11, 4.17 or 8.05 (in
which events the Issuer shall be responsible for the payment of such taxes). The
Registrar shall not be required to exchange or register a transfer of any Note
for a period of 15 days immediately preceding the mailing of notice of
redemption of Notes to be redeemed or of any Note selected, called or being
called for redemption except the unredeemed portion of any Note being redeemed
in part.
Any Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of the beneficial interests in such Global
Note may be effected only through a
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book entry system maintained by the Holder of such Global Note (or its agent),
and that ownership of a beneficial interest in the Global Note shall be required
to be reflected in a book entry.
Each Holder of a Note agrees to indemnify the Issuer and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Note in violation of any provision of this Indenture
and/or applicable U.S. Federal or state securities law.
Except as expressly provided herein, neither the Trustee nor
the Registrar shall have any duty to monitor the Issuer's compliance with or
have any responsibility with respect to the Issuer's compliance with any Federal
or state securities laws.
SECTION 2.08. Replacement Notes.
If a mutilated Note is surrendered to the Registrar or the
Trustee, or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Issuer shall issue and the Trustee shall
authenticate a replacement Note (and the Guarantors shall execute the guarantee
thereon) if the Holder of such Note furnishes to the Issuer and the Trustee
evidence reasonably acceptable to them of the ownership and the destruction,
loss or theft of such Note and if the requirements of Section 8-405 of the New
York Uniform Commercial Code as in effect on the date of this Indenture are met.
If required by the Trustee or the Issuer, an indemnity bond shall be posted,
sufficient in the judgment of both to protect the Issuer, the Guarantors, the
Trustee or any Paying Agent from any loss that any of them may suffer if such
Note is replaced. The Issuer may charge such Holder for the Issuer's reasonable
out-of-pocket expenses in replacing such Note and the Trustee may charge the
Issuer for the Trustee's expenses (including, without limitation, attorneys'
fees and disbursements) in replacing such Note. Every replacement Note shall
constitute a contractual obligation of the Issuer.
SECTION 2.09. Outstanding Notes.
The Notes outstanding at any time are all Notes that have been
authenticated by the Trustee except for (a) those cancelled by it, (b) those
delivered to it for cancellation, (c) to the extent set forth in Sections 9.01
and 9.02, on or after the date on which the conditions set forth in Section 9.01
or 9.02 have been satisfied, those Notes theretofore authenticated and delivered
by the Trustee hereunder and (d) those described in this Section 2.09 as not
outstanding. Subject to Section 2.10, a Note does not cease to be outstanding
because the Issuer or one of its Affiliates holds the Note.
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If a Note is replaced pursuant to Section 2.08, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser in whose hands such Note is a
legal, valid and binding obligation of the Issuer.
If the Paying Agent holds, in its capacity as such, on any
Maturity Date or on any optional redemption date, money sufficient to pay all
accrued interest and principal with respect to the Notes payable on that date
and is not prohibited from paying such money to the Holders thereof pursuant to
the terms of this Indenture, then on and after that date such Notes cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.10. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any declaration of acceleration or notice of
default or direction, waiver or consent or any amendment, modification or other
change to this Indenture, Notes owned by the Issuer or any other Affiliate of
the Issuer shall be disregarded as though they were not outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Notes as to which a Responsible Officer
of the Trustee has received an Officers' Certificate stating that such Notes are
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee established to the satisfaction of
the Trustee the pledgee's right so to act with respect to the Notes and that the
pledgee is not the Issuer, a Guarantor, any other obligor on the Notes or any of
their respective Affiliates.
SECTION 2.11. Temporary Notes.
Until definitive Notes are prepared and ready for delivery,
the Issuer may prepare and the Trustee shall authenticate temporary Notes.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Issuer considers appropriate for temporary Notes.
Without unreasonable delay, the Issuer shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
SECTION 2.12. Cancellation.
The Issuer at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall (subject to the
record-retention requirements of the Exchange Act) return such cancelled Notes
to the
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Issuer. The Issuer may not reissue or resell, or issue new Notes to replace,
Notes that the Issuer has redeemed or paid, or that have been delivered to the
Trustee for cancellation.
SECTION 2.13. Defaulted Interest.
If the Issuer defaults on a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms hereof,
to the Persons who are Noteholders on a subsequent special record date, which
date shall be at least five Business Days prior to the payment date. The Issuer
shall fix such special record date and payment date in a manner satisfactory to
the Trustee. At least 10 days before such special record date, the Issuer shall
mail to each Noteholder a notice that states the special record date, the
payment date and the amount of defaulted interest, and interest payable on
defaulted interest, if any, to be paid. The Issuer may make payment of any
defaulted interest in any other lawful manner not inconsistent with the
requirements (if applicable) of any securities exchange on which the Notes may
be listed and, upon such notice as may be required by such exchange, if, after
written notice given by the Issuer to the Trustee of the proposed payment
pursuant to this sentence, such manner of payment shall be deemed practicable by
the Trustee.
SECTION 2.14. CUSIP Number.
The Issuer in issuing the Notes may use a "CUSIP" number, and
if so, such CUSIP number shall be included in notices of redemption or exchange
as a convenience to Holders; provided, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes. The Issuer shall promptly
notify the Trustee of any such CUSIP number used by the Issuer in connection
with the issuance of the Notes and of any change in the CUSIP number.
SECTION 2.15. Deposit of Moneys.
Prior to 10:00 a.m., New York City time, on each Interest
Payment Date and Maturity Date, the Issuer shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Maturity Date, as the case may be, in
a timely manner which permits the Trustee to remit payment to the Holders on
such Interest Payment Date or Maturity Date, as the case may be. The principal
and interest on Global Notes shall be payable to the Depository or its nominee,
as the case may be, as the sole registered owner and the sole holder of the
Global Notes represented thereby. The principal and interest on Physical Notes
shall be payable, either in person or by mail, at the office of the Paying
Agent.
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SECTION 2.16. Book-Entry Provisions for Global Notes.
(a) Rule 144A Notes initially shall be represented by one or
more notes in registered, global form without interest coupons (collectively,
the "Rule 144A Global Notes"). Regulation S Notes initially shall be represented
by one or more notes in registered, global form without interest coupons
(collectively, the "Regulation S Global Note," and, together with the Rule 144A
Global Note and any other global notes representing Notes, the "Global Notes").
The Global Notes shall bear legends as set forth in Exhibit D. The Global Notes
initially shall (i) be registered in the name of the Depository or the nominee
of such Depository, in each case for credit to an account of an Agent Member
(or, in the case of the Regulation S Global Notes, of Euroclear System
("Euroclear") and Cedel Bank, S.A. ("CEDEL")), (ii) be delivered to the Trustee
as custodian for such Depository and (iii) bear legends as set forth in Exhibit
B with respect to Rule 144A Global Notes and Exhibit C with respect to
Regulation S Global Notes.
Members of, or direct or indirect participants in, the
Depository ("Agent Members") shall have no rights under this Indenture with
respect to any Global Note held on their behalf by the Depository, or the
Trustee as its custodian, or under the Global Notes, and the Depository may be
treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as
the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the
Trustee or any agent of the Issuer or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of Global Notes shall be limited to transfer in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depository and the provisions of Section 2.17. In addition, a Global Note
shall be exchangeable for Physical Notes if (i) the Depository (x) notifies the
Issuer that it is unwilling or unable to continue as depository for such Global
Note and the Issuer thereupon fails to appoint a successor depository or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Issuer, at its option, notifies the Trustee in writing that it elects to cause
the issuance of such Physical Notes or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Notes. In all cases, Physical
Notes delivered in exchange for any Global Note or beneficial interests therein
shall be registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depository (in accordance with its customary
procedures).
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall
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(if one or more Physical Notes are to be issued) reflect on its books and
records the date and a decrease in the principal amount of the Global Note in an
amount equal to the principal amount of the beneficial interest in the Global
Note to be transferred, and the Issuer shall execute, and the Trustee shall upon
receipt of a written order from the Issuer authenticate and make available for
delivery, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall
be deemed to be surrendered to the Trustee for cancellation, and the Issuer
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in writing in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount of
Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered
in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or
(d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear the Private Placement Legend or, in the case of the
Regulation S Global Note, the legend set forth in Exhibit C, in each case,
unless the Issuer determines otherwise in compliance with applicable law.
(f) On or prior to the 40th day after the later of the
commencement of the offering of the Notes represented by the Regulation S Global
Note and the issue date of such Notes (such period through and including such
40th day, the "Restricted Period"), a beneficial interest in a Regulation S
Global Note may be transferred to a Person who takes delivery in the form of an
interest in the corresponding Rule 144A Global Note only upon receipt by the
Trustee of a written certification from the transferor to the effect that such
transfer is being made (i)(a) to a Person whom the transferor reasonably
believes is a Qualified Institutional Buyer in a transaction meeting the
requirements of Rule 144A or (b) pursuant to another exemption from the
registration requirements under the Securities Act which is accompanied by an
opinion of counsel regarding the availability of such exemption and (ii) in
accordance with all applicable securities laws of any state of the United States
or any other jurisdiction.
(g) Beneficial interests in the Rule 144A Global Note may be
transferred to a Person who takes delivery in the form of an interest in the
Regulation S Global Note, whether before or after the expiration of the
Restricted Period, only if the transferor first delivers to the Trustee a
written certificate to the effect that such transfer is being made in accordance
with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if
such transfer occurs prior to the expiration of the Restricted Period, the
interest transferred will be held immediately thereafter through Euroclear or
CEDEL.
(h) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in another
Global Note shall, upon transfer, cease to be an interest in such Global Note
and become an interest in such other Global
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Note and, accordingly, shall thereafter be subject to all transfer restrictions
and other procedures applicable to beneficial interests in such other Global
Note for as long as it remains such an interest.
(i) The Holder of any Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted Note
to any Institutional Accredited Investor which is not a QIB or to any Non-U.S.
Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Note, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is two years or
more after the Issue Date or such other date as such Note shall be
freely transferable under Rule 144 as certified in an Officer's
Certificate or (y) (1) in the case of a transfer to an Institutional
Accredited Investor which is not a QIB (excluding Non-U.S. Persons),
the proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit E hereto or (2) in the case of a
transfer to a Non-U.S. Person (including a QIB), the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit F hereto; provided that in the case of any
transfer of a Note bearing the Private Placement Legend for a Note not
bearing the Private Placement Legend, the Registrar has received an
Officers' Certificate authorizing such transfer; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in a Global Note to be transferred,
and (b) the Registrar shall reflect on its books and records the date and an
increase in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note transferred or
the Issuer shall execute and the Trustee shall authenticate and make available
for delivery one or more Physical Notes of like tenor and amount.
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(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed registration of transfer of a
Note constituting a Restricted Note to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on such Holder's Note stating, or has otherwise advised the Issuer
and the Registrar in writing, that the sale has been made in compliance
with the provisions of Rule 144A to a transferee who has signed the
certification provided for on such Holder's Note stating, or has
otherwise advised the Issuer and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Issuer as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the Global Note, upon receipt by
the Registrar of instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
the Global Note in an amount equal to the principal amount of the
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred.
(c) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of Notes
bearing the Private Placement Legend, the Registrar shall deliver only Notes
that bear the Private Placement Legend unless (i) it has received the Officers'
Certificate required by paragraph (a)(i)(y) of this Section 2.17, (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Issuer and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Note has been sold pursuant to an
effective registration statement under the Securities Act and the Registrar has
received an Officers' Certificate from the Issuer to such effect.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such Note acknowledges the restrictions on
transfer of such Note set
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forth in this Indenture and in the Private Placement Legend and agrees that it
will transfer such Note only as provided in this Indenture.
The Registrar shall retain for a period of two years copies of
all letters, notices and other written communications received pursuant to
Section 2.16 or this Section 2.17. The Issuer shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable notice to the Registrar.
SECTION 2.18. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election To Redeem; Notices to Trustee.
If the Issuer elects to redeem Notes pursuant to paragraph 6
of the Notes, at least 45 days prior to the Redemption Date (unless a shorter
notice shall be agreed to in writing by the Trustee) but not more than 60 days
before the Redemption Date, the Issuer shall notify the Trustee in writing of
the Redemption Date, the principal amount of Notes to be redeemed and the
redemption price, and deliver to the Trustee an Officers' Certificate stating
that such redemption will comply with the conditions contained in paragraph 6 of
the Notes. Notice given to the Trustee pursuant to this Section 3.01 may not be
revoked after the time that notice is given to Noteholders pursuant to Section
3.03.
SECTION 3.02. Selection by Trustee of Notes To Be Redeemed.
In the event that fewer than all of the Notes are to be
redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are
listed on a national securities exchange, in accordance with the rules of such
exchange or, if the Notes are not so listed, either on a pro rata basis or by
lot, or such other method as it shall deem fair and equitable; provided that if
a partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Notes or portion thereof for redemption shall be made by the
Trustee on a pro rata basis to the extent practical, unless such a method is
prohibited. The Trustee shall promptly notify the Issuer of the Notes selected
for redemption and, in the case of any Notes selected for partial redemption,
the principal amount thereof to be redeemed. The Trustee may select for
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redemption portions of the principal of the Notes that have denominations larger
than $1,000. Notes and portions thereof the Trustee selects shall be redeemed in
amounts of $1,000 or whole multiples of $1,000. For all purposes of this
Indenture unless the context otherwise requires, provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days, and no more than 60 days, before a
Redemption Date, the Issuer shall mail, or cause to be mailed, a notice of
redemption by first-class mail to each Holder of Notes to be redeemed at his or
her last address as the same appears on the registry books maintained by the
Registrar pursuant to Section 2.04 hereof.
The notice shall identify the Notes to be redeemed (including
the CUSIP numbers thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of premium and
accrued interest to be paid;
(3) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the Redemption
Date and upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that unless the Issuer defaults in making the
redemption payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date;
(7) the provision of paragraph 6 of the Notes, as the case
may be, pursuant to which the Notes called for redemption are being redeemed;
and
(8) the aggregate principal amount of Notes that are being
redeemed.
At the Issuer's written request made at least five Business
Days prior to the date on which notice is to be given, the Trustee shall give
the notice of redemption in the Issuer's name and at the Issuer's sole expense.
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SECTION 3.04. Effect of Notice of Redemption.
Once the notice of redemption described in Section 3.03 is
mailed, Notes called for redemption become due and payable on the Redemption
Date and at the redemption price, including any premium, plus interest accrued
to the Redemption Date. Upon surrender to the Paying Agent, such Notes shall be
paid at the redemption price, including any premium, plus interest accrued to
the Redemption Date, provided that if the Redemption Date is after a regular
record date and on or prior to the Interest Payment Date, the accrued interest
shall be payable to the Holder of the redeemed Notes registered on the relevant
record date, and provided, further, that if a Redemption Date is a Legal
Holiday, payment shall be made on the next succeeding Business Day and no
interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
SECTION 3.05. Deposit of Redemption Price.
On or prior to 10:00 A.M., New York City time, on each
Redemption Date, the Issuer shall deposit with the Paying Agent in immediately
available funds money sufficient to pay the redemption price of, including
premium, if any, and accrued interest on all Notes to be redeemed on that date
other than Notes or portions thereof called for redemption on that date which
have been delivered by the Issuer to the Trustee for cancellation.
On and after any Redemption Date, if money sufficient to pay
the redemption price of, including premium, if any, and accrued interest on
Notes called for redemption shall have been made available in accordance with
the preceding paragraph, the Notes called for redemption will cease to accrue
interest and the only right of the Holders of such Notes will be to receive
payment of the redemption price of and, subject to the first proviso in Section
3.04, accrued and unpaid interest on such Notes to the Redemption Date. If any
Note surrendered for redemption shall not be so paid, interest will be paid,
from the Redemption Date until such redemption payment is made, on the unpaid
principal of the Note and any interest not paid on such unpaid principal, in
each case, at the rate and in the manner provided in the Notes.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Trustee
shall authenticate for the Holder thereof a new Note equal in principal amount
to the unredeemed portion of the Note surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Issuer shall pay the principal of and interest (including
all Additional Interest as provided in the Registration Rights Agreement or, in
the case of Notes issued subsequent to the Issue Date, a registration rights
agreement substantially identical to the Registration Rights Agreement) on the
Notes on the dates and in the manner provided in the Notes and this Indenture.
An installment of principal or interest shall be considered paid on the date it
is due if the Trustee or Paying Agent holds on that date money designated for
and sufficient to pay such installment.
The Issuer shall pay interest on overdue principal (including
post-petition interest in a proceeding under any Bankruptcy Law), and overdue
interest, to the extent lawful, at the rate specified in the Notes.
SECTION 4.02. Reports to Holders.
(a) Whether or not required by the rules and regulations of
the Commission, the Issuer shall furnish to the Trustee and the Holders of the
Notes all annual and quarterly financial information that would be required to
be contained in a filing with the Commission on Forms 10-K, 10-Q and 8-K, as
applicable, if the Issuer were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual financial information, a report
thereon by the Issuer's independent accountants; provided, that (x) such
quarterly financial information may be prepared in accordance with GAAP, (y)
such quarterly financial information shall be furnished within 60 days following
the end of each fiscal quarter of the Issuer and (z) such annual financial
information shall be furnished within 120 days following the end of the fiscal
year of the Issuer. In addition, whether or not required by the rules and
regulations of the Commission, the Issuer will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing). In addition, the Issuer shall furnish
to the Holders of the Notes and to prospective investors, upon the requests of
such Holders, any information required to be delivered pursuant to Rule 144
under the Securities Act so long as the Notes are not freely transferable under
the Securities Act. The Issuer will also comply with the other provisions of TIA
Section 314(a).
(b) The Issuer shall, upon request, provide to any Holder of
Notes or any prospective transferee of any such Holder any information
concerning the Issuer (including financial statements) necessary in order to
permit such Holder to sell or transfer Notes in
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compliance with Rule 144A under the Securities Act; provided, that the Issuer
shall not be required to furnish such information in connection with any request
made on or after the date which is two years (or such other date as the Notes
shall be freely transferable pursuant to Rule 144) from the later of (i) the
date such Note (or any predecessor Note) was acquired from the Issuer or (ii)
the date such Note (or any predecessor Note) was last acquired from an
"affiliate" of the Issuer within the meaning of Rule 144 under the Securities
Act. The Issuer shall provide the Trustee a copy of any information provided to
holders under this Section 4.02.
SECTION 4.03. Waiver of Stay, Extension or Usury Laws.
The Issuer and the Guarantors covenant (to the extent that
they may lawfully do so) that they shall not at any time insist upon, or plead
(as a defense or otherwise) or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
which would prohibit or forgive the Issuer and the Guarantors from paying all or
any portion of the principal of, premium, if any, and/or interest on the Notes
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that they may lawfully do so) the Issuer and the Guarantors hereby
expressly waive all benefit or advantage of any such law, and covenant that they
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.04. Compliance Certificate.
(a) The Issuer shall deliver to the Trustee, within 90 days
after the end of each fiscal year and within 45 days after the end of the first,
second and third quarters of each fiscal year, an Officers' Certificate stating
that a review of the activities of the Issuer and its Subsidiaries during such
fiscal year or fiscal quarter, as the case may be, has been made under the
supervision of the signing Officers with a view to determining whether the
Issuer and the Guarantors have kept, observed, performed and fulfilled their
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge, the Issuer
and the Guarantors have kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and are not in default in the performance
or observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he or she may have knowledge and what action they are
taking or propose to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Issuer and the Guarantors is taking or propose to take with respect
thereto.
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(b) The Issuer and the Guarantors shall, so long as any of the
Notes are outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Issuer and the
Guarantors are taking or propose to take with respect thereto.
(c) The Issuer's fiscal year currently ends on December 31.
The Issuer will provide written notice to the Trustee of any change in its
fiscal year.
SECTION 4.05. Taxes.
The Issuer and the Guarantors shall, and shall cause each of
their Subsidiaries to, pay prior to delinquency all material taxes, assessments,
and governmental levies except as contested in good faith and by appropriate
proceedings.
SECTION 4.06. Limitation on Additional Indebtedness.
The Issuer will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, incur (as defined) any
Indebtedness (including, without limitation, any Acquired Indebtedness);
provided that if no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness, the Issuer may incur Indebtedness (including any Acquired
Indebtedness) if the Issuer's Consolidated Fixed Charge Coverage Ratio is
greater than 2.0 to 1.
Notwithstanding the foregoing, the Issuer and its Restricted
Subsidiaries may incur Permitted Indebtedness.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through (xii)
of the definition of Permitted Indebtedness or is entitled to be incurred
pursuant to the first paragraph hereof, the Issuer may, in its sole discretion,
classify such item of Indebtedness in any manner that complies with this
covenant and such item of Indebtedness will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
SECTION 4.07. Limitation on Restricted Payments.
The Issuer will not make, and will not cause or permit any of
its Restricted Subsidiaries to make, directly or indirectly, any Restricted
Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
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(b) immediately after giving pro forma effect to such
Restricted Payment, the Issuer could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set
forth under Section 4.06 hereof; and
(c) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or
made after the Issue Date does not exceed the greater of (i) $5 million
or (ii) the sum (without duplication) of (A) 50% of the Issuer's
cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) earned (or accrued, as
the case may be) during the period beginning on the first day of the
Issuer's fiscal quarter commencing prior to the Issue Date and ending
on the last day of the fiscal quarter for which financial statements
are available immediately preceding the date of such proposed
Restricted Payment (treating such period as a single accounting
period); (B) 100% of the aggregate net cash proceeds received by the
Issuer from the issuance or sale after the Issue Date (other than to a
Subsidiary) of (1) Capital Stock (other than Disqualified Capital
Stock) of the Issuer or (2) any Indebtedness or other securities of the
Issuer that are convertible into or exercisable or exchangeable for
Capital Stock (other than Disqualified Capital Stock) of the Issuer,
which have been so converted, exercised or exchanged, as the case may
be; excluding, in the case of clause (c)(ii)(B), any net cash proceeds
from a Public Equity Offering to the extent used to redeem the Notes in
accordance with paragraph 6 of the Notes; (C) without duplication of
any amounts included in clause (A) above, so long as the Designation
thereof was treated as a Restricted Payment made after the Issue Date,
with respect to any Unrestricted Subsidiary that has been redesignated
as a Restricted Subsidiary after the Issue Date in accordance with the
definition of "Restricted Subsidiary," the Issuer's proportionate
interest in an amount equal to the Fair Market Value of the Issuer's
interest in such Subsidiary; provided that such amount shall not in any
case exceed the Designation Amount with respect to such Restricted
Subsidiary at the time of its Designation; and (D) in the case of the
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the
return of capital with respect to such Investment and the initial
amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition of such Investment and
net of taxes. For purposes of determining the amount expended for
Restricted Payments under this clause (c), property other than cash
shall be valued at its Fair Market Value.
Provided no Default or Event of Default has occurred and is
continuing, the provisions of this covenant shall not prevent (i) the payment of
any dividend or distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of this Indenture, (ii) the repurchase, redemption or other
acquisition or retirement of any shares of Capital Stock of the Issuer or
Indebtedness subordi-
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nated to the Notes by conversion into, or by or in exchange for, shares of
Capital Stock of the Issuer (other than Disqualified Capital Stock), or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Issuer) of other shares of Capital Stock of the Issuer (other
than Disqualified Capital Stock); provided that any such net cash proceeds are
excluded from clause(c)(ii)(B) of the immediately preceding paragraph for the
purposes of this calculation (and were not included therein at any time) and are
not used to redeem the Notes pursuant to paragraph 6 of the Notes, (iii) the
redemption, repayment or retirement of Indebtedness of the Issuer subordinated
to the Notes in exchange for, by conversion into, or out of the net cash
proceeds of, (x) a substantially concurrent sale or incurrence of Indebtedness
of the Issuer (other than any Indebtedness owed to a Subsidiary) that is
contractually subordinated in right of payment to the Notes to at least the same
extent as the Indebtedness being redeemed, repaid or retired or (y) a
substantially concurrent sale (other than to a Subsidiary of the Issuer) of
shares of Capital Stock of the Issuer; provided that any such net cash proceeds
and the fair value of any Capital Stock issued in exchange for such retired
Disqualified Capital Stock are excluded from clause (c)(ii)(B) of the
immediately preceding paragraph (and were not included therein at any time) and
are not used to redeem the Notes pursuant to paragraph 6 of the Notes, (iv) the
retirement of any shares of Disqualified Capital Stock of the Issuer by
conversion into, or by exchange for, shares of Capital Stock of the Issuer, or
out of the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Issuer) of other shares of Capital Stock of the Issuer;
provided that any such net cash proceeds and the Fair Market Value of any
Capital Stock issued in exchange for such retired Disqualified Capital Stock are
excluded from clause (c)(ii)(B) of the immediately preceding paragraph (and were
not included therein at any time) and are not used to redeem the Notes pursuant
to paragraph 6 of the Notes, (v) the purchase, redemption or other acquisition
for value of shares of Capital Stock of the Issuer (other than Disqualified
Capital Stock) or options on such shares held by officers or employees or former
officers or employees (or their estates or beneficiaries under their estates)
upon the death, disability, retirement or termination of employment of such
current or former officers or employees pursuant to the terms of an employee
benefit plan or any other agreement pursuant to which such shares of capital
stock or options were issued or pursuant to a severance, buy-sell or right of
first refusal agreement with such current or former officer or employee;
provided that the aggregate cash consideration paid, or distributions made,
pursuant to this clause (v) do not exceed $3.0 million, (vi) the making of
Investments in Unrestricted Subsidiaries, joint ventures and other entities in
an amount not to exceed $2.0 million in the aggregate at any one time
outstanding and (vii) the redemption of the Convertible Preferred Stock in
conjunction with any Tax Settlement or in conjunction with Indebtedness
permitted under this Indenture (provided however, that the Issuer shall not be
prevented from redeeming the Convertible Preferred Stock on or after January 3,
2006 by reason of any Default or Event of Default). In calculating the aggregate
amount of Restricted Payments made subsequent to the Issue Date for purposes of
clause (c) of the immediately preceding paragraph, amounts expended pursuant to
clauses (i), (vi) and (vii) shall be included in such calculation and (ii),
(iii), (iv) and (v) shall not be included in such calculation.
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Not later than the date of making any Restricted Payment, the
Issuer shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant described above were computed, which
calculations may be based upon the Issuer's latest available financial
statements, and that no Default or Event of Default has occurred and is
continuing and no Default or Event of Default will occur immediately after
giving effect to any such Restricted Payments.
SECTION 4.08. Limitations on Liens.
The Issuer will not, and will not cause or permit any of its
Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist
or become effective any Liens of any kind (other than Permitted Liens) upon any
property or asset of the Issuer or any of its Restricted Subsidiaries, unless
(i) if such Lien secures Indebtedness which is ranked pari passu with the Notes
or any Guarantee, then the Notes or such Guarantee, as the case may be, are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligations are no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes or any Guarantee, then
the Notes or such Guarantee, as the case may be, are secured and the Lien
securing such other Indebtedness shall be subordinated to the Lien granted to
the holders of the Notes or such Guarantee, as the case may be, at least to the
same extent as such Indebtedness is subordinated to the Notes or such Guarantee,
as the case may be.
SECTION 4.09. Limitation on Transactions with Affiliates.
The Issuer will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate (each an "Affiliate Transaction") or extend, renew,
waive or otherwise modify the terms of any Affiliate Transaction entered into
prior to the Issue Date unless (i) such Affiliate Transaction is between or
among the Issuer and its Wholly-Owned Subsidiaries; or (ii) the terms of such
Affiliate Transaction are fair to the Issuer or such Restricted Subsidiary, as
the case may be, and are at least as favorable as the terms which could be
obtained by the Issuer or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions) involving an amount or having a Fair Market Value in excess of
$3.0 million which is not permitted under clause (i) of the immediately
preceding sentence, the Issuer must obtain a resolution of the Board of
Directors of the Issuer certifying in good faith that it has approved such
Affiliate Transaction and determined that such Affiliate Transaction complies
with clause (ii) of the immediately preceding sentence. In addition, in any
Affiliate Transaction (or any series of related Affiliate Transac-
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tions) involving an amount or having a Fair Market Value in excess of $10.0
million which is not permitted under clause (i) of the second preceding
sentence, the Issuer must obtain a written opinion from an Independent Financial
Advisor that such transaction or transactions are fair to the Issuer or such
Restricted Subsidiary, as the case may be, from a financial point of view;
provided that the provisions of this sentence shall not apply to the (i) sale of
inventory in the ordinary course of business or (ii) payments made to
International Marine Terminals, on an arm's-length basis in the ordinary course
of business, relating to the loading of coal onto ships or in accordance with
the Issuer's financial obligations, if any, pursuant to the Issuer's contractual
partnership obligations existing on the Issue Date with respect to International
Marine Terminals.
The foregoing provisions will not apply to (i) any Restricted
Payment made in compliance with Section 4.07 hereof, (ii) reasonable fees and
compensation paid to and indemnity provided on behalf of officers, directors or
employees of the Issuer or any Restricted Subsidiary of the Issuer as determined
in good faith by the Issuer's Board of Directors or senior management or (iii)
any written agreement in existence on the Issue Date which has been disclosed in
the Offering Memorandum in respect of the Notes and any such extension, renewal
or substitution that does not materially alter the financial and economic risks
and obligations of the Issuer thereto from those existing on the Issue Date.
SECTION 4.10. Limitation on Creation of Subsidiaries.
The Issuer will not create or acquire, nor permit any of its
Restricted subsidiaries to create or acquire, any Subsidiary other than (i) a
Restricted Subsidiary existing as of the date of this Indenture, (ii) a
Restricted Subsidiary conducting a business similar or reasonably related to the
coal mining and marketing businesses of the Issuer and its Subsidiaries on the
Issue Date, or (iii) an Unrestricted Subsidiary; provided, however, that each
Restricted Subsidiary acquired or created pursuant to clause (ii) shall at the
time it has either assets or shareholders' equity in excess of $25,000 have
evidenced its guarantee with such documentation, satisfactory in form and
substance to the Trustee relating thereto as the Trustee shall require,
including, without limitation a supplement or amendment to this Indenture and
opinions of counsel as to the enforceability of such guarantee, pursuant to
which such Restricted Subsidiary shall become a Guarantor.
SECTION 4.11. Limitation on Certain Asset Sales.
(a) The Issuer will not, and will not cause or permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Issuer
or such applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the Fair Market Value of the assets sold or otherwise disposed of; (ii) not less
than 75% of the consideration received by the Issuer or such applicable
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents, (provided, that the amount of
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any Indebtedness (other than subordinated Indebtedness) of the Issuer or any
Guarantor that is actually assumed by the transferee in such Asset Sale and from
which the Issuer and the Guarantors are fully and unconditionally released shall
be deemed to be cash for purposes of clause (i) above; and (iii) the Asset Sale
Proceeds received by the Issuer or such Restricted Subsidiary, as the case may
be, are applied (or, at the Issuer's election, are deemed to have been applied
to an event described under clauses (iii)(a) or (iii)(b) occurring within 45
days prior to the receipt of such Asset Sale Proceeds, provided, that the
Issuer's intent to apply Asset Sale Proceeds to such an event must have been
announced by letter to the Trustee prior to the occurrence of the event), at the
Issuer's option, (a) to prepay, repay or purchase indebtedness under the Credit
Facility or any other secured Indebtedness of the Issuer or such Restricted
Subsidiary; provided that any such repayment shall result in or the Issuer shall
effect a permanent reduction of the commitments thereunder in an amount equal to
the principal amount so repaid; or (b) to an Investment in properties and assets
that are used or useful in the business of the Issuer or its Restricted
Subsidiaries or in businesses similar to or ancillary to the business of the
Issuer or its Restricted Subsidiaries as conducted at the time of such Asset
Sale (and, pending such use, may be used to temporarily reduce indebtedness
under the Credit Facility or may invest such Asset Sale Proceeds in any manner
not prohibited by this Indenture); provided that, (c) if on the 360th day
following the receipt of the Asset Sale Proceeds, the Available Asset Sale
Proceeds exceed $5.0 million, the Issuer shall apply an amount equal to the
Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date (an "Excess Proceeds Offer"). If
an Excess Proceeds Offer is not fully subscribed, the Issuer may retain and use
for general corporate purposes the portion (any such portion, a "Deficiency") of
the Available Asset Sale Proceeds not required to repurchase Notes. Upon
completion of any Excess Proceeds Offer, the amount of Available Asset Sale
Proceeds shall be reset to zero.
(b) If the Issuer is required to make an Excess Proceeds
Offer, the Issuer shall mail, within 30 days following the date specified in
clause (iii)(c) above, a notice to the holders stating among other things: (1)
that such holders have the right to require the Issuer to apply the Available
Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the purchase date; (2) the purchase date, which shall be no earlier than
30 days and not later than 60 days from the date such notice is mailed; (3) the
instructions that each holder must follow in order to have such Notes purchased;
and (4) the calculations used in determining the amount of Available Asset Sale
Proceeds to be applied to the purchase of such Notes.
(c) In the event of the transfer of substantially all (but not
all) of the property and assets of the Issuer and its Restricted Subsidiaries as
an entirety to a Person (other than a Guarantor) in a transaction permitted
under Section 5.01 hereof, the successor Person shall be deemed to have sold the
properties and assets of the Issuer and its Restricted Subsidiaries not
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so transferred for purposes of this Section 4.11, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale.
The Issuer will comply with the requirements of Rule 14e-1
under the Exchange Act and other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.11, the Issuer shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.11 by virtue thereof.
SECTION 4.12. Limitation on Capital Stock of Restricted Subsidiaries.
The Issuer will not (i) sell, pledge, hypothecate or otherwise
convey or dispose of any Capital Stock of a Restricted Subsidiary of the Issuer
(other than under the Credit Facilities) or (ii) permit any of its Restricted
Subsidiaries to issue any Capital Stock, other than to the Issuer or a
Restricted Subsidiary of the Issuer. The foregoing restrictions shall not apply
to an Asset Sale consisting of 100% of the Capital Stock of a Restricted
Subsidiary owned by the Issuer made in compliance with Section 4.11 hereof.
SECTION 4.13. Limitation on Sale and Lease-Back Transactions.
The Issuer will not, and will not cause or permit any of its
Restricted Subsidiaries to, enter into any Sale and Lease-Back Transaction
unless (i) the consideration received in such Sale and Lease-Back Transaction is
at least equal to the Fair Market Value of the property sold, as determined by a
board resolution of the Issuer, and (ii) immediately prior to and after giving
effect to the Attributable Indebtedness in respect of such Sale and Lease-Back
Transaction, the Issuer could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with Section 4.06 hereof.
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
The Issuer will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Issuer to (a)(i) pay dividends or
make any other distributions to the Issuer or any Restricted Subsidiary of the
Issuer (A) on its Capital Stock or (B) with respect to any other interest or
participation in, or measured by, its profits or (ii) repay any Indebtedness or
any other obligation owed to the Issuer or any Restricted Subsidiary of the
Issuer, (b) make loans or advances or capital contributions to the Issuer or any
of its Restricted Subsidiaries or (c) transfer any of its properties or assets
to the Issuer or any of its Restricted Subsidiaries, except for such
encum-
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brances or restrictions existing under or by reason of (i) encumbrances or
restrictions existing on the Issue Date to the extent and in the manner such
encumbrances and restrictions are in effect on the Issue Date, (ii) this
Indenture, the Notes and the Guarantees, (iii) applicable law, (iv) any
instrument governing Acquired Indebtedness as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred by such Person
in connection with, as a result of or in anticipation or contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person (including any Subsidiary of the Person), so
acquired, (v) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business and consistent with past practices,
(vi) encumbrances or restrictions under the Credit Facility or a Foreign Credit
Facility; provided that, in each case, all Indebtedness under such facilities
was incurred in compliance with this Indenture, (vii) Refinancing Indebtedness;
provided that such restrictions are no more restrictive than those contained in
the agreements governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, (viii) customary restrictions in security
agreements or mortgages securing Indebtedness of the Issuer or a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements and mortgages or (ix) customary restrictions
with respect to a Restricted Subsidiary of the Issuer pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Restricted Subsidiary.
SECTION 4.15. Payments for Consent.
The Issuer will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Notes unless such consideration
is offered to be paid or agreed to be paid to all holders of the Notes which so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
SECTION 4.16. Legal Existence.
Subject to Article 5 hereof, the Issuer shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its legal existence, and the corporate, partnership or other existence of each
Restricted Subsidiary, in accordance with the respective organizational
documents (as the same may be amended from time to time) of each Restricted
Subsidiary and the rights (charter and statutory), licenses and franchises of
the Issuer and its Restricted Subsidiaries; provided that the Issuer shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Restricted Subsidiaries if the
Board of Directors of the Issuer shall determine that the preserva-
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tion thereof is no longer desirable in the conduct of the business of the Issuer
and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is
not adverse in any material respect to the Holders.
SECTION 4.17. Change of Control Offer.
(a) Upon the occurrence of a Change of Control, the Issuer
shall be obligated to make an offer to purchase (the "Change of Control Offer")
all outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date (as defined) in
accordance with the procedures set forth below.
(b) Within 30 days of the occurrence of a Change of Control,
the Issuer shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) send by first-class mail, postage prepaid, to the Trustee
and to each Holder of the Notes, at the address appearing in the register
maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.17 and that all Notes tendered will be accepted for
payment;
(2) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed (the "Change of Control
Payment Date"));
(3) that any Note not tendered will continue to accrue
interest;
(4) that, unless the Issuer defaults in the payment of the
Change of Control Purchase Price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that Holders accepting the offer to have their Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Notes to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their acceptance
if the Paying Agent receives, not later than the close of business on
the third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Notes delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Notes purchased;
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(7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Note purchased and
each such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuer shall, to
the extent lawful, (i) accept for payment Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Issuer. The Paying Agent shall promptly mail to
each holder of Notes so accepted payment in an amount equal to the purchase
price for such Notes, and the Issuer shall execute and issue, and the Trustee
shall promptly authenticate and mail to such Holder, a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered; provided
that each such new Note shall be issued in an original principal amount in
denominations of $1,000 and integral multiples thereof.
(c) (i) If the Issuer or any Restricted Subsidiary thereof has
issued any outstanding (A) indebtedness that is subordinated in right of payment
to the Notes or (B) Preferred Stock, and the Issuer or such Restricted
Subsidiary is required to make a Change of Control Offer or to make a
distribution with respect to such subordinated indebtedness or Preferred Stock
in the event of a change of control, the Issuer shall not consummate any such
offer or distribution with respect to such subordinated indebtedness or
Preferred Stock until such time as the Issuer shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Issuer's Change of Control Offer and shall otherwise have consummated the Change
of Control Offer made to holders of the Notes and (ii) the Issuer will not issue
Indebtedness that is subordinated in right of payment to the Notes or Preferred
Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under this Indenture.
The Issuer will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.17, the Issuer shall comply with the applicable securities
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laws and regulations and shall not be deemed to have breached its obligations
under this Section 4.17 by virtue thereof.
SECTION 4.18. [Intentionally Omitted]
SECTION 4.19. Maintenance of Properties; Insurance; Books and Records;
Compliance with Law.
(a) The Issuer shall, and shall cause each of its Restricted
Subsidiaries to, at all times cause all properties used or useful in the conduct
of their business to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment, and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto.
(b) The Issuer shall maintain, and shall cause to be
maintained for each of its Restricted Subsidiaries, insurance covering such
risks as are usually and customarily insured against by corporations similarly
situated, in such amounts as shall be customary for corporations similarly
situated and with such deductibles and by such methods as shall be customary and
reasonably consistent with past practice.
(c) The Issuer shall, and shall cause each of its Subsidiaries
to, keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Issuer and each Subsidiary of the Issuer, in accordance with GAAP consistently
applied to the Issuer and its Subsidiaries taken as a whole.
(d) The Issuer shall, and shall cause each of its Subsidiaries
to, comply with all statutes, laws, ordinances or government rules and
regulations to which they are subject, non-compliance with which would
materially adversely affect the business, prospects, earnings, properties,
assets or financial condition of the Issuer and their Subsidiaries taken as a
whole.
SECTION 4.20. Further Assurance to the Trustee.
The Issuer shall, upon the reasonable request of the Trustee,
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the provisions of
this Indenture.
SECTION 4.21. Limitation on Conduct of Business.
The Issuer and its Restricted Subsidiaries will not engage in
any businesses which are not the same as, similar or related to the businesses
in which the Issuer and its Restricted Subsidiaries are engaged in on the Issue
Date.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitation on Consolidation, Amalgamation, Merger and Sale of
Assets.
(a) The Issuer will not consolidate with, amalgamate with,
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Issuer (determined on a
consolidated basis for the Issuer and its Restricted Subsidiaries) as an
entirety or substantially as an entirety in one transaction or a series of
related transactions, to, any Person unless: (i) the Issuer, shall be the
continuing Person, or the Person (if other than the Issuer)) formed by such
consolidation or amalgamation or into which the Issuer, is merged or to which
the properties and assets of the Issuer, are sold, assigned, transferred,
leased, conveyed or otherwise disposed of shall be a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Issuer , under this Indenture, and the Notes, and the
obligations thereunder shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction (including,
without limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred and any Lien granted in connection with
or in respect of the transaction), no Default or Event of Default shall have
occurred and be continuing; and (iii) immediately after giving effect to such
transaction on a pro forma basis the Issuer or such Person (A) shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Issuer immediately prior to such transaction and (B) could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
Section 4.06 hereof; provided that a Person that is a Restricted Subsidiary may
consolidate with, amalgamate with, merge with, or sell, assign, transfer, lease,
convey to or otherwise dispose of all or substantially all of its assets to
Guarantor may merge into the Issuer or another Restricted Subsidiary without
complying with this clause (iii).
(b) In connection with any consolidation, merger or transfer
of assets contemplated by this provision, the Issuer shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this Section 5.01 and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
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For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Issuer, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the Issuer,
shall be deemed to be the transfer of all or substantially all of the properties
and assets of the Issuer.
Each Guarantor (other than any Guarantor whose Guarantee is to
be released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.11)
will not, and the Issuer will not cause or permit any Guarantor to, consolidate
with or merge with or into or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to any Person (other than a
merger of the Issuer with any Guarantor or a merger of Guarantors or a sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the assets of a Guarantor to the Issuer or to any other
Guarantor) unless: (i) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease, conveyance
or other disposition shall have been made is a corporation organized and validly
existing under the laws of the United States or any state thereof or the
District of Columbia; (ii) such entity assumes by supplemental indenture all of
the obligations of such Guarantor under such Guarantee; and (iii) immediately
before and immediately after giving effect to such transaction, no default or
Event of Default shall have occurred or be continuing.
SECTION 5.02. Successor Person Substituted.
Upon any consolidation amalgamation or merger, or any transfer
of all or substantially all of the assets of the Issuer or any Restricted
Subsidiary in accordance with Section 5.01 above, the successor corporation
formed by such consolidation or amalgamation or into which the Issuer is merged
or to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer or such Restricted Subsidiary
under this Indenture with the same effect as if such successor corporation had
been named as the Issuer or such Restricted Subsidiary herein, and thereafter
the predecessor corporation shall be relieved of all obligations and covenants
under this Indenture and the Notes.
ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
The following events are "Events of Default":
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(1) default in the payment of any principal of, or premium, if
any, on the Notes when due (whether at maturity, upon redemption or
otherwise);
(2) default in the payment of any interest on any Note when due
and which default continues for 45 days or more;
(3) default by the Issuer or any Restricted Subsidiary in the
observance or performance of any other covenant in the Notes or this
Indenture for 30 days after written notice from the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes
then outstanding (except in the case of a default with respect to
Sections 4.17 or 5.01, which shall constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(4) failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal
amount of any indebtedness of the Issuer or any Restricted Subsidiary
of the Issuer, or the acceleration of the final stated maturity of such
indebtedness, if, in either case, the aggregate principal amount of
such indebtedness, together with the principal amount of any such
indebtedness in default or failure to pay principal at final maturity
or which has been accelerated, aggregates $5.0 million or more at any
time and such indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
final maturity or acceleration;
(5) any final judgment or judgments which can no longer be
appealed for the payment of money in excess of $5.0 million (net of
amounts covered by insurance) shall be rendered against the Issuer or
any Restricted Subsidiary thereof, and shall not be discharged for any
period of 60 consecutive days during which a stay of enforcement shall
not be in effect;
(6) the Issuer or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of
its creditors, or
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(E) generally is not paying its debts as they become
due;
(7) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against either of the Issuer or any
Restricted Subsidiary in an involuntary case,
(B) appoints a Custodian of either of the Issuer or
any Restricted Subsidiary or for all or substantially all of
the property of either of the Issuer or any Restricted
Subsidiary, or
(C) orders the liquidation of either of the Issuer or
any Restricted Subsidiary,
and the order or decree remains unstayed and in effect for 60 days; or
(8) any of the Guarantees of a Material Subsidiary ceases to be
in full force and effect or any of the Guarantees of a Material
Subsidiary is declared to be null and void and unenforceable or any of
the Guarantees of a Material Subsidiary is found to be invalid or any
of the Guarantors denies its liability under its Guarantee (other than
by reason of release of a Guarantor in accordance with Section 10.05
hereof).
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Subject to Sections 7.01 and 7.02, the Trustee shall not be
charged with knowledge of any Default, Event of Default, Change of Control or
Asset Sale or the requirement for payment of Additional Interest unless written
notice thereof shall have been given to a Responsible Officer at the Corporate
Trust Office of the Trustee by the Issuer or any other Person.
(9) any of the Guarantees of a Material Subsidiary are
determined in a judicial proceeding (i) to be not in full force and
effect, (ii) to be null and void and unenforceable, or (iii) to be
invalid; or any of the Guarantors denies its liability under its
Guarantee (other than by reason of release of a Guarantor in accordance
with Section 10.05 hereof).
The Trustee may withhold notice to the holders of the Notes of
any default (except in payment of principal or premium, if any, or interest on
the Notes or a default in the
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observance or performance of Section 5.01) if the Trustee considers it to be in
the best interest of the holders of the Notes to do so.
If an Event of Default (other than an Event of Default
described in clauses (6) or (7) above) shall have occurred and be continuing,
then the Trustee or the holders of not less than 25% in aggregate principal
amount of the Notes then outstanding by written notice to the Issuer and the
Trustee may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and the same shall become immediately due and payable; provided
that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if (i) all Events of Default, other than nonpayment
of principal, premium, if any, or interest that has become due solely because of
the acceleration, have been cured or waived as provided in this Indenture, (ii)
to the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, (iii) if the Issuer has
paid the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (iv) in the event of the cure or waiver
of an Event of Default of the type described in clauses (6) or (7) of the above
Events of Default, the Trustee shall have received an Officers' Certificate and
an opinion of counsel that such Event of Default has been cured or waived. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in clauses
(6) or (7) of the above Events of Default shall occur, the principal, premium
and interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes.
The holders of a majority in principal amount of the Notes
then outstanding shall have the right to waive any existing default or
compliance with any provision of this Indenture or the Notes and to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, subject to certain limitations provided for in this Indenture and
under the TIA.
No holder of any Note will have any right to institute any
proceeding with respect to this Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered indemnity satisfactory to the Trustee to institute such proceeding as
Trustee, and unless the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. Notwithstanding the foregoing, such
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limitations do not apply to a suit instituted on such Note on or after the
respective due dates expressed in such Note.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Subject to Sections 7.01 and 7.02, the Trustee shall not be
charged with knowledge of any Default, Event of Default, Change of Control or
Asset Sale or the requirement for payment of Additional Interest unless written
notice thereof shall have been given to a Responsible Officer at the Corporate
Trust Office of the Trustee by the Issuer or any other Person.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default
described in Section 6.01(6) or (7)) shall have occurred and be continuing, then
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Notes then outstanding by written notice to the Issuer and the Trustee may
declare to be immediately due and payable the entire principal amount of all the
Notes then outstanding plus accrued interest to the date of acceleration and the
same shall become immediately due and payable; provided that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the holders of a majority in aggregate principal amount of
outstanding Notes may rescind and annul such acceleration if (i) all Events of
Default, other than non-payment of principal, premium, if any, or interest that
has become due solely because of the acceleration, have been cured or waived as
provided in this Indenture, (ii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iii) if the Issuer has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (iv)
in the event of the cure or waiver of an Event of Default of the type described
in clauses (6) or (7) of the above Events of Default, the Trustee shall have
received an Officers' Certificate and an opinion of counsel that such Event of
Default has been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto. In case an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization shall
occur, the principal, premium and interest amount with respect to all of the
Notes shall be due and payable immediately without any declaration or other act
on the part of the Trustee or the holders of the Notes.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, or
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premium, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture and may take any necessary action
requested of it as Trustee to settle, compromise, adjust or otherwise conclude
any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Noteholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative. Any costs
associated with actions taken by the Trustee under this Section 6.03 shall be
reimbursed to the Trustee by the Issuer.
SECTION 6.04. Waiver of Past Defaults and Events of Default.
Subject to Sections 6.02, 6.08 and 8.02 hereof, the Holders of
a majority in principal amount of the Notes then outstanding have the right to
waive any existing Default or Event of Default or compliance with any provision
of this Indenture or the Notes. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereto.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the Notes
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee by this Indenture. The Trustee, however, may
refuse to follow any direction that conflicts with law or this Indenture or that
the Trustee determines may be unduly prejudicial to the rights of another
Noteholder not taking part in such direction, and the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, determines that the action so directed may not lawfully be taken or if
the Trustee in good faith shall, by a Responsible Officer, determine that the
proceedings so directed may involve it in personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
Subject to Section 6.08 below, a Noteholder may not institute
any proceeding or pursue any remedy with respect to this Indenture or the Notes
unless:
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(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer and if requested provide to
the Trustee indemnity reasonably satisfactory to the Trustee against
any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer, and, if requested,
provision of, indemnity; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60 day period by the Holders of a
majority in aggregate principal amount of the Notes then outstanding.
A Noteholder may not use this Indenture to prejudice the
rights of another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 6.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of
the Issuer or any Guarantor shall have any liability for any obligations of the
Issuer or the Guarantors under the Notes, the Guarantees or this Indenture or
for a claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder of the Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes.
SECTION 6.08. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal of, or premium, if
any, and interest of the Note (including Additional Interest) on or after the
respective due dates expressed in the Note, or to bring suit for the enforcement
of any such payment on or after such respective dates, is absolute and
unconditional and shall not be impaired or affected without the consent of the
Holder.
SECTION 6.09. Collection Suit by Trustee.
If an Event of Default in payment of principal, premium or
interest specified in Section 6.01(1) or (2) hereof occurs and is continuing,
the Trustee may recover judgment in its own name and as trustee of an express
trust against the Issuer or the Guarantors (or any other obligor on the Notes)
for the whole amount of unpaid principal and accrued interest remaining
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unpaid, together with interest on overdue principal and, to the extent that
payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate set forth in the Notes, and such further
amounts as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.10. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof) and the Noteholders allowed
in any judicial proceedings relative to the Issuer or the Guarantors (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same after
deduction of its charges and expenses to the extent that any such charges and
expenses are not paid out of the estate in any such proceedings and any
custodian in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan or reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceedings.
SECTION 6.11. Priorities.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07
hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for principal, premium, if any, and interest (including Additional
Interest, if any) as to each, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes; and
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THIRD: to the Issuer or, to the extent the Trustee collects
any amount from any Guarantor, to such Guarantor.
The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 6.11.
SECTION 6.12. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.12 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.08 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
SECTION 6.13. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Issuer, the Guarantors, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default actually known to a Responsible
Officer of the Trustee has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
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(1) The Trustee need perform only those duties that
are specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture
but, in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform on their
face to the requirements of this Indenture (but need not
confirm or investigate the accuracy of mathematical
calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to the
terms hereof.
(4) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its rights,
powers or duties if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity
satisfactory to it against such risk or liability is not
reasonably assured to it.
(d) Whether or not therein expressly so provided, paragraphs
(a), (b), (c) and (e) of this Section 7.01 shall govern every provision of this
Indenture that in any way relates to the Trustee.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it in its sole
discretion against any loss, liability, expense or fee.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer or any
Guarantor. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by the law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01 hereof:
(1) The Trustee may conclusively rely on any document
reasonably believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both,
which shall conform to the provisions of Section 11.05 hereof. The
Trustee shall be protected and shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion.
(3) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed by it with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided that the Trustee's
conduct does not constitute gross negligence or bad faith.
(5) The Trustee may consult with counsel of its selection, and
the advice or opinion of such counsel as to matters of law shall be
full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such
counsel.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may make loans to, accept deposits from,
perform services for or otherwise deal with the either of the Issuer or any
Guarantor, or any Affiliates thereof, with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights. The Trustee,
however, shall be subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes or
any Guarantee, it shall not be accountable for the Issuer's or any Guarantor's
use of the proceeds from the sale of Notes or any
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money paid to the Issuer or any Guaranty pursuant to the terms of this Indenture
and it shall not be responsible for any statement in the Notes, Guarantee or
this Indenture other than its certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each Noteholder notice of the Default
within 90 days after it occurs. Except in the case of a Default in payment of
the principal of, or premium, if any, or interest on any Note or a default in
the observance or performance of any of the obligations of the Issuer under
Article Five, the Trustee may withhold the notice if and so long as a committee
of its Responsible Officers in good faith determine(s) that withholding the
notice is in the best interest of the Noteholders.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after May 15
of any year, commencing May 15, 1999 the Trustee shall mail to each Noteholder a
brief report dated as of such May 15 that complies with TIA ss. 313(a). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c) and TIA Section
313(d).
Reports pursuant to this Section 7.06 shall be transmitted by
mail:
(1) to all Holders of Notes, as the names and addresses of
such Holders appear on the Registrar's books; and
(2) to such Holders of Notes as have, within the two years
preceding such transmission, filed their names and addresses with the
Trustee for that purpose.
A copy of each report at the time of its mailing to
Noteholders shall be filed with the Commission and each stock exchange on which
the Notes are listed. The Issuer shall promptly notify the Trustee when the
Notes are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
The Issuer and the Guarantors shall pay to the Trustee and
Agents from time to time such compensation for its services hereunder as the
parties shall agree from time to time (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust). The Issuer and the Guarantors shall reimburse the Trustee and Agents
upon request for all reasonable disbursements, expenses and advances incurred
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or made by it in connection with its duties under this Indenture, including the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Issuer and the Guarantors shall indemnify each of the
Trustee and any predecessor Trustee for, and hold each of them harmless against,
any and all loss, damage, claim, liability or expense, including without
limitation taxes (other than taxes based on the income of the Trustee or such
Agent) and reasonable attorneys' fees and expenses incurred by each of them in
connection with the acceptance or performance of its duties under this Indenture
including the reasonable costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder (including, without limitation, settlement costs).
The Trustee or Agent shall notify the Issuer and the Guarantors in writing
promptly of any claim asserted against the Trustee or Agent for which it may
seek indemnity. However, the failure by the Trustee or Agent to so notify the
Issuer and the Guarantors shall not relieve the Issuer and Guarantors of their
obligations hereunder except to the extent the Issuer and the Guarantors are
prejudiced thereby.
Notwithstanding the foregoing, the Issuer and the Guarantors
need not reimburse the Trustee for any expense or indemnify it against any loss
or liability incurred by the Trustee through its negligence or bad faith. To
secure the payment obligations of the Issuer and the Guarantors in this Section
7.07, the Trustee shall have a lien prior to the Notes on all money or property
held or collected by the Trustee except such money or property held in trust to
pay principal of and interest on particular Notes. The obligations of the Issuer
and the Guarantors under this Section 7.07 to compensate and indemnify the
Trustee, Agents and each predecessor Trustee and to pay or reimburse the
Trustee, Agents and each predecessor Trustee for expenses, disbursements and
advances shall be joint and several liabilities of the Issuer and each of the
Guarantors and shall survive the resignation or removal of the Trustee and the
satisfaction, discharge or other termination of this Indenture, including any
termination or rejection hereof under any Bankruptcy Law.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
For purposes of this Section 7.07, the term "Trustee" shall
include any trustee appointed pursuant to Article 7.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Issuer and the
Guarantors in writing. The Holders of a majority in principal amount of the
outstanding Notes may remove the Trustee by notifying the Issuer and the removed
Trustee in writing and may appoint a successor
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Trustee with the Issuer's written consent, which consent shall not be
unreasonably withheld. The Issuer may remove the Trustee at its election if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Issuer shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuer or the Holders of a majority in principal amount of the outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Issuer obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Consolidation, Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, subject to Section 7.10 hereof, the successor corporation without
any further act shall be the successor Trustee; provided such entity shall be
otherwise qualified and eligible under this Article 7.
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SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee
(together with its corporate parent) shall have a combined capital and surplus
of at least $100,000,000 as set forth in the most recent applicable published
annual report of condition. The Trustee shall comply with TIA Section 310(b),
including the provision in Section 310(b)(1).
SECTION 7.11. Preferential Collection of Claims Against Issuer.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA ss. 311 (b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
SECTION 7.12. Paying Agents.
The Issuer shall cause each Paying Agent other than the
Trustee to execute and deliver to it and the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
7.12:
(A) that it will hold all sums held by it as agent for the
payment of principal of, or premium, if any, or interest on, the Notes
(whether such sums have been paid to it by the Issuer or by any obligor
on the Notes) in trust for the benefit of Holders of the Notes or the
Trustee;
(B) that it will at any time during the continuance of any
Event of Default, upon written request from the Trustee, deliver to the
Trustee all sums so held in trust by it together with a full accounting
thereof; and
(C) that it will give the Trustee written notice within three
(3) Business Days of any failure of the Issuer (or by any obligor on
the Notes) in the payment of any installment of the principal of,
premium, if any, or interest on, the Notes when the same shall be due
and payable.
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ARTICLE EIGHT
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 8.01. Without Consent of Holders.
The Issuer and the Guarantors, when authorized by a Board
Resolution of each of them, and the Trustee may amend, waive or supplement this
Indenture or the Notes without notice to or consent of any Noteholder:
(1) to comply with Section 5.01 hereof;
(2) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(3) to comply with any requirements of the Commission under
the TIA;
(4) to cure any ambiguity, defect or inconsistency;
(5) in reliance on an Opinion of Counsel, to make any other
change that does not adversely affect the rights of any Noteholders
hereunder;
(6) to add a Guarantor; or
(7) to provide for the issuance of the Exchange Notes or the
Private Exchange Notes in accordance with Section 2.01 in a manner that
does not adversely affect the rights of any Noteholder.
The Trustee is hereby authorized to join with the Issuer and
the Guarantors in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
adversely affects its own rights, duties or immunities under this Indenture.
SECTION 8.02. With Consent of Holders.
The Issuer and the Guarantors (each when authorized by a Board
Resolution) may direct the Trustee to modify or supplement this Indenture or the
Notes with the written consent of the Holders of at least a majority in
aggregate principal amount of the outstanding Notes. The Holders of not less
than a majority in aggregate principal amount of the outstanding Notes may waive
compliance in a particular instance by the Issuer or Guarantors with any
provision of this Indenture or the Notes. Subject to Section 8.04, without the
consent of
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each Noteholder affected, however, an amendment, supplement or waiver, including
a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Notes whose holders must consent to an
amendment, supplement or waiver to this Indenture;
(2) reduce the rate of or change the time for payment of
interest, including defaulted interest, on any Note;
(3) reduce the principal of or premium on or change the stated
maturity of any Note or change the date on which any Notes may be
subject to redemption or repurchase or reduce the redemption or
repurchase price therefor;
(4) make any Note payable in money other than that stated in
the Note or change the place of payment from New York, New York;
(5) waive a default on the payment of the principal of,
interest on, or redemption payment with respect to any Note;
(6) make any change in provisions of this Indenture protecting
the right of each holder of Notes to receive payment of principal of
and interest on such Note on or after the due date thereof or to bring
suit to enforce such payment, or permitting holders of a majority in
principal amount of Notes to waive Defaults or Events of Default;
(7) amend, change or modify in any material respect the
obligation of the Issuer to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate an
Asset Sale Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect
thereto;
(8) modify or change any provision of this Indenture or the
related definitions affecting the ranking of the Notes or any Guarantee
in a manner which adversely affects the holders of Notes; or
(9) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms
of this Indenture.
After an amendment, supplement or waiver under this Section
8.02 becomes effective, the Issuer shall mail to the Holders a notice briefly
describing the amendment, supplement or waiver.
Upon the written request of the Issuer, accompanied by a Board
Resolution authorizing the execution of any such supplemental indenture, and
upon the receipt by the
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Trustee of evidence reasonably satisfactory to the Trustee of the consent of the
Noteholders as aforesaid and upon receipt by the Trustee of the documents
described in Section 8.06 hereof, the Trustee shall join with the Issuer and the
Guarantors in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture, in which case the Trustee may, but shall not be obligated
to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
SECTION 8.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall comply with the TIA as then in effect.
SECTION 8.04. Revocation and Effect of Consents.
Until an amendment, supplement, waiver or other action becomes
effective, a consent to it by a Holder of a Note is a continuing consent
conclusive and binding upon such Holder and every subsequent Holder of the same
Note or portion thereof, and of any Note issued upon the transfer thereof or in
exchange therefor or in place thereof, even if notation of the consent is not
made on any such Note. Any such Holder or subsequent Holder, however, may revoke
the consent as to his Note or portion of a Note, if the Trustee receives the
written notice of revocation before the date the amendment, supplement, waiver
or other action becomes effective.
The Issuer may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such amendment, supplement, or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date unless the consent of the requisite number
of Holders has been obtained.
After an amendment, supplement, waiver or other action becomes
effective, it shall bind every Noteholder, unless it makes a change described in
any of clauses (1) through (8) of Section 8.02 hereof. In that case the
amendment, supplement, waiver or other action shall bind each Holder of a Note
who has consented to it and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's Note.
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SECTION 8.05. Notation on or Exchange of Notes.
If an amendment, supplement, or waiver changes the terms of a
Note, the Trustee (in accordance with the specific written direction of the
Issuer) shall request the Holder of the Note (in accordance with the specific
written direction of the Issuer) to deliver it to the Trustee. In such case, the
Trustee shall place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Issuer or the Trustee so
determines, the Issuer in exchange for the Note shall issue, the Guarantors
shall endorse, and the Trustee shall authenticate a new Note that reflects the
changed terms. Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 8.06. Trustee To Sign Amendments, etc.
The Trustee shall sign any amendment, supplement or waiver
authorized pursuant to this Article 8 if the amendment, supplement or waiver
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver the Trustee shall be
entitled to receive and, subject to Section 7.01 hereof, shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel
stating, in addition to the matters required by Section 11.04, that such
amendment, supplement or waiver is authorized or permitted by this Indenture and
is a legal, valid and binding obligation of the Issuer and Guarantors,
enforceable against the Issuer and Guarantors in accordance with its terms
(subject to customary exceptions).
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture.
The Issuer and the Guarantors may terminate their obligations
under the Notes, the Guarantees and this Indenture, except the obligations
referred to in the last paragraph of this Section 9.01, if there shall have been
cancelled by the Trustee or delivered to the Trustee for cancellation all Notes
theretofore authenticated and delivered (other than any Notes that are asserted
to have been destroyed, lost or stolen and that shall have been replaced as
provided in Section 2.08 hereof) and the Issuer has paid all sums payable by
them hereunder or deposited all required sums with the Trustee.
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After such delivery, the Trustee upon Issuer Request shall
acknowledge in writing the discharge of the Issuer's and the Guarantors'
obligations under the Notes, the Guarantees and this Indenture except for those
surviving obligations specified below.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer in Sections 7.07, 9.05 and 9.06 hereof
shall survive.
SECTION 9.02. Legal Defeasance.
The Issuer may at its option, by Resolution of the Board of
Directors of the Issuer, be discharged from its obligations with respect to the
Notes and the Guarantors discharged from their obligations under the Guarantees
on the date the conditions set forth in Section 9.04 below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Issuer shall be deemed to have paid and discharged the entire
indebtedness represented by the Notes and to have satisfied all its other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Issuer, shall, subject to
Section 9.06 hereof, execute instruments in form and substance reasonably
satisfactory to the Trustee and Issuer acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of outstanding Notes to receive solely from
the trust funds described in Section 9.04 hereof and as more fully set forth in
such Section, payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (B) the Issuer's obligations
with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.11, 4.16 and 4.19 hereof, (C) the rights, powers, trusts, duties, and
immunities of the Trustee hereunder (including claims of, or payments to, the
Trustee under or pursuant to Section 7.07 hereof) and (D) this Article 9.
Subject to compliance with this Article 10, the Issuer may exercise its option
under this Section 9.02 with respect to the Notes notwithstanding the prior
exercise of its option under Section 9.03 below with respect to the Notes.
SECTION 9.03. Covenant Defeasance.
At the option of the Issuer, pursuant to a Resolution of the
Board of Directors of the Issuer, the Issuer and the Guarantors shall be
released from their respective obligations under Sections 4.02 (except for
obligations mandated by the TIA), 4.05 through 4.15, 4.17 and 4.20 through 4.21,
inclusive, and clause (a)(iii) of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 9.04
hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose,
such Covenant Defeasance means that the Issuer and the Guarantors may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section or portion thereof, whether
directly or indirectly by reason of any reference elsewhere herein to any such
specified Section or portion thereof or by reason of any reference in any such
specified
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Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Notes shall be unaffected
thereby.
SECTION 9.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of
Section 9.02 or Section 9.03 hereof to the outstanding Notes:
(1) the Issuer shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 hereof who shall agree to comply with the
provisions of this Article 10 applicable to it) as funds in trust for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
the Notes, (A) United States dollars and/or (B) non-callable U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an
amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally-recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal of, premium, if
any, and accrued interest on the outstanding Notes at the maturity date
of such principal, premium, if any, or interest, or on dates for
payment and redemption of such principal, premium, if any, and interest
selected in accordance with the terms of this Indenture and of the
Notes;
(2) no Event of Default or Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the incurrence
of Indebtedness all of a portion of the proceeds of which will be used
to defease the Notes pursuant to this Article 9 concurrently with such
incurrence), or shall have occurred and be continuing at any time
during the period ending on the 91st day after the date of such deposit
or, if longer, ending on the day following the expiration of the
longest preference period under any Bankruptcy Law applicable to the
Issuer in respect of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period);
(3) such Legal Defeasance or Covenant Defeasance shall not
cause the Trustee to have a conflicting interest for purposes of the
TIA with respect to any securities of the Issuer;
(4) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute default under any
other material agreement or
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instrument to which the Issuer or any of its Subsidiaries is a party or
by which the Issuer or any of its Subsidiaries is bound;
(5) the Issuer shall have delivered to the Trustee an Opinion
of Counsel stating that, as a result of such Legal Defeasance or
Covenant Defeasance, neither the trust nor the Trustee will be required
to register as an investment Issuer under the Investment Issuer Act of
1940, as amended;
(6) in the case of an election under Section 9.02 above, the
Issuer shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling to the effect that
or (ii) there has been a change in any applicable Federal income tax
law with the effect that, and such opinion shall confirm that, the
Holders of the outstanding Notes or Persons in their positions will not
recognize income, gain or loss for United States Federal income tax
purposes solely as a result of such Legal Defeasance and will be
subject to United States Federal income tax on the same amounts, in the
same manner, including as a result of prepayment, and at the same times
as would have been the case if such deposit, Legal Defeasance and
discharge had not occurred;
(7) in the case of an election under Section 9.03 hereof, the
Issuer shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Notes will not recognize
income, gain or loss for United States Federal income tax purposes as a
result of such Covenant Defeasance and will be subject to United States
Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had
not occurred;
(8) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under
Section 10.02 above or the Covenant Defeasance under Section 10.03
hereof (as the case may be) have been complied with;
(9) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by
the Issuer with the intent of preferring the Holders of the Notes over
any other creditors of the Issuer or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Issuer or
others;
(10) the Issuer shall have delivered to the Trustee on Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
Bankruptcy Law; and
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(11) the Issuer shall have paid or duly provided for payment
under terms mutually satisfactory to the Issuer and the Trustee all
amounts then due to the Trustee pursuant to Section 7.07 hereof.
SECTION 9.05. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Other Miscellaneous Provisions.
All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 9.04 hereof in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent, to the Holders of such
Notes, of all sums due and to become due thereon in respect of principal,
premium, if any, and accrued interest, but such money need not be segregated
from other funds except to the extent required by law.
The Issuer and the Guarantors shall (on a joint and several
basis) pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 9.04 hereof or the principal, premium, if any, and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 9 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Issuer from time to time upon a Issuer
Request any money or U.S. Government Obligations held by it as provided in
Section 9.04 hereof which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Issuer's and each Guarantor's obligations under this
Indenture, the Notes and the Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to this Article 9 until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 9.01 hereof; provided that if the Issuer
or the Guarantors have made any payment of principal of, premium, if any, or
accrued interest on any Notes because of the reinstatement of their obligations,
the Issuer or the Guarantors, as the case may be, shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE> 83
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SECTION 9.07. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon written demand of the Issuer, be paid to the Trustee, or
if sufficient moneys have been deposited pursuant to Section 9.04 hereof, to the
Issuer upon an Issuer Request (or, if such moneys had been deposited by the
Guarantors, to such Guarantors), and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
SECTION 9.08. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or
then held by the Issuer or the Guarantors in trust for the payment of the
principal of, or premium, if any, or interest on any Note that are not applied
but remain unclaimed by the Holder of such Note for two years after the date
upon which the principal of, or premium, if any, or interest on such Note shall
have respectively become due and payable shall be repaid to the Issuer (or, if
appropriate, the Guarantors) upon a Issuer Request, or if such moneys are then
held by the Issuer or the Guarantors in trust, such moneys shall be released
from such trust; and the Holder of such Note entitled to receive such payment
shall thereafter, as an unsecured general creditor, look only to the Issuer and
the Guarantors for the payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money shall thereupon cease; provided,
that the Trustee or any such Paying Agent, before being required to make any
such repayment, may, at the expense of the Issuer and the Guarantors, either
mail to each Noteholder affected, at the address shown in the register of the
Notes maintained by the Registrar pursuant to Section 2.03 hereof, or cause to
be published once a week for two successive weeks, in a newspaper published in
the English language, customarily published each Business Day and of general
circulation in the City of New York, New York, a notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing or publication, any unclaimed balance of
such moneys then remaining will be repaid to the Issuer. After payment to the
Issuer or the Guarantors or the release of any money held in trust by the Issuer
or any Guarantors, as the case may be, Noteholders entitled to the money must
look only to the Issuer and the Guarantors for payment as general creditors
unless applicable abandoned property law designates another Person.
<PAGE> 84
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ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Guarantee.
Subject to the provisions of this Article 10 each Guarantor
hereby jointly and severally, fully and unconditionally guarantees, on a senior
unsecured basis, to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors, irrespective of the validity and
enforceability of this Indenture, the Notes or the obligations of the Issuer or
any other Guarantors to the Holders or the Trustee hereunder or thereunder,
that: (a) the principal of, interest and Additional Interest, if any, on the
Notes will be duly and punctually paid in full when due, whether at maturity, by
acceleration or otherwise, and interest on the overdue principal and (to the
extent permitted by law) interest or Additional Interest, if any, on the Notes
and all other obligations of the Issuer or the Guarantors to the Holders or the
Trustee hereunder or thereunder (including amounts due the Trustee under Section
7.7 hereof) and all other obligations of the Issuer Noteholders, the Trustee
hereunder or under the Notes (including fees, expenses or other) will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. Failing payment when
due of any amount so guaranteed, or failing performance of any other obligation
of the Issuer to the Holders, for whatever reason, each Guarantor will be
obligated to pay, or to perform or cause the performance of, the same
immediately. An Event of Default under this Indenture or the Notes shall
constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes or the Trustee to accelerate the obligations of the Guarantors
hereunder in the same manner and to the same extent as the obligations of the
Issuer.
Each of the Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Issuer, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand for payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuer, any right to require a
proceeding first against the Issuer, protest, notice and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the obligations
<PAGE> 85
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contained in the Notes, this Indenture and this Guarantee. This Guarantee is a
guarantee of payment and not of collection. If any Holder or the Trustee is
required by any court or otherwise to return to the Issuer or to any Guarantor,
or any custodian, trustee, liquidator or other similar official acting in
relation to the Issuer or such Guarantor, any amount paid by the Issuer or such
Guarantor to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor further agrees that, as between it, on the one hand, and the Holders
of Notes and the Trustee, on the other hand, (a) subject to this Article 10, the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (b) in the event of any acceleration of such
obligations as provided in Article 6 hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Guarantee.
This Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Issuer
for liquidation or reorganization, should the Issuer become insolvent or make an
Assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Issuer's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Notes are
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee on the Notes, whether as a "voidable
preference," "fraudulent transfer" or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Notes shall, to the
fullest extent permitted by law, be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
No stockholder, officer, director, employee or incorporator,
past, present or future, or any Guarantor, as such, shall have any personal
liability under this Guarantee by reason of his, her or its status as such
stockholder, officer, director, employee or incorporator.
The obligations of each Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the net assets of each
Guarantor, determined in accordance with GAAP.
<PAGE> 86
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A Guarantor shall be released from all of its obligations
under its Guarantee if all of its assets or Capital Stock is sold, in each case
in a transaction in compliance with Section 4.11 above, or the Guarantor merges
with or into or consolidates with, or transfers all or substantially all of its
assets in compliance with Section 5.01 above, or the Guarantor is designated an
Unrestricted Subsidiary in compliance with the other terms of this Indenture,
and such Guarantor has delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.
SECTION 10.02. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 10.01,
each Guarantor hereby agrees that a notation of such Guarantee, substantially in
the form included in Exhibit G hereto, shall be endorsed on each Note
authenticated and delivered by the Trustee and such Guarantee shall be executed
by either manual or facsimile signature of an Officer or an Officer of a general
partner, as the case may be, of each Guarantor. The validity and enforceability
of any Guarantee shall not be affected by the fact that it is not affixed to any
particular Note.
Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.
If an officer of a Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticate the Note on which such Guarantee is endorsed or at any time
thereafter, such Guarantor's Guarantee of such Note shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of the Guarantor.
SECTION 10.03. Limitation of Guarantee.
The obligations of each Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be
<PAGE> 87
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entitled to a contribution from each other Guarantor in a pro rata amount based
on the net assets of each Guarantor, determined in accordance with GAAP.
SECTION 10.04. Additional Guarantors.
The Issuer covenants and agrees that it shall cause any Person
which becomes a Restricted Subsidiary (other than a Foreign Restricted
Subsidiary) to execute a supplemental indenture and any other documentation
requested by the Trustee satisfactory in form and substance to the Trustee
pursuant to which such Restricted Subsidiary shall guarantee the obligations of
the Issuer under the Notes and this Indenture in accordance with this Article 10
with the same effect and to the same extent as if such Person had been named
herein as a Guarantor.
SECTION 10.05. Release of Guarantor.
A Guarantor shall be released from all of its obligations
under its Guarantee if:
(i) the Guarantor has sold all of its assets or the Issuer and
its Restricted Subsidiaries have sold all of the Capital Stock of the
Guarantor owned by them, in each case in a transaction in compliance
with the terms of this Indenture (including Sections 4.11, 4.17 and
5.01); provided that the Asset Sale Proceeds of such sale are applied
in accordance with this Indenture;
(ii) the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its assets to, the Issuer or
another Guarantor in a transaction in compliance with the terms of this
Indenture (including Section 5.01); or
(iii) the Guarantor is designated an Unrestricted Subsidiary in
compliance with the terms of this Indenture (including Section 4.07);
and in each such case, the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with and that such release is authorized and permitted hereunder.
The Trustee shall execute any documents reasonably requested
by the Issuer or a Guarantor in order to evidence the release of such Guarantor
from its obligations under its Guarantee endorsed on the Notes and under this
Article 10.
SECTION 10.06. Waiver of Subrogation.
Each Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Issuer that arise from
the existence, payment, performance
<PAGE> 88
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or enforcement of such Guarantor's obligations under this Guarantee and this
Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Holder of Notes against the Issuer, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Issuer, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or Note on account of such claim or other rights. If
any amount shall be paid to any Guarantor in violation of the preceding sentence
and the Notes shall not have been paid in full, such amount shall have been
deemed to have been paid to such Guarantor for the benefit of, and held in trust
for the benefit of, the Holders of the Notes, and shall forthwith be paid to the
Trustee for the benefit of such Holders to be credited and applied upon the
Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 10.06 is knowingly made in contemplation of
such benefits.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
SECTION 11.02. Notices.
Except for notice or communications to Holders, any notice or
communication shall be given in writing and delivered in person, sent by
facsimile, delivered by commercial courier service or mailed by first-class
mail, postage prepaid, addressed as follows:
<PAGE> 89
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If to the Issuer or any Guarantor:
PEN HOLDINGS, INC.
Center Court Building
5110 Maryland Way
Post Office Box 2128
Brentwood, TN 37027
Attention: Chief Financial Officer
Fax Number: (615) 371-7388
with, in the case of any notice furnished pursuant to Article
6, a copy to:
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
301 Grant Street
One Oxford Center
20th Floor
Pittsburgh, PA 15129
Attention: Ronald Basso, Esq.
Fax Number: (412) 562-1041
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust
Trustee Administration
Fax Number: (212) 815-5915
Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.
The Issuer, the Guarantors or the Trustee by written notice to
the others may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Noteholder shall be
mailed to him by first-class mail, postage prepaid, at his address shown on the
register kept by the Registrar.
<PAGE> 90
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Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication to a Noteholder is mailed in the
manner provided above, it shall be deemed duly given, whether or not the
addressee receives it.
In case by reason of the suspension of regular mail service,
or by reason of any other cause, it shall be impossible to mail any notice as
required by this Indenture, then such method of notification as shall be made
with the approval of the Trustee shall constitute a sufficient mailing of such
notice.
SECTION 11.03. Communications by Holders with Other Holders.
Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or the
Notes. The Issuer, the Guarantors, the Trustee, the Registrar and anyone else
shall have the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer or any Guarantor
to the Trustee to take any action under this Indenture, the Issuer or such
Guarantor shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the
statements set forth in Section 11.05 below) stating that, in the
opinion of the signers, all conditions precedent, if any, provided for
in this Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel (which shall include the statements
set forth in Section 11.05 below) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate and Opinion.
Each certificate and opinion with respect to compliance by or
on behalf of the Issuer or any Guarantor with a condition or covenant provided
for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
<PAGE> 91
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(3) a statement that, in the opinion of such Person, it or he
has made such examination or investigation as is necessary to enable it
or him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such covenant or condition has been complied with.
SECTION 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
meetings of Noteholders. The Registrar and Paying Agent may make reasonable
rules for their functions.
SECTION 11.07. Business Days; Legal Holidays.
A "Business Day" is a day that is not a Legal Holiday. A
"Legal Holiday" is a Saturday, a Sunday, a United States federally-recognized
holiday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
SECTION 11.09. Submission to Jurisdiction; Waiver of Immunities.
By the execution and delivery of this Indenture, each of the
Issuer and each Guarantor acknowledges that it submits to the jurisdiction of
any Federal or State court in the State of New York, Borough of Manhattan.
To the extent that the Issuer or any Guarantor has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, the Issuer and each Guarantor hereby irrevocably waives such
immunity in respect of its obligations under this Indenture and the Securities,
to the extent permitted by law.
<PAGE> 92
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SECTION 11.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan, security or debt agreement of the Issuer or any Subsidiary thereof. No
such indenture, loan, security or debt agreement may be used to interpret this
Indenture.
SECTION 11.11. No Recourse Against Others.
No recourse for the payment of the principal of or premium, if
any, or interest, including Additional Interest, on any of the Notes, or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Issuer or any Guarantor in
this Indenture or in any supplemental indenture, or in any of the Notes, or
because of the creation of any Indebtedness represented thereby, shall be had
against any stockholder, officer, director or employee, as such, past, present
or future, of the Issuer or of any successor corporation or against the property
or assets of any such stockholder, officer, employee or director, either
directly or through the Issuer or any Guarantor, or any successor corporation
thereof, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the Notes are solely obligations of the
Issuer and the Guarantors, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, any stockholder, officer, employee or
director of the Issuer or any Guarantor, or any successor corporation thereof,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or the Notes or implied therefrom, and that any and all such personal liability
of, and any and all claims against every stockholder, officer, employee and
director, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of the
Notes. It is understood that this limitation on recourse is made expressly for
the benefit of any such shareholder, employee, officer or director and may be
enforced by any of them.
SECTION 11.12. Successors.
All agreements of the Issuer and the Guarantors in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee, any additional trustee and any Paying Agents in this Indenture
shall bind its successor.
SECTION 11.13. Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture.
Each signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
<PAGE> 93
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SECTION 11.14. Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 11.15. Separability.
Each provision of this Indenture shall be considered separable
and if for any reason any provision which is not essential to the effectuation
of the basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE> 94
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed all as of the date and year first written above.
PEN HOLDINGS, INC.
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
THE ELK HORN COAL CORPORATION
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
PEN COAL CORPORATION
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
MARINE TERMINALS INCORPORATED
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
RIVER MARINE TERMINALS, INC.
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
<PAGE> 95
PEN HARDWOOD COMPANY
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
PEN COTTON COMPANY
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
PEN COTTON COMPANY
OF SOUTH CAROLINA
By: /s/ MARK A. OLDHAM
----------------------
Name: Mark A. Oldham
Title: Vice President
THE BANK OF NEW YORK, as Trustee
By: /s/ ROBERT A. MASSIMILLO
----------------------------
Name: Robert A. Massimillo
Title: Assistant Vice President
<PAGE> 1
Exhibit 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
dated as of
June 8, 1998
among
PEN HOLDINGS, INC.
and
THE GUARANTORS PARTY HERETO
and
CIBC OPPENHEIMER CORP.,
as Initial Purchaser
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions....................................................... 1
2. Exchange Offer.................................................... 5
3. Shelf Registration................................................ 8
4. Additional Interest............................................... 10
5. Registration Procedures........................................... 12
6. Registration Expenses............................................. 23
7. Indemnification................................................... 24
8. Rules 144 and 144A................................................ 28
9. Underwritten Registrations........................................ 28
10. Miscellaneous..................................................... 29
(a) Remedies................................................. 29
(b) Enforcement.............................................. 29
(c) No Inconsistent Agreements............................... 29
(d) Adjustments Affecting Registrable Notes.................. 29
(e) Amendments and Waivers................................... 29
(f) Notices.................................................. 30
(g) Successors and Assigns................................... 30
(h) Counterparts............................................. 31
(i) Headings................................................. 31
(j) Governing Law............................................ 31
(k) Severability............................................. 31
(l) Entire Agreement......................................... 31
(m) Joint and Several Obligations............................ 31
(n) Notes Held by the Obligors or Their Affiliates........... 32
(o) Guarantors to Become Parties............................. 32
-i-
<PAGE> 3
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REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
June 8, 1998, by and among PEN HOLDINGS, INC., a Tennessee corporation (the
"Company"), the guarantors party hereto (the "Guarantors," and together with the
Company, the "Obligors") and CIBC OPPENHEIMER CORP., as initial purchaser
("CIBC" or the "Initial Purchaser").
This Agreement is entered into in connection with the Note
Purchase Agreement, dated as of the date hereof, among the Obligors and the
Initial Purchaser (the "Purchase Agreement") relating to the issuance and sale
by the Company to the Initial Purchaser of up to $100,000,000 aggregate
principal amount of the Company's senior notes due 2008 (the "Notes"), which are
guaranteed on a senior unsecured basis, jointly and severally, by the
Guarantors. In order to induce the Initial Purchaser to enter into the Purchase
Agreement, the Obligors have agreed to provide the registration rights set forth
in this Agreement to the Initial Purchaser and its direct and indirect
transferees and assigns. The execution and delivery of this Agreement is a
condition to the Initial Purchaser's obligation to purchase the Notes under the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
Advice: See Section 5.
Applicable Period: See Section 2(b).
CIBC: See the introductory paragraph to this Agreement.
Closing: See the Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
Consummation Date: The 180th day after the Issue Date.
Effectiveness Date: The 150th day after the Issue Date.
<PAGE> 4
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Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a).
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Filing Date: The 75th day after the Issue Date.
Guarantors: See the introductory paragraph to this Agreement.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c).
Indemnifying Person: See Section 7(c).
Indenture: The Indenture, dated as of June , 1998, by and
among the Company, the Guarantors and The Bank of New York, as trustee, pursuant
to which the Notes are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraph to this
Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 5(o).
Issue Date: The Closing Date (as defined in the Purchase
Agreement).
NASD: See Section 5(t).
Notes: See the introductory paragraph to this Agreement.
<PAGE> 5
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Obligors: See the introductory paragraph to this Agreement.
Participant: See Section 7(a).
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
Private Exchange: See Section 2(b).
Private Exchange Notes: See Section 2(b).
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs to this
Agreement.
Records: See Section 5(o).
Registrable Notes: The Notes upon original issuance of the
Notes and at all times subsequent thereto and, if issued, the Private Exchange
Notes, until in the case of any such Notes or any such Private Exchange Notes,
as the case may be, (i) a Registration Statement covering such Notes or such
Private Exchange Notes has been declared effective by the SEC and such Notes or
such Private Exchange Notes, as the case may be, have been exchanged and/or
disposed of in accordance with such effective Registration Statement, (ii) such
Notes or such Private Exchange Notes, as the case may be, are sold in compliance
with Rule 144, (iii) in the case of any Note, such Note has been exchanged for
an Exchange Note or Exchange Notes pursuant to an Exchange Offer or (iv) such
Notes or such Private Exchange Notes, as the case may be, cease to be
outstanding.
<PAGE> 6
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Registration Default: See Section 4(a).
Registration Statement: Any registration statement of the
Obligors, including, but not limited to, the Exchange Registration Statement,
which covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture.
<PAGE> 7
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underwritten registration or underwritten offering: A
registration under the Securities Act in which securities of the Company are
sold to an underwriter(s) for reoffering to the public.
2. Exchange Offer
(a) Unless such an offer is not permitted by applicable law or
SEC policy, each Obligor, jointly and severally, agrees to use its reasonable
best efforts to file with the SEC as soon as practicable after the Closing, but
in no event later than the Filing Date, a registration statement covering an
offer to exchange (the "Exchange Offer") any and all of the Registrable Notes
for a like aggregate principal amount of debt securities of the Company which
are identical in all material respects to the Notes (the "Exchange Notes"),
guaranteed by the Guarantors (and which are entitled to the benefits of the
Indenture, except that the Exchange Notes shall have been registered pursuant to
an effective registration statement under the Securities Act and will not
contain terms with respect to transfer restrictions. The Exchange Offer will be
registered under the Securities Act on the appropriate form (the "Exchange
Registration Statement"), and the Exchange Offer will comply with all applicable
tender offer rules and regulations under the Exchange Act. Each Obligor jointly
and severally agrees to use its reasonable best efforts to (x) cause the
Exchange Registration Statement to become effective under the Securities Act on
or before the Effectiveness Date; (y) keep the Exchange Offer open for at least
30 days (or longer if required by applicable law) after the date that notice of
the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer
with respect to all Notes validly tendered on the earliest practicable date
after the Exchange Registration Statement is declared effective (in any event on
or prior to the Consummation Date) (or, in the event of any extension of the
Exchange Offer required by applicable law, the earliest day following any such
extension). Each Holder who participates in the Exchange Offer will be required
to represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, that such Holder is not an affiliate of
any Obligor within the meaning of Rule 405 promulgated under the Securities Act
or if it is such an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable, and that is not acting on
<PAGE> 8
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behalf of any Person who could not truthfully make the foregoing
representations. Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Notes that are Private Exchange
Notes and Exchange Notes held by Participating Broker-Dealers, and the Obligors
shall have no further obligation to register Registrable Notes (other than
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers)
pursuant to Section 3 of this Agreement.
(b) The Obligors shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 promulgated
under the Exchange Act) of Exchange Notes received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the reasonable judgment of the Initial Purchaser,
represent the prevailing views of the staff of the SEC. Such "Plan of
Distribution" section shall also allow the use of the Prospectus by all Persons
subject to the prospectus delivery requirements of the Securities Act, including
all Participating Broker-Dealers, and include a statement describing the means
by which Participating Broker-Dealers may resell the Exchange Notes.
Each Obligor shall use its reasonable best efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such Persons must comply with such
requirements in order to resell the Exchange Notes, provided that such period
shall not exceed 180 days (or such longer period if extended pursuant to the
last paragraph of Section 5) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having, or which are reasonably
likely to be determined to have, the status as an unsold allotment in the
initial distribution, the Obligors upon the request of the Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the
<PAGE> 9
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Exchange Offer, issue and deliver to Initial Purchaser, in exchange (the
"Private Exchange") for the Notes held by the Initial Purchaser, a like
principal amount of debt securities of the Obligors that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes"),
guaranteed by the Guarantors (and which are entitled to the benefits of the
Indenture) except for the placement of a restrictive legend on the Private
Exchange Notes. If possible, the Private Exchange Notes shall bear the same
CUSIP number as the Exchange Notes. Interest on the Exchange Notes and Private
Exchange Notes will accrue from the last interest payment date on which interest
was paid on the Notes surrendered in exchange therefor or, if no interest has
been paid on the Notes, from the Issue Date. Holders of Exchange Notes and
Private Exchange Notes shall vote together as a class on all matters under the
Indenture.
In connection with the Exchange Offer, the Obligors shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(iii) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York City time, on the last business day on
which the Exchange Offer shall remain open.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Obligors shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(ii) deliver promptly to each Holder of Notes, Exchange Notes or
Private Exchange Notes, as the case may be, equal in principal amount
to the Notes of such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer,
the Obligors or Holders of at least a majority in aggregate
<PAGE> 10
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principal amount of the Registrable Notes reasonably determine in good faith
that (i) the Exchange Notes would not, upon receipt, be freely transferable by
such Holders which are not affiliates (within the meaning of the Securities Act)
of the Obligors without restriction under the Securities Act and without
restrictions under applicable state securities laws or (ii) after conferring
with counsel, the SEC is unlikely to permit the commencement of the Exchange
Offer prior to the Effectiveness Date, (2) subsequent to the consummation of the
Private Exchange, any holder of the Private Exchange Notes so requests or (3)
the Exchange Offer is commenced and not consummated prior to the Consummation
Date, then the Obligors shall promptly deliver to the Holders written notice
thereof (the "Shelf Notice") and shall file an Initial Shelf Registration
pursuant to Section 3. The parties hereto agree that following the delivery of a
Shelf Notice to the Holders of Registrable Notes (in the circumstances
contemplated by clauses (1) and (3) of the preceding sentence), the Obligors
shall not have any further obligation to conduct the Exchange Offer or the
Private Exchange under this Section 2.
3. Shelf Registration
If a Shelf Notice is required to be delivered as contemplated
by Section 2(c) or if the Initial Purchaser shall hold any Notes representing an
unsold allotment on the Effective Date, then:
(a) Initial Shelf Registration. The Obligors shall prepare and
file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the then existing
Registrable Notes (the "Initial Shelf Registration"). If the Obligors shall have
not yet filed an Exchange Registration Statement on the Filing Date, each
Obligor shall use its reasonable best efforts to file with the SEC the Initial
Shelf Registration on or prior to the Filing Date. If the Initial Purchaser
shall hold any Notes representing an unsold allotment on the Effectiveness Date,
each Obligor shall use its reasonable best efforts to file with the SEC the
Initial Shelf Registration on or prior to the 10th day following the
Effectiveness Date. In any other instance, each Obligor shall use its reasonable
best efforts to file with the SEC the Initial Shelf Registration as promptly as
practicable but, in any event, within 45 days following delivery of the Shelf
Notice. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
such Holders in the manner or manners reasonably designated by them (including,
without limitation,
<PAGE> 11
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one or more underwritten offerings). The Obligors shall not permit any
securities other than the Registrable Notes to be included in the Initial Shelf
Registration or any Subsequent Shelf Registration. Each Obligor shall use its
reasonable best efforts to cause the Initial Shelf Registration to be declared
effective under the Securities Act, if (i) an Exchange Registration Statement
has not yet been declared effective on the Filing Date, on or prior to the
Effectiveness Date, (ii) the Initial Purchaser shall hold any Notes representing
an unsold allotment on the Effectiveness Date, on or prior to the 60th day
following the Effectiveness Date, or, (iii) in any other instance, as soon as
practicable after the filing thereof and in no event later than 90 days after
filing of the Initial Shelf Registration, and to keep the Initial Shelf
Registration continuously effective under the Securities Act until the date
which is 24 months from the date on which such Initial Shelf Registration is
declared effective (subject to extension pursuant to the last paragraph of
Section 5 hereof), or such shorter period ending when (i) all Registrable Notes
covered by the Initial Shelf Registration have been sold in the manner set forth
and as contemplated in the Initial Shelf Registration (ii) a Subsequent Shelf
Registration covering all of the Registrable Notes has been declared effective
under the Securities Act or (iii) all Registrable Notes are eligible for
unrestricted resale purchase to Rule 144(k) under the Securities Act(the
"Effectiveness Period").
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time prior to the termination of the Effectiveness Period, each
Obligor shall use its reasonable best efforts to promptly restore the
effectiveness thereof, and in any event shall, within 45 days of such cessation
of effectiveness, amend the Shelf Registration in a manner reasonably expected
to restore the effectiveness thereof, or file an additional "shelf" Registration
Statement pursuant to Rule 415 covering all of the then existing Registrable
Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is
filed, each Obligor shall use its reasonable best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
for a period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration or any
Subsequent Shelf Registration was previously continuously effective. As used
herein the term "Shelf Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
<PAGE> 12
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(c) Supplements and Amendments. The Obligors shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration or if required by the Securities Act. The Obligors shall
promptly supplement and amend the Shelf Registration if any such supplement or
amendment is requested by the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement or by any
underwriter(s) of such Registrable Notes.
4. Additional Interest
(a) The Obligors and the Initial Purchaser agree that the
Holders of Registrable Notes will suffer damages if the Obligors fail to fulfill
their obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay additional interest on the Notes ("Additional
Interest") under the circumstances and to the extent set forth below:
(i) if neither the Exchange Registration Statement nor the Initial
Shelf Registration has been filed on or prior to the Filing Date;
(ii) if neither the Exchange Registration Statement nor the Initial
Shelf Registration has been declared effective on or prior to the
Effectiveness Date;
(iii) if an Initial Shelf Registration has not been filed (x) on or
prior to the date 45 days after delivery of the Shelf Notice or (y) if
the Initial Purchaser shall hold any Notes representing the unsold
allotment on the Effectiveness Date, on or prior to the 10th day
following the Effectiveness Date;
(iv) if an Initial Shelf Registration has not been declared effective
(x) on or prior to the date 125 days after the delivery of the Shelf
Notice or (y) if the Initial Purchaser shall hold any Notes
representing the unsold allotment on the Effectiveness Date, then on or
prior to the 60th day following the Effectiveness Date; and/or
(v) if (A) the Company has not exchanged the Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 30th day after the date on which the Exchange
Offer Registration
<PAGE> 13
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Statement was declared effective or (B) the Exchange Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated as to all Notes validly tendered or (C)
if applicable, the Shelf Registration has been declared effective and
such Shelf Registration ceases to be effective at any time prior to the
termination of the Effectiveness Period.
(each such event referred to in clauses (i) through (v) above is a "Registration
Default"). The sole remedy available to Holders of the Notes for a Registration
Default will be the accrual of Additional Interest as follows: the per annum
interest rate on the Notes will increase by 50 basis points during the first
90-day period following the occurrence of a Registration Default and until it is
waived or cured; and the per annum interest rate will increase by an additional
25 basis points for each subsequent 90-day period during which the Registration
Default remains uncured, up to a maximum additional interest rate of 200 basis
points per annum, provided, however, that (x) only Holders of Private Exchange
Notes shall be entitled to receive Additional Interest as a result of a
Registration Default pursuant to clause (iii) or (iv); (y) the Obligors shall in
no event be required to pay Additional Interest for more than one Registration
Default at any given time and (z) (1) upon the filing of the Exchange
Registration Statement or the Initial Shelf Registration (in the case of (i)
above), (2) upon the effectiveness of the Exchange Registration Statement or a
Shelf Registration (in the case of (ii) above), (3) upon the filing of the Shelf
Registration (in the case of (iii) above), (4) upon the effectiveness of the
Shelf Registration (in the case of (iv) above), or (5) upon the exchange of
Exchange Notes for all Notes tendered or the effectiveness of a Shelf
Registration (in the case of (v)(A) above), or upon the subsequent effectiveness
of the Exchange Registration Statement which had ceased to remain effective or
the effectiveness of a Shelf Registration (in the case of (v)(B) above), or upon
the subsequent effectiveness of the Shelf Registration which had ceased to
remain effective (in the case of (v)(C) above), Additional Interest on the Notes
as a result of such clause (i), (ii), (iii), (iv) or (v) (or the relevant
subclause thereof), as the case may be, shall cease to accrue and the interest
rate on the Notes will revert to the interest rate originally borne by the
Notes.
(b) The Obligors shall notify the Holders within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due
<PAGE> 14
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pursuant to (a)(i), (a)(ii), (a)(iii), (a)(iv) or (a)(v) of this Section 4 will
be payable in cash semi-annually on each June 15 and December 15 (to the Holders
of record on the June 1 and December 1 in immediately preceding such dates),
commencing with the first such date occurring after any such Additional Interest
commences to accrue and until such Registration Default is cured, immediately
available funds in sums sufficient to pay such Additional Interest. The amount
of Additional Interest will be determined by multiplying the applicable
Additional Interest rate by the principal amount of the Registrable Notes,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months and, in the case of a
partial month, the actual number of days elapsed), and the denominator of which
is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Section 2 or 3 hereof, the Obligors shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto the
Obligors shall:
(a) Prepare and file with the SEC, as provided herein, a
Registration Statement or Registration Statements as prescribed by
Section 2 or 3, and use their respective reasonable best efforts to
cause each such Registration Statement to become effective and remain
effective as provided herein, provided that, if (1) such filing is
pursuant to Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Obligors shall, upon written request, furnish
to and afford the Holders of the Registrable Notes covered by such
Registration Statement and each such Participating Broker-Dealer, as
the case may be, their counsel and the managing underwriter(s), if any,
a reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (to the extent
practicable, at least 5 business days prior to such filing). The
Obligors shall
<PAGE> 15
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not file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded an
opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriter(s), if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, as the case may be;
cause the related Prospectus to be supplemented by any prospectus
supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force)
under the Securities Act; and comply with the provisions of the
Securities Act and the Exchange Act applicable to them with respect to
the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and
with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the
Obligors shall be deemed not to have used their reasonable best efforts
to keep a Registration Statement effective during the Applicable Period
if any of them voluntarily takes any action that would result in
selling Holders of the Registrable Notes covered thereby or
Participating Broker-Dealers seeking to sell Exchange Notes not being
able to sell such Registrable Notes or such Exchange Notes during that
period unless such action is required by applicable law or unless the
Obligors comply with this Agreement, including without limitation, the
provisions of clauses 5(c)(v) and (vi) below.
(c) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders
of Registrable Notes, or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriter(s), if any,
promptly (but in any event within two business days), and confirm such
notice
<PAGE> 16
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in writing, (i) when a Prospectus or any prospectus supplement or
post-effective amendment thereto has been filed, and, with respect to a
Registration Statement or any post-effective amendment thereto, when
the same has become effective under the Securities Act (including in
such notice a written statement that any Holder may, upon request,
obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment thereto including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary Prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a Prospectus is required by the
Securities Act to be delivered in connection with sales of the
Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Obligors
contained in any agreement (including any underwriting agreement)
contemplated by Section 5(n) below cease to be true and correct, (iv)
of the receipt by any of the Obligors of any notification with respect
to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer for offer
or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or any
information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in,
or amendments or supplements to, such Registration Statement,
Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
and (vi) of any Obligor's reasonable determination that a
post-effective amendment to a Registration Statement would be necessary
or appropriate.
<PAGE> 17
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(d) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, use their reasonable best
efforts to prevent the issuance of any order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or
exemption from qualification) of any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer, for sale
in any jurisdiction, and, if any such order is issued, to use their
reasonable best efforts to obtain the withdrawal of any such order as
promptly as practicable.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter(s), if any, or the Holders of
a majority in aggregate principal amount of the Registrable Notes being
sold in connection with an underwritten offering, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriter(s), if any, or such Holders
reasonably request to be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of
the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(f) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes who so requests and to each such
Participating Broker-Dealer who so requests and to counsel and the
managing underwriter(s), if any, without charge, one conformed copy of
the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to
be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange
<PAGE> 18
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Registration Statement filed pursuant to Section 2 is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, deliver
to each selling Holder of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel, and the managing
underwriter or underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses (including each form of preliminary
Prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, each
Obligor hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case
may be, and the managing underwriter or underwriters or agents, if any,
and dealers (if any), in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use their reasonable best
efforts to register or qualify, and to cooperate with the selling
Holders of Registrable Notes or each such Participating Broker-Dealer,
as the case may be, the managing underwriter or underwriters, if any,
and their respective counsel in connection with the registration or
qualification of (or exemption from such registration or
qualification), such Registrable Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder, Participating Broker-Dealer, or the
managing underwriter or underwriters, if any, reasonably request in
writing, provided that where Exchange Notes held by Participating
Broker-Dealers or Registrable Notes are offered other than through an
underwritten offering, the Obligors agree to cause their counsel to
perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h); keep
each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to
be kept effective and do any and all other acts or things reasonably
necessary
<PAGE> 19
-17-
or advisable to enable the disposition in such jurisdictions of the
Exchange Notes held by Participating Broker-Dealers or the Registrable
Notes covered by the applicable Registration Statement; provided that
no Obligor shall be required to (A) qualify generally to do business in
any jurisdiction where it is not then so qualified, (B) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in any such jurisdiction where it is not otherwise so subject.
(i) If a Shelf Registration is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use their reasonable best efforts to cause the Registrable
Notes covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the managing
underwriter or underwriters, if any, to consummate the disposition of
such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which
case each Obligor will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi), as promptly as
reasonably practicable prepare and (subject to Section 5(a)) file with
the SEC, at the joint and several expense of each Obligor, a supplement
or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference,
<PAGE> 20
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or file any other required document so that, as thereafter delivered to
the purchasers of the Registrable Notes being sold thereunder or to the
purchasers of the Exchange Notes to whom such Prospectus will be
delivered by a Participating Broker-Dealer, any such Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(l) Use their reasonable best efforts to cause the Registrable
Notes covered by a Registration Statement or the Exchange Notes, as the
case may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement or the
Exchange Notes, as the case may be, or the managing underwriter or
underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) issue certificates for
the Registrable Notes or Exchange Notes, as the case may be, in a form
eligible for deposit with The Depository Trust Company and (ii) provide
a CUSIP number for the Registrable Notes or Exchange Notes, as the case
may be.
(n) In connection with an underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting
agreement upon such reasonable terms and conditions as are customary in
underwritten offerings of debt securities similar to the Notes and take
all such other actions as are reasonably requested by the managing
underwriter(s), if any, in order to expedite or facilitate the
registration or the disposition of such Registrable Notes, and in such
connection, (i) make such reasonable representations and warranties to
the managing underwriter or underwriters on behalf of any underwriters,
with respect to the business of the Company and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, as are customarily
made by issuers to underwriters in underwritten offerings of debt
securities similar to the Notes, and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Obligors and updates
thereof in form and substance reasonably satisfactory to the managing
underwriter or underwriters,
<PAGE> 21
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addressed to the managing underwriter or underwriters covering the
matters customarily covered in opinions received in underwritten
offerings of debt securities similar to the Notes and such other
customary matters as may be reasonably requested by the managing
underwriter(s); (iii) obtain "cold comfort" letters and updates thereof
in form and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Obligors (and, if necessary, any other independent
certified public accountants of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to the
managing underwriter or underwriters on behalf of any underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such
other matters as may be reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Notes covered by
such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent required
thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold,
or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters participating in any such
disposition of Registrable Notes, if any, and any attorney, accountant
or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of
<PAGE> 22
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the Company (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Company to supply all information in each case reasonably requested
by any such Inspector in connection with such Registration Statement.
Records which the Company determines, in good faith, to be confidential
and any Records which they notify the Inspectors are confidential shall
not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a material misstatement or
material omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such
Records has been made generally available to the public. Each selling
Holder of such Registrable Notes and each such Participating
Broker-Dealer or underwriter will be required to agree that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Obligors or for any purpose other
than in connection with such Registration Statement unless and until
such is made generally available to the public. Each selling Holder of
such Registrable Notes and each such Participating Broker-Dealer will
be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent
jurisdiction, give prompt notice to the Company and allow the Company
to undertake appropriate action to prevent disclosure of the Records
deemed confidential at their expense.
(p) Provide an indenture trustee for the Registrable Notes or
the Exchange Notes, as the case may be, and cause the Indenture to be
qualified under the TIA not later than the effective date of the
Exchange Registration Statement or the first Registration Statement
relating to the Registrable Notes; and in connection therewith,
cooperate with the Holders of the Registrable Notes to enable the
Indenture to be so qualified in accordance with the terms of the TIA;
and execute, and use their respective reasonable best efforts to cause
such trustee to execute, all forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely
manner.
(q) Comply in all material respects with all applicable rules
and regulations of the SEC and make generally available to its
securityholders earnings statements
<PAGE> 23
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satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which
Registrable Notes are sold to underwriters in a firm commitment or best
efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal
quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Obligors, in a form
reasonable and customary for underwritten offerings of debt securities
similar to the Notes, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the
Private Exchange, as the case may be, and which includes an opinion
that (i) each Obligor has duly authorized, executed and delivered the
Exchange Notes and Private Exchange Notes and the Indenture and (ii)
each of the Exchange Notes or the Private Exchange Notes, as the case
may be, and the Purchase Agreement constitute a legal, valid and
binding obligation of each Obligor, enforceable against each Obligor in
accordance with its respective terms (with reasonable and customary
exceptions and qualifications).
(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Obligors (or to such other Person as directed by the Obligors) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Obligors shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being canceled in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be; and, in no event shall such Registrable Notes be marked as
paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by
any Registration Statement and the managing underwriter(s), if any,
participating in the disposition of such Registrable Notes and their
respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
<PAGE> 24
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(u) Use their respective reasonable best efforts to take all
other reasonable steps necessary to effect the registration of the
Registrable Notes covered by a Registration Statement contemplated
hereby.
The Obligors may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Obligors such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, as the
Obligors may, from time to time, reasonably request. The Obligors may exclude
from such registration the Registrable Notes of any seller or Participating
Broker-Dealer who fails to furnish such information within a reasonable time
after receiving such request. Each seller as to which any Shelf Registration is
being effected agrees to furnish promptly to the Obligors all information
required to be disclosed in order to make the information previously furnished
to the Obligors by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder
will forthwith discontinue disposition of such Registrable Notes covered by such
Registration Statement or Prospectus or Exchange Notes to be sold by such Holder
or Participating Broker-Dealer, as the case may be, until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k), or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and has received copies of any amendments or supplements
thereto. If so requested by an Obligor, each Holder will use commercially
reasonable efforts to deliver to the requesting Obligor (at such Obligor's cost)
all copies, other than permanent file copies, then in such Holder's possession,
of the requested Prospectus within a reasonable period after receipt of such
notice. In the event the Company shall give any such notice, each of the
Effectiveness Period and the Applicable Period shall be extended by the number
of days during such periods from and including the date of the giving of such
notice to and including the date when each seller of Registrable Notes covered
by such Registration Statement or Exchange Notes to be sold by such Holder or
Participating Broker-Dealer, as the case
<PAGE> 25
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may be, shall have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 5(k) or (y) the Advice.
6. Registration Expenses
(a) All reasonable fees and expenses incident to the
performance of or compliance with this Agreement by the Obligors shall be borne
by the Obligors, jointly and severally, whether or not the Exchange Offer or a
Shelf Registration is filed or becomes effective, including, without limitation,
(i) all registration and filing fees (including, without limitation, (A) fees
with respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions in the United States (x) where the Holders of Registrable Notes
are located, in the case of the Exchange Notes, or (y) as provided in Section
5(h), in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses if the printing of
Prospectuses is reasonably requested by the managing underwriter or
underwriters, if any, or, in respect of Registrable Notes or Exchange Notes to
be sold by any Participating Broker-Dealer during the Applicable Period, if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or of such
Exchange Notes, as the case may be), (iii) messenger, telephone and delivery
expenses related thereto, (iv) reasonable fees and disbursements of counsel for
the Obligors and reasonable fees and disbursements of special counsel for the
sellers of Registrable Notes (subject to the provisions of Section 6(b)), (v)
fees and disbursements of all independent certified public accountants referred
to in Section 5(n)(iii) (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) rating agency fees, (vii) Securities Act liability insurance,
if the Obligors desire such insurance, (viii) fees and expenses of the Trustee
and its counsel, (ix) fees and expenses of all other Persons retained by the
Obligors, (x) internal expenses of the Obligors
<PAGE> 26
-24-
(including, without limitation, all salaries and expenses of officers and
employees of the Obligors performing legal or accounting duties), (xi) the
expense of any annual audit, (xii) the fees and expenses incurred in connection
with any listing of the securities to be registered on any securities exchange
and (xiii) the expenses relating to printing, word processing and distributing
all Registration Statements, underwriting agreements, indentures, securities
sales agreements and any other documents necessary in order to comply with this
Agreement. In the event of an underwritten offering of Registrable Notes the
Company shall not be responsible for any "roadshow" expenses in connection
therewith.
(b) In connection with any Shelf Registration hereunder, the
Obligors, jointly and severally, shall reimburse the Holders of the Registrable
Notes being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Notes to be included in such Registration Statement and other
reasonable out-of-pocket expenses of the Holders of Registrable Notes incurred
in connection with the registration of the Registrable Notes.
(c) Notwithstanding any of the foregoing, the Obligors shall
not have any obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Notes.
7. Indemnification
(a) Each Obligor, jointly and severally, agrees to indemnify
and hold harmless each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the officers
and directors of each such Person, and each Person, if any, who controls any
such Person within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, a "Participant"), from and against any and
all losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary Prospectus, or caused by, arising out of or based
upon any omission or alleged
<PAGE> 27
-25-
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided that the foregoing
indemnity with respect to any preliminary Prospectus shall not inure to the
benefit of any Participant (or to the benefit of an officer or director of such
Participant or any Person controlling such Participant) from whom the Person
asserting any such losses, claims, damages or liabilities purchased Registrable
Notes or Exchange Notes if such untrue statement or omission or alleged untrue
statement or omission made in such preliminary Prospectus is eliminated or
remedied in the related Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) and a copy of the
related Prospectus (as so amended or supplemented) shall have been furnished to
such Participant at or prior to the sale of such Registrable Notes or Exchange
Notes, as the case may be, to such Person.
(b) Each Participant will be required to agree, severally and
not jointly, to indemnify and hold harmless the Obligors, their respective
directors and officers and each Person who controls any of the Obligors within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Obligors to each
Participant, but only with reference to information relating to such Participant
furnished to the Obligors in writing by such Participant expressly for use in
any Registration Statement or Prospectus, any amendment or supplement thereto,
or any preliminary Prospectus. The liability of any Participant under this
paragraph (b) shall in no event exceed the proceeds received by such Participant
from sales of Registrable Notes or Exchange Notes giving rise to such
obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either paragraph (a) or (b) of this Section 7, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain one counsel reasonably
satisfactory to the
<PAGE> 28
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Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses incurred by such counsel related to such
proceeding. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Indemnifying Person and
the Indemnified Person shall have mutually agreed in writing to the contrary,
(ii) the Indemnifying Person has failed to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and such Indemnified Person shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to any such
Indemnifying Person. It is understood that the Indemnifying Person shall not, in
connection with any proceeding or related proceeding in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate law
firm (in addition to any local counsel) for all Indemnified Persons, and that
all such reasonable fees and expenses shall be reimbursed as they are incurred.
Any such separate firm for the Participants and such control Persons of
Participants shall be designated in writing by Participants who sold a majority
in interest of Registrable Notes and Exchange Notes sold by all such
Participants and any such separate firm for the Obligors, their directors, their
officers and such control Persons of the Obligors shall be designated in writing
by the Obligors. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent, but if settled
with such consent or if there is a final judgment for the plaintiff for which
the Indemnified Person is entitled to indemnification pursuant to this
Agreement, the Indemnifying Person agrees to indemnify any Indemnified Person
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested an Indemnifying Person to reimburse the Indemnified Person
for reasonable fees and expenses incurred by counsel as contemplated by the
third sentence of this paragraph, the Indemnifying Person agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 60 days after receipt
by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying
Person shall not have reimbursed the Indemnified Person in accordance with such
request prior to the date of such settlement; provided, however, that the
Indemnifying Person shall not
<PAGE> 29
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be liable for any settlement effected without its consent pursuant to this
sentence if the Indemnifying Party is contesting, in good faith, the request for
reimbursement. No Indemnifying Person shall, without the prior written consent
of the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is a party and indemnity
has been sought hereunder by such Indemnified Person, unless such settlement
includes an unconditional release (or any other release reasonably acceptable to
the Indemnified Person) of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraphs (a) and
(b) of this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein (other than as a
result of the proviso set forth in Section 7(a)), then each Indemnifying Person
under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the Obligors on
the one hand and the Participants on the other in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
Obligors on the one hand and the Participants on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Obligors or by the
Participants and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this
<PAGE> 30
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Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes exceeds the amount of any damages
that such Participant has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. 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.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
Each Obligor covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder of Registrable Notes, make publicly available other information of
a like nature so long as necessary to permit sales pursuant to Rule 144 or Rule
144A. Each Obligor further covenants that so long as any Registrable Notes
remain outstanding to make available to any Holder of Registrable Notes in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Registrable Notes
pursuant to (a) such Rule 144A, or (b) any similar rule or regulation hereafter
adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banking
firm or firms that will underwrite the offering and the manager or managers that
will manage the offering will be selected by the Holders of a majority in
aggregate principal amount of such Registrable Notes included in such offering
and shall be reasonably acceptable to the Obligors.
No Holder of Registrable Notes may participate in any
underwritten offering hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons
<PAGE> 31
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entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
10. Miscellaneous
(a) Remedies. In the event of a breach by any Obligor of any
of its obligations under this Agreement, other than the occurrence of an event
which requires payment of Additional Interest, each Holder of Registrable Notes,
in addition to being entitled to exercise all rights provided herein, in the
Purchase Agreement or, in the case of the Initial Purchaser, in the Purchase
Agreement or granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. Each Obligor, jointly
and severally, agree that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees, jointly and severally, that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) Enforcement. The Trustee shall be authorized to enforce
the provisions of this Agreement for the ratable benefit of the Holders.
(c) No Inconsistent Agreements. No Obligor has entered, as of
the date hereof, and no Obligor shall enter, after the date of this Agreement,
into any agreement with respect to any of their securities that is inconsistent
with the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. No Obligor has entered or will
enter into any agreement with respect to any of its securities which will grant
to any Person piggy-back rights with respect to a Registration Statement
required to be filed under this Agreement.
(d) Adjustments Affecting Registrable Notes. No Obligor shall,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents
<PAGE> 32
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to departures from the provisions hereof may not be given, unless the Obligors
have obtained the written consent of Holders of at least a majority of the then
outstanding aggregate principal amount of Registrable Notes. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Notes whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Notes may be given by Holders of at least
a majority in aggregate principal amount of the Registrable Notes being sold by
such Holders pursuant to such Registration Statement, provided that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(f) Notices. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day courier or telecopier:
(i) if to a Holder of Registrable Notes or any Participating
Broker-Dealer, at the most current address given by the Trustee to the
Obligors; and
(ii) if to the Obligors, to Pen Holdings, Inc., Center Court Building,
5110 Maryland Way, Suite 300, Brentwood, Tennessee 37027, Attention:
Chief Financial Officer, with a copy to Buchanan Ingersoll Professional
Corporation, One Oxford Centre, Pittsburgh, Pennsylvania 15219,
Attention: Ronald Basso, Esq.
All such notices and communications shall be deemed to have
been duly given: (i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) one business day after being timely delivered to a next-day courier; and
(iv) when receipt is acknowledged by the addressee, if telecopied.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Notes; provided that, with respect
to the indemnity and contribution agreements in Section 7, each
<PAGE> 33
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Holder of Registrable Notes subsequent to the Initial Purchaser shall be bound
by the terms thereof if such Holder elects to include Registrable Notes in a
Shelf Registration; provided, however, that this Agreement shall not inure to
the benefit of or be binding upon a successor or assign of a Holder unless and
except to the extent such successor or assign holds Registrable Notes.
(h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(m) Joint and Several Obligations. Unless otherwise stated
herein, each of the obligations of the Obligors under
<PAGE> 34
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this Agreement shall be joint and several obligations of each of them.
(n) Notes Held by the Obligors or Their Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Notes is required hereunder, Registrable Notes held by the Obligors or their
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(o) Guarantors to Become Parties. The Obligors shall cause
each Person that becomes a "Guarantor" under the Purchase Agreement to execute
and deliver the Joinder Agreement attached hereto as Exhibit A.
<PAGE> 35
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
PEN HOLDINGS, INC.
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
THE ELK HORN COAL CORPORATION
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
PEN COAL CORPORATION
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
MARINE TERMINALS INCORPORATED
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
<PAGE> 36
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RIVER MARINE TERMINALS, INC.
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
PEN HARDWOOD COMPANY
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
PEN COTTON COMPANY
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
PEN COTTON COMPANY
OF SOUTH CAROLINA
By: /S/ MARK A. OLDHAM
----------------------------------------------
Name: Mark A. Oldham
Title: Vice President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
CIBC OPPENHEIMER CORP.
By: /s/ HEINZ NOEDING
------------------------------
Name: Heinz Noeding
Title: Managing Director
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 3, 1998,
by and among PEN HOLDINGS, INC., a Tennessee corporation ("Pen Holdings" or
"Borrower")
A
N
D
MELLON BANK, N.A., a national banking association ("Mellon"), CIBC INC. and any
other "Banks" which are hereafter made a party to this Agreement in accordance
with the provisions of Section 9.15 of the Credit Agreement (individually a
"Bank" and collectively, the "Banks") and Mellon, as Agent for the Banks (in
such capacity, the "Agent")
RECITALS:
WHEREAS, the Agent, the Banks, the Borrower and certain subsidiaries of
the Borrower entered into a Credit Agreement dated as of August 16, 1994, as
amended (the "Original Credit Agreement"), pursuant to which the Banks agreed to
make certain loans to the Borrower and certain of its subsidiaries in accordance
with, and as provided for in, the Original Credit Agreement;
WHEREAS, the Borrower intends to issue senior, unsecured notes due 2008
in an aggregate principal amount equal to $100,000,000 (the "Senior Notes") on
the terms and conditions described in the Senior Note Offering Memorandum, the
proceeds of which will be used to prepay in full the term loans outstanding
pursuant to the Original Credit Agreement, to prepay in full certain other
indebtedness of the Borrower and its Subsidiaries, and for general corporate
purposes;
WHEREAS, the Borrower has requested that the Original Credit Agreement
be amended and restated in order to, among other things, (i) increase the
Revolving Credit Commitments of the Banks to the aggregate principal amount of
$40,000,000, (ii) terminate the commitments to make the Term Loans, and (iii)
amend and restate the Original Credit Agreement, as more particularly provided
herein; and
WHEREAS, the Banks and the Borrower have agreed to amend and restate
the Original Credit Agreement as set forth below.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained in this Agreement, and intending to be legally bound, the
parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. In addition to other words and terms defined
elsewhere in this Agreement, the following words and terms have the following
meanings, respectively, unless the context otherwise clearly requires:
"Active Subsidiaries" means any of the Borrower's Consolidated
Subsidiaries which either (i) own Property having a fair value in excess of
$100,000, or (ii) have revenue or income in excess of $100,000 in any fiscal
year during the term of this Agreement.
"Affiliate" means any Person which directly or indirectly controls, or
is controlled by, or is under common control with, the Borrower. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a the Borrower or
entity, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means Mellon Bank, N.A. with an office at Two Mellon Bank
Center, Room 230, Pittsburgh, PA 15259-0001.
"Agreement" means this Amended and Restated Credit Agreement as
amended, modified or supplemented from time to time.
"Applicable Basis Points" means the basis points added to the Prime
Rate with respect to the Prime Rate Option or the basis points added to the
Euro-Rate with respect to the Euro-Rate Option, as the case may be, as
determined by reference to the chart of Applicable Basis Points set forth in
Section 2.03(a) of this Agreement.
"Assignment of Leases and Royalties" means the Assignment of Royalties,
Rents and Coal Leases or the Amended and Restated Assignment of Royalties, Rents
and Coal Leases, as the case may be, dated as of the date of this Agreement, as
amended, modified or supplemented from time to time, executed and delivered by
each of Pen Coal and Elk Horn, respectively, to the Agent.
"Assignment of Intercompany Security Documents" means the Assignment of
Security Documents dated the date of this
2
<PAGE> 3
Agreement, as amended, modified or supplemented from time to time, executed and
delivered by Pen Holdings to the Agent.
"Banks" means, individually or collectively, Mellon Bank, N.A., a
national banking association, with an office at Two Mellon Bank Center, Room
230, Pittsburgh PA 15259-0001, CIBC Inc. with an office at Two Paces West, 2727
Paces Ferry Road, Suite 1200, Atlanta, GA 30339 ("CIBC") and any other "Banks"
which are hereafter made a party to this Agreement in accordance with the
provisions of Section 9.15 of the Credit Agreement and their successors and
assigns. With respect to consents of the Banks under this Agreement and the
other Loan Documents, please see Section 9.03 of this Agreement.
"Bankruptcy Code" means 11 U.S.C. Section 101 et. seq., as the same may
be modified or amended from time to time.
"Big Sandy River Terminal" means the real property, fixtures and other
property interests comprising the Big Sandy River Terminal owned by Pen Coal and
located in Boyd County, Kentucky.
"Borrower" means Pen Holdings.
"Business Day" means any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania or other day on which
the Agent is not open for business in Pittsburgh, Pennsylvania.
"Camden Hardwood" means Camden Hardwood Company, a Tennessee general
partnership.
"Capitalized Lease Obligations" means any amount payable with respect
to any lease of any tangible or intangible property (whether real, personal or
mixed), however denoted, which is required by GAAP to be reflected as a
liability on the face of the balance sheet of the lessee.
"Cash Equivalents" means unrestricted cash and cash equivalents and
equity and debt securities which are marketable without restriction on a
nationally recognized securities exchange.
"Change of Control" means (a) the death of William E. Beckner, or (b)
the failure, at any time, of William E. Beckner to (i) own, free and clear of
all Liens at least 51% of the outstanding voting common stock (on a fully
diluted basis) of Borrower, and (ii) control the election of a majority of the
members of the board of directors of Borrower and each of the Eligible
Subsidiaries.
"Closing Date" means June 8, 1998, or such other date upon which the
parties may agree.
3
<PAGE> 4
"Coal Purchase Agreements" means any coal purchase agreements of any of
the Eligible Subsidiaries which are described in the Collateral Assignment of
Coal Purchase Agreements.
"Coal Supply Agreements" means the (i) Coal Supply Agreement between
Pen Coal Corporation and The Dayton Power and Light Company, dated as of July 1,
1992, as amended; (ii) Coal Contract between Pen Coal Corporation and East
Kentucky Power Cooperative Incorporated, dated as of July 12, 1994, as amended
by Coal Contract Amendment No. 1, dated as of November 25, 1996 and Coal
Contract Amendment No 2, dated as of November 15, 1997; (iii) Coal Supply
Agreement No. 04-21-97-901 between Pen Coal Corporation and Indiana Michigan
Power Company dated as of November 14, 1997; (iv) Agreement between Pen Coal
Corporation and Appalachian Power Company dated as of September 10, 1990; (v)
Coal Supply Agreement between P & C "Bituminous Coal" (now Pen Coal Corporation)
and Taiwan Power Company dated June 15, 1989; (vi) Agreement for the Sale and
Purchase of Coal between Electric Fuels Corporation and Pen Coal Corporation
dated as of February 28, 1991, as amended and restated by the Amended and
Restated Agreement for the Sale and Purchase of Coal, dated January 1, 1995 and
the Second Amended Agreement for the Sale and Purchase of Coal, effective April
1, 1998; (vii) Coal Purchase Order from Alleg-Cassetty Coal Co., Inc. to Pen
Coal dated August 30, 1996; and (viii) any other agreements of any of the
Eligible Subsidiaries which have a term of at least one (1) year and provide for
the supply of at least 250,000 tons per year of coal.
"Code" means the Uniform Commercial Code as in effect on the date of
this Agreement and as amended from time to time, of the state or states having
jurisdiction with respect to all or any portion of the collateral granted or
assigned to the Agent or the Banks from time to time under or in connection with
this Agreement.
"Collateral" has the meaning given to it in the Security Agreements and
the Subsidiary Security Agreements.
"Collateral Assignments of Coal Purchase and Supply Agreements" means
the Collateral Assignment of Coal Purchase and Sales Agreements dated the date
of this Agreement and delivered to Agent by the Eligible Subsidiaries which are
parties to Coal Purchase Agreements or Coal Supply Agreements, as each may be
amended, modified or supplemented from time to time, granting a security
interest in and assigning to the Agent the rights of the Eligible Subsidiaries
in and to the Coal Purchase Agreements and the Coal Supply Agreements.
"Collateral Assignments of Contract Mining Agreements" means the
Collateral Assignment of Contract Mining Agreements dated the date of this
Agreement by each of the Eligible Subsidiaries which
4
<PAGE> 5
are parties to Contract Mining Agreements, delivered to the Agent, as each may
be amended, modified or supplemented from time to time.
"Collateral Assignment of Operating Agreements" means the Collateral
Assignment of Operating Agreements dated the date of this Agreement, as amended,
modified or supplemented from time to time, executed and delivered by each
Eligible Subsidiary to the Agent.
"Columbia Lien" means the lien of [Pocahontas Land Holding Company, as
assignee of Columbia Coal Gasification Corporation] on the coal Inventory of Pen
Coal located on the Pen Coal Real Property located in the State of West
Virginia, equipment of Pen Coal used to mine such coal inventory and accounts
receivable relating to the sale of such coal inventory as provided in that
certain Security Agreement granted by Pen Coal to Columbia Coal Gasification
Corporation dated July 30, 1987 [and assigned to Pocahontas Land Holding Company
by ___________ dated _________.]
"Compliance Certificate" has the meaning given to it in
Section 5.01(d).
"Consolidated Capital Expenditures" for any period means, for the
Borrower and its Consolidated Subsidiaries, on a consolidated basis, all
amounts, including Capitalized Lease Obligations, which in accordance with GAAP
would be debited to fixed asset accounts on a consolidated balance sheet during
such period in respect of the acquisition, construction, improvement,
replacement or betterment of land, buildings, machinery, equipment or of any
other fixed assets or leaseholds during such period.
"Consolidated Cash Taxes" means, with respect to the Borrower and its
Consolidated Subsidiaries, for any period, taxes actually paid during such
period, provided that any payment to the United States Internal Revenue Service
made in connection with a settlement of the Tax Petition shall be included in
the calculation of Consolidated Cash Taxes only to the extent that such payment
exceeds the amount identified as a liability on account of the Tax Petition on
the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
at the time of determination.
"Consolidated Current Maturities of Long Term Debt" means, with respect
to the Borrower and its Consolidated Subsidiaries, for any period, current
maturities of Consolidated Funded Indebtedness actually paid during such period,
provided, however, that Consolidated Current Maturities of Long Term Debt shall
exclude (i) any repayments of any Indebtedness repaid with proceeds of the
Senior Notes and (ii) any payments made during such period on account of (A) the
credit facilities issued
5
<PAGE> 6
pursuant to the Original Credit Agreement, (B) the credit facilities provided by
Wachovia Bank to Pen Cotton, and (C) all other Debt which is paid with proceeds
of the Senior Notes, all for the Borrower and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Consolidated Debt to EBITDA Ratio" means, for any period, as of the
date of determination, the ratio of (i) Consolidated Funded Indebtedness, to
(ii) Consolidated EBITDA.
"Consolidated EBITDA" means, with respect to the Borrower and its
Consolidated Subsidiaries, for any period, as of the date of determination, an
amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus
(ii) the provision for taxes for such period based on income or profits to the
extent such income or profits were included in computing Consolidated Net Income
and any provision for taxes utilized in computing net loss under clause (i)
hereof, plus, (iii) Consolidated Interest Expense for such period, plus (iv)
depreciation and depletion for such period on a consolidated basis, plus (v)
amortization of intangibles for such period on a consolidated basis, plus (vi)
any other non-cash items reducing Consolidated Net Income for such period, plus
(vii) charges resulting from fees and expenses (cash or non-cash) incurred in
connection with the offering of the Senior Notes, the termination of the credit
facilities offered under the Original Credit Agreement, including the redemption
of the warrants issued to the Banks in connection with the Original Credit
Agreement, and the establishment of the Revolving Credit Loans, and charges
resulting from prepayment penalties incurred in connection with the early
retirement of Indebtedness out of the net proceeds from the offering of the
Senior Notes, minus (b) all non-cash items increasing Consolidated Net Income
for such period, minus (c) to the extent not included above, interest income
accruing on restricted cash and Cash Equivalents that the Borrower has deposited
in escrow to fund guarantees of Indebtedness of International Marine Terminals,
minus (d) all cash payments during such period relating to non-cash charges that
were added back in determining Consolidated EBITDA in any prior period, all for
the Borrower and its Consolidated Subsidiaries determined on a consolidated
basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the ratio of (i)
Consolidated EBITDA, to (ii)(A) Consolidated Current Maturities of Long Term
Debt, plus (B) Consolidated Interest Expense, plus (C) Consolidated Cash Taxes,
all for the Borrower and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Consolidated Funded Indebtedness" for any accounting period means all
(i) Debt of Pen Holdings and its Consolidated
6
<PAGE> 7
Subsidiaries (including the current portion thereof) which would for such
accounting period be classified in whole or in part as a long-term liability of
Pen Holdings and its Consolidated Subsidiaries in accordance with GAAP and shall
also in any event include (A) any indebtedness having a final maturity more than
one year from the date of creation of such indebtedness and (B) any
indebtedness, regardless of its term, which is renewable or extendable by such
borrower (pursuant to the terms thereof or otherwise) to a date more than one
year from the date of creation of such indebtedness and (ii) Debt of Pen
Holdings and its Consolidated Subsidiaries (other than accrued expenses or
accrued payables for trade obligations which do not represent borrowed money)
which would for such accounting period be classified in whole or in part as a
current liability of Pen Holdings and its Consolidated Subsidiaries in
accordance with GAAP, less (iii) the value of Cash Equivalents in excess of the
aggregate sum of $3,000,000.
"Consolidated Interest Expense" means, with respect to the Borrower and
its Consolidated Subsidiaries, for any period, without duplication, (i) the
aggregate amount of interest charges, whether expensed or capitalized, incurred
or accrued by the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP for such period (including non-cash
interest payments), plus (ii) to the extent not included in clause (i) above, an
amount equal to the sum of: (A) imputed interest included in Capitalized Lease
Obligations, (B) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (C) the net
costs associated with Rate Protection Agreements and other hedging obligations,
(D) amortization of deferred financing costs and expenses, (E) the interest
portion of any deferred payment obligations, (F) amortization of discount or
premium on Indebtedness, if any, (G) all capitalized interest and all accrued
interest, (H) all non-cash interest expense and (I) all interest incurred or
paid under any guarantee of Indebtedness (including a guarantee of principal,
interest or any combination thereof) of any Person minus to the extent included
in clauses (i) or (ii) above, fees and expenses (cash or non-cash) incurred in
connection with the issuance of the Senior Notes, the termination of the
facilities issued in connection with the Original Credit Agreement, including
the redemption of the warrants issued to the Bank parties to the Original Credit
Agreement, and the establishment of the Revolving Credit Commitments). For
purposes of calculating Consolidated Interest Expense on a pro forma basis, the
interest on Indebtedness bearing a floating rate of interest shall be the
interest rate in effect at the time of determination, taking into account on a
pro forma basis any Rate Protection Agreement applicable to such Indebtedness if
such Rate Protection Agreement has a remaining term at the date of determination
of at least 12 months.
7
<PAGE> 8
"Consolidated Net Income" for any accounting period means the net
income after taxes of Pen Holdings and its Consolidated Subsidiaries for such
period determined in accordance with GAAP; provided, however, that Consolidated
Net Income shall not include any gain or loss attributable to extraordinary
items, determined in accordance with GAAP, or any taxes or tax savings as a
result thereof.
"Consolidated Net Worth" means the shareholders' equity of the Borrower
and its Consolidated Subsidiaries, including common stock, paid-in capital and
retained earnings, but excluding convertible preferred stock, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Subsidiaries" means and includes only those Subsidiaries
whose accounts are fully consolidated with the accounts of Pen Holdings in
accordance with GAAP and Pen Holdings' policy of consolidation as in effect from
time to time and as reflected in Pen Holdings' then most recent annual audited
financial statements, which in any event shall at all times include, Pen Coal,
River Marine and Elk Horn.
"Contract Mining Agreements" means those certain contract mining
agreements described in the Collateral Assignments of Contract Mining
Agreements.
"Corresponding Source of Funds" means in the case of any Rate Segment
of the Euro-Rate Portion of the Loans, the proceeds of hypothetical receipts by
a Notional Euro-Rate Funding Office or by the Agent through a Notional Euro-Rate
Funding Office of one or more dollar deposits in the interbank eurodollar market
at the beginning of the Euro-Rate Period corresponding to such Rate Segment,
having maturities approximately equal to such Euro-Rate Period and in aggregate
amount approximately equal to such Rate Segment.
"Credit Exposure" means, with respect to any Bank, the aggregate
unutilized amount of the Revolving Credit Commitments of such Bank and the
aggregate outstanding principal amount of all Loans made by such Bank.
"Debt" or "Indebtedness" means: (i) indebtedness or liability for
borrowed money, or for the deferred purchase price of property or services
(including trade obligations) whether such indebtedness or liability is matured
or unmatured, liquidated or unliquidated, direct or contingent, and joint or
several; (ii) Capitalized Lease Obligations; (iii) all liabilities in respect of
unfunded vested benefits under any Plan; (iv) obligations under letters of
credit; (v) all guaranties, endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent
8
<PAGE> 9
obligations to purchase, to provide funds for payment, to supply funds to invest
in any Person, or otherwise to assure a creditor against loss; (vi) obligations
secured by any lien on property owned by such Person, whether or not the
obligations have been assumed and (vii) obligations under any Rate Protection
Agreements.
"Debt Issuance" means the creation, issuance or incurrence by the
Borrower or any of Eligible Subsidiaries after the Closing Date of obligations
for borrowed money (whether by loan, the issuance and sale of debt securities or
the sale of property to another Person subject to an understanding or agreement,
contingent or otherwise, to repurchase such property from the Borrower or an
Eligible Subsidiary), other than (i) Indebtedness incurred under this Agreement,
and (ii) Indebtedness permitted pursuant to Section 6.02 (d).
"Deeds of Trust" or "Mortgages" means the Pen Coal Deeds of Trust, the
Pen Coal Mortgage, the Elk Horn Mortgages, the Elk Horn Deed of Trust, the River
Marine Deed of Trust, and the Pen Cotton Mortgage.
"Defined Benefit Plan" means a defined benefit plan as defined at
Section 3(35) of ERISA.
"Disposition" means any sale, assignment, transfer or other disposition
of any Property (whether now owned or hereafter acquired) by the Borrower or any
of its Consolidated Subsidiaries to any Person, excluding any sale, assignment,
transfer, exchange or other disposition of (i) any inventory sold or disposed of
in the ordinary course of business and on ordinary business terms, (ii) any
machinery or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use or no longer useful or productive in connection
with the business of the Borrower or its Consolidated Subsidiaries, (iii)
Property described in clause (i) of the definition of "Non-Core Assets", (iv)
any Property described in clause (ii) of the definition of "Non-Core Assets" to
the extent that the Net Available Proceeds of any Disposition of such Property
does not exceed $3,000,000 in the aggregate in any fiscal year of the Borrower
and its Consolidated Subsidiaries, and (v) any other Property sold, assigned,
transferred, exchanged or disposed of in a transaction or series of transactions
to the extent that Net Available Proceeds do not exceed $1,000,000 in the
aggregate in any fiscal year of the Borrower and its Consolidated Subsidiaries.
"Distributions" has the meaning given to it in Section 6.05 of this
Agreement.
"Eligible Subsidiary" means any of, and "Eligible Subsidiaries" means
all of, Pen Coal, Elk Horn, River Marine and
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<PAGE> 10
Pen Cotton and such other Active Subsidiaries as are approved to be Eligible
Subsidiaries by the Banks, in their sole discretion, after the date of this
Agreement.
"Elk Horn" means The Elk Horn Coal Corporation, a West Virginia
corporation, with its chief executive offices at 5110 Maryland Way, Third Floor
Center Court Building, Brentwood, Tennessee 37027.
"Elk Horn Deed of Trust" means, collectively, those certain Deeds of
Trust, Security Agreement, Assignment and Fixture Filing covering the Elk Horn
Real Property located in West Virginia, executed and delivered by Elk Horn to
the Agent, as the same may be amended, modified or supplemented from time to
time.
"Elk Horn Mortgages" means, collectively, those certain Open-End
Mortgages, Leasehold Mortgages, Security Agreement, Assignment and Fixture
Filing covering the Elk Horn Real Property located in Kentucky, executed and
delivered by Elk Horn to the Agent, as the same may be amended, modified or
supplemented from time to time.
"Elk Horn Real Property" means certain of Elk Horn's real property,
leasehold interests, mineral rights and coal reserves located in Floyd, Pike,
Magoffin, Johnson, Knott, Martin and Letcher Counties, Kentucky and Boone,
Lincoln and Kanawha Counties, West Virginia, as more particularly described in
the Elk Horn Mortgages and the Elk Horn Deeds of Trust, respectively.
"Elk Horn Security Agreement" means the Amended and Restated Security
Agreement dated as of the date of this Agreement, as amended, modified or
supplemented from time to time, executed and delivered by Elk Horn to the Agent.
"Elk Horn Suretyship Agreement" means the Amended and Restated
Suretyship Agreement dated as of the date of this Agreement, as amended,
modified or supplemented from time to time, executed and delivered by Elk Horn
to the Agent.
"Equity Issuance" means (a) any issuance or sale by the Borrower or any
of the Eligible Subsidiaries of (i) any capital stock, (ii) any warrants or
options exercisable in respect of capital stock, or (iii) any other security or
instrument representing an equity interest (or the right to obtain any equity
interest) in the Borrower or any of the Eligible Subsidiaries, or (b) the
receipt by the Borrower or any of the Eligible Subsidiaries after the Closing
Date of any capital contribution (whether or not evidenced by any equity
security issued by the recipient of such contribution).
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<PAGE> 11
"ERISA" means the Employee Retirement Income Security Act of 1974 as in
effect as of the date of this Agreement and as amended from time to time in the
future.
"Euro-Rate" has the meaning given to it in Section 2.16 of
this Agreement.
"Euro-Rate Reserve Percentage" has the meaning given to it
in Section 2.16 of this Agreement.
"Event of Default" means any of the Events of Default described in
Section 7.01 of this Agreement.
"Expiration Date" means May 31, 2003, unless extended in writing by the
Agent in its sole and absolute discretion.
"Federal Funds Effective Rate" means for any day the weighted average
of the rates on overnight federal funds transactions arranged on such day by
Federal Funds Brokers computed and released by the Federal Reserve Bank of
Cleveland (Pittsburgh Branch)(or any successor) in substantially the same manner
as such Federal Reserve Bank currently computes and releases the weighted
average it refers to as the "Federal Funds Effective Rate."
"GAAP" means generally accepted accounting principles (as such
principles may change from time to time) applied on a consistent basis (except
for changes in application with which the Borrower's independent certified
public accountants concur).
"Hazardous Materials Certificate and Indemnification Agreement" means
the Amended and Restated Hazardous Materials Certificate and Indemnification
Agreement dated as of the date of this Agreement, as amended, modified or
supplemented from time to time, executed and delivered by the Borrower and the
Sureties to the Agent.
"Interest Rate Option" has the meaning given to it in Section 2.03.
"Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"Lease Obligation" means an obligation of a lessee under a lease of any
tangible or intangible property (whether real, personal or mixed), including
without limitation, with respect to any period under any such lease, the
aggregate amounts payable by such lessee to or on behalf of the lessor for such
period, including, without limitation, property taxes, insurance, interest and
amortized charges which such lessee is required to pay pursuant to such lease.
Whenever it is necessary to
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<PAGE> 12
determine the amount of Lease Obligations for any period with respect to which
any of the rentals under the relevant lease are not definitely determinable by
the terms of the lease, all such rentals will be estimated in a reasonable
amount for such period.
"Letters of Credit" has the meaning assigned to that term in Section
2.20 of this Agreement.
"Letter of Credit Commitment" has the meaning assigned to it
in Section 2.20 of this Agreement.
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature,
including, but not limited to, any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Loan Document" or "Loan Documents" means singularly or collectively,
as the context may require: (i) this Agreement, (ii) the Notes, (iii) the
Security Agreements, (iv) the UCC-1 financing statements filed in accordance
with the Security Agreements and the Deeds of Trust and the Mortgages, (v) the
Suretyship Agreements, (vi) the Deeds of Trust, (vii) the Mortgages, (viii) the
Hazardous Materials Certificate and Indemnity Agreement, (ix) the Subsidiary
Notes, (x) the Subsidiary Security Agreements and the Subsidiary Assignment of
Leases and Royalties, (xi) the Subsidiary Deeds of Trust and the Subsidiary
Mortgages, (xii) the Assignment of Subsidiary Security Documents, (xiii) the
Pledge Agreements, (xiv) the Collateral Assignments of Coal Purchase Agreements,
(xv) the Assignment of Leases and Royalties, (xvi) the Collateral Assignment of
Operating Agreements, (xvii) the Collateral Assignment of Contract Mining
Agreements and (xviii) any Rate Protection Agreements, and any and all other
documents, instruments, certificates and agreements executed and delivered in
connection with this Agreement, as any of them may be amended, modified,
extended or supplemented from time to time.
"Loan" or "Loans" means the Revolving Credit Loans and any other loan
or loans made by the Banks to the Borrower under this Agreement.
"London Business Day" has the meaning given to it in Section 2.16 of
this Agreement.
"Mandatory Prepayments" has the meaning given to it in Section 2.10(c).
"Marine Terminals" means Marine Terminals Incorporated, a Missouri
corporation with its chief executive offices at 5110
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<PAGE> 13
Maryland Way, Third Floor Center Court Building, Brentwood, Tennessee 37027.
"Marine Terminals Security Agreement" means the Security Agreement
dated as of the date of this Agreement, as amended, modified or supplemented
from time to time, executed and delivered by Marine Terminals to the Agent.
"Marine Terminals Suretyship Agreement" means the Suretyship Agreement
dated as of the date of this Agreement, as amended, modified or supplemented
from time to time, executed and delivered by Marine Terminals to the Agent.
"Material Adverse Effect" shall mean any matter, item, circumstance or
state of events which, in the discretion of the Banks, (i) results or is
reasonably likely to result in a material interruption, disturbance or
impediment to the operation of the business of the Borrower and its Consolidated
Subsidiaries in the ordinary course of their business, (ii) has or is reasonably
likely to have a material adverse effect on the business, financial condition,
prospects, operations or assets of the Borrower and its Consolidated
Subsidiaries, or (iii) has or is reasonably likely to have a material adverse
effect on the ability of the Borrower, the Eligible Subsidiaries or the Sureties
to perform their obligations under this Agreement or the other Loan Documents.
"Material Agreements" has the meaning given to it in Section 3.25 of
this Agreement.
"Mobile Equipment" means all equipment which is (a) mobile, (b) of a
type normally used in more than one jurisdiction, and (c) which is used or
useful in connection with the coal mining, extraction and development activities
or the cotton activities of the Borrower or any of the Eligible Subsidiaries.
"Net Available Proceeds" mean:
(a) in the case of any Disposition, an amount (not less than $0) equal
to the amount of Net Cash Payments received by the Borrower or any of its
Consolidated Subsidiaries in connection with such Disposition; and
(b) in the case of any Debt Issuance or Equity Issuance (other than
Debt Issuances or Equity Issuances which are purchase money transactions or
transactions undertaken in connection with the acquisition of Property [other
than cash or cash equivalents] which is used or useful in the business of the
Borrower and its Consolidated Subsidiaries and which do not result in the
receipt by the Borrower or its Consolidated Subsidiaries of cash or cash
equivalents), the aggregate amount of all cash received by the Borrower and its
Consolidated Subsidiaries in respect of such
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<PAGE> 14
Debt Issuance or Equity Issuance, as the case may be, net of reasonable expenses
incurred by the Company and its Consolidated Subsidiaries in connection
therewith.
"Net Cash Payments" means, with respect to any Disposition, the
aggregate amount of all cash payments (including, without limitation, all cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when cash is received), and
the fair market value of any non-cash consideration (other than the fair market
value of any notes or receivables which represent deferred purchase price),
received by the Borrower or its Consolidated Subsidiaries directly or indirectly
in connection with such Disposition; provided that Net Cash Payments shall be
net of (a) the amount of any legal, title and recording tax expenses,
commissions and other customary fees and expenses paid by the Borrower and its
Consolidated Subsidiaries in connection with such Disposition, (b) any federal,
state and local income or other taxes reasonably estimated to be payable by the
Borrower and its Consolidated Subsidiaries as a result of such Disposition (but
only to the extent that such estimated taxes are actually paid during the 12
month period following the date of such Disposition), (c) any repayments by the
Borrower or its Consolidated Subsidiaries of Indebtedness to the extent that
such Indebtedness is secured by a Lien on the Property that is the subject of
such Disposition, (d) appropriate amounts provided as a reserve in accordance
with GAAP against liabilities associated with the property subject to the
Disposition, including without limitation indemnification or severance costs,
until such time as such amounts are no longer reserved, (e) all payments with
respect to liabilities associated with the property subject to the Disposition,
including without limitation trade payables and other accrued liabilities, and
(f) all distributions and other payments required to be made or made on a pro
rata basis to minority interest holders in the entity effecting the Disposition.
"Non-Core Assets" means (i)(A) the ownership interest of Marine
Terminals in or the international marine terminal owned by International Marine
Terminals, (B) the office building located at 5110 Maryland Way, Brentwood,
Tennessee owned by Pen Holdings, (C) assets associated with the cotton business
or the lumber business operated by Consolidated Subsidiaries of Pen Holdings,
(D) the Big Sandy River Terminal, (E) the stock of Pen Cotton, Pen Cotton
Company, Pen Hardwood or Marine Terminals, and (F) the ownership interest of Pen
Hardwood in or the assets of Camden Hardwood, and (ii) other Property which is
owned by the Borrower or its Consolidated Subsidiaries and which is not
generally accounted for or generally known to be included in the coal division
of Pen Holdings, provided that any such Property is not
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used or useful in the coal operations of Pen Holdings and its Consolidated
Subsidiaries.
"Note" or "Notes" means the Revolving Credit Notes, and any other note
or notes of the Borrower executed and delivered pursuant to this Agreement,
together with all extensions, renewals, refinancings or refundings in whole or
in part.
"Notice of Borrowing" has the meaning ascribed that term in
Section 2.01(c).
"Notional Euro Rate Funding Office" has the meaning ascribed to that
term in Section 2.12.
"Office", when used in connection with the Agent, means its office
located at Two Mellon Bank Center, Room 230, Pittsburgh Pennsylvania 15259-0001,
or such other office of the Agent as the Agent may designate in writing from
time to time.
"Official Body" means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Operating Agreements" means all rail agreements, transportation
agreements, operating agreements, mining agreements and any and all other
agreements of any Borrower or any Eligible Subsidiary with third parties which
are necessary or material to the operations of the Borrower or any of the
Eligible Subsidiaries which are described in the Collateral Assignment of
Operating Agreements.
"PBGC" means the Pension Benefit Guaranty Corporation established under
Title IV of ERISA or any successor to the PBGC.
"Pen Coal" means Pen Coal Corporation, a Tennessee corporation, with
its chief executive offices at 5110 Maryland Way, Third Floor Center Court
Building, Brentwood, Tennessee 37027.
"Pen Coal Deeds of Trust" means, collectively, those certain Credit
Line Deeds of Trust, Leasehold Credit Line Deeds of Trust, Security Agreement,
Assignment and Fixture Filing covering the Pen Coal Real Property located in
West Virginia, executed and delivered by Pen Coal to the Agent, as amended,
modified or supplemented from time to time.
"Pen Coal Mortgage" means that certain Open-End Mortgage, Leasehold
Mortgage, Security Agreement, Assignment and Fixture Filing covering the Pen
Coal Real Property located in Kentucky,
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<PAGE> 16
executed and delivered by Pen Coal to the Agent, as amended, modified or
supplemented from time to time.
"Pen Coal Real Property" means (i) Pen Coal's real property, leasehold
interests, mineral rights and coal reserves located in Wayne, Lincoln and Mingo
Counties, West Virginia, as more particularly described in the Pen Coal Deeds of
Trust, (ii) Pen Coal's real property, fixtures and other property interests
comprising the Devils Trace Preparation Plant located in Wayne County, West
Virginia, and (iii) the Big Sandy River Terminal.
"Pen Coal Security Agreement" means the Amended and Restated Security
Agreement dated as of the date of this Agreement, as amended, modified or
supplemented from time to time, executed and delivered by Pen Coal to the Agent.
"Pen Coal Suretyship Agreement" means the Amended and Restated
Suretyship Agreement dated as of the date of this Agreement, as amended,
modified or supplemented from time to time, executed and delivered by Pen Coal
to the Agent.
"Pen Cotton" means Pen Cotton Company of South Carolina, a South
Carolina corporation with its chief executive offices at 5110 Maryland Way,
Third Floor Center Court Building, Brentwood, Tennessee 37027.
"Pen Cotton Mortgage" means that certain Open-End Mortgage, Leasehold
Mortgage, Security Agreement, Assignment and Fixture Filing covering the Pen
Cotton Real Property located in South Carolina, executed and delivered by Pen
Cotton to the Agent, as amended, modified or supplemented from time to time.
"Pen Cotton Real Property" means (i) Pen Cotton's real property,
fixtures and improvements located in Calhoun County, South Carolina, as more
particularly described in the Pen Cotton Mortgage.
"Pen Cotton Security Agreement" means the Security Agreement dated as
of the date of this Agreement, as amended, modified or supplemented from time to
time, executed and delivered by Pen Cotton to the Agent.
"Pen Cotton Suretyship Agreement" means the Suretyship Agreement dated
as of the date of this Agreement, as amended, modified or supplemented from time
to time, executed and delivered by Pen Cotton to the Agent.
"Pen Cotton Company" means Pen Cotton Company, a Tennessee corporation
with its chief executive offices at 5110 Maryland Way, Third Floor Center Court
Building, Brentwood, Tennessee 37027.
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"Pen Cotton Company Security Agreement" means the Security Agreement
dated as of the date of this Agreement, as amended, modified or supplemented
from time to time, executed and delivered by Pen Cotton Company to the Agent.
"Pen Cotton Company Suretyship Agreement" means the Suretyship
Agreement dated as of the date of this Agreement, as amended, modified or
supplemented from time to time, executed and delivered by Pen Cotton Company to
the Agent.
"Pen Hardwood" means Pen Hardwood Company, a Tennessee corporation with
its chief executive offices at 5110 Maryland Way, Third Floor Center Court
Building, Brentwood, Tennessee 37027.
"Pen Hardwood Security Agreement" means the Security Agreement dated as
of the date of this Agreement, as amended, modified or supplemented from time to
time, executed and delivered by Pen Hardwood to the Agent.
"Pen Hardwood Suretyship Agreement" means the Suretyship Agreement
dated as of the date of this Agreement, as amended, modified or supplemented
from time to time, executed and delivered by Pen Hardwood to the Agent.
"Pen Holdings" means Pen Holdings, Inc., a Tennessee corporation with
its chief executive offices at 5110 Maryland Way, Third Floor Center Court
Building, Brentwood, Tennessee 37027.
"Pen Holdings Charter" means the Charter of Pen Holdings, Inc. filed of
record with the Secretary of State of Tennessee, as amended by amendment to
charter of Pen Holdings, Inc. dated as of, and filed with the Secretary of State
of Tennessee on, January 3, 1996.
"Pen Holdings Security Agreement" means the Amended and Restated
Security Agreement dated as of the date of this Agreement, as amended, modified
or supplemented from time to time, executed and delivered by Pen Holdings to the
Agent.
"Person" means any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" means any deferred compensation program, including both single
and multi-employer plans, subject to Title IV of ERISA and established and
maintained for employees of either of the Borrowers or any Subsidiary or any
controlled group of trades or businesses under common control as defined
respectively in
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Sections 1563 and 414(c) of the Internal Revenue Code of 1986, as amended, of
which either of the Borrowers or any Subsidiary is or becomes a part.
"Plan Employer" means the appropriate Borrower or Surety or any other
Consolidated Subsidiary which is the sponsor or contributor to a Plan for the
benefit of some or all of its or their employees.
"Pledge Agreements" means the Pledge and Security Agreements dated as
of the date of this Agreement, as amended, modified or supplemented from time to
time, executed and delivered by Pen Holdings and any Subsidiary of Pen Holdings
which owns capital stock of an Active Subsidiary to the Agent, pledging all of
the issued and outstanding stock of (x) Pen Coal, Elk Horn, River Marine, Pen
Cotton, Pen Cotton Company, Pen Hardwood and Marine Terminals, and (y) any other
Active Subsidiaries, whether in existence at the Closing Date or thereafter.
"Portion" has the meaning given to it in Section 2.16 of this
Agreement.
"Potential Default" means any event or condition which with notice or
the passage of time would constitute an Event of Default.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by the Agent in Pittsburgh, Pennsylvania as its U.S. prime
lending rate, which may be greater or less than other interest rates charged by
the Agent to other borrowers and is not solely based or dependent upon the
interest rate which the Agent may charge any particular borrower or class of
borrowers. Such interest rate shall change automatically from time to time,
effective as of the effective date of each announced change.
"Prohibited Transaction" means a transaction which is prohibited under
Section 4975 of the Code or Sections 407 or 408 of ERISA.
"Property" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Qualified Acquisition" means any acquisition of Property (other than
Mobile Equipment) which is used or useful in connection with the coal industry
businesses operated by the Borrower and its Eligible Subsidiaries.
"Rate Period" has the meaning given to in Section 2.05 of this
Agreement.
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"Rate Protection Agreements" means any cap, swap, hedge or other
interest rate protection agreement entered into by any of the Borrowers with
Agent or any of the Banks.
"Rate Segment" has the meaning given to it in Section 2.16 of this
Agreement.
"Recapitalization Agreement" means that certain Agreement for the
Recapitalization and Acquisition of Pen Holdings, Inc. dated as of December 29,
1995, entered into by and among the Estate of Eddie P.S. Pen, as seller, William
E. Beckner, as buyer, and Pen Holdings.
"Reportable Event" means any of the events set forth in Section 403(b)
of ERISA or the regulations thereunder, except for any such event as to which
the provision for 30 days' notice to the PBGC is waived under applicable
regulations.
"Required Banks" means Banks holding at least fifty-one percent (51%)
of the Credit Exposures of all of the Banks (provided that such 51% includes the
Agent and at least one other Bank), as calculated at the time of determination.
"Responsible Officer" of the Borrower or a Surety means the president,
any senior vice president, any vice president, the controller, the treasurer or
any assistant treasurer.
"Revolving Credit Commitment" has the meaning assigned to that term in
Section 2.01(a) of this Agreement.
"Revolving Credit Loans" has the meaning assigned to that term in
Section 2.01(a) of this Agreement.
"Revolving Credit Notes" means, individually or collectively, the
revolving credit notes of Pen Holdings executed and delivered pursuant to
Section 2.01(b) of this Agreement, together with all extensions, renewals,
refinancings or refundings in whole or in part.
"River Marine" means River Marine Terminals, Inc., a West Virginia
corporation with its chief executive offices at 5110 Maryland Way, Third Floor
Center Court Building, Brentwood, Tennessee 37027.
"River Marine Deed of Trust" means that certain Credit Line Deed of
Trust, Security Agreement, Assignment and Fixture Filing covering the River
Marine Real Property, executed and delivered by River Marine to the Agent, as
amended, modified or supplemented from time to time.
"River Marine Real Property" means certain of River Marine's real
property, fixtures and other property interests comprising
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the Wayne County River Terminal owned by River Marine and located in Wayne
County, West Virginia, as more particularly described in the River Marine Deed
of Trust.
"River Marine Security Agreement" means the Amended and Restated
Security Agreement dated as of the date of this Agreement, as amended, modified
or supplemented from time to time, executed and delivered by River Marine to the
Agent.
"River Marine Suretyship Agreement" means the Amended and Restated
Suretyship Agreement dated as of the date of this Agreement, as amended,
modified or supplemented from time to time, executed and delivered by River
Marine to the Agent.
"Security Agreements" means individually or collectively the Elk Horn
Security Agreement, the Pen Coal Security Agreement, the River Marine Security
Agreement, the Pen Holdings Security Agreement, the Pen Cotton Security
Agreement, the Marine Terminals Security Agreement, the Pen Cotton Company
Security Agreement and the Pen Hardwood Security Agreement.
"Senior Notes" has the meaning given to it in the recitals of this
Agreement.
"Senior Note Documents" means the Senior Notes, the Senior Note
Indenture, Registration Rights Agreement and the Purchase Agreement (each as
defined in the Senior Note Offering Memorandum) executed and delivered in
connection with the Senior Note Indenture.
"Senior Note Indenture" means the Indenture under which the Senior
Notes shall be issued, which shall be on substantially the same terms as those
set forth in the Senior Note Offering Memorandum.
"Senior Note Offering Memorandum" means the Offering Memorandum dated
June 3, 1998, of the Borrower in respect of its 9.875% Senior Notes Due 2008, a
copy of which has been furnished to the Banks prior to the date hereof.
"Standard Notice" has the meaning given to it in Section 2.16 of this
Agreement.
"Subsidiary" of a Borrower at any time means any corporation of which a
majority of the outstanding capital stock entitled to vote for the election of
directors is at such time owned by the Borrower and/or one or more Subsidiaries.
"Subsidiary Deeds of Trust" means, individually or collectively, those
deeds of trust or mortgages, executed and delivered by each of the Eligible
Subsidiaries in favor of Pen Holdings and assigned by Pen Holdings to the Agent.
The lien of
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the Subsidiary Deeds of Trust shall be junior to the liens of the Deeds of
Trust.
"Subsidiary Notes" means, individually or collectively, those demand
notes, dated the date of this Agreement, executed and delivered by each of the
Eligible Subsidiaries in favor of Pen Holdings, and assigned by Pen Holdings to
the Agent.
"Subsidiary Security Agreements" means, individually or collectively,
those Amended and Restated Security Agreements or Security Agreements dated the
date of this Agreement, executed and delivered by each of the Eligible
Subsidiaries in favor of Pen Holdings, and assigned by Pen Holdings to the
Agent.
"Subsidiary Security Documents" means, individually or collectively,
the Subsidiary Deeds of Trust, the Subsidiary Notes, and the Subsidiary Security
Agreements.
"Sureties" mean all of, and "Surety" means any of, Elk Horn, Pen Coal,
Pen Cotton, River Marine, Pen Cotton Company, Pen Hardwood and Marine Terminals.
"Suretyship Agreements" means, individually or collectively, the Elk
Horn Suretyship Agreement, the Pen Coal Suretyship Agreement, the Pen Cotton
Suretyship Agreement, the River Marine Suretyship Agreement, the Pen Cotton
Company Suretyship Agreement, the Marine Terminals Suretyship Agreement and the
Pen Hardwood Suretyship Agreement.
"Tax Petition" means the Petition filed November 14, 1995 by the
Borrower with the United States Tax Court and captioned "Pen Holdings, Inc. and
Subsidiaries, Petitioner, v. Commissioner of Internal Revenue, Respondent."
"Termination Event" shall mean (i) a Reportable Event, (ii) a distress
termination of a Defined Benefit Plan, or the treatment of a Defined Benefit
Plan amendment as a distress termination of such Plan under Section 4041 of
ERISA, or the filing of a notice of intent to terminate a Defined Benefit Plan
as a distress termination under Section 4041 of ERISA, or (iii) the institution
of proceedings to terminate a single employer Plan by the PBGC under Section
4042 of ERISA.
"UCP" means the Uniform Customs and Practices for Documentary Credits
(1993 Rev.) International Chamber of Commerce CC Publication No. 500, or if such
publication is not published or is superseded or if the Administrative Agent in
its general practice of issuing documentary or standby letters of credit
determines that letters of credit issued by the Administrative Agent shall be
governed or interpreted by another convention, publication, statute or Law, such
successor or substitute
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convention or publication, statute or Law as the Administrative Agent shall
determine, in its sole discretion.
"Welfare Benefit Plan" means a plan providing health, welfare or other
benefits as defined in Section 3(1) of ERISA.
1.02. Construction. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole and "or" has the inclusive meaning
represented by the phrase "and/or". The words "hereof", "herein", "hereunder"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
hereof in any respect. Section and subsection references are to this Agreement
unless otherwise specified.
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ARTICLE II
THE CREDIT
2.01 Revolving Credit Loans.
(a) Revolving Credit Loans. Subject to the terms and
conditions and relying upon the representations and warranties set forth in this
Agreement, the Security Agreements and the other Loan Documents, each Bank
severally agrees (such agreement is sometimes referred to in this Agreement as
the "Revolving Credit Commitment") to make loans (the "Revolving Credit Loans")
to the Borrower at any time or from time to time on or after the Closing Date
and to and including the day immediately preceding the Expiration Date in an
aggregate principal amount not exceeding at any one time outstanding during the
periods specified below the amount set forth opposite its name below:
Commitment
Name of from Closing
Bank % Share Date until Expiration Date
Mellon 50% $20,000,000.00
CIBC 50% $20,000,000.00
- ----------- ---- --------------
Total 100% $40,000,000.00
The aggregate face or stated amount of Letters of Credit at any time outstanding
(less any draws under the Letters of Credit which have been reimbursed by the
Borrower), any unreimbursed draws on Letters of Credit, plus the aggregate
principal amount of all Revolving Credit Loans made by the Banks at any time
outstanding shall not exceed at any time the aggregate of the Revolving Credit
Commitments. If without the consent of the Agent the sum of all Revolving Credit
Loans and the face amount of the Letters of Credit outstanding at any time
exceeds the Revolving Credit Commitment, the Borrower shall immediately repay to
the Agent for the account of the Banks, in funds immediately available, the
amount of such excess together with all accrued interest on the amount of such
repayment. The Borrower may use the proceeds of the Revolving Credit Loans for
(i) general working capital or general corporate purposes of the Borrower or the
Eligible Subsidiaries, (ii) Qualified Acquisitions up to the aggregate amount of
$5,000,000 in any fiscal year of Borrower and the Eligible Subsidiaries, and
(iii) to relend proceeds to Eligible Subsidiaries as permitted by Section
6.04(b), subject to the terms and conditions contained herein. Any relending by
the
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Borrower of proceeds of the Revolving Credit Loans to an Eligible Subsidiary
shall not be in amounts which would cause any Eligible Subsidiary to not be able
to make the representation set forth in Section 3.28 of this Agreement, after
giving effect to the relending of any such proceeds. In no event shall the
proceeds of the Revolving Credit Loans be used (x) for the purchase of coal
inventory produced outside of the United States or (y), except as permitted in
the immediately succeeding sentence, for any purposes other than to support the
coal related businesses of the Borrower and the Eligible Subsidiaries.
Notwithstanding anything to the contrary contained herein, the Borrower may
relend proceeds of the Revolving Credit Loans to (A) Pen Cotton for the general
working capital and general corporate purposes of Pen Cotton only up to the
aggregate amount of $1,100,000.
(b) Revolving Credit Notes. The obligations of the Borrower to
repay the unpaid principal amount of the Revolving Credit Loans made to the
Borrower by the Banks and to pay interest on the unpaid principal amount will be
evidenced in part by the Revolving Credit Notes of the Borrower dated the
Closing Date, in substantially the form attached as Exhibit "A" to this
Agreement, with the blanks appropriately filled.
(c) Making of Revolving Credit Loans. All Revolving Credit
Loans shall be made ratably by the Banks in proportion to their respective
commitments; provided, however, that the failure of any Bank to make a Revolving
Credit Loan shall not relieve any other Bank of its obligation to lend
hereunder. If any Bank fails to make a Revolving Credit Loan, the Agent will use
its best efforts to find another lender to make that Revolving Credit Loan on
the same terms and conditions. On any Business Day when the Borrower desires
that the Banks make a Revolving Credit Loan, Borrower shall provide to the Agent
at its Office Standard Notice of the date, which shall be a Business Day, on
which such Revolving Credit Loan is to be made. Each notice (a "Notice of
Borrowing") required pursuant to this Section shall be given no later than 11:00
a.m., Pittsburgh time, on the last date permitted for such Notice of Borrowing,
and, if in writing, shall be signed by a Responsible Officer of Borrower, and
shall state: (a) the date (which shall be a Business Day) on which the Revolving
Credit Loan is to be made; (b) the principal amount of the Revolving Credit Loan
which shall be the sum of the principal amounts selected pursuant to Section
2.03; and (c) the Interest Rate Option or Interest Rate Options and the
principal amount of Portions selected in accordance with Section 2.03 hereof
and, in the case of a Euro-Rate Portion, the Euro-Rate Period. Each Notice of
Borrowing shall be irrevocable (except as provided in Section 2.15 hereof) and
shall be sent to the Agent by (i) telecopier (which shall be effective when
received), or by (ii) telephone (which shall be effective when telephoned)
confirmed (in the case of Revolving Credit Loans to which the Euro-Rate Option
apply) by first class mail, or by (iii) hand
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delivery, first class or first class express mail (which shall be effective when
received), in all cases with charges prepaid. The Agent shall promptly give
telecopied or telexed notice or telephoned notice confirmed in writing to each
Bank of its Percentage Share and the date of such borrowings. On the date
specified in such Notice of Borrowing, each Bank shall make the proceeds of its
Revolving Credit Loan available at the Office of the Agent, no later than 12:00
noon, Pittsburgh time, in immediately available funds. On the date specified in
such Notice of Borrowing, the Agent shall make the proceeds of the Revolving
Credit Loan available at its office, no later than 4:00 p.m., Pittsburgh time,
in immediately available funds, and upon fulfillment of all applicable
conditions set forth herein, the Agent shall pay or deliver the proceeds of the
borrowing to or upon the order of Borrower. To the extent that any automatic
borrowing service agreement in effect between the Agent and Borrower makes
applicable any other notice or funding arrangements, the terms of such automatic
borrowing service agreement shall control.
(d) Revolving and Reducing Nature of Loans. Until the
Expiration Date, and subject to the limitations herein set forth (including
without limitation the restrictions on prepayments contained in Section 2.10),
Borrower may borrow and reborrow and repay funds under the Revolving Credit
Notes, provided, however, that without the prior written consent of the Agent,
as provided in Section 2.01(a) in this Agreement above, at no time shall the
aggregate unpaid principal balance outstanding under the Revolving Credit Notes
and the face amounts of the Letters of Credit exceed the Revolving Credit
Commitment as set forth in Section 2.01(a). Each repayment shall be made to the
Agent. Provided that no Bank has defaulted on its obligation to fund its
Commitments under this Agreement, the Agent shall apportion each repayment among
the Banks according to each Bank's Percentage Share of the Revolving Credit
Loans.
2.02 Intentionally Deleted.
2.03 Interest Rates.
Interest Rate Options. The unpaid principal amount of the
Loans shall bear interest for each day until due on one or more bases selected
by the Borrower from among the interest rate options (the "Interest Rate
Options") set forth below. The Borrower understands and agrees that subject to
the provisions of this Agreement, including, without limitation, Section 2.06 of
this Agreement, the Borrower may select any number of Interest Rate Options to
apply simultaneously to different parts of the unpaid principal amount of the
Loans made to the Borrower and may select any number of Rate Segments to apply
simultaneously to different parts of the Euro-Rate Portion.
25
<PAGE> 26
Available Interest Rate Options
Prime Rate Option: Loans shall bear interest at a rate per
annum (computed on the basis of a year of 365 or 366 days, as
the case may be) for each day equal to the Prime Rate for such
day plus the Applicable Basis Points, such interest rate to
change automatically from time to time effective as of the
effective date of each change in the Prime Rate.
Euro-Rate Option: For each Rate Segment of the Euro-Rate
Portion with respect to the Loans, Loans shall bear interest
at a rate per annum (computed on the basis of a year of 360
days and actual days elapsed) for each day equal to the
Euro-Rate for such Rate Segment for such day plus the
Applicable Basis Points.
Notwithstanding anything contained in this Agreement to the
contrary, prepayment of any Portion bearing interest at the Euro- Rate
Option shall not be permitted during a Rate Period or shall be subject
to payment of a prepayment fee as set forth in Section 2.11 hereof.
(2) Rates Based Upon Applicable Basis Points.
Applicable Basis Points. The Applicable Basis Points shall be
determined based upon the financial statements of the Borrower and its
Consolidated Subsidiaries submitted to the Banks by Borrower as of the
end of each fiscal quarter of the Borrower in accordance with Section
5.01(b) of this Agreement. The Applicable Basis Points shall be
adjusted effective as of the first day of each fiscal quarter of the
Borrower based upon the financial statements of the Borrower delivered
to the Banks for the immediately preceding fiscal quarter, as provided
in the preceding sentence. The Applicable Basis Points shall be
adjusted as follows based upon the Borrower's Consolidated Debt to
EBITDA Ratio, as calculated on a rolling four quarter basis.
Notwithstanding the foregoing, during the period from the Closing Date
through and including October 31, 1998, the Applicable Basis Points
shall be as set forth in subpart D of the chart set forth below,
regardless of the Borrower's actual
26
<PAGE> 27
Consolidated Debt to EBITDA Ratio for the fiscal quarters ended prior
thereto. The Applicable Basis Points for the period from November 1,
1998 through December 31, 1998 shall be based upon the Borrower's
Consolidated Debt to EBITDA Ratio for the period ending September 30,
1998 and thereafter shall be adjusted as provided above.
<TABLE>
<CAPTION>
APPLICABLE
APPLICABLE BASIS BASIS POINTS TO
POINTS TO BE BE ADDED TO
ADDED TO PRIME EURO RATE CONSOLIDATED DEBT
RATE OPTION OPTION TO EBITDA RATIO
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A 150 basis A 250 basis A Equal to or
points points greater than
REVOLVING 5.50 to 1
CREDIT LOANS ----------------------------------------------------------------------------------------
B 125 basis B 225 basis B Less than 5.50
points points to 1 and
greater than or
equal to 5.00
to 1
----------------------------------------------------------------------------------------
C 100 basis C 200 basis C Less than 5.00
points points to 1 and
greater than or
equal to 4.50
to 1
----------------------------------------------------------------------------------------
D 75 basis D 175 basis D Less than 4.50
points points to 1 and
greater than or
equal to 3.75
to 1
----------------------------------------------------------------------------------------
E 50 basis E 150 basis E Less than 3.75
points points to 1 and
greater than or
equal to 3.00
to 1
----------------------------------------------------------------------------------------
F 25 basis F 125 basis F Less than 3.00
points points to 1 and
greater than or
equal to 1.50
to 1
----------------------------------------------------------------------------------------
G 0 basis G 100 basis G Less than 1.50
points points to 1
----------------------------------------------------------------------------------------
</TABLE>
2.04 Intentionally Deleted.
2.05 Rate Periods. At any time when the Borrower selects, converts to
or renews the Euro-Rate Option, the Borrower shall fix a period (the "Rate
Period") which shall be one, two, three or six months, during which the
Euro-Rate Option shall
27
<PAGE> 28
apply to the corresponding Rate Segment. In no event, however, shall the
Borrower select a Rate Period that extends beyond the Expiration Date. The
Agent's right to payment of principal and interest (on behalf of the Banks)
under the Loans and the Notes shall in no way be affected by the fact that one
or more Rate Periods may be in effect. The Borrower's selections shall apply pro
rata among the Notes evidencing the Loan with respect to which the Interest Rate
Option is being selected.
2.06 Amounts and Maximum Number of Segments.
(a) Amounts. Every selection of, conversion to or renewal of
the Euro-Rate Option for any Loan shall be in the principal amount of $1,000,000
or an integral multiple thereof, which amount shall be selected by the Borrower
and acceptable to Agent in Agent's sole discretion.
(b) Maximum Number of Rate Segments. Notwithstanding any other
provisions in this Agreement to the contrary, at no time shall more than eight
(8) Rate Segments be in existence at any time during the term of this Agreement
with respect to the Loans. If the Borrower attempts to give notice of selection
of the Euro-Rate Option for a Rate Segment on a Loan when five (5) Rate Segments
are in existence with respect to the Loans, such notification shall be deemed to
request the making of the Loan at the Prime Rate Option instead of the Euro-Rate
Option, unless the notice requesting the Euro-Rate Option was issued on account
of new Loans and the Borrower promptly elects to cancel the notice to make a
Rate Segment of new Loans by giving notice of cancellation to the Agent.
2.07 Interest After Default. After the occurrence of an Event of
Default and delivery of notice thereof to the Borrower by the Agent, the Prime
Rate Portion shall bear interest for each day until paid (before and after
judgment) at a rate per annum (based on a year of 365 or 366 days, as the case
may be) equal to two hundred (200) basis points greater than the Prime Rate
Option which would otherwise be in effect, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Prime Rate. After the occurrence of an Event of Default, the
Euro-Rate Portion shall bear interest for each day until paid (before and after
judgment) until the end of the applicable then-current Rate Period at a rate per
annum which shall be two hundred (200) basis points greater than the rate then
in effect. With respect to any Euro- Rate Portion, after the end of the then
applicable Rate Period, interest after an Event of Default shall accrue at a
rate equal to two hundred (200) basis points greater than the Prime Rate Option
which would otherwise be in effect, such interest rate to change automatically
from time to time effective as of the effective date of each change in the Prime
Rate.
28
<PAGE> 29
2.08 Selection, Conversion or Renewal of Rate Options. Subject to the
other provisions hereof, the Borrower may select any Interest Rate Option to
apply to the Loans. Subject to the other provisions hereof, the Borrower may
convert any part of the unpaid principal amount of the Loans from any Interest
Rate Option to any other Interest Rate Option and may renew the Euro-Rate Option
as to any Rate Segment: (a) at any time with respect to conversion from the
Prime Rate Option to the Euro-Rate Option and (b) at the expiration of any Rate
Period with respect to conversion from or renewals of the Euro-Rate Option as to
the Rate Segment corresponding to such expiring Rate Period. Whenever the
Borrower desires to select, convert or renew the Euro-Rate Option, the Borrower
shall give the Agent Standard Notice thereof (which shall be irrevocable, except
as provided in Section 2.15), specifying the date, amount and type of the
proposed new Interest Rate Option. If such notice has been duly given, on and
after the date specified in such notice, interest shall be calculated upon the
unpaid principal amount of the Loan or Loans in question taking into account
such selection, conversion or renewal.
2.09 Prime Rate Fallback. If any Rate Period expires, any part of the
Rate Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with Section 2.08 hereof automatically shall be converted
to the Prime Rate Option.
2.10 Prepayments.
(a) Time of Prepayments. Borrower shall have the right at its
option from time to time to prepay the Prime Rate Portion of the Loans in whole
or in part at any time without penalty. The Borrower shall not have the right to
prepay any part of the Euro Rate Portion of the Loans at any time without the
prior written consent of the Agent except that the Borrower may prepay any part
of any Rate Segment at the expiration of the Rate Period corresponding to such
Rate Segment.
(b) Application of Prepayments. Prepayments shall be applied
first to accrued interest, other outstanding fees or expenses owing to the Agent
or the Banks and charges attributable to principal being prepaid, and then to
installments of principal in inverse order of maturity.
(c) Mandatory Prepayments.
(i) Debt Issuance. Subject to subpart (iv) of this
subsection (c) of Section 2.10, and without limiting the obligation of
the Borrower to obtain the consent of the Banks to any Debt Issuance
prohibited by the terms of this Agreement, upon any Debt Issuance after
the Closing Date, the Borrower shall prepay the Loans and the Revolving
Credit Commitments shall be
29
<PAGE> 30
subject to automatic reduction, in an aggregate amount equal to 100% of
the Net Available Proceeds thereof, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in
subpart (v) of this subsection (c) of Section 2.10.
(ii) Equity Issuance. Subject to subpart (iv) of this
subsection (c) of Section 2.10, and without limiting the obligation of
the Borrower to obtain the consent of the Banks to any Equity Issuance
prohibited by the terms of this Agreement, upon any Equity Issuance
after the Closing Date, the Borrower shall prepay the Loans and the
Revolving Credit Commitments shall be subject to automatic reduction,
in an aggregate amount equal to 75% of the Net Available Proceeds
thereof, such prepayment and reduction to be effected in each case in
the manner and to the extent specified in subpart (v) of this
subsection (c) of Section 2.10.
(iii) Sale of Assets. Subject to subpart (iv) of this
subsection (c) of Section 2.10, and without limiting the obligation of
the Borrower to obtain the consent of the Banks to any Disposition
prohibited by the terms of this Agreement, upon any Disposition after
the Closing Date, the Borrower shall prepay the Loans and the Revolving
Credit Commitments shall be subject to automatic reduction, in an
aggregate amount equal to 100% of the Net Available Proceeds thereof,
such prepayment and reduction to be effected in each case in the manner
and to the extent specified in subpart (v) of this subsection (c) of
Section 2.10.
(iv) Waiver. At the request of the Borrower prior to
the last day on which the Borrower is required to make a prepayment or
reduction in the Revolving Credit Commitments by reason of any event
described in any of the foregoing clauses (i) through (iii) above in
this subsection (c) of Section 2.10 and notwithstanding anything to the
contrary contained in Section 9.03, the Required Banks may waive such
requirement with respect to all or any portion of the amount to be
prepaid or to reduce the Revolving Credit Commitments.
(v) Application. Prepayments and reductions of the
Revolving Credit Commitments described in this subsection (c) of
Section 2.10 shall be applied to reduce the Revolving Credit
Commitments (and to the extent that, after giving effect to such
reduction, the aggregate principal amount of Revolving Credit Loans and
the aggregate face or stated amount of Letters of Credit at any time
outstanding and any unreimbursed draws on Letters of Credit would
exceed the Revolving Credit Commitments, the Borrower shall prepay
Revolving Credit Loans in an amount equal to such excess).
(d) Voluntary Reduction of Commitments. The
30
<PAGE> 31
Borrower shall have the right at any time or from time to time (i) so long as no
Revolving Credit Loans or Letters of Credit are outstanding to terminate the
Revolving Credit Commitments and (ii) to reduce the aggregate unused amount of
the Revolving Credit Commitments of the Banks, pro-rata in accordance with their
respective Credit Exposures, provided that (x) the Borrower shall give notice of
each such termination or reduction as provided in Section 2.14 and (y) any
reduction in the Revolving Credit Commitments shall be made in multiples of
$1,000,000 and in no event shall reduce the aggregate amount of the Revolving
Credit Commitments below the sum of $20,000,000 without the prior written
consent of the Banks. The Revolving Credit Commitments once terminated or
reduced may not be reinstated without the consent of each Bank.
2.11 Additional Compensation in Certain Circumstances; Indemnity.
(a) Compensation for Taxes, Reserves and Expenses on
Outstanding Loans. If any Law or guideline or interpretation or application
thereof enacted, promulgated or effective by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive of any Official Body (whether or not having the force of law) after
the date of this Agreement:
(i) subjects the Agent, any of the Banks or any
Notional Euro-Rate Funding Office to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the Loans or
payments by the Borrower of principal, interest, commitment fee or
other amounts due from the Borrower hereunder or under the Notes
(except for taxes on the overall net income of the Agent, any of the
Banks or such Notional Euro-Rate Funding office imposed by the
jurisdiction in which the principal office of the Agent, any of the
Banks or Notional Euro-Rate Funding Office is located);
(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or
commitments to extend credit by, or assets (funded or contingent) of,
deposits with or for the account of, or other acquisition of funds by,
the Agent, any of the Banks or any Notional Euro-Rate Funding Office
(other than requirements expressly included herein in the determination
of the Euro-Rate, as the case may be, hereunder); or
(iii) imposes, modifies or deems applicable any
capital adequacy or similar requirement (A) against assets (funded or
contingent) of, deposits
31
<PAGE> 32
with or for the account of, other acquisitions of funds by, the Agent,
any of the Banks or any Notional Euro-Rate Funding Office, or (B)
otherwise applicable to the obligations of the Agent, Banks or any
Notional Euro-Rate Funding office under this Agreement; or
(iv) imposes upon any of the Banks or any Notional
Euro-Rate Funding Office any other condition or expense with respect to
this Agreement, the Notes or its making, maintenance or funding of any
part of the Loans or any security therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
of the Banks or any Notional Euro-Rate Funding office with respect to this
Agreement, the Notes or the making, maintenance or funding of any part of the
Loans by an amount which the Agent deems to be material (the Agent being deemed
for this purpose to have made, maintained or funded each Rate Segment of the
Euro-Rate Portion from a Corresponding Source of Funds), the Agent shall from
time to time notify the Borrower in writing of the amount determined in good
faith (using any averaging and attribution methods) by the Agent (which
determination shall be conclusive) to be necessary to compensate the Agent, any
of the Banks or such Notional Euro-Rate Funding Office for such increase in
cost, reduction in income or additional expense. Such amount shall be due and
payable by the Borrower to the Agent ten (10) Business Days after presentation
by the Agent of a statement setting forth a brief explanation of and the Agent's
calculation of such amount, which statement shall be conclusively deemed correct
absent manifest error. Any amount payable to the Agent under this Section
2.11(a) will bear interest (computed for the actual number of days elapsed on
the basis of a year of 360 days) from the due date until paid (before and after
judgment) at (x) the Prime Rate Option during the ten (10) Business Day period
which the Borrower has been given to pay any such amount and (y) the Prime Rate
Option plus two percent (2%) per year thereafter.
(b) Indemnity Regarding Euro-Rate Borrowing and Irrevocable
Notices. The Borrower shall indemnify the Agent, for the ratable benefit of the
Banks, against any loss or expense (including loss of margin) which the Agent or
any of the Banks has sustained or incurred as a consequence of:
(i) payment, prepayment or conversion of any part of
any Rate Segment of the Euro-Rate Portion on a day other than the last
day of the corresponding Rate Period or (whether or not any such
payment is made before or after Default or pursuant to demand or
acceleration by the Agent of the Loans (following occurrence of a
Default), and whether or not any such
32
<PAGE> 33
payment, prepayment of conversion is consented to by the Agent, unless
the Agent shall have expressly waived such indemnity in writing); or
(ii) the Borrower's treatment of any irrevocable
notice given pursuant to Section 2.01 or 2.02 hereof as a revocable
notice (except as provided in Section 2.15 hereof).
If the Agent or any of the Banks sustains any such loss or expense, the Agent
shall from time to time notify the Borrower of the amount determined in good
faith by the Agent (which determination shall be conclusive) to be necessary to
indemnify the Agent or any of the Banks for such loss or expense. Together with
such notice, the Agent shall furnish to the Borrower a certificate as to the
amount due setting forth in reasonable detail the reason for and the method of
calculating such loss or expense, such certificate to be conclusive absent
manifest error. Such amount shall be due and payable by the Borrower, ten (10)
Business Days after presentation by the Agent of a statement setting forth a
brief explanation of and the Agent's calculation of such amount, which statement
shall be conclusively deemed correct absent manifest error. Any amount payable
to the Agent under this Section 2.11(b) will bear interest (computed for the
actual number of days elapsed on the basis of a year of 360 days) from the due
date until paid (before and after judgment) at (x) the Prime Rate Option during
the ten (10) Business Day period which the Borrower has been given to pay any
such amount and (y) the Prime Rate Option plus two percent (2%) per year
thereafter.
(c) General Indemnity; Loss of Margin. The Borrower will
indemnify the Agent and the Banks against any loss, claim, damage or expense
which the Agent or any of the Banks sustain or incur as a consequence of an
Event of Default, including, without limitation, any failure of the Borrower to
pay when due (at maturity, by acceleration or otherwise) any principal,
interest, fee or any other amount due under this Agreement, the Notes or the
other Loan Documents, unless such loss, claim, damage or expense arises solely
from the Agent's or the Banks' gross negligence or willful misconduct. If the
Agent or any of the Banks sustain or incur any such loss, claim, damage or
expense it will from time to time notify the Borrower in writing of the amount
determined by the Agent and the Banks (which determination will be conclusive)
to be necessary to indemnify the Agent and the Banks for the loss, claim, damage
or expense. Such amount will be due and payable by the Borrower to the Agent,
for the account of the Agent and the Banks, within ten (10) days after
presentation by the Agent of a statement setting forth a brief explanation of
and the Agent's and the Banks' calculation of such amount, which statement shall
be conclusively deemed correct absent manifest error. Any amount payable to the
Agent under this Section 2.11(b) will bear interest (computed for
33
<PAGE> 34
the actual number of days elapsed on the basis of a year of 360 days) from the
due date until paid (before and after judgment) at (x) the Prime Rate Option
during the ten (10) Business Day period which the Borrower has been given to pay
any such amount and (y) the Prime Rate Option plus two percent (2%) per year
thereafter.
2.12 Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. The Banks shall have the right from time
to time, prospectively or retrospectively, without notice to either of the
Borrower, to deem any branch, subsidiary or affiliate of any of the Banks to
have made, maintained or funded any part of the Euro-Rate Portion of the Loans
at any time. Any branch, subsidiary or affiliate so deemed shall be known as a
"Notional Euro-Rate Funding Office". The Banks shall deem any part of the
Euro-Rate Portion of the Loans or the funding therefore to have been transferred
to a different Notional Euro-Rate Funding Office if such transfer would avoid or
cure a situation in which any of the Banks declines to permit the Borrower to
select the Euro-Rate Option because it is unascertainable or impracticable for
the Agent to provide same or would lessen any compensation or indemnity payable
to the Banks under Section 2.11 hereof, and if any of the Banks determines in
its sole discretion that such transfer would be practicable and would not have a
material adverse effect on such part of the Loans, the Banks or any Notional
Euro-Rate Funding Office (it being assumed for purposes of such determination
that each part of the Euro-Rate Portion of the Loans is actually made or
maintained by or funded through the corresponding Notional Euro-Rate Funding
Office). Notional Euro-Rate Funding Offices may be selected by the Banks without
regard to the Banks' actual methods of making, maintaining or funding the Loans
or any sources of funding actually used by or available to the Banks.
(b) Actual Funding. The Banks shall have the right from time
to time to make or maintain any part of the Euro-Rate Portion of the Loans by
arranging for a branch, subsidiary or affiliate of any of the Banks to make or
maintain such part of the Euro-Rate Portion of the Loans. The Banks shall have
the right to (i) hold any applicable Note payable to its order for the benefit
and account of such branch, subsidiary or affiliate or (ii) request the Borrower
to issue one or more promissory notes in the principal amount of such part of
the Euro-Rate Portion of the Loans payable to such branch, subsidiary or
affiliate and with appropriate changes reflecting that the holder thereof is not
obligated to make any additional Loans to the Borrower. The Borrower agrees to
comply promptly with any request under clause (ii) of this Section 2.12(b). If
any Bank causes a branch, subsidiary or affiliate to make or maintain any part
of the Loans hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such part of the
Loans and to any
34
<PAGE> 35
note payable to the order of such part of the Euro-Rate Portion of the Loans as
if the Loans were made or maintained by such Bank and such note were a Note
payable to such Bank's order.
2.13 Loan Accounts. Disbursements made, interest due, interest paid,
repayments on the Loans and all other charges billed to or paid by the Borrower
shall be recorded in one or more accounts on the Agent's books designated the
"Revolving Credit Loan Accounts" (the "Loan Accounts"). From time to time, upon
the Borrower's request, the Agent shall furnish the Borrower with a copy of the
Borrower's Loan Accounts. The Borrower agrees that the Loan Accounts shall be
sufficient evidence of the Borrower's obligations to the Agent and the Banks
incurred hereunder and that none other is necessary. All billing statements and
statements of account rendered by the Agent to the Borrower shall be derived
from the Borrower's Loan Accounts and shall be presumed to be correct and
accurate and, absent manifest error, shall constitute an account statement
binding on the Borrower.
2.14 Notices. All notices under Sections 2.08 or 2.10 hereof shall be
Standard Notices and shall be in writing. Section 9.05 hereof shall govern the
method and effective dates of such notices. Written notices by the Borrower
shall not be deemed records of the Agent within the meaning of Section 2.13
hereof whether or not received by the Agent. The Agent may conclusively rely
without inquiry on any notice purporting to be from a Responsible Officer of the
Borrower.
2.15 Euro-Rate Unascertainable; Impracticability.
If
(a) on any date on which a Euro-Rate would otherwise be set,
the Agent shall have in good faith determined (which determination shall be
conclusive) that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate,
(ii) a contingency has occurred which materially and
adversely affects the interbank eurodollar market, or
(iii) the effective cost to the Agent of funding a
proposed Euro-Rate Segment of Loans from a Corresponding Source of
Funds shall exceed the Euro-Rate applicable to such Segment, or
(b) at any time the Agent shall have determined in good faith
(which determination shall be conclusive) that the making, maintenance or
funding of a particular Euro-Rate Loan has been made impracticable or unlawful
35
<PAGE> 36
by compliance by the Agent or a Notional Euro-Rate Funding Office in good faith
with any Law, regulation, order, guideline or interpretation or administration
thereof by any Official Body charged with the interpretation or administration
thereof or with any request or directive of any such Official Body (whether or
not having the force of law);
then, and in any such event, the Agent shall notify the Borrower of such
determination. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of the Agent
to allow the Borrower to select the Euro-Rate Option for any Rate Segment of any
Loans, in any amount in case of a determination under Clause (a) above, or in
excess (in case of a determination under Clause (b) above) of the amount of such
Loans (if any) which is not determined to be impracticable or unlawful shall be
suspended until the Agent shall have notified the Borrower of its determination
in good faith (which determination shall be conclusive) that the circumstances
giving rise to such previous determination no longer exist.
If the Agent notifies the Borrower of a determination under
subsection (b) of this Section 2.15, the Euro-Rate Loan or Loans, if any, in
excess of the amount (if any) not determined to be impracticable or unlawful
shall be due and payable on the date specified in such notice. Absent contrary
notice from the Borrower to the Agent by 11:00 o'clock a.m., Pittsburgh time, on
such date, the Borrower shall be deemed to have given the Agent proper notice to
the effect that the Borrower requests that the Agent make Loans at such time at
the Prime Rate Option in principal amounts equal to the principal amounts
becoming due and payable pursuant to the preceding sentence.
If at any time the Agent makes a determination under
subsection (a) or (b) of this Section 2.15, the Borrower has previously notified
the Agent that it wishes to select the Euro-Rate Option for a Portion of new
Loans, including Loans being converted or renewed at the Euro-Rate Option, but
such Loans have not yet been made, such notification shall be deemed to request
the making of a Portion of the Loans at the Prime Rate Option instead of the
Euro-Rate Option, unless the Borrower promptly elects to cancel the notice to
make a Portion of new Loans by giving notice of cancellation to the Agent.
2.16 Definitions Applicable to Interest Rates. As used in this
Article II:
"Euro-Rate Reserve Percentage" for any day shall mean the
percentage (rounded upward to the nearest 1/100 of 1%), as determined in good
faith by the Agent (which determination shall be conclusive) as representing for
such day
36
<PAGE> 37
the maximum effective reserve requirement (including without limitation
supplemental, marginal and emergency requirements) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "Eurocurrency liabilities") of any maturity. Each Euro-Rate shall be
adjusted automatically as of the effective date of any change in the Euro-Rate
Reserve Percentage.
"Euro-Rate" for any day for any proposed or existing Rate
Segment corresponding to a Rate Period shall mean the rate per annum determined
by the Agent to be the rate per annum obtained by dividing (the resulting
quotient to be rounded upward to the nearest 1/100 of 1%) (A) the rate of
interest (which shall be the same for each day in such Rate Period) estimated in
good faith by the Agent in accordance with its usual procedures (which
determination shall be conclusive) to be the average of the rates per annum for
deposits in United States dollars offered to major money center banks in the
London interbank market at approximately 11:00 a.m., London time, two London
Business Days prior to the first day of such Rate Period for delivery on the
first day of such Rate Period in amounts comparable to such Rate Segment (or, if
there are no such comparable amounts actively traded, the smallest amounts
actively traded) and having maturities comparable to such Rate Period by (B) a
number equal to 1.00 minus the Euro-Rate Reserve Percentage for such day.
The "Euro-Rate" may be expressed by the following formula:
[average of rates offered to major ]
[money banks in the London inter ]
[bank market estimated by the Agent ]
[pursuant to]
Euro Rate = [subsection (A) ]
-------------------------------------
[1.00 - Euro-Rate Reserve Percentage]
"London Business Day" shall mean a day for dealing in deposits
in United States dollars by and among banks in the London interbank market.
"Portion": "Prime Rate Portion" shall mean at any time the
part, including the whole, of the unpaid principal amount of the Loans bearing
interest at such time under the Prime Rate Option or in accordance with the
first sentence of Section 2.03. "Euro-Rate Portion" shall mean at any time the
part bearing interest at such time under the Euro-Rate Option or at a rate
determined by reference to the Euro-Rate Option pursuant to Section 2.03.
"Rate Segment" of the Euro-Rate Portion at any time shall be
the entire principal amount of such Portion to
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<PAGE> 38
which at such time there is applicable a particular Rate Period beginning on a
particular day and ending on another particular day. (By definition, each
Portion is at all times composed of an integral number of discrete Rate
Segments, each corresponding to a particular Rate Period, and the sum of the
principal amounts of all Rate Segments of a particular portion at any time
equals the principal amount of such Portion at such time.)
"Standard Notice" shall mean an irrevocable notice provided to
the Agent on a Business Day which is:
(i) on the same Business Day in the case of selection
of, conversion to or renewal of the Prime Rate option or prepayment of
any Prime Rate Portion; and
(ii) at least three London Business Days in advance
in the case of selection of, conversion to or renewal of the Euro-Rate
Option or prepayment of any Euro-Rate Portion.
Standard Notice must be provided no later than 11:00 a.m., Pittsburgh time, on
the last day permitted for such notice.
2.17 Certain Fees. In addition to other fees and expenses described in
this Agreement, the Borrower shall pay the following fees:
(a) Fee Letter. On the Closing Date and as otherwise set forth
therein, the Borrower shall pay to the Agent the fees described in that certain
Fee Letter dated the date hereof entered into by and between the Agent and the
Borrower.
(b) Unutilized Line Fee. The Borrower shall pay to the Agent,
for the account of the Banks, quarterly, on the first (1st) day (or, if such day
is not a Business Day, the next succeeding Business Day) of each July, October,
January and April of each year during the term of this Agreement (or at the end
of the term of this Agreement), a fee with respect to the unused portion of the
Banks' Revolving Credit Commitment equal to the Applicable Unutilized Line Fee
Percentage per year (based on a 360 day year) of the average of the daily unused
portion of the Banks' Revolving Credit Commitment for the preceding three (3)
calendar month periods (or portion thereof). The unused portion of the Banks'
Revolving Credit Commitment shall, for the purpose of calculating the unutilized
line fee pursuant to this Section 2.17, be deemed to be, for any day during the
term of this Agreement, the difference between the Revolving Credit Commitment
and the principal amount of the Revolving Credit Loans outstanding plus the
aggregate face or stated amount of Letters of Credit at any time outstanding
(less any draws under the Letters of Credit which have been reimbursed by the
Borrower).
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<PAGE> 39
Applicable Unutilized Line Fee Percentage. The Applicable
Unutilized Line Fee Percentage shall be determined based upon
the financial statements of the Borrower and its Consolidated
Subsidiaries submitted to the Banks by Borrower as of the end
of each fiscal quarter of the Borrower in accordance with
Section 5.01(b) of this Agreement. The Applicable Unutilized
Line Fee Percentage shall be adjusted effective as of the
first day of each fiscal quarter of the Borrower based upon
the financial statements of the Borrower delivered to the Bank
for the immediately preceding fiscal quarter, as provided in
the preceding sentence. The Applicable Unutilized Line Fee
Percentage shall be adjusted as follows based upon the
Borrower's Consolidated Debt to EBITDA Ratio as calculated on
a rolling four (4) quarter basis. Notwithstanding the
foregoing, during the period from the Closing Date through and
including October 31, 1998, the Applicable Unutilized Line Fee
Percentage shall be as set forth in subpart D of the chart set
forth below, regardless of the Borrower's actual ratio of
Consolidated Debt to EBITDA Ratio for the fiscal quarters
ended prior thereto. The Applicable Unutilized Line Fee
Percentage for the period from November 1, 1998 through
December 31, 1998 shall be based upon the Borrower's
Consolidated Debt to EBITDA Ratio for the period ending
September 30, 1998 and thereafter shall be adjusted as
provided above.
APPLICABLE
UNUTILIZED CONSOLIDATED
LINE FEE DEBT
PERCENTAGE TO EBITDA RATIO
--------------------------------------------------
A .50% A Equal to
or
UNUTILIZED greater
LINE FEE FOR than 5.50
REVOLVING to 1
CREDIT LOANS
--------------------------------------------------
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<PAGE> 40
B .50% B Less than
5.50 to 1
and
greater
than or
equal to
5.00 to 1
--------------------------------------------------
C .50% C Less than
5.00 to 1
and
greater
than or
equal to
4.50 to 1
--------------------------------------------------
D .375% D Less than
4.50 to 1
and
greater
than or
equal to
3.75 to 1
--------------------------------------------------
E .375% E Less than
3.75 to 1
and
greater
than or
equal to
3.0 to 1
--------------------------------------------------
F .30% F Less than
3.00 to 1
and
greater
than or
equal to
1.50 to 1
--------------------------------------------------
G .25% G Less than
1.50 to 1
--------------------------------------------------
(c) Upfront Commitment Fee. On the Closing Date, the Borrower
shall pay to the Agent, for the account of the Banks (pro-rata in accordance
with their respective Credit Exposures), an upfront commitment fee in the amount
of $200,000.
(d) Computation of Interest. In computing interest on any
Loan, the date of the making of the Loan or the first day of a Rate Period, as
the case may be, shall be included
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<PAGE> 41
and the date of payment or the expiration date of a Rate Period, as the case may
be, shall be excluded; provided, that if a Loan is repaid on the same day on
which it is made, one day's interest shall be paid on that Loan.
(f) Usury. In the event the rates of interest provided for in
Section 2.03 above or either of them are finally determined by any Official Body
to exceed the maximum rate of interest permitted by applicable usury or similar
Laws, their or its application will be suspended and there will be charged
instead the maximum rate of interest permitted by such Laws.
2.18 Interest Payment Dates. Accrued interest on any Prime Rate Portion
will be due and payable on the first Business Day of each month in arrears.
Interest on each Rate Segment of the Euro Rate Portion shall be due and payable
on the last day of the corresponding Rate Period, provided that if the Rate
Period is greater than 3 months, then interest shall be due and payable on the
first Business Day of the fourth month of such Rate Period and on the last day
of the Rate Period. After maturity of any part of the Loans (at maturity, by
acceleration or otherwise), interest on such part of the Loans will be due and
payable on demand.
2.19 Payments. All payments to be made in respect of principal,
interest, fees or other amounts due from the Borrower under this Agreement or
under the Notes are payable at or prior to 12:00 noon, Pittsburgh time, on the
day when due, without presentment, demand, protest or notice of any kind, all of
which are expressly waived, and an action for the payments will accrue
immediately. All such payments must be made to the Agent at its Office in U.S.
dollars and in funds immediately available at such Office, without setoff,
counterclaim or other deduction of any nature. All such payments shall be
applied at the option of the Banks to accrued and unpaid interest, outstanding
principal and other sums due under this Agreement in such order as the Banks, in
their sole discretion, shall elect. On the day when any such payment shall be
due, the Agent may, but shall not be obligated to, deduct the amount of such
payment from any deposit account maintained by the Borrower from which such
payment is owed with the Agent.
2.20 Letters of Credit. Subject to the written request of the Borrower
(which shall be made at least three (3) Business Days prior to the date, which
shall be a Business Day, on which a Letter of Credit is proposed to be
issued)(each such request, being referred to herein as a "Request for Letter of
Credit Issuance") and pursuant to the Agent's standard form of letter of credit
application duly executed by the Borrower, the Agent shall issue (such agreement
being herein called the "Letter of Credit Commitment") one or more Letters of
Credit ("Letters of Credit") for the account of the Borrower or any Eligible
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<PAGE> 42
Subsidiary at any time and from time to time prior to the Expiration Date in an
aggregate face amount at any time outstanding not exceeding Five Million Dollars
($5,000,000)(the "Letter of Credit Sublimit"). Each Request for Letter of Credit
Issuance shall be given no later than 11:00 a.m., Pittsburgh time, and shall be
in such form as the Agent may require, signed by an officer of the Borrower, and
shall state: (a) the date (which shall be a Business Day) on which the Letter of
Credit is to be issued; (b) the face amount of the Letter of Credit which is to
be issued; (c) the purpose for the issuance of the Letter of Credit and the
person or entity that is to be the beneficiary of the Letter of Credit; and (d)
the date which is to be expiration date of the Letter of Credit. Each Request
for Letter of Credit Issuance shall be irrevocable and shall be sent to the
Agent by (i) telecopier (which shall be effective when received), or by (ii)
overnight courier (which shall be effective when received), or by (iii) hand
delivery, first class or first class express mail (which shall be effective when
received), in all cases with charges prepaid. The Agent shall promptly (which in
any event shall be at least one (1) Business Day prior to the date of the
issuance of the Letter of Credit) give telecopied or telexed notice or
telephoned notice confirmed in writing to each Bank of its percentage share of
the Letter of Credit to be issued (which shall be each Bank's pro-rata portion
of the aggregate total of all Credit Exposures), together with a copy of each
Request for Letter of Credit Issuance. Each Request for Letter of Credit
Issuance and each issuance of the Letter of Credit requested thereby shall
constitute a certification by the Borrower that the representations and
warranties contained in Article III are true and correct in all material
respects (subject, in any event, to such matters as may be disclosed to and
agreed to by the Banks in writing) on the date of such Request for Letter of
Credit Issuance or such issuance, as the case may be. All Letters of Credit
issued by the Agent pursuant to this Agreement will be subject to the provisions
of the UCP. The aggregate face amount of outstanding Letters of Credit, as the
same may be changed from time to time by amendment or otherwise pursuant to the
terms thereof, shall be charged against the Revolving Credit Commitment. In no
event shall the Borrower request the issuance of a Letter of Credit if the face
amount of such Letter of Credit when taken together with the face amount of all
other issued and outstanding Letters of Credit and unreimbursed draws on Letters
of Credit exceeds the Letter of Credit Sublimit. Letters of Credit shall be
issued only for (i) the account of the Borrower or the Eligible Subsidiaries,
and (ii) for the purpose of securing obligations of the Eligible Subsidiaries in
the ordinary course of their coal related businesses, and (C) such other
purposes as are approved by the Banks.
(b) Letter of Credit Fees. Upon the issuance of a Letter of
Credit, Borrower agrees to pay to Agent, for its own
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<PAGE> 43
account, from time to time any issuance, amendment and payment fees, at the
Agent's standard rates (schedules of which have been provided to Borrower), in
respect of Letters of Credit. Borrower agrees that upon the issuance of a Letter
of Credit, the Borrower shall pay to the Agent, for the account of the Banks, a
commission per annum equal to the Applicable Basis Points then applicable to the
Euro-Rate Portion of the Loans less one-half of one percent (0.50%) per annum
based upon the amount of the Letter of Credit outstanding. Such letter of credit
commission shall be payable on the last Business Day of each calendar quarter
during which any Letter of Credit is outstanding, and on the last date on which
any Letter of Credit issued hereunder expires, in each case for the preceding
period for which such fee has not been paid. Such letter of credit commission
shall change effective with each change in the Applicable Basis Points which are
applicable to the Euro-Rate Portion of the Loans. The Agent shall apportion the
letter of credit commission amongst the Banks according to each Bank's
percentage of the total of the Credit Exposures.
(c) Payments with Respect to Letters of Credit. The honor by
Agent of a Letter of Credit shall constitute a Revolving Credit Loan as long as
such a Revolving Credit Loan could be made within the Revolving Credit
Commitment and at the time of the honor unless Borrower shall reimburse the
Agent for any amounts drawn on a Letter of Credit on the date of the draw. If a
Revolving Credit Loan could not be made within the Revolving Credit Commitment,
Borrower shall reimburse the Agent, for the account of the Banks, forthwith and
otherwise in accordance with the terms of any related Application and Agreement
or reimbursement or other like agreement, for any payment made by Agent under a
Letter of Credit issued for the benefit of Borrower. Any such reimbursement to
the Agent shall be made absolutely and unconditionally and without any set-off,
counterclaim or reduction and free and clear of any withholding or similar taxes
other than any tax, levy, impost or duty based, in whole or in part, upon the
income, revenues or operations of the Agent or the Banks. Borrower shall pay to
the Agent, for the account of the Banks, interest on any unreimbursed portion of
each such payment made by the Agent from the date of such payment by the Agent
until reimbursement in full therefore at a rate per annum equal to two percent
(2%) above the Prime Rate Option from time to time.
(d) Additional Understandings Regarding Letters of Credit. In
order to induce the Agent to issue the Letters of Credit:
(1)
(i) the Borrower agrees that neither the Agent nor
the Banks shall be responsible or liable for, and the obligation of the
Borrower to reimburse the Agent
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<PAGE> 44
or the Banks for any payment made by the Agent or the Banks under or in
respect of any Letter of Credit shall not be affected by (A) the
validity, enforceability or genuineness of any instrument or document
(or any endorsement thereof) presented under any Letter of Credit
which, upon examination by the Agent and in the absence of gross
negligence or willful misconduct, appears on its face to be
substantially in accordance with the terms and conditions of such
Letter of Credit, even if such instrument or document (or such
endorsement) is proven to be invalid, unenforceable, fraudulent or
forged, or (B) any dispute, claim, set-off, recoupment, defense or
other right or remedy which the Borrower may have at any time against
any beneficiary, transferee, the Agent, the Banks, or any other person,
whether in connection with this Agreement, the transactions
contemplated hereby or any unrelated transactions;
(ii) the Borrower agrees that drawings under any
Letter of Credit issued hereunder may be made only upon presentation of
documents required by the terms of the Letter of Credit issued, which
may include an appropriate sight draft and certificates required under
such Letter of Credit to be submitted to the Agent in connection with a
drawing; the Agent shall use its best efforts to provide the Borrower
with notice of any drawings contemporaneous with such drawings and will
give the Borrower notice of any drawings promptly but no later than one
(1) Business Day following the drawing;
(iii) the Borrower agrees that no Letter of Credit
shall have an expiry date later than the earlier of (i) one year from
the date such Letter of Credit was issued, or (ii) the Expiration Date;
and
(iv) neither the Agent nor the Banks shall have any
duty to investigate allegations of fraud or improper drawing prior to
permitting any drawing under any Letter of Credit.
(2)
(i) Funding. If at any time the Agent honors a draft
drawn under a Letter of Credit in accordance with the terms of such
Letter of Credit and is not reimbursed therefor on the same Business
Day, the Agent shall promptly notify each other Bank of such payment.
Forthwith upon and not later than one Business Day after its receipt of
such notice, each other Bank shall transfer to the Agent, in
immediately available funds, an amount equal to such Bank's percentage
share of such
44
<PAGE> 45
payment (which shall be each Bank's pro-rata portion of the aggregate
total of all Credit Exposures). If any Bank shall fail to so transfer
to the Agent its percentage of any unreimbursed payment made by the
Agent on account of any Letter of Credit, such Bank shall pay to the
Agent interest on its Percentage Share of such unreimbursed payment
from the date of such Bank's receipt of such notice from the Agent
until payment by such Bank of such Percentage Share in full at a rate
per annum for each day equal to the Federal Funds Effective Rate for
such day, such interest rate to change automatically from time to time
effective as of the date of each change in the Federal Funds Effective
Rate.
(ii) Pro Rata Treatment of Payments. If at any time
after the Agent has made a payment on account of any Letter of Credit
and has received from a Bank such Bank's portion of such payment, the
Agent shall hold any reimbursement (in whole or in part) for such
payment and any other amount received from the Borrower in respect of
such payment (but excluding any funds received by the Agent from any
other Bank pursuant to this subsection (ii) of this Section
2.20(d)(2)), any documents evidencing the right to reimbursement for
such payment, and any security therefor for the pro rata benefit of the
Agent and any other Bank from whom the Agent has received such Bank's
portion of such payment and shall forthwith transfer to such other Bank
such other Bank's applicable percentage of such reimbursement or other
amount; provided, however, that in the event that the receipt by the
Agent of such reimbursement or other amount is found to have been a
transfer in fraud of creditors or a preferential payment under the
Bankruptcy Code or is otherwise required to be returned pursuant to a
final order of a court of competent jurisdiction, such other Bank
shall, upon demand therefor by the Agent, return to the Agent any
portion thereof previously transferred by the Agent to such other Bank.
(iii) Participating Interests in Letters of Credit.
Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, effective as of the
date hereof in the case of outstanding Letters of Credit and effective
as of the date of issuance of other Letters of Credit, the Agent agrees
to allot and does allot, and each Bank severally and irrevocably agrees
to take and does take, such Bank's respective percentage share (which
shall be each Bank's pro-rata portion of the aggregate total of all
Credit Exposures) of each such Letter of Credit.
45
<PAGE> 46
Within five Business Days after the issuance of any Letter of Credit by
the Agent under this Agreement, the Agent shall send to each Bank a
copy of the Letter of Credit issued and the application for issuance of
the Letter of Credit.
Notwithstanding anything to the contrary contained
herein, in any other Loan Document or in any document to be delivered
in connection herewith or therewith, the Borrower acknowledges and
agrees that all rights of the Agent under any application agreement
with respect to any Letter of Credit shall inure to the benefit of each
Bank to the extent of its percentage share in the Letter of Credit as
fully as if such Bank was a party to such application agreement.
(e) Cash Collateral for Letters of Credit. In the event that
any Letter of Credit shall (i) have an expiry date later than the Expiration
Date, or (ii) remain outstanding during the continuance of an Event of Default
or after the Loans shall have matured and become due and payable (whether
pursuant to demand, acceleration or otherwise), upon the request of the Agent or
the Banks (which in the case of Letters of Credit having an expiry date later
than the Expiration Date, shall be made no sooner than thirty (30) days prior to
the Expiration Date), the Borrower shall immediately deposit funds with the
Agent in an amount equal to one hundred five percent (105%) of the aggregate
face or stated amount of Letters of Credit at that time outstanding (less any
draws under the Letters of Credit which have been reimbursed by the Borrower) to
be held by the Agent, for the benefit of the Banks, as additional collateral to
reimburse the Agent and the Banks for any draws under such Letters of Credit for
so long as and to the extent such Letters of Credit remain outstanding. In the
event that the Borrower does not immediately deposit funds with the Agent as
provided above, the Banks shall be entitled to advance proceeds of the Revolving
Credit Loans and deposit such funds with the Agent to be held as provided in
this subsection (e) of Section 2.20, which shall be deemed to be advances of the
Revolving Credit Loans made by the Borrower pursuant to Section 2.01 of this
Agreement.
2.21 Termination. The revolving credit facility made available to
Borrower under Section 2.01 of this Agreement is terminable by the Banks at
their discretion upon the occurrence of an Event of Default under this
Agreement. The Revolving Credit Loans made available to Borrower under this
Agreement will automatically terminate on the Expiration Date (or the expiration
date of any subsequent renewal period) unless (i) the Agent receive written
notice from Borrower not more than one hundred and twenty (120) nor less than
ninety (90) days prior to the Expiration Date (or the expiration date of any
subsequent renewal period) that the Borrower request that the Revolving
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<PAGE> 47
Credit Loans be renewed for an additional period or periods, and (ii) the Banks
notify Borrower within sixty (60) days after receipt of the Borrower's notice
and all information, including financial statements that the Banks request in
connection with such renewal request, that the Banks are willing to renew the
revolving credit facility for an additional period, subject to the absence of
any Event of Default and subject to such terms and conditions as the Banks shall
require. Notwithstanding the foregoing, Borrower shall have the right to request
that the Banks extend the Revolving Credit Loans on an annual basis one year in
advance of the Expiration Date and Banks will review the extension request as
provided for in this Section 2.21. If the Banks (but less than all of the Banks)
determine to extend the Expiration Date, the Agent will use its best efforts to
either (x) find another lender or lenders to commit to the percentage share of
the Revolving Credit Loans which Banks have not agreed to extend on the same
terms and conditions as the Banks which have elected to extend the Expiration
Date or (y) reallocate the percentage share of the Revolving Credit Loans of the
Banks which have not elected to extend the Expiration Date amongst the Banks
which have elected to extend the Expiration Date, at the sole discretion of the
Banks. If the Agent is unable to either find additional lenders or obtain
agreement amongst the Banks which have elected to extend the Expiration Date to
reallocate amongst themselves the percentage share of the Revolving Credit Loans
of the Banks which have not elected to extend the Expiration Date, the Banks may
offer to reduce the Revolving Credit Commitment to an amount equal to the amount
of the commitments to make the Revolving Credit Loans of the Banks which have
elected to extend the Expiration Date. In the event the Revolving Credit Loans
are terminated for any reason, the outstanding balance of the Revolving Credit
Loans together with any accrued and unpaid interest thereon and any other sums
due pursuant to the terms of this Agreement, the Notes, the other Loan Documents
and any other agreement, instrument, or document or undertaking arising under or
in connection with this Agreement shall be due and payable immediately;
provided, however, that any Letter of Credit outstanding on the effective date
of such termination may remain outstanding until its maturity or expiration date
if the Banks shall have received indemnification for, and collateral securing,
any such outstanding Letter of Credit in form, substance and amount satisfactory
to the Banks, as provided in subsection (e) of Section 2.20 of this Agreement.
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<PAGE> 48
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Banks and the
Agent that:
3.01 Organization and Qualification. The Borrower and each of
the Sureties is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The Borrower and
each of the Sureties is duly qualified or licensed to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
of its properties or the nature of its activities or both makes such
qualification or licensing necessary except for such jurisdictions where the
failure to be so qualified or licensed will not have a Material Adverse Effect
upon the financial condition, business or operations of the Borrower or the
Surety in question, or prevent the enforcement of material contracts entered
into. Schedule 3.01 to this Agreement states as of the Closing Date the
jurisdiction of incorporation of the Borrower and each of the Sureties and the
jurisdiction in which the Borrower and each of the Sureties is qualified to do
business as a foreign corporation.
3.02 Power to Carry on Business; Licenses. The Borrower and
each of the Sureties has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
presently planned to be conducted in all material respects. The Borrower and
each of the Sureties has all licenses, permits, consents and governmental
approvals or authorizations necessary to carry on its business as now conducted
in all material respects.
3.03 Authority and Authorization. The Borrower has corporate
power and authority to execute and deliver this Agreement, the Notes, the
Security Agreements and the other Loan Documents to which the Borrower is a
party, to make the borrowings provided for in this Agreement, to execute and
deliver the Notes in evidence of such borrowings and to perform its obligations
under this Agreement, the Notes, the Security Agreements and the other Loan
Documents. Each of the Sureties has corporate power and authority to execute and
deliver each of the Loan Documents to which such Surety is a party, including,
without limitation, each Surety's respective Suretyship Agreement, Subsidiary
Note, Subsidiary Security Agreement and Subsidiary Deed of Trust, as the case
may be, and to perform its obligations thereunder. All such action has been duly
and validly authorized by all necessary corporate proceedings on the part of the
Borrower and on the part of each of the Sureties.
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<PAGE> 49
3.04 Execution and Binding Effect. This Agreement, the Notes,
the Security Agreements and the other Loan Documents have been duly and validly
executed and delivered by the Borrower and the Sureties, as the case may be, and
each such document or agreement constitutes a legal, valid and binding
obligation of the Borrower and the Sureties, as the case may be, enforceable in
accordance with its terms except as the enforceability of such document or
agreement may be limited by bankruptcy, insolvency, general principals of equity
or other laws of general application relating to or affecting the enforcement of
creditors' rights generally.
3.05 Absence of Conflicts. Neither the execution and delivery
of this Agreement, the Notes, the Security Agreements or the other Loan
Documents, nor the consummation of the transactions contemplated in any of them,
nor the performance of or compliance with their terms and conditions will (a)
violate any Law, (b) conflict with or result in a breach of or a default under
the certificate of incorporation or by-laws of any of the Borrower or any of the
Sureties or any agreement or instrument to which the Borrower or any of the
Sureties is a party or by which the Borrower or any of the Sureties or any of
their properties (now owned or acquired in the future) may be subject or bound,
the effect of which would have a Material Adverse Effect, or (c) result in the
creation or imposition of any material Lien upon any property (now owned or
acquired in the future) of the Borrower or any of the Sureties, except as
contemplated by the provisions of this Agreement.
3.06 Authorizations and Filings. No authorization, consent,
approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any Official Body is or
will be necessary in connection with the execution and delivery of this
Agreement, the Notes, the Security Agreements or the other Loan Documents or
Related Documents, the consummation of the transactions contemplated in any of
them, or the performance of or compliance with the terms and conditions of this
Agreement, the Notes, the Security Agreements or the other Loan Documents,
except as contemplated by the provisions of this Agreement or as has already
been obtained and which remains in effect.
3.07 Ownership and Control. (a) Schedule 3.01 to this
Agreement states the authorized capitalization of the Borrower and each of the
Sureties (including capital stock of the Borrower and each of the Sureties held
in Treasury), the number of shares of each class of capital stock issued and
outstanding of the Borrower and each of the Sureties and the number and
percentage of outstanding shares of each such class of capital stock and the
names of the record and beneficial owners of such shares. The outstanding shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Schedule 3.01 to this
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<PAGE> 50
Agreement describes all outstanding options, rights and warrants issued by the
Borrower and each of the Sureties for the acquisition of shares of the capital
stock of the Borrower and each of the Sureties, as the case may be, all
outstanding securities or obligations convertible into such shares and all
agreements by the Borrower and each of the Sureties, or any of them, to issue or
sell such shares. Schedule 3.01 to this Agreement describes all options, sale
agreements, pledges, proxies, voting trusts, powers of attorney and other
agreements or instruments binding upon any of its shareholders with respect to
beneficial or record ownership of or voting rights with respect to shares of the
capital stock of the Borrower and each of the Sureties.
3.08 Responsible Officers and Directors of the Borrower and
the Sureties. Schedule 3.01 to this Agreement states the Responsible Officers
and the directors of the Borrower and the Sureties.
3.09 Subsidiaries. Except as set forth on Schedule 3.01 to
this Agreement, neither the Borrower nor any Surety has any Subsidiaries.
3.10 Business. Schedule 3.10 to this Agreement describes the
business of the Borrower, the Sureties and each of their Subsidiaries and
Affiliates as presently conducted and presently planned to be conducted in all
material respects.
3.11 Title to Property. (a) The Borrower and each of the
Sureties has good and marketable title to all real property and all other
Property purported to be owned by it which is material to the operations,
activities or business of the Borrower and its Consolidated Subsidiaries,
including that reflected in the most recent audited balance sheet referred to in
Section 3.12(a) of this Agreement or submitted pursuant to Section 5.01(a) of
this Agreement (except as sold or otherwise disposed of in the ordinary course
of business), subject only to Liens not forbidden by Section 6.01 of this
Agreement.
(b) The Deeds of Trust and the Mortgages include
legal descriptions of, or references to, all fee and all material leasehold
interests in real property and mineral rights located in West Virginia, Kentucky
or South Carolina held by the Borrower or the Eligible Subsidiaries. The
Borrower does not, however, hereby warrant the adequacy of the legal
descriptions of the fee and leasehold interests contained in the Deeds of Trust
and the Mortgages which are not either (i) currently being mined or are part of
the ten year mining plan of the Borrower and its Consolidated Subsidiaries, or
(ii) upon which are located operations, structures or activities which are
material to the operations of the business of the Borrower and its Consolidated
Subsidiaries.
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3.12 Financial Statements; Projections.
(a) The Borrower has delivered to the Agent an
audited consolidated balance sheet and related statements of income and retained
earnings and cash flow of Borrower and its Consolidated Subsidiaries for the
fiscal years ended December 31, 1997 and December 31, 1996, as audited and
certified without qualification by Price Waterhouse LLP. Such financial
statements (including the notes) present fairly the financial condition of
Borrower and its Consolidated Subsidiaries as of the end of such fiscal periods
and the results of their operations and the changes in financial position for
the fiscal periods then ended, all in conformity with GAAP applied on a basis
consistent with that of the preceding fiscal periods.
(b) Borrower has delivered to the Agent internally
prepared unaudited consolidated and consolidating balance sheets and related
statements of income and retained earnings of Borrower and its Consolidated
Subsidiaries for the period ended March 31, 1998. Such unaudited financial
statements present fairly the financial condition of Borrower and its
Consolidated Subsidiaries as of the end of such periods and the results of their
operations for the periods then ended, all in conformity with GAAP applied on a
basis consistent with that of the preceding fiscal periods, subject to year-end
adjustments.
(c) Borrower has delivered to the Agent projections
(the "Projections") covering the fiscal years ending 1998 through 2002 for the
Borrower and its Consolidated Subsidiaries. The Projections were prepared by
Borrower and are based on all information known to the Borrower as of the date
of the Projections and the Closing Date and represent the good faith estimate of
the Borrower regarding the course of the Borrower's business for the periods
covered by such projections. The Borrower believes that the assumptions set
forth in the Projections are reasonable based on economic conditions as of the
date of the Projections and the Closing Date.
3.13 Taxes. All tax returns required to be filed by the
Borrower and the Sureties have been timely and properly prepared, executed and
filed or appropriate lawful extensions have been filed. All payroll taxes and
all other material taxes, assessments, fees and other governmental charges upon
the Borrower, the Sureties, or upon any of their properties, income, sales or
franchises which are due and payable have been paid. The reserves and provisions
for taxes on the books of the Borrower and each of the Sureties are adequate for
all open years and for its current fiscal period. Except as described in
Schedule 3.13 to this Agreement, the Borrower has no knowledge or any basis for
knowledge of any proposed additional assessment or basis for any material
assessment for additional taxes (whether or not reserved against).
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3.14 Litigation. Except as described in Schedule
3.14 to this Agreement, there is no pending or, to the knowledge of the
Borrower, threatened action, suit or proceeding by or before any Official Body
against or affecting any of the Borrower or any of the Sureties, at law or
equity, which if adversely decided could reasonably be expected to have a
Material Adverse Effect.
3.15 Compliance with Laws. Neither the Borrower nor any of the
Sureties or any of their Subsidiaries or Affiliates is in violation of or
subject to any material direct or contingent liability on account of any Law
except for such violations which would not have a Material Adverse Effect.
3.16 ERISA Compliance. (a) The Borrower and the Consolidated
Subsidiaries maintain only the Plans described on Schedule 3.16 hereto; (b) each
Plan has been funded in accordance with its terms and, when applicable, with the
minimum funding standards of Part Three of Title I of ERISA; (c) each Plan has
been maintained in accordance with its terms and with all provisions of ERISA
applicable thereto in all material respects; (d) none of the Plans is a Defined
Benefit Plan; (e) neither the Borrower nor any Surety has any liability with
respect to any Defined Benefit Plan which was previously maintained by any of
the Consolidated Subsidiaries or multiemployer plan from which any of the
Consolidated Subsidiaries have withdrawn; (f) there have been no Prohibited
Transactions which would subject the Borrower or any Surety to any liability or
tax which may be imposed by Section 4975 of the Code and which would have a
Material Adverse Effect; (g) except as disclosed on Schedule 3.16, neither the
Borrower nor any Surety maintains any Welfare Benefit Plan, fund or arrangement,
whether under contract, verbal commitment or gratuitously which provides for
health benefits or life insurance benefits for retirees of the Borrower or any
Surety and their beneficiaries; (h) no Reportable Event as defined in ERISA has
occurred and is continuing with respect to any Plan; (i) no liability to the
Pension Benefit Guaranty Corporation (the "PBGC") has been incurred with respect
to any Plan, other than for premiums due and payable; (j) no Plan has been
terminated, no proceedings have been instituted to terminate any Plan, and there
exists no intent to terminate or institute proceedings to terminate any Plan;
(k) no withdrawal, either complete or partial, has occurred or commenced with
respect to any multi-employer Plan, and there exists no intent to withdraw
either completely or partially from any multi-employer Plan; and (l) there has
been no cessation of, and there is no intent to cease, operations at a facility
or facilities where such cessation could reasonably be expected to result in a
separation from employment of more than 20% of the total number of employees who
are participants under a Plan.
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3.17 Patents, Licenses, Franchises. The Borrower and the
Sureties own or possess all of the patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and permits and rights with respect to
the foregoing necessary to own and operate the Borrower's properties and the
Sureties' properties, as the case may be, and to carry on their respective
businesses as presently conducted and presently planned to be conducted without
conflict with the rights of others. No patent, trademark, service mark, trade
name, copyright, license, franchise or permit or right with respect to the
foregoing is of material importance to the business of the Borrower or the
Sureties, and there is no reason to anticipate any material liability to the
Borrower or the Sureties in respect of any claim of infringement of any kind.
3.18 Environmental Matters.
(a) Neither the Borrower nor any of the Sureties or
any of their Subsidiaries or Affiliates, is in violation of or has received any
notices of violation of The Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, The Resource Conservation and Recovery Act of 1976,
as amended by the Hazardous and Solid Waste Amendments of 1984, The Clean Water
Act, The Toxic Substances Control Act or The Clean Air Act or any rule or
regulation promulgated pursuant to any of the foregoing statutes, or any other
federal, state or local environmental law, statute, rule, regulation or
ordinance applicable to the Borrower, the Sureties, their Affiliates or their
properties (all of the foregoing are sometimes collectively referred to in this
Section 3.18 as the "Environmental Laws"), the effect of which could reasonably
be expected to have a Material Adverse Effect.
(b) Neither the Borrower nor any of the Sureties or
any of their Subsidiaries or Affiliates, directors, officers, employees, agents
or independent contractors has arranged, by contract, agreement or otherwise,
(i) for the disposal or treatment of, or (ii) with a transporter for the
transport for disposal or treatment of, any hazardous substance (as defined by
CERCLA, as amended), owned, used or possessed by the Borrower or any of the
Sureties or any of their Affiliates, at any location identified by the EPA on
the National Priorities List, 40 C.F.R. Part 300, (or proposed by the EPA in the
Federal Register for listing on such National Priorities List) or identified
under any corresponding state statute or regulation concerning cleanup of waste
disposal sites (a "State Superfund Law"), or at any other location, other than
hazardous waste or substances generated from substances used in the Borrower's
or Surety's business, which is controlled, stored and disposed of in material
compliance with all Environmental Laws;
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(c) To the knowledge of the Borrower, no predecessor
(as defined by CERCLA, as amended) of Borrower, any Surety or any Subsidiary or
Affiliate has arranged by contract, agreement or otherwise, (i) for the disposal
or treatment of, or (ii) with a transporter for transport for the disposal or
treatment of, any hazardous substance (as defined by CERCLA, as amended), owned,
used or possessed by any Predecessor at any location, other than hazardous waste
or substances generated from substances used in such predecessor's business,
which was controlled, stored and disposed of in material compliance with all
Environmental Laws;
(d) Neither the Borrower nor any of the Sureties or
any of their Subsidiaries or Affiliates, are "owners" or "operators" of a
"facility", as defined by CERCLA, as amended, or any State Superfund Law; and
(e) Neither the Borrower nor any of the Sureties or
any of their Subsidiaries or Affiliates "owned" or "operated" any "facility" at
the time any hazardous substances were disposed of within the meaning of CERCLA,
as amended, or any State Superfund Law.
3.19 Margin Stock. The Borrower will not make any borrowing
under this Agreement and will not permit any Eligible Subsidiary to reborrow
proceeds of the Revolving Credit Loans, for the purpose of buying or carrying
any "margin stock", as such term is used in Regulation U and related regulations
of the Board of Governors of the Federal Reserve System, as amended from time to
time. Neither the Borrower nor any Surety owns any "margin stock." Neither the
Borrower nor any Surety is engaged in the business of extending credit to others
for such purpose, and no part of the proceeds of any borrowing under this
Agreement will be used to purchase or carry any "margin stock" or to extend
credit to others for the purpose of purchasing or carrying any "margin stock."
3.20 No Event of Default; Compliance with Agreements. No event
has occurred and is continuing and no condition exists which constitutes an
Event of Default or Potential Default. Neither the Borrower nor any Surety is
(i) in violation of any term of any charter instrument or bylaw or (ii) in
default under any agreement, lease or instrument to which such entity is a party
or by which it or any of its properties (now owned or acquired in the future)
may be subject or bound which default could reasonably be expected to have a
Material Adverse Effect.
3.21 No Material Adverse Change. Since December 31, 1997,
there has been no material adverse change in the assets, liabilities, the
results of operations or the financial condition of the Borrower and its
Consolidated Subsidiaries, taken as a whole, and there has been no material
adverse change in the
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business prospects of the Borrower and its Consolidated Subsidiaries, taken as a
whole.
3.22 Accurate and Complete Disclosure. No representation or
warranty made by the Borrower or any Surety under this Agreement, the Notes, the
Security Agreements or the other Loan Documents and no statement made by the
Borrower or any Surety in any financial statement (furnished pursuant to
Sections 3.12 or 5.01 or otherwise), certificate, report, exhibit or document
furnished by the Borrower to the Agent or the Banks pursuant to or in connection
with this Agreement is false or misleading in any material respect (including by
omission of material information necessary to make such representation, warranty
or statement not misleading).
3.23 Security Interest. Except as described in Schedule 3.23
to this Agreement, the security interest in the Collateral granted to the Agent
pursuant to the Security Agreements and the Subsidiary Security Agreements upon
the filing of financing statements (i) constitutes and will continue to
constitute a perfected security interest under the Code entitled to all of the
rights, benefits and priorities provided by the Code and (ii) except as
otherwise permitted under Section 6.01 of this Agreement, is and will continue
to be superior and prior to the rights of all third parties existing on the date
of this Agreement or arising after the date of this Agreement whether by lien or
otherwise, to the full extent provided by Law. All such action as is necessary
or advisable to establish such rights of the Agent and the Banks have been taken
or will be taken at or prior to the time required for such purpose and there
will be upon execution and delivery of the Loan Documents no necessity of any
further action in order to preserve, protect and continue such rights except the
filing of continuation statements with respect to such financing statements
within six months prior to each five year anniversary of the filing of such
financing statements and continued possession by the Agent and the Banks of the
collateral delivered to them. All filing fees and other expenses in connection
with each such action shall be paid by the Borrower and the Agent and the Banks
shall be reimbursed by the Borrower for any such fees and expenses incurred by
the Agent or the Banks.
3.24 Deed of Trust and Mortgage Liens. The deed of trust and
mortgage liens granted to the Agent pursuant to the Deeds of Trust, Mortgages
and the Subsidiary Deeds of Trust and Subsidiary Mortgages will be superior and
prior to the rights of all third persons existing on the date of their execution
and delivery or thereafter arising by way of lien or otherwise to the full
extent provided by law upon the recording of such deeds of trust and mortgages
in the appropriate recording offices, except as may otherwise be permitted under
Section 6.01 of this Agreement. All such action as is necessary to establish the
deed
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of trust and mortgage liens of the Agent and their priority as described in the
preceding sentence will have been taken, and there will be as of the date of
recording of such deeds of trust and mortgages no necessity for any further
action in order to protect, preserve and continue the mortgage liens and such
priority. All recording fees and other expenses in connection with each such
action have been or will be paid by the Borrower.
3.25 Coal Purchase and Coal Supply Agreements; Contract Mining
Agreements and Leases. The Borrower has furnished to the Agent true and correct
copies of the Coal Purchase Agreements, the Coal Supply Agreements, the Contract
Mining Agreements, the documents and agreements specifically identified in the
Collateral Assignment of Operating Agreements and the leases and other
instruments referred to in the Assignment of Leases and Royalties together with
all exhibits, amendments, modifications and attachments thereto (the "Material
Agreements"). The Material Agreements are the valid and subsisting agreements of
the Borrower or Surety named therein and are in full force and effect, and have
been validly executed by such party and constitute valid agreements, enforceable
in accordance with their terms, except as the enforceability of such document or
agreement may be limited by bankruptcy, insolvency, general principals of equity
or other laws of general application relating to or affecting the enforcement of
creditors' rights generally. There exists no default nor any circumstance which,
after notice or lapse of time or both would constitute a default, nor any claim
of default on the part of any party to any Material Agreement and there exists
no lien, set-off or claim or other impairment of the validity or enforceability
of any such agreements. The Material Agreements constitute the entire agreement
between and among the Borrower or the Surety named therein and the other parties
thereto with respect to the transactions that are the subject matter of such
agreements, and there are no other agreements with respect to such matters.
3.26 Senior Notes. The issuance of the Senior Notes has
occurred and the Borrower has received gross proceeds from the issuance of the
Senior Notes of $99,216,000. The Senior Note Documents are the valid and
subsisting agreements of the Borrower and are in full force and effect, and have
been validly executed by the Borrower and constitute valid agreements,
enforceable in accordance with their terms. There exists no default nor any
circumstance which, after notice or lapse of time or both would constitute a
default, nor any claim of default on the part of any party to the Senior Note
Documents. The Senior Note Documents constitute the entire agreement between and
among the Borrower and the other parties thereto with respect to the
transactions that are the subject matter of such agreements, and there are no
other agreements with respect to such matters.
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3.27 Labor Agreements. Except as described in Schedule 3.27 to
this Agreement, neither the Borrower nor any of its Consolidated Subsidiaries is
a party to any union or labor workforce agreement with any organized labor
organization or the employees of the Borrower or any Consolidated Subsidiary.
3.28 Solvency. After the making of the Loans and the relending
of any proceeds of the Loans to the Eligible Subsidiaries, the Borrower and each
Eligible Subsidiary (a) will be able to pay its debts as they become due, (b)
will have funds and capital sufficient to carry on its business and all
businesses in which it is about to engage, and (c) will own property having a
value both at fair valuation and at fair saleable value in the ordinary course
of the Borrower's or the Eligible Subsidiary's respective business greater than
the amount required to pay its debts as they become due. Neither the Borrower
nor any Eligible Subsidiary will be rendered insolvent by the execution and
delivery of this Agreement, the borrowing hereunder and/or the consummation of
any transactions contemplated herein.
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ARTICLE IV
CONDITIONS OF LENDING
The obligation of the Banks to make any Loan is subject to the
accuracy as of the Closing Date of the representations and warranties contained
in this Agreement and the other Loan Documents, to the performance by the
Borrower of its obligations to be performed under this Agreement and under the
other Loan Documents on or before the date of such Loan and to the satisfaction
of the following further conditions:
4.01 Representations and Warranties; Events of Default and
Potential Defaults. The representations and warranties contained in Article III
shall be true and correct on and as of the date of each Loan with the same
effect as though made on and as of each such date. On the Closing Date, the
Borrower shall have delivered a Certificate to that effect signed by a
Responsible Officer of the Borrower. On the date of each Loan, no Event of
Default and no Potential Default shall have occurred and be continuing or exist
or shall occur or exist after giving effect to the Loan to be made on such date.
4.02 Proceedings and Incumbency. On the Closing Date, the
Borrower and each of the Sureties shall have delivered to the Agent a
certificate, in form and substance satisfactory to the Agent, dated the Closing
Date and signed on behalf of the Borrower and each of the Sureties, as the case
may be, by the Secretary of the Borrower or Surety, certifying as to (a) true
copies of the Articles or Certificate of Incorporation and bylaws or code of
regulations of the Borrower or Surety and any shareholders agreement concerning
the Borrower or Surety, all as in effect on such date, (b) true copies of all
corporate action taken by the Borrower and each of the Sureties relative to this
Agreement, the Notes, the Security Agreements and the other Loan Documents,
including but not limited to that described in Section 3.03 of this Agreement,
and (c) the names, true signatures and incumbency of the officers of the
Borrower and each of the Sureties authorized to execute and deliver this
Agreement, the Notes, the Security Agreements and the other Loan Documents to
which the Borrower or Surety is a party. The Agent may conclusively rely on each
such certificate unless and until a later certificate revising the prior
certificate has been received by the Agent.
4.03 Opinion of Counsel. On the Closing Date, there shall have
been delivered to the Agent written opinions, dated the Closing Date, of
Buchanan Ingersoll Professional Corporation, counsel to the Borrower and the
Sureties and Wyatt, Tarrant & Combs, Kentucky and Tennessee counsel to the
Borrower and Sureties, Bowles, Rice, McDavid, Graff & Love, West Virginia
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counsel to the Borrower and the Sureties, Liskow & Lewis, a Professional Law
Corporation, Louisiana counsel to the Banks and The McNair Law Firm, South
Carolina counsel to Pen Cotton, in substantially the form attached as Exhibits
"E-1", "E-2", "E-3", E-4" and "E-5" to this Agreement.
4.04 Agreement and Notes. On the Closing Date, this Agreement
and the Revolving Credit Notes of Borrower satisfactory in terms, form and
substance to the Agent and the Banks, shall have been executed and delivered by
the Borrower, as the case may be, to the Agent.
4.05 Security Agreements and Deeds of Trust and Mortgages . On
the Closing Date, the Security Agreements and Deeds of Trust and Mortgages or
amendments to the same (which will include amendments to reflect the amendment
and restatement of this Agreement and the inclusion of any Property which has
not been previously described in a Deed of Trust or a Mortgage, a Lien in which
can be perfected by the filing of a Deed of Trust or Mortgage), as the case may
be, satisfactory in terms, form and substance to the Agent, shall have been
executed and delivered by the Borrower and the Sureties to the Agent and shall
be in effect.
4.06 UCC Financing Statements. On or before the Closing Date,
all UCC-1 financing statements and UCC-3 financing statement amendments (to
reflect the amendment of the secured party and the release of the Mobile
Equipment from the Lien of the Security Agreements) to be filed pursuant to the
Security Agreements and the other Loan Documents shall have been duly executed
and delivered and shall be in effect.
4.07 Hazardous Waste Agreement. On the Closing Date, the
Hazardous Waste Certificate and Indemnity Agreement, satisfactory in terms, form
and substance to the Agent, shall have been executed and delivered by the
Borrower and the Sureties to the Agent.
4.08 Suretyship Agreements. On the Closing Date, the
Suretyship Agreements, satisfactory in terms, form and substance to the Agent,
shall have been executed and delivered by each of the Sureties to the Agent.
4.09 Pledge Agreements. On the Closing Date, the Pledge
Agreements and stock powers executed by Borrower, satisfactory in terms, form
and substance to the Agent, together with the stock certificates of all issued
and outstanding stock of Pen Coal, Elk Horn, River Marine, Pen Cotton, Pen
Cotton Company, Pen Hardwood and Marine Terminals and any other Active
Subsidiaries of the Borrower or any of its Subsidiaries, delivered by Borrower
(or any Subsidiary of Borrower which owns capital stock of an Active Subsidiary)
to the Agent.
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4.10 Collateral Assignment of Coal Purchase Agreements. On
the Closing Date, the Collateral Assignment of Coal Purchase Agreement,
satisfactory in terms, form and substance to the Agent shall have been executed
by Pen Coal and Elk Horn and any other Eligible Subsidiaries which are party to
any Coal Purchase Agreements, respectively, and delivered to the Agent.
4.11 Collateral Assignment of Contract Mining Agreements. On
the Closing Date, the Collateral Assignment of Contract Mining Agreements,
satisfactory in terms, form and substance to the Agent shall have been executed
by Pen Coal and Elk Horn and any other Eligible Subsidiaries which are party to
any Contract Mining Agreements, respectively, and delivered to the Agent.
4.12 Collateral Assignment of Operating Agreements. On the
Closing Date, the Collateral Assignment of Operating Agreements, satisfactory on
terms, form and substance to the Agent shall have been executed by the Borrower
and Sureties and delivered to the Agent.
4.13 Assignment of Leases and Royalties. On the Closing Date,
the Assignment of Leases and Royalties, satisfactory on terms, form and
substance to the Agent shall have been executed by each of Elk Horn, Pen Coal
and any other Eligible Subsidiaries which are a party to any leasehold mineral
or real property interests, and delivered to the Agent.
4.14 Senior Notes. On or before the Closing Date, evidence
that the Senior Note Documents shall have been duly authorized, executed and
delivered, and that the Senior Notes shall have been issued for cash in an
aggregate amount not less than $99,216,000 and not less than 99% of the
aggregate stated principal amount thereof, in each case containing terms in form
and substance satisfactory to the Agent. In addition, the Agent shall have
received a certificate of a Responsible Officer of the Borrower to that effect
(and attaching thereto true and complete copies of the Senior Note Documents,
which shall be reasonably satisfactory to the Agent in form and substance).
4.15 Repayment of Existing Loans. On or before the Closing
Date, evidence that the principal of and interest on, and all other amounts
owing in respect of (including repurchase by the Borrower of the warrants issued
to the Bank parties to the Original Credit Agreement) all obligations
outstanding under or in connection with the Original Credit Agreement shall have
been paid in full.
4.16 Repayment of Wachovia Bank Facility and Drummond Company
Purchase Money Financing. On or before the Closing Date, evidence that the
principal of and interest on, and all other
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amounts owing in respect of all obligations outstanding under or in connection
with the (i) credit facility provided by Wachovia Bank to Pen Cotton, and (ii)
the purchase money financing provided by Drummond Company, Inc. to Elk Horn in
connection with the Fork Creek Reserves, shall have been paid in full.
4.17 Other Documents and Conditions. On or before the Closing
Date, the following documents and conditions shall have been delivered or
satisfied by or on behalf of the Borrower to the Agent:
(a) Good Standing and Tax Lien Certificates -
Borrower and Eligible Subsidiaries. Good Standing Certificate of the state of
incorporation of each of the Borrower and each Eligible Subsidiary certifying to
the good standing and corporate status of the Borrower and each Eligible
Subsidiary, respectively, good standing/foreign qualification certificates from
other jurisdictions in which such corporations are qualified to do business and
tax lien certificates from each jurisdiction in which such corporations are
qualified to do business.
(b) Financial Statements; Projections. Financial
statements and projections in form and substance satisfactory to the Agent, as
described in Section 3.12 of this Agreement.
(c) Insurance. Evidence, in form and substance
satisfactory to the Agent, that the business and all assets of the Borrower and
the Sureties are adequately insured and that the Agent has been named as loss
payee on all policies of insurance covering the Collateral (as defined in the
Security Agreement) and mortgagee/loss payee on all policies of insurance
covering the real property subject to the Deeds of Trust.
(d) Ownership Interests. Evidence satisfactory to the
Agent that the ownership interests in the Borrower and Sureties are as described
in Schedule 3.01 to this Agreement.
(e) Lien Searches and Real Estate Lien and
Encumbrance Searches. Copies of record searches (including UCC searches, real
property lien reports, and judgment, tax and other lien searches) evidencing
that the Agent has a first priority security interest in the Collateral
described in the Security Agreements and a first priority mortgage or deed of
trust lien on the Pen Coal Real Property, the Elk Horn Real Property, the River
Marine Real Property and the Pen Cotton Real Property, except as otherwise
provided in Section 6.01 of this Agreement.
(f) Releases of Liens. UCC-3 terminations, deed of
trust releases other releases of Liens that are required pursuant to a review of
the Lien Searches, including releases of liens of Drummond Company, Inc. in
connection with the Elk Horn Real Property located in West Virginia and known as
the "Fork
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Creek Reserves", and other Liens as required by the Agent, against the assets or
properties of the Borrower or Sureties.
(g) No Material Adverse Change. Evidence satisfactory
to the Agent that since December 31, 1997, there has been no material adverse
change in the assets, liabilities, the results of operations or the financial
condition of the Borrower and its Consolidated Subsidiaries, taken as a whole,
and there has been no material adverse change in the business prospects of the
Borrower and its Consolidated Subsidiaries, taken as a whole.
(h) Subsidiary Notes, Subsidiary Security Agreements,
Subsidiary Deeds of Trust and Mortgages and Assignment of Subsidiary Security
Documents. The Subsidiary Notes, the Subsidiary Security Agreements the
Subsidiary Deeds of Trust and Mortgages and the Assignment of Subsidiary
Security Documents, satisfactory in terms, form and substance to the Agent,
shall have been executed by the appropriate parties and delivered to the Agent
and all filings contemplated by the Subsidiary Security Agreements and the
Subsidiary Deeds of Trust and Mortgages shall have been made.
(i) Other Documents and Conditions. Such other
documents and conditions as may be required to be submitted to the Agent or the
Banks by the terms of this Agreement or of any Loan Document.
4.18 Details, Proceedings and Documents. All legal details and
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory to the Agent and the Agent shall have received all such
counterpart originals or certified or other copies of such documents and
proceedings in connection with such transactions, in form and substance
satisfactory to the Agent, as the Agent may from time to time request.
4.19 Fees and Expenses. The Borrower shall have paid all fees
and charges as required for the Closing and relating to the Closing, including
reasonable legal fees, closing costs, filing and notary fees, and any other
similar matters pertinent to the Closing.
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ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants to the Agent and the Banks as follows:
5.01 Reporting and Information Requirements.
(a) Annual Audited Reports. As soon as practicable,
and in any event within 120 days after the close of each fiscal year of
Borrower, Borrower will furnish to the Agent and the Banks audited, consolidated
statements of income, retained earnings and cash flow of Borrower and its
Consolidated Subsidiaries for such fiscal year and an audited, consolidated
balance sheet of Borrower and its Consolidated Subsidiaries as of the close of
such fiscal year, and notes to each, all in reasonable detail, setting forth in
comparative form the corresponding figures for the preceding fiscal year, with
such statements and balance sheet to be certified by Price Waterhouse LLP or
other independent certified public accountants of recognized standing selected
by Borrower and satisfactory to the Agent. The certificate or report of such
accountants shall be free of exception or qualifications not acceptable to the
Agent and the Banks and shall in any event contain a written statement of such
accountants substantially to the effect that such statements and balance sheet
were prepared in accordance with generally accepted accounting principles
applied on a basis consistent with that of the preceding fiscal year (except for
changes in application in which such accountants concur).
(b) Quarterly Reports. As soon as practicable, and in
any event within 60 days after the close of each fiscal quarter of the Borrower
and its Consolidated Subsidiaries during the term of this Agreement, Borrower
will furnish to the Agent and the Banks consolidated and consolidating
statements of income for Borrower and its Consolidated Subsidiaries for such
period and for the portion of the fiscal year to the end of such period, and a
consolidated and consolidating balance sheet of Borrower and its Consolidated
Subsidiaries as of the close of such period, all in reasonable detail and
showing variances from the annual forecast and business plan of Borrower and its
Consolidated Subsidiaries for such fiscal period. All such income statements and
balance sheets shall be prepared by Borrower and shall present fairly the
financial position of Borrower and its Consolidated Subsidiaries as of the end
of such period and the results of their operations for such periods subject to
year end adjustment, in conformity with generally accepted accounting principles
applied in a manner consistent with that of the most recent audited financial
statements furnished to the Agent and the Banks.
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(c) Compliance Certificate. Within 120 days after the
end of each fiscal year of Borrower and its Consolidated Subsidiaries and within
60 days after the end of each fiscal quarter, Borrower will deliver to the Agent
and the Banks a certificate, in the form attached to this Agreement as Exhibit
"F" (a "Compliance Certificate"), dated as of the end of such fiscal year or
quarter, as the case may be, signed on behalf of Borrower and its Consolidated
Subsidiaries by a Responsible Officer of Borrower calculating the covenants set
forth in Section 6.16 and stating that, as of the date of the certificate, no
Event of Default or Potential Default has occurred and is continuing or exists,
or if an Event of Default or Potential Default has occurred and is continuing or
exists, specifying in detail the nature and period of existence of the Event of
Default or Potential Default and any action taken or contemplated to be taken by
Borrower.
(d) Copies of Senior Note Document Reports. As soon
as possible, and in any event within 10 days after delivery to the required
recipient pursuant to the Senior Note Documents, copies of any reports,
certificates or other deliveries required to be submitted in connection with the
Senior Note Documents.
(e) Visitation. During normal business hours and upon
reasonable telephonic notice to the Borrower or Surety, the Borrower and the
Sureties will permit such persons as the Agent or any Bank may designate to
visit and inspect any of the properties of the Borrower or the Sureties, to
examine, and to make copies and extracts from, the books and records of any of
the Borrower or the Sureties and to discuss its affairs with its officers,
employees and independent accountants at such times and as often as the Agent
may request. The Borrower and the Sureties authorizes its officers, employees
and independent accountants to discuss with the Agent or any of the Banks the
affairs of the Borrower. The Agent and the Banks will use their best efforts to
coordinate such visits by the Banks with those of the Agent in order to minimize
disruption to the Borrower and its Consolidated Subsidiaries and their
operations.
(f) Notice of Event of Default. Promptly upon
becoming aware of an Event of Default or Potential Default, the Borrower will
give each of the Banks notice of the Event of Default or Potential Default,
together with a written statement of a Responsible Officer of the Borrower
setting forth the details of the Event of Default or Potential Default and any
action taken or contemplated to be taken by the Borrower.
(g) Notice of Material Adverse Change. Promptly upon
becoming aware thereof, the Borrower will give each of the Banks telephonic or
telegraphic notice (with written confirmation sent on the same or next Business
Day) about any material adverse change in the assets, business, operations or
financial condition
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of any of the Borrower or any development or occurrence which could reasonably
be expected to materially and adversely affect the ability of the Borrower and
the Sureties to perform their obligations under this Agreement.
(h) Notice of Proceedings. Promptly upon becoming
aware thereof, the Borrower will give the Agent notice of the commencement,
existence or threat of all proceedings by or before any Official Body against or
affecting either of the Borrower or any of the Sureties which, if adversely
decided, could have a Material Adverse Effect.
(i) Notice of Default Under Material Agreements.
Promptly upon becoming aware thereof, the Borrower will give the Agent notice of
the occurrence of an event of default under any Material Agreement, the effect
of which could have a Material Adverse Effect.
(j) Further Information. Upon request of the Agent,
Borrower shall deliver or cause to be delivered to the Agent detailed schedules
of accounts receivable and accounts payable aging, monthly sales reports listing
all sales of inventory and a report of inventory as established by a physical
count or such other method as is customary in the coal industry and approved by
Agent, of the Borrower or the Sureties, as the case may be. Further the Borrower
will promptly furnish to the Agent such other information, and in such form, as
the Agent may reasonably request from time to time.
5.02 Preservation of Existence and Franchises. The Borrower
and the Sureties will maintain its corporate existence, rights and franchises in
full force and effect in its jurisdiction of incorporation. The Borrower and the
Sureties will qualify and remain qualified as a foreign corporation in each
jurisdiction in which failure to receive or retain qualification could
reasonably be expected to have a Material Adverse Effect.
5.03 Insurance. The Borrower, the Sureties and their
Consolidated Subsidiaries will maintain with financially sound and reputable
insurers insurance with respect to their properties and business and against
such liabilities, casualties and contingencies and of such types and in such
amounts as is satisfactory to the Agent and as is customary in the case of
corporations or other entities engaged in the same or similar business or having
similar properties similarly situated. Risk of loss of, damage to or destruction
of the properties and assets of the Borrower, the Sureties and their
Consolidated Subsidiaries is on the Borrower and the Sureties. The Borrower and
the Sureties will add the Agent as mortgagee and loss payee, as the case may be,
to all policies of insurance which insure against loss of or damage to the
Collateral (as defined in the Security
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Agreement) or the real property subject to the Deeds of Trust and the Mortgages,
shall provide the Agent with thirty (30) days advance notice of the termination
of any such policy of insurance and shall obtain endorsements to such policies
which shall insure the Agent and the Banks regardless of the conduct or neglect
of the Borrower or the Sureties. If the Borrower or the Sureties fail to effect
and keep in full force and effect such insurance or fail to pay the premiums
when due, the Agent may (but shall not be obligated to) do so for the account of
the Borrower and add the cost thereof to the Debt which is evidenced by this
Agreement.
5.04 Maintenance of Properties. The Borrower, the Sureties and
their Consolidated Subsidiaries will maintain in good repair, working order and
condition, the properties now or in the future owned, leased or otherwise
possessed by the Borrower, the Sureties and their Consolidated Subsidiaries, or
any of them, and shall make or cause to be made all needful and proper repairs,
renewals, replacements and improvements to the properties so that the business
carried on in connection with the properties may be properly and advantageously
conducted at all times. The Borrower shall notify the Agent prior to any change
in the location of any properties or businesses of the Borrower or the Sureties
to any county in which Agent does not have a perfected security interest against
the property of Borrower and Sureties.
5.05 Payment of Liabilities. The Borrower, the Sureties and
their Consolidated Subsidiaries will pay or discharge:
(a) on or prior to the date on which penalties
attach, all taxes, assessments and other governmental charges or levies imposed
upon it or any of its properties or income except taxes, assessments or charges
subject to good faith dispute for which the Borrower, Surety or Consolidated
Subsidiary has created adequate reserves on its books;
(b) on or prior to the date when due, all lawful
claims of materialmen, mechanics, carriers, warehousemen, landlords and other
like persons which, if unpaid, might result in the creation of a Lien upon any
of the Borrower's property or the property of any Surety or Consolidated
Subsidiary, except such claims which are subject to good faith dispute and as to
which the Borrower or the Surety or Consolidated Subsidiary has created adequate
reserves on its books;
(c) on or prior to the date when due, all other
lawful claims which, if unpaid, might result in the creation of a Lien upon any
of the Borrower's property or the property of any Surety or Consolidated
Subsidiary, except such claims which are subject to good faith dispute and as to
which the Borrower or the
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Surety or Consolidated Subsidiary has created adequate reserves on its books;
and
(d) all other current liabilities so that none is due
more than sixty (60) days after the due date for each liability, except current
liabilities which are subject to good faith dispute and as to which it has
created adequate reserves on its books.
5.06 Financial Accounting Practices. The Borrower, the
Sureties and their Consolidated Subsidiaries will make and keep books, records
and accounts which, in reasonable detail, accurately and fairly reflect their
transactions and dispositions of their assets and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to maintain
accountability for assets, (c) access to assets is permitted only in accordance
with management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
5.07 Compliance with Laws. The Borrower, the Sureties and
their Consolidated Subsidiaries will comply with all applicable Laws in all
respects, unless failure to comply could not reasonably be expected to have a
Material Adverse Effect.
5.08 Pension Plans. The Borrower, Surety and their
Consolidated Subsidiaries will furnish to the Agent notice: (A) of a Plan
Employer's intention to adopt any new Defined Benefit Plan; (B) of a Plan
Employer's intention to terminate for purposes of Title IV of ERISA any Defined
Benefit Plan or to withdraw from or cease making timely contributions to any
multiemployer plan; and (C) of a Plan Employer's adoption of a Plan amendment
which results in the imposition of a Lien on the Borrower, Surety or
Consolidated Subsidiary under Section 401(a)(29) of the Code. Promptly after the
occurrence or filing or any of the events or documents described below, as the
case may be, the Borrower or Surety will (i) furnish to the Agent (A) notice of
a Plan Employer's failure to make a required payment under Section 412 of the
Code on or before the due date for such payment, if applicable, (B) copies of
IRS Form 5310 relating to a Defined Benefit Plan termination or transfer of
Defined Benefit Plan assets or liabilities, (C) any 30-day notice to the PBGC of
a Reportable Event, (D) upon the Agent's request, any IRS Form 5500, including
all Schedules, for any Plan which, on the date on which such IRS Form 5500 is
filed, has unfunded vested liabilities in excess of $500,000, (E) any writing
from the PBGC to the effect that it may or will take action to terminate any
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Plan under Title IV of ERISA or from any multiemployer Plan that it may and will
take action to assert withdrawal liability against the Plan Employer, (F) any
notice filed with the PBGC pursuant to Section 4041 of ERISA and (G) any notice
from the Secretary of the Treasury to the effect that a Plan has lost its
qualified status under Section 401 of the Code or has been terminated within the
meaning of Section 411(d)(3) of the Code or the related trust of such Plan lost
its tax exempt status under Section 501 of the Code if such action is likely to
cause the Plan Employer to incur liability in an amount in excess of $500,000,
and (ii) furnish to the Agent within thirty (30) days of the filing or receipt
of each such document other than IRS Form 5500, a certificate of a Responsible
Officer of the Borrower or Surety certifying as to what further action has been
taken by the Plan Employer in connection therewith and whether the matter
referred to in such documents is likely to cause the Plan Employer to incur
liability to the PBGC or multiemployer Plan in an amount in excess of $500,000.
The Borrower and the Sureties shall (a) keep in full force and effect any and
all Plans which are presently in existence or may, from time to time, come into
existence under ERISA, unless such Plans can be terminated without material
liability to the Borrower in connection with such termination; (b) make
contributions to all of the Borrower's, the Sureties' and the Consolidated
Subsidiaries' Plans in a timely manner and in a sufficient amount to comply with
the requirements of ERISA; and (c) comply with all material requirements of
ERISA which relate to such Plans so as to preclude the occurrence of any
Reportable Event, Prohibited Transaction (other than a Prohibited Transaction
subject to an exemption under ERISA) or material "accumulated funding
deficiency" as such term is defined in ERISA.
5.09 Continuation of and Change in Business. The Borrower, the
Sureties and their Consolidated Subsidiaries will continue to engage in the
businesses and activities in which they are currently engaged in the geographic
regions in which they are currently engaged and none of the Borrower nor any of
the Sureties or Consolidated Subsidiaries will engage in any other businesses or
activities without the prior written consent of the Banks.
5.10 Use of Proceeds. Borrower and the Eligible Subsidiaries
will use the proceeds of the Revolving Credit Loans for the purposes set forth
in Section 2.01(a).
5.11 Lockbox. The Borrower and the Sureties will maintain one
or more lockbox accounts and depository transfer checking accounts with the
Agent, whereby all checks, drafts, cash and other remittances to the Borrower
and the Sureties in payment of the Borrower's or the Sureties' accounts are
deposited into such lockbox account or accounts or depository transfer checking
accounts.
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5.12 Lien Searches. The Agent may, but shall not be obligated
to, conduct lien searches of the Borrower, the Sureties and their assets and
properties and the Collateral (i) on an annual basis and (ii) at such other
times as the Agent, in its sole discretion, may determine to be necessary. The
Borrower shall reimburse the Agent or the Banks for the out-of-pocket costs
incurred in connection with any such lien searches, provided, that so long as no
Event of Default is in existence, the Borrower shall not be obligated to
reimburse the Agent or the Banks for such cost more often than once each year.
5.13 Further Assurances. The Borrower and the Eligible
Subsidiaries, at their own cost and expense, will cause to be promptly and duly
taken, executed, acknowledged and delivered all such further acts, documents and
assurances as the Agent or the Banks may from time to time reasonably request in
order more effectively to carry out the intent and purposes of this Agreement
and the transactions contemplated by this Agreement and to cause the security
interest or interests, the liens, or conveyance granted under the Security
Agreement or any other Loan Documents to be, at all times, valid, perfected and
enforceable against the Borrower, the Eligible Subsidiaries and all third
parties. All expenses of such filings, and recordings, and refilings, and
rerecordings, shall be borne by the Borrower. Promptly upon request by the
Agent, the Borrower agrees to execute or cause to be executed by the Eligible
Subsidiaries all financing statements describing the property in which the Agent
has a security interest under the Security Agreements or the Subsidiary Security
Agreements, the Deeds of Trust and Mortgages and the Subsidiary Deeds of Trust
and Mortgages. The Borrower irrevocably appoint the Agent as its agent and
attorney to execute any such financing statements in the Borrower's name. The
Borrower further agree that a carbon, photographic or other reproduction of a
financing statement or the Security Agreements or the Subsidiary Security
Agreements is sufficient as a financing statement and may be filed as such. The
Borrower further agrees, at its own cost and expense, to, or to cause the
Eligible Subsidiaries to, promptly and duly, take, execute, acknowledge and
deliver all such further acts, documents and assurances as the Agent or the
Banks may from time to time reasonably request in connection with any of the
other Loan Documents to more effectively carry out the intent and purposes of
any of the Loan Documents and the transactions contemplated by such Loan
Documents and to cause the security interest or interests, the liens, or
conveyance granted under the Loan Documents to be, at all times, valid,
perfected and enforceable against the Borrower, the Sureties and all third
parties. Upon the request of the Agent, the Borrower shall, and shall cause the
Eligible Subsidiaries to, use all commercially reasonable efforts to obtain any
consents or agreements not previously obtained which are necessary to assign to
the Agent, for the benefit of the Banks, any or all of the Material Agreements,
including,
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without limitation, the Coal Supply Agreements, the Coal Purchase Agreements and
any material leases of mineral rights or real property rights which are subject
to the Mortgages or the Deeds of Trust, which either come into existence after
the date hereof or in which the Agent, on behalf of the Banks, has not received
a direct assignment or security interest, provided, however, that unless an
Event of Default is in existence, the Agent shall not request the Borrower or
any Eligible Subsidiary to use commercially reasonable efforts to obtain any
necessary consents to an assignment of any of the Coal Supply Agreements.
5.14 Litigation. Upon the request of the Agent, the Borrower
shall furnish to the Agent a verbal summary of the material developments,
including, without limitation, all hearings and orders in pending suits or
proceedings relating to the Borrower or Sureties which litigation (A)(i) names
the Borrower or Surety as a party or (ii) puts at issue assets or operations of
the Borrower or Surety, and (B) which could reasonably be expected to have a
Material Adverse Effect. Upon the request of the Agent, Borrower shall promptly
furnish the Agent with a written summary of the matters set forth in this
Section 5.14, and such other information and materials as the Agent may
reasonably request in connection therewith.
5.15 Notice of Change of Management. The Borrower shall
promptly furnish written notice to the Agent of a change in the respective
Responsible Officers or the directors of the Borrower or any Surety.
5.16 Labor Agreements. Promptly upon execution thereof, the
Borrower will provide to the Agent a copy of (i) any union or labor workforce
agreements entered into with any organized labor organization or the employees
of the Borrower, Surety or Consolidated Subsidiary, and all amendments,
extensions or revisions to such agreements and (ii) any notice of any default
thereunder.
5.17 Ownership and Control. Pen Holdings shall at all times
own 100% of the issued and outstanding capital stock of the Eligible
Subsidiaries and the other Consolidated Subsidiaries and all of the capital
stock of the Eligible Subsidiaries and the other Consolidated Subsidiaries of
the Borrower which are Active Subsidiaries shall at all times be pledged to the
Agent pursuant to and in accordance with the terms of the Pledge Agreements.
5.18 Maintenance of Material Agreements. The Borrower shall
maintain and be in compliance with the Material Agreements at all times. The
Borrower will, and will cause the Consolidated Subsidiaries, to (i) perform in
all material respects their obligations under the Material Agreements and will
enforce or will cause the enforcement of the performance by the other parties
thereto of all of their obligations under the Material
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Agreements or any other document or agreement, (ii) not terminate the Material
Agreements or modify or amend the terms of the Material Agreements or release
any other party thereto from any material obligations under the Material
Agreements or any other agreement or document by and between the Borrower and
the other parties to the Material Agreements with respect to the performance of
the Material Agreements unless such modification or noncompliance would not
diminish or adversely affect the value of the Material Agreements to the
Borrower or adversely affect the rights or obligations of the Borrower under the
Material Agreements.
5.19 Newly Acquired Property. The Borrower shall (i) notify
the Agent with respect to any interest acquired by the Borrower or any of its
Consolidated Subsidiaries in any Property after the date hereof (including,
without limitation, by acquisition of any Person which becomes a Consolidated
Subsidiary of the Borrower, but excluding any Property acquired in a transaction
or a series of transactions where the consideration paid or delivered in
exchange therefor is or has a value less than $1,000,000 or such Property
consists of Mobile Equipment) not less than five (5) Business Days after such
acquisition, and (ii) not later than sixty (60) days after request by the Agent
or the Banks, cause the Borrower or Consolidated Subsidiary which acquires such
Property to mortgage, assign or grant a security interest in such Property to
the Agent, for the benefit of the Banks, and, after, and to execute and deliver
such other documentation, evidence of ownership interests and other information
regarding such Property as the Agent may reasonably request, including, without
limitation, Code financing statements, environmental assessments, corporate
resolutions and other corporate documentation, opinions of counsel and evidence
of title, all in form and substance reasonably satisfactory to the Agent;
provided, however, if the consent of a third party is necessary to the granting
of a security interest, mortgage or assignment, the Borrower or Consolidated
Subsidiary which acquires such Property shall not be required to grant a
security interest, mortgage or assignment in such Property to the Agent if the
Borrower or Consolidated Subsidiary, as the case may be, has used commercially
reasonable efforts to obtain such consent and the consent has not been granted.
5.20 Active Subsidiaries. In the event that the Borrower or
any of its Consolidated Subsidiaries shall form or acquire any new Consolidated
Subsidiary that the Borrower anticipates will be an Active Subsidiary (or in the
event that any existing Subsidiary which currently is not an Active Subsidiary
shall become an Active Subsidiary), the Borrower will cause such new Active
Subsidiary to become a Surety hereunder, and to pledge and grant a security
interest in its Property to the Agent for the benefit of the Banks pursuant to
documents substantially in the same form as the relevant Loan Documents and
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to deliver such proof of corporate or other organizational action, incumbency of
officers, opinions of counsel and other documents as is consistent with those
delivered by each Surety pursuant to Article IV of this Agreement upon the
Closing Date or as the Agent may reasonably request.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants to the Agent and the Banks as follows:
6.01 Liens. Neither the Borrower nor any of the Sureties or
any of their Consolidated Subsidiaries shall at any time create, incur, assume
or suffer to exist any Lien on any of its property or assets, tangible or
intangible, now owned or acquired in the future, or agree to become liable to do
so, except:
(a) Liens existing on the Closing Date and described
in Schedule 6.01 to this Agreement, Liens in favor of the Agent and Liens
securing Debt permitted under Section 6.02(d), (e) and (i) of this Agreement;
(b) Liens arising from taxes, assessments, charges,
levies or claims described in Section 5.05(a) of this Agreement that are not yet
due or that remain payable without penalty or to the extent permitted to remain
unpaid under the proviso to Section 5.05(a) of this Agreement;
(c) Deposits or pledges to secure workmen's
compensation, unemployment insurance, old age benefits or other social security
obligations, or in connection with or to secure the performance of bids,
tenders, trade contracts or leases, or to secure statutory obligations,
including without limitation, statutory obligations of strip mining reclamation,
or stay, surety or appeal bonds, or other pledges or deposits of like nature and
all in the ordinary course of business;
(d) Mechanics', carriers', workmen's, repairmen's or
similar liens arising in the ordinary course of business in respect of
obligations which are not overdue, or deposits made to obtain the release of
such mechanics', carriers', workmen's, repairmen's or similar liens which are
being contested in good faith by appropriate proceedings diligently conducted
which operate to stay any foreclosure, distraint or execution on the property or
deposit or pledges to obtain the release of any such lien and with respect to
which the Borrower or the Surety has created reserves which are determined to be
adequate by the application of GAAP consistently applied;
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(e) Zoning restrictions, easements, minor
restrictions on the use of real property, minor irregularities in title to real
property and other minor Liens that do not secure the payment of money or the
performance of an obligation and that do not in the aggregate materially detract
from the value of a property or asset to, or materially impair its use in the
business of, the Borrower or any Surety; and
(f) rights reserved to the lessor under any Capital
Lease Obligations permitted under Section 6.02(d);
(g) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(h) Liens arising pursuant to any sale and leaseback
transactions entered into in compliance with this Agreement;
(i) Liens on Property constituting Mobile Equipment
securing Debt otherwise permitted under this Agreement, provided that such Liens
do not extend to or cover any other Property;
(j) Liens constituting judgment liens which are fully
bonded or stayed pending appeal, provided that without the prior written consent
of the Banks, neither the Borrower nor any of its Consolidated Subsidiaries
shall incur any Debt or Liens in connection with the bonding of any such
judgment Liens if the Debt or Liens incurred in connection with any surety, bond
or other obligation on account of a judgment Lien would otherwise not be
permitted by the terms of this Agreement;
(k) the Columbia Lien; and
(l) any extension, renewal or replacement, in whole
or in part, of any Lien described in the foregoing clauses (a) through (k);
provided that any such extension, renewal or replacement shall be no more
restrictive in any material respect than the Lien so extended, renewed or
replaced and shall not extend to any other Property of the Borrower or its
Consolidated Subsidiaries other than such item of Property originally covered by
such Lien or any improvement thereon or additions or accessions thereto.
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In addition, the Borrower and the Sureties shall not agree, warrant, represent,
pledge or otherwise commit with or to any Person other than Agent and the Banks
to not incur, create, assume or permit to exist, any mortgage, pledge, lien
charge or other encumbrance of any nature whatsoever on all or any of its
Property, now or hereafter owned (except as provided in the Senior Notes to the
extent that such prohibition contained in the Senior Note Documents does not
prohibit the granting of Liens on the Property of the Borrower and the
Consolidated Subsidiaries in favor of the Agent for the benefit of the Banks).
6.02 Debt. Neither the Borrower nor any of the Sureties or any
of their Consolidated Subsidiaries will at any time create, incur, assume or
suffer to exist any Debt, except:
(a) Debt under this Agreement, the Notes, the other
Loan Documents or under any other document, instrument or agreement between or
among the Borrower or any Surety and any of the Banks;
(b) Debt existing on the Closing Date and described
in Schedule 6.02 to this Agreement; provided, however, that none of such
indebtedness shall be extended, renewed or refinanced without the prior written
consent of the Banks unless such renewal, extension or refinance of such Debt is
based upon terms which are no less favorable to the Banks than the terms which
currently exist with respect to such Debt; (for purposes of this Section
6.02(b), any material increase in interest rate, requirement for a material
addition to the collateral or security for such Debt, addition or amendment of
covenants or agreements such that any agreement governing such Debt is more
restrictive on the borrower thereunder, extension of the period of time over
which such Debt amortizes in the case of term Debt, or increase in the amount of
the Debt, shall conclusively be deemed to be less favorable to the Banks);
(c) Current accounts payable, accrued expenses,
accrued reclamation costs and other current items arising out of transactions
(other than borrowings) in the ordinary course of business;
(d) Debt of the Borrower or Sureties secured by a
purchase money security interest or Mobile Equipment; provided, however that in
no event shall (i) Debt permitted by this subsection (d) of Section 6.02, plus
(ii) Debt permitted by subsection (k) of this Section 6.02, plus (iii) Debt
which is outstanding under this Agreement and the Notes, exceed $50,000,000 in
the aggregate at any time, and provided further that the purchase money security
interest shall in no event encumber or create a Lien on any Property other than
the Property purchased in accordance therewith or the identifiable cash proceeds
thereof;
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(e) Debt of Eligible Subsidiaries to Borrower
evidenced by the Subsidiary Notes which are subject to the Assignment of
Subsidiary Security Documents;
(f) Guarantees permitted by Section 6.03 of this
Agreement;
(g) the Senior Notes;
(h) Debt incurred in connection with Rate Protection
Agreements which have been approved by the Banks; and
(i) Debt of the Borrower occurring after January 3,
2006 which results from the redemption of the Borrower's outstanding mandatorily
redeemable convertible preferred stock in accordance with its terms as contained
in the Pen Holdings Charter as in effect on the Closing Date;
(j) Debt in respect of performance, surety and
similar bonds and completion guarantees provided by the Borrower or any of its
Consolidated Subsidiaries in the ordinary course of business if such obligations
are not otherwise prohibited by the terms of this Agreement; and
(k) other Debt of the Borrower and the Consolidated
Subsidiaries not exceeding $7,000,000 in the aggregate.
6.03 Guarantees and Contingent Liabilities. Neither the
Borrower nor any Surety or Consolidated Subsidiary will at any time directly or
indirectly assume, guarantee, endorse or otherwise agree, become or remain
directly or contingently liable upon or with respect to any obligation or
liability of any other Person, including, without limitation, any Subsidiary of
Borrower, except (a) as shown on Schedule 6.03 to this Agreement, (b) pursuant
to the Senior Notes, (c) indemnities of directors, officers and employees of the
Borrower and its Consolidated Subsidiaries in their capacities as such, (d)
obligations of Pen Hardwood as a general partner of Camden Hardwood and Marine
Terminals as a general partner of International Marine Terminals, provided that
such obligations are limited to obligations arising as a general partner of
Camden Hardwood or Marine Terminals, as the case may be, and are not guarantees
or other contractual obligations for the benefit of any Person other than Camden
Hardwood (with respect to Pen Hardwood) or International Marine Terminals (with
respect to Marine Terminals), (e) obligations of the Borrower in connection with
that certain Cash Deficiency Agreement dated as of August 15, 1981 among
International Marine Terminals, Houston Natural Gas Corporation and Florida
Power Corporation ("IMT Deficiency Agreement"), provided, that (1) Borrower
shall give the Agent notice of the requirement for any payment by Borrower or
Marine Terminals under the IMT Deficiency
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Agreement at least five (5) Business Days prior to the making of any payment,
and (2), without the prior written consent of the Banks, Borrower shall neither
make any payment or make loans, advances or investments in Marine Terminals or
any other Person in order to satisfy any obligation to make any payment under
the IMT Deficiency Agreement if (x) an Event of Default is then in existence or
will be in existence after giving effect to the making of any such payment, or
(y) the making of such payment would cause the Borrower to breach any covenant
or agreement contained in this Agreement, or (f) guarantees of Borrower for the
benefit of any of the Eligible Subsidiaries, whether now existing or hereafter
arising, if the obligation of the Eligible Subsidiary is not prohibited by this
Agreement.
6.04 Loans or Investments. (a) Neither the Borrower nor any
Surety or any Consolidated Subsidiary will make any loan, advance or extension
of credit to or capital or equity investment in, any person, firm or
corporation, except: (i) credit extended under usual and customary terms in the
ordinary course of business of the Borrower, Surety or Consolidated Subsidiary;
(ii) loans, advances or credit between the Borrower or Surety and any of the
Eligible Subsidiaries or capital or equity investments by Borrower in any of the
Eligible Subsidiaries; (iii) loans, advances or credit by Borrower to, or
capital or equity investments by Borrower in, any of its Consolidated
Subsidiaries (other than the Eligible Subsidiaries), provided that any such
loan, advance, extension of credit, capital investment or equity investment by
Borrower is made with the proceeds of dividends or distributions made to
Borrower by its Consolidated Subsidiaries which are not Eligible Subsidiaries
and which are do not comprise any part of the coal division of Borrower; (iv)
credit extended by the Borrower or any of its Consolidated Subsidiaries in
connection with the sale or disposition of (A) Non-Core Assets, or (B) other
Property not used or intended to be used in the business of the Borrower and its
Consolidated Subsidiaries, provided that the amount of all such credit at any
one time outstanding for the Borrower and all of its Consolidated Subsidiaries
pursuant to this clause (iv)(B) shall not exceed $500,000 in the aggregate; (v)
credit extended or advanced pursuant to the provisions of leases of mining
property, mining contracts, coal purchase contracts, arrangements with railroads
with respect to the construction of sidings for unit train loadout or similar
agreements, or in connection with agreements with third parties for the
production or processing of coal owned or leased by the Borrower or Surety not
in excess of $1,000,000 in the aggregate at any time outstanding for the
Borrower and its Consolidated Subsidiaries; (vi) loans to contract miners which
do not exceed $1,000,000 at any time outstanding to any contract miner or
$2,000,000 at any time outstanding in the aggregate for all contract miners; and
(vii) other loans to employees for travel and similar advances to employees and
independent contractors not exceeding for the Borrower or any Consolidated
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Subsidiary $250,000 in the aggregate at any one time outstanding; provided,
however, that in each case (other than with respect to loans or investments
pursuant to clauses (i), (ii) or (vii) above), no event shall occur or be
continuing which constitutes an Event of Default, and further, provided, that
notwithstanding any of the foregoing exceptions, the Borrower and the
Consolidated Subsidiaries will not make any loan, advance or extension of credit
to any Person (other than those loans shown on Schedule 6.04 to this Agreement,
loans to the Borrower or an Eligible Subsidiary, or loans extended pursuant to
clause (iv)(A) or (vi) above) in excess of $500,000, without the prior written
consent of the Agent, and provided, further, that with respect to loans,
advances or extensions of credit made by Borrower to any of the Eligible
Subsidiaries, such loans, advances or extensions of credit will be evidenced by
the note of the Eligible Subsidiary to Borrower which is assigned to the Agent
pursuant to the Assignment of Subsidiary Security Documents.
(b) Borrower shall have the right to lend proceeds of
the Revolving Credit Loans to the Eligible Subsidiaries ("Subsidiary Loans") in
accordance with the provisions of Section 2.01(a) of this Agreement, provided
that such loans to Eligible Subsidiaries shall (i) not be in amounts which would
cause the representation set forth in Section 3.28 to be inaccurate with respect
to any Eligible Subsidiary and (ii) be evidenced by intercompany notes of each
of the Eligible Subsidiaries payable to Borrower, which shall be secured by the
Subsidiary Collateral of the Eligible Subsidiaries pursuant to notes, security
agreements and deeds of trust in substantially the form attached hereto as
Exhibits "G-1", "G-2", and "G-3", and provided further, that (x) Borrower shall
execute and deliver to the Agent the Assignments of Subsidiary Security
Documents whereby such note and collateral security shall be assigned to the
Agent as collateral for the Loans and (y) the Sureties shall have executed and
delivered their Suretyship Agreements to the Agent as security for the Loans,
all in accordance with the documentation and upon terms as shall be satisfactory
to the Agent.
(c) Borrower and its Consolidated Subsidiaries shall
have the right to make (i), only with respect to Borrower and Marine Terminals,
equity investments in International Marine Terminals (A) to repay indebtedness
to Mellon Bank, N.A. of approximately $7.7 million due in 2000 and to repay
approximately $13.3 million of bonds due 2006 issued by International Marine
Terminals, provided, however, that such investments shall only be permitted to
the extent they are derived from investments deposited by Borrower or Marine
Terminals in escrow as of the date of this Agreement to fund such obligations of
International Marine Terminals and (B) in accordance with the Borrower's
partnership obligations existing on the date of this Agreement
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with respect to International Marine Terminals, and (ii) other investments that
do not exceed $1,000,000 in the aggregate at any one time outstanding.
6.05 Dividends and Related Distributions. Neither the Borrower
nor any Surety or Consolidated Subsidiary will declare, make, pay, or agree,
become or remain liable to make or pay, any dividend or other distribution of
any nature (whether in cash, property, securities or otherwise) on account of or
in respect of any shares of the capital stock of the Borrower or any Surety or
on account of the purchase, redemption, retirement or acquisition of any shares
of the capital stock (or warrants, options or rights for any shares of the
capital stock) of the Borrower or any Surety (the foregoing are herein
collectively referred to as "Distributions") without the consent of the Banks;
provided, however, that so long as no Event of Default or Potential Default
exists or could exist at the time of, after or as a result of any of the
following Distributions, (a) Borrower may make Distributions on account of the
mandatorily redeemable convertible preferred stock of Borrower in accordance
with the terms of the Pen Holdings Charter, provided that any Distributions on
account of such mandatorily redeemable convertible preferred stock (i) are only
made prior to any conversion of such stock into common stock of Borrower, and
(ii) are made no earlier than January 3, 2006 and are made in accordance with
the Pen Holdings Charter as in effect on the Closing Date, (b) the Subsidiaries
of Borrower may make Distributions to Borrower in any amount, and (c) for the
purchase, redemption or other acquisition for value of shares of capital stock
of the Borrower or options on such shares held by officers or employees or
former officers or employees (or their estates or beneficiaries under their
estates), other than William E. Beckner, upon the death, disability, retirement
or termination of employment of such current or former officers or employees
pursuant to the terms of an employee benefit plan or any other agreement
pursuant to which such shares of capital stock or options were issued or
pursuant to a severance, buy-sell or right of first refusal agreement with such
current or former officer or employee; provided that, without the prior written
consent of the Banks, Distributions made pursuant to this clause (c) may only be
made if (i) the aggregate Distributions made pursuant to this clause (c) do not
exceed $3,000,000, and (ii) an Event of Default is not then in existence and the
Borrower shall not be in violation of the covenants contained in Section 6.16 of
this Agreement after giving effect to the making of such Distributions.
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6.06 Lease Payments. In no event shall the Lease Obligations
on all Property (exclusive of Lease Obligations on account of mineral or coal
reserve leases) leased by the Borrower and its Consolidated Subsidiaries, when
taken together with all Consolidated Capital Expenditures (other than
Consolidated Capital Expenditures incurred in connection with the Fork Creek
Reserves), during any fiscal year of the Borrower, exceed (i) $35,000,000 in the
aggregate during the fiscal year of the Borrower ending December 31, 1998, or
(ii) $25,000,000 in the aggregate during any fiscal year of the Borrower and its
Consolidated Subsidiaries ending thereafter.
6.07 Merger; Consolidation; Business Acquisitions. None of the
Borrower nor any Surety or Consolidated Subsidiary will merge or agree to merge
with or into or consolidate with any other Person except that the Borrower or
any Eligible Subsidiary may enter into a liquidation, merger or consolidation
with any of the Consolidated Subsidiaries, provided, however, that in each case
(i)(A) if such merger or consolidation involves the Borrower, the Borrower is
the surviving corporation, or (B) if the Borrower is not a party to such merger
or consolidation, an Eligible Subsidiary is the surviving corporation, and (ii)
no Event of Default is in existence.
6.08 Dispositions of Assets. None of the Borrower nor any
Surety or any of the other Consolidated Subsidiaries will sell, convey, assign,
lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily
(any of the foregoing being referred to in this Section as a "transaction" and
any series of related transactions constituting but a single transaction), any
of its Property (including stock of Subsidiaries), but excluding any transaction
referred to in any of clauses (i), (ii), (iii), (iv) and (v) of the definition
of "Disposition" in Section 1.01 of this Agreement and provided that the
Borrower, the Sureties and the Consolidated Subsidiaries may in the ordinary
course of business lease items of equipment to one or more Consolidated
Subsidiaries for use in the business of such Consolidated Subsidiaries provided
the Borrower or Surety notifies the Agent of such lease and, upon the Agent's
request, assigns to the Agent as security for the Borrower's or Surety's
indebtedness to the Banks all rents and other amounts due the Borrower under
such leases pursuant to lease assignment documentation satisfactory to the
Agent.
6.09 Self-Dealing. None of the Borrower nor any Surety will
enter into or carry out any loan, advance or other transaction (including,
without limitation, purchasing property or services or selling property or
services) with any Affiliate except that:
(a) directors, officers and employees of the Borrower
and any Surety may render services to, and receive
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indemnifications from, the Borrower or the Consolidated Subsidiaries, or any of
them, for compensation at the same rates generally paid by corporations engaged
in the same or similar businesses for the same or similar services, provided,
that in no event shall the Borrower or any Surety enter into any consulting,
service or other arrangement or agreement with any of such directors, officers
or employees which provide for the payment of any sum to such individuals other
than the payment of compensation for services rendered to the Borrower or
Sureties as set forth above;
(b) the Borrower and any Surety may, without the
prior written consent of the Banks, enter into and carry out other transactions
with Affiliates if in the ordinary course of business, pursuant to the
reasonable requirements of the Borrower's or Surety's business upon terms
reasonably found by the board of directors of the Borrower or the Surety after
due inquiry to be fair and reasonable and no less favorable to the Borrower or
the Surety than would be obtained in a comparable arm's-length transaction,
provided, that in no event shall the Borrower or any Surety enter into any
consulting, service or other arrangement or agreement with any Affiliate without
the prior written consent of the Banks;
(c) Borrower and Eligible Subsidiaries may enter into
transactions which are permitted in Sections 6.04 or 6.08 of this Agreement; and
(d) the Borrower and its Consolidated Subsidiaries
may make payments to International Marine Terminals, on an arm's-length basis in
the ordinary course of business, relating to the loading of coal onto ships or
the purchase of coal or in accordance with the financial obligations of Marine
Terminals, if any, pursuant to Marine Terminal's contractual partnership
obligations existing on the Closing Date with respect to International Marine
Terminals.
6.10 Continuation of or Change in Business. The Borrower, the
Sureties and their Consolidated Subsidiaries will continue to engage in their
respective businesses substantially as described in Schedule 3.10 to this
Agreement, and the Borrower, the Sureties and their Consolidated Subsidiaries
will not engage in any other businesses, without the prior written consent of
the Banks.
6.11 Margin Stock. The Borrower and the Eligible Subsidiaries
will not use the proceeds of any Loans directly or indirectly to purchase or
carry any "margin stock" (within the meaning of Regulations U, G, T, or X of the
Board of Governors of the Federal Reserve System) or to extend credit to others
for the
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purpose of purchasing or carrying, directly or indirectly, any margin stock.
6.12 Consolidated Tax Returns. The Borrower and the Sureties
will not without prior written consent of the Agent, file, or consent to the
filing of, any consolidated income tax return with any person other than a
Consolidated Subsidiary.
6.13 Capital Expenditures. (a) The Borrower shall not permit
Consolidated Capital Expenditures (other than Consolidated Capital Expenditures
incurred in connection with the Fork Creek Reserves), when taken together with
Lease Obligations of the Borrower and its Consolidated Subsidiaries (exclusive
of Lease Obligations on account of mineral or coal reserve leases), to exceed
(i) $35,000,000 during the fiscal year of the Borrower and its Consolidated
Subsidiaries ending on December 31, 1998, or (ii) $25,000,000 during any fiscal
year of Borrower and its Consolidated Subsidiaries ending thereafter.
(b) The Borrower shall not permit Consolidated
Capital Expenditures incurred in connection with the Fork Creek Reserves
(including, without limitation, Consolidated Capital Expenditures incurred in
connection with the construction of the preparation plant and the load out, rail
and mine development work, but excluding capitalized general and administrative
expense and interest expense) to exceed (i) $12,000,000 through the period
ending December 31, 1998, (ii) $44,000,000 through the period ending December
31, 1999, and (iii) $50,000,000 through the period ending December 31, 2000, all
on a cumulative basis.
6.14 Sale of Coal. Borrower shall not permit any Subsidiary to
sell, transfer or dispose of coal to an Affiliate of Borrower for less than the
then current fair market rate therefor.
6.15 Change of Control, etc. Borrower shall not at any time
permit a Change of Control to occur. The Borrower shall at all times cause (i)
100% of the outstanding capital stock of the Eligible Subsidiaries and all other
Active Subsidiaries to be pledged to the Agent pursuant to the Pledge
Agreements. Borrower shall not amend, alter, repeal, modify or change the Pen
Holdings Charter in any respect without the prior written consent of the Banks.
6.16 Financial Maintenance Covenants. The Borrower shall not
permit or suffer:
(a) the Consolidated Debt to EBITDA Ratio to be
greater than (i) 5.50 to 1 at the end of each fiscal quarter of Borrower ending
on or prior to December 31, 1999; (ii) 5.0 to 1 on March 31, 2000 or any fiscal
quarter ending thereafter through and including June 30, 2002, or (iii) 4.0 to 1
on September 30,
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2002 or at the end of each fiscal quarter of Borrower ending thereafter, as
calculated on a rolling four quarter basis;
(b) the Consolidated Fixed Charge Coverage Ratio to
be less than (i) 1.30 to 1 at the end of each fiscal quarter of Borrower ending
on or prior to June 30, 2002; or (ii) 1.40 to 1 at the end on September 30, 2002
or at the end of each fiscal quarter of Borrower ending thereafter, as
calculated on a rolling four quarter basis; and
(c) the Consolidated Net Worth to be less than (i)
$35,000,000 at any time on or before December 31, 1998, or (ii) for the period
commencing January 1, 1999 and continuing until December 31, 1999, the sum of
(A) $35,000,000, plus (B) 50% of Consolidated Net Income (not less than $0) for
the twelve (12) month period ending December 31, 1998, minus (C) accrued but
unpaid dividends on the outstanding mandatorily redeemable convertible preferred
stock of the Borrower for the twelve (12) month period ending December 31, 1998;
and (iii) for any period commencing on January 1 and ending on December 31
thereafter, the sum of (A) $35,000,000, plus (B) 50% of Consolidated Net Income
(not less than $0) for each of the twelve (12) month periods ending on a
December 31st, commencing with the twelve (12) month period ending December 31,
1998, minus (C) accrued but unpaid dividends on the outstanding mandatorily
redeemable convertible preferred stock of the Borrower for each of the twelve
(12) month periods ending on a December 31st, commencing with the twelve (12)
month period ending December 31, 1998.
6.17 Change Fiscal Year. The Borrower and
Sureties will not change the fiscal year end date from December 31 without the
prior written consent of the Agent, which consent shall not be unreasonably
withheld.
6.18 Senior Notes. The Borrower will not, and
will not permit any of its Consolidated Subsidiaries, to pay, prepay, purchase
or redeem any principal of or interest on the Senior Notes except that the
Borrower may make regularly scheduled required payments on the Senior Notes in
accordance with the terms of the Senior Note Documents as in effect on the
Closing Date.
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ARTICLE VII
DEFAULTS
7.01 Events of Default. An Event of Default means the
occurrence or existence of one or more of the following events or conditions
(whatever the reason for such Event of Default and whether voluntary,
involuntary or effected by operation of Law) beyond the applicable grace period
or notice, if any:
(a) The Borrower shall fail to pay principal on any
of the Notes or Loans when due; or
(b) The Borrower shall fail to pay interest or any
fees payable pursuant to Article II of this Agreement or any other fee, or other
amount payable pursuant to this Agreement, the Notes, the Security Agreements or
any of the other Loan Documents when due and the failure shall continue for ten
(10) days after the due date; or
(c) Any representation or warranty made by the
Borrower under this Agreement, the Notes, the Security Agreements, or any of the
other Loan Documents, by any of the Sureties under any of the Loan Documents to
which such Surety is a party, or any statement made by the Borrower or any
Surety in any financial statement, certificate, report, exhibit or document
furnished by the Borrower or any Surety, as the case may be, to the Agent or the
Banks pursuant to this Agreement or the other Loan Documents shall fail to be as
stated or prove to be in any respect false or misleading in any material
respect; or
(d) The Agent's or the Banks' security interest under
the Security Agreements, the Deeds of Trust and Mortgages, the Assignment of
Subsidiary Security Documents, the Pledge Agreements or any of the other Loan
Documents within which a security interest or lien is granted to the Agent or
the Banks is or shall become unperfected; or
(e) The Borrower shall be in default in the
performance or observance of any covenant, agreement or duty contained in
Section 5.01 (e), (f), (g), (h) or (i), Sections 5.03, 5.06, 5.07, 5.08, 5.09,
5.10, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20 or Article VI of this Agreement;
or
(f) The Borrower or any Surety, shall be in default
in the performance or observance of any other covenant, agreement or duty under
this Agreement, the Notes, the Security Agreements or the other Loan Documents
to which such entity is a party, and the default shall continue for ten (10)
days after the Agent has notified the Borrower or Surety, as the case may be, of
the default; or
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(g) The Borrower or any Surety shall (i) default (as
principal or guarantor or other surety) in any payment of principal of or
interest on any obligation (or set of related obligations) for borrowed money in
an aggregate amount in excess of $1,000,000 beyond any period of grace with
respect to the payment or, if an obligation (or set of related obligations) is
or are payable or repayable on demand, fails to pay or repay such obligation or
obligations when demanded, or (ii) default (as principal or guarantor or other
surety) in the observance of any other covenant, term or condition contained in
any agreement or instrument by which an obligation (or set of related
obligations) for borrowed money in an aggregate amount in excess of $1,000,000
is or are created, secured or evidenced if the effect of such default is to
cause, or to permit the holder or holders of such obligation or obligations (or
a trustee or agent on behalf of such holder or holders) to cause, all or part of
such obligation or obligations to become due before its or their otherwise
stated maturity; or
(h) One or more uninsured judgments for the payment
of money against the Borrower or any Surety which in the aggregate exceeds
$1,000,000 (or would require the payment of a deductible in excess of
$1,000,000) or the operation or result of which would be to interfere materially
and adversely with the conduct of the business of the Borrower or Surety, taken
as a whole, shall not have been paid, stayed on appeal, discharged bonded or
dismissed within thirty (30) days after the entry of such judgment or
attachment; or
(i) A writ or warrant of attachment, garnishment,
execution, distraint or similar process shall have been issued against the
Borrower or any Surety, or any of their Property which in the aggregate exceeds
$1,000,000, or the operation or result of which would be to interfere materially
and adversely with the conduct of the business of the Borrower and the Sureties,
taken as a whole; or
(j) The Banks shall have determined (which
determination shall be made in good faith) that a material adverse change has
occurred in the business, operations, financial condition, prospects or
management of the Borrower and the Sureties, and that such change impairs or
will impair the prospect of payment or performance of any material covenant,
agreement or duty under this Agreement, the Notes, or any other Loan Document;
or
(k) A proceeding shall be instituted in respect of
the Borrower or any Surety:
(i) seeking to have an order for relief
entered in respect of the Borrower or
Surety, or seeking a declaration or
entailing a finding that the
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Borrower or Surety is insolvent or a
similar declaration or finding, or
seeking dissolution, winding-up, charter
revocation or forfeiture, liquidation,
reorganization, arrangement, adjustment,
composition or other similar relief with
respect to the Borrower or Surety, its
assets or its debts under any law
relating to bankruptcy, insolvency,
relief of debtors or protection of
creditors, termination of legal entities
or any other similar law now or in the
future in effect; or
(ii) seeking appointment of a receiver,
trustee, custodian, liquidator,
assignee, sequestrator or other similar
official for the Borrower or Surety or
for all or any substantial part of its
property; or
(l) The Borrower or any Surety shall become
insolvent, shall become generally unable to pay its debts as they become due,
shall voluntarily suspend transaction of its business, shall make a general
assignment for the benefit of creditors, shall institute a proceeding described
in Section 7.01(k)(i) of this Agreement or shall consent to any order for
relief, declaration, finding or relief described in Section 7.01(k)(i) of this
Agreement, shall institute a proceeding described in Section 7.01(k)(ii) of this
Agreement or shall consent to the appointment or to the taking of possession by
any such official of all or any substantial part of its property whether or not
any proceeding is instituted, dissolves, winds-up or liquidates itself or any
substantial part of its property, or shall take any action in furtherance of any
of the foregoing; or
(m) a default by any party under the terms and
conditions of any of the Material Agreements, and the default shall continue
beyond the expiration of any grace period contained in such Material Agreements
if such default could reasonably be expected to have a Material Adverse Effect;
or
(n) (A) A Termination Event with respect to a Defined
Benefit Plan shall occur, (B) any Person shall engage in any Prohibited
Transaction involving any Plan or Welfare Benefit Plan, (C) an accumulated
funding deficiency, whether or not waived, shall exist with respect to any Plan,
(D) the Borrower or Surety shall be in "Default" (as defined in section
4219(c)(5) of ERISA) with respect to payments due to a multiemployer plan
resulting from the Borrower's or Surety's complete or partial withdrawal (as
described in section 4203 or 4205 of ERISA) from such plan, or (E) any other
event or condition shall occur or exist with respect to a single employer plan,
except that no such event or condition shall constitute a Default if it together
with all other events or conditions at the time existing, would not
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subject the Borrower or Surety to any tax, penalty, debt or liability which,
alone or in the aggregate, would have a materially adverse effect on the
Borrower or Surety but only to the extent that any of the foregoing is likely to
result in liability to the Borrower or Surety in an amount in excess of
$500,000; or
(o) (A) Any Eligible Subsidiary shall default or deny
liability under the terms and conditions of any Subsidiary Note, Subsidiary
Security Agreement or Subsidiary Deed of Trust or Subsidiary Mortgage executed
by it beyond the expiration of any grace period, if any, contained in such
Subsidiary Note, Subsidiary Security Agreement or Subsidiary Deed of Trust or
Subsidiary Mortgage, or (B) any Subsidiary Note, Subsidiary Security Agreement
or Subsidiary Deed of Trust or Subsidiary Mortgage is amended, modified,
canceled, extended or revoked without the prior written consent of the Agent; or
(p) An event of default or default shall occur under
the Senior Note Documents.
7.02 Consequences of an Event of Default.
(a) If an Event of Default specified in subsections
(a) through (j) or (m) through (p) of Section 7.01 of this Agreement occurs and
continues or exists, the Agent and each Bank will be under no further obligation
to make Loans and, upon the written consent of the Banks holding 75% of the
Credit Exposures of all of the Banks (provided that such 75% includes the Agent
and at least one other Bank), the Agent, on behalf of the Banks, may demand the
unpaid principal amount of the Notes, interest accrued on the unpaid principal
amount and all other amounts owing by the Borrower under this Agreement, the
Notes, the Security Agreements and the other Loan Documents to be immediately
due and payable without presentment, demand, protest or further notice of any
kind, all of which are expressly waived, and an action for any amounts due shall
accrue immediately.
(b) If an Event of Default specified in subsections
(k) or (l) of Section 7.01 of this Agreement occurs and continues or exists, the
Agent and each Bank will be under no further obligation to make Loans and the
unpaid principal amount of the Notes, interest accrued on the unpaid principal
amount and all other amounts owing by the Borrower under this Agreement, the
Notes, the Security Agreements and the other Loan Documents shall become
immediately due and payable without presentment, demand, protest or notice of
any kind, all of which are expressly waived, and an action for any amounts due
shall accrue immediately.
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7.03 Set-Off. If the unpaid principal amount of the Notes,
interest accrued on the unpaid principal amount or other amount owing by the
Borrower under this Agreement, the Notes, the Security Agreements or the other
Loan Documents shall have become due and payable (at maturity, by acceleration
or otherwise), the Agent, the Banks and the holder of any participation in any
Loan will each have the right, in addition to all other rights and remedies
available to it, without notice to the Borrower, to set-off against and to
appropriate and apply to such due and payable amounts any debt owing to, and any
other funds held in any manner for the account of the Borrower by the Agent
(excluding any pension funds held at any Bank), the Banks or by such holder
including, without limitation, all funds in all deposit accounts (whether time
or demand, general or special, provisionally credited or finally credited, or
otherwise) now or in the future maintained by the Borrower with the Banks or
such holder. The Borrower consents to and confirms the foregoing arrangements
and confirm the Agent's and the Banks' rights and such holder's rights of
banker's lien and set-off. Nothing in this Agreement will be deemed a waiver or
prohibition of or restriction on the Agent's or Banks' rights or any such
holder's rights of banker's lien or set-off.
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ARTICLE VIII
AGENT
8.01 The Agent.
(a) Appointment. The Banks hereby appoint Mellon
Bank, N.A. to act as Agent as herein specified for the Banks hereunder and under
the Loan Documents. Each of the Banks does hereby accept and agree to all the
terms and conditions of the Loan Documents. Each of the Banks hereby irrevocably
authorizes, and each holder of any Note by the acceptance of a Note shall be
deemed irrevocably to authorize the Agent to take such action on its behalf
under the provisions of this Agreement and the Loan Documents and any other
instruments and agreements referred to herein, and to exercise such powers and
to perform such duties hereunder and thereunder, as are specifically delegated
to or required of the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. Mellon Bank, N.A. agrees to act as
the Agent on behalf of the Banks to the extent provided in this Agreement and
the Loan Documents.
(b) Delegation of Duties. The Agent may perform any
of its duties hereunder or under the Loan Documents by or through agents or
employees and shall be entitled to advice of counsel concerning all matters
pertaining to its duties hereunder.
(c) Nature of Duties: Independent Credit
Investigation. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the Loan Documents. The duties of the
Agent shall be mechanical and administrative in nature; the Agent shall not have
by reason of this Agreement or any Loan Document a fiduciary relationship in
respect of any Bank; and nothing in this Agreement or any Loan Document,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any Loan Document,
except as expressly set forth herein or therein. Each Bank expressly
acknowledges (a) that the Agent has not made any representations or warranties
to it and that no act by the Agent hereafter taken, including any review of the
affairs of any of the Borrower or any of its Affiliates, shall be deemed to
constitute any representation or warranty by the Agent to any Bank; (b) that it
has made and will make its own independent investigation of the financial
condition and affairs and its own appraisal of the credit-worthiness of The
Borrower in connection with the making and continuance of the Loans hereunder;
(c) that it has made its own independent investigation of the legal matters
relating to this Agreement, the Loan Documents and the Notes to be issued to it
pursuant to the terms hereof; and (d) that the Agent shall have no duty or
responsibility, either
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initially or on a continuing basis, to provide any Bank with any credit or other
information with respect thereto, whether coming into its possession before the
making of a Loan or at any time or times thereafter.
(d) Actions in Discretion of Agent; Instructions from
the Banks. The Agent agrees, upon the written instructions of all the Banks to
take any action of the type specified as being within the Agent's rights, powers
or discretion herein. In the absence of instructions by all the Banks the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of other Banks.
Any action taken pursuant to such instructions or discretion shall be binding on
all the Banks and on all holders of Notes. No Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder or under the Loan Documents in accordance with
the instructions of all the Banks, or in the absence of such instructions, in
the absolute discretion of the Agent.
(e) Exculpatory Provisions. Neither the Agent nor any
of its directors, officers, employees or agents shall be liable to any Bank for
any action taken or omitted to be taken by it or them hereunder or under the
Loan Documents, or in connection herewith or therewith, unless caused by its or
their own gross negligence or willful misconduct. In performing its functions
and duties hereunder on behalf of the Banks, the Agent shall exercise the same
care which it would exercise in dealing with loans for its own account, but it
shall not (a) be responsible in any manner to any of the Banks for the
effectiveness, enforceability, genuineness, validity or the due execution of
this Agreement, any Loan Document or any of the Notes, or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any Loan
Document, or (b) be under any obligation to any of the Banks to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Borrower, or the financial
condition of the Borrower, or the existence or possible existence of a Default.
(f) Reimbursement and Indemnification. Each Bank
agrees to reimburse and indemnify the Agent (to the extent not reimbursed by the
Borrower) ratably, in accordance with its Percentage Share, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent,
in its capacity as such, in any way relating to or arising out of this
Agreement, the Loan Documents or the Notes or any action taken or omitted by the
Agent hereunder or
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thereunder, provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (a) if the same results from the Agent's gross
negligence or willful misconduct, or (b) if such Bank was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense, or (c) if the same results from a compromise and settlement
agreement entered into without the consent of such Bank. Without limitation of
the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including attorney's fees)
incurred by the Agent in connection with the preparation, execution,
administration or enforcement of, or the preservation of any rights under, this
Agreement and the Loan Documents to the extent that the Agent is not reimbursed
for such expenses by the Borrower.
(g) Reliance by Agent. The Agent shall be entitled to
rely upon any writing, telegram, telecopy, telex or teletype message,
resolution, notice, consent, certificate, letter, cablegram, statement, or order
or other document or phone conversation by telephone or otherwise believed by it
to be genuine and correct and to have been signed, sent or made by an authorized
person, and upon opinions of counsel and other professional advisers selected by
the Agent. The Agent shall be fully justified in failing or refusing to take any
action hereunder or under any Loan Document unless it shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
(h) Agent in its Individual Capacity. With respect to
its Commitments, the Loans made by it and any Note held by it, the Agent shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not the Agent, and the terms "Banks" or "holders of the
Notes" shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its affiliates may, without liability to
account, make loans to, accept deposits from, act as trustee under indentures
of, and generally engage in any kind of banking or trust business with, the
Borrower, or any of them, or any Surety or any Affiliates or Subsidiaries or the
Borrower or Surety as though it were not acting as Agent hereunder, including,
without limitation, the Agent's participation in the Rate Protection Agreements
or other credit facilities issued to the Borrower and Sureties and Affiliates of
the Borrower and the Sureties.
(i) Holders of Notes. The Agent may deem and treat
any payee of any Note as the owner thereof for all purposes hereof unless and
until written notice of the assignment or
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transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any legal entity who at the time of making such request or giving
such authority or consent is the holder of any Note shall be conclusive and
binding on any subsequent holder, transferee or assignee of such Note or of any
Note or Notes issued in exchange therefor.
(j) Equalization of Banks. The Banks agree among
themselves that, with respect to all amounts received by any Bank for
application on any obligation hereunder or on the Notes, after the earlier of an
exercise of any Bank's rights of set-off or the acceleration of maturity of any
of the Notes, equitable adjustment will be made in the manner stated in the next
succeeding sentence so that, in effect, all such amounts will be shared ratably
among the Banks, in proportion to the sum of the amounts then outstanding under
the Notes, plus all other Debt of the Borrower to them, whether received by
voluntary payment, by realization upon security, by the exercise of the right of
set-off or banker's lien, by counterclaim or cross action or any other non-pro
rata source. Any Bank receiving any such amount shall purchase for cash from the
other Banks an interest in their Notes, the Borrower's Indebtedness owing to the
Banks, and all other obligations of the Borrower to the Banks, if any, in such
amount as shall result in a ratable participation by each of the Banks in the
aggregate unpaid amount of all outstanding Notes then held by all of the Banks,
all Indebtedness of the Borrower to the Banks, and all other obligations of the
Borrower to the Banks, provided that if all or any portion of such excess amount
is thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
(k) Successor Agent. The Agent may resign at any time
by giving written notice thereof to the Banks and to the Borrower. Upon any such
resignation, the Banks shall have the right to appoint a successor Agent. If a
successor Agent is not appointed, or has not accepted such appointment within 30
days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent which
shall be a commercial bank organized under the laws of the United States of
America or any State thereof and having a combined capital and surplus of at
least $100,000,000. Upon the acceptance by a successor Agent of its appointment
as Agent hereunder, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article VIII shall inure to its benefit as to any actions taken or omitted
by it while it was Agent under this Agreement.
(l) Release of Collateral. Provided no Event of
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Default or Potential Default is in existence, the Agent shall have the
authority, in its sole discretion, to release the Agent's Lien (i) in any 12
month period, in Property which is not material to the businesses of the
Borrower and its Consolidated Subsidiaries and which has a fair market value of
$1,000,000 or less, in the aggregate, as determined by the Agent in its sole
discretion, and (ii) in Property which is described in clauses (i), (ii), (iii)
or (iv) in the definition of "Disposition" contained in Section 1.01 of this
Agreement.
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ARTICLE IX
MISCELLANEOUS
9.01 Holidays. Except as otherwise provided in this Agreement,
whenever any payment or action to be made or taken under this Agreement, or
under the Notes or under any of the other Loan Documents is stated to be due on
a day which is not a Business Day, such payment or action will be made or taken
on the next following Business Day and such extension of time will be included
in computing interest or fees, if any, in connection with such payment or
action.
9.02 Records. The unpaid principal amount of the Notes, the
unpaid interest accrued thereon, the interest rate or rates applicable to such
unpaid principal amount and the duration of such applicability shall at all
times be ascertained from the records of the Agent, which shall be conclusive
absent manifest error.
9.03 Amendments and Waivers. The Agent, and the Banks and the
Borrower may from time to time enter into agreements amending, modifying or
supplementing this Agreement, the Notes or any other Loan Document or changing
the rights of the Agent, Banks or of the Borrower under this Agreement, under
the Notes or under any other Loan Document and the Agent and the Banks may from
time to time grant waivers or consents to a departure from the due performance
of the obligations of the Borrower under this Agreement, under the Notes or
under any other Loan Document. Any such agreement, waiver or consent must be in
writing and will be effective only to the extent specifically set forth in such
writing. Notwithstanding any reference to "Banks" contained herein or in any of
the other Loan Documents, the Required Banks may effect any amendment,
modification or waiver of the terms of this Agreement, the Notes or any other
Loan Document, provided that the unanimous consent of the Banks shall be
required in order to effect any of the following: (a) increase the amount of the
commitment for any Loans; (b) extend the maturity date of any of the Loans; (c)
forgive, reduce or defer any payment of principal or interest under any of the
Loans; (d) decrease the rate of interest or amend the amount or method of
calculation of fees then applicable under any of the Loans such that the
amendment would result in a reduction in any fee; (e) release any of the
Collateral, except as specifically permitted in this Agreement; (f) release any
Surety from its obligation under any of the Suretyship Agreements; or (g) amend
the provisions of this Section 9.03. In the case of any such waiver or consent
relating to any provision of this Agreement, any Event of Default or Potential
Default so waived or consented to will be deemed to be cured and not continuing,
but no such waiver or consent will extend to any other or subsequent Event of
Default or Potential Default or impair any right consequent to any other or
subsequent Event of Default or Potential Default.
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9.04 No Implied Waiver; Cumulative Remedies. No course of
dealing and no delay or failure of the Agent or the Banks in exercising any
right, power or privilege under this Agreement, the Notes or any other Loan
Document will affect any other or future exercise of any such right, power or
privilege or exercise of any other right, power or privilege except as and to
the extent that the assertion of any such right, power or privilege shall be
barred by an applicable statute of limitations; nor shall any single or partial
exercise of any such right, power or privilege or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any
further exercise of such right, power or privilege or of any other right, power
or privilege. The rights and remedies of the Agent and the Banks under this
Agreement, the Notes or any other Loan Document are cumulative and not exclusive
of any rights or remedies which the Agent or Banks would otherwise have.
9.05 Notices. All notices, requests, demands, directions and
other communications (collectively "notices") under the provisions of this
Agreement or the Notes must be in writing (including telexed or telecopied
communication) unless otherwise expressly permitted under this Agreement and
must be sent by first-class or first-class express mail, private overnight or
next Business Day courier or by telex or telecopy with confirmation in writing
mailed first class, in all cases with charges prepaid, and any such properly
given notice will be effective when received. All notices will be sent to the
applicable party at the addresses stated below or in accordance with the last
unrevoked written direction from such party to the other parties.
If to the Borrower: 5110 Maryland Way
Third Floor, Center Court Building
Brentwood, Tennessee 37027
Attention: Mark A. Oldham, Chief
Financial Officer
and copy to: Ronald Basso, Esquire
Buchanan Ingersoll Professional
Corporation
20th Floor, One Oxford Centre
Pittsburgh, PA 15219
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If to Agent: Mellon Bank, N.A., Agent
Two Mellon Bank Center, Room 230,
Pittsburgh, PA 15259-0001
Attention: Robert E. Heuler,
Vice President
and copy to: Craig S. Heryford, Esquire
Klett Lieber Rooney & Schorling, a
Professional Corporation
40th Floor, One Oxford Centre
Pittsburgh, PA 15219
If to the Banks: As specified on the signature page
of the Banks attached to this
Agreement
9.06 Expenses; Taxes; Attorneys' Fees. The Borrower agrees to
pay or cause to be paid and to save the Agent and the Banks harmless against
liability for the payment of all out-of-pocket expenses, including, but not
limited to reasonable fees and expenses of counsel and paralegals for the Agent
and the Banks, incurred by the Agent and the Banks from time to time (i), with
respect to the Agent, arising in connection with the preparation, execution and
delivery of this Agreement, the Notes and the other Loan Documents, (ii)
relating to any requested amendments, waivers or consents to this Agreement, the
Notes or any of the other Loan Documents, (iii) arising in connection with the
performance of this Agreement or the other Loan Documents or the Agent's and the
Banks' enforcement or preservation of rights under this Agreement, the Notes or
any of the other Loan Documents, including but not limited to such expenses as
may be incurred by the Agent or the Banks in the collection of the outstanding
principal amount of the Agent or the Banks and (iv) arising in connection with
any case under the Bankruptcy Code filed by or against either of the Borrower.
The Borrower agrees to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or in the future determined by the
Agent or the Banks to be payable in connection with this Agreement, the Notes or
any of the other Loan Documents. The Borrower agrees to save the Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions, except to the extent that
same result solely from the gross negligence or willful misconduct of the Agent
or the Banks. In the event of termination adverse to the Borrower of any action
at law or suit in equity in relation to this Agreement, the Notes or any of the
other Loan Documents, the Borrower will pay, in addition to all other sums which
the Borrower may be required to pay, a reasonable sum for attorneys' and
paralegals' fees incurred by the Agent and the Banks or the holder of the Notes
in connection with such action or suit. All payments due from the Borrower
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under this Section will be added to and become part of the Loans until paid in
full.
9.07 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement is held invalid or
unenforceable in whole or in part in any jurisdiction, the provision will, as to
such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
of the provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
9.08 Governing Law; Consent to Jurisdiction. This Agreement
will be deemed to be a contract under the laws of the Commonwealth of
Pennsylvania and for all purposes will be governed by and construed and enforced
in accordance with the laws of said Commonwealth. THE BORROWER CONSENTS TO THE
EXCLUSIVE JURISDICTION AND VENUE OF THE FEDERAL AND STATE COURTS LOCATED IN
ALLEGHENY COUNTY, PENNSYLVANIA, IN ANY ACTION ON, RELATING TO OR MENTIONING THIS
AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS AND, TO THE EXTENT
PERMITTED BY LAW, APPOINT CT CORPORATION SYSTEM HAVING AN OFFICE AT 1635 MARKET
STREET, SEVEN PENN CENTER, PHILADELPHIA, PENNSYLVANIA 19103, AS ITS AGENT FOR
THE SERVICE OF PROCESS ON ANY ACTION OR PROCEEDING UNDERTAKEN OR PROSECUTED IN
CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS.
9.09 Prior Understandings. This Agreement, the Notes, the
Security Agreements and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, among the parties
relating to the transactions provided for in this Agreement, the Notes, the
Security Agreements and the other Loan Documents. This Agreement amends and
restates the Original Credit Agreement and is not a novation of the obligations
evidenced or created by the Original Credit Agreement and the notes issued in
connection therewith.
9.10 Duration; Survival. All representations and warranties of
the Borrower contained in this Agreement or made in connection with this
Agreement or any of the other Loan Documents shall survive the making of and
will not be waived by the execution and delivery of this Agreement, the Notes or
the other Loan Documents, by any investigation by the Agent or the Banks, or the
making of any Loan. Notwithstanding termination of this Agreement or an Event of
Default, all covenants and agreements of the Borrower will continue in full
force and effect from and after the date of this Agreement so long as the
Borrower may borrow under this Agreement and until payment in full of the Notes,
interest thereon, and all fees and other obligations of the Borrower under this
Agreement or the Notes. Without
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limitation, it is understood that all obligations of the Borrower to make
payments to or indemnify the Agent or the Banks will survive the payment in full
of the Notes and of all other obligations of the Borrower under this Agreement,
the Notes, the Security Agreements and the other Loan Documents.
9.11 Term of Agreement. This Agreement will terminate when all
Debt of the Borrower to Banks incurred under or in connection with this
Agreement, including, without limitation, the Loans and interest on the Loans is
paid in full, and the Borrower has no right to borrow under this Agreement and
the Agent and the Banks have no obligation to make Loans under this Agreement.
9.12 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties to this Agreement on
separate counterparts each of which, when so executed, will be deemed an
original, but all such counterparts will constitute but one and the same
instrument.
9.13 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Agent and the Banks, all
future holders of the Notes, and their respective successors and assigns, except
that the Borrower may not assign or transfer any of their rights hereunder
without the prior written consent of the Banks and the Agent, and any purported
assignment without such consent shall be void, and except that, to the fullest
extent permitted by law, a Bank may not voluntarily assign or transfer any of
its rights hereunder except in accordance with the other provisions of Section
9.15, and any other purported voluntary assignment or transfer shall be void;
provided, that this Agreement shall inure to the benefit of successors of Banks
by operation of law or resulting from an involuntary assignment or transfer
(including but not limited to receivers, conservators, trustees and like
persons, and successors by merger or consolidation).
9.14 No Third Party Beneficiaries. The rights and benefits of
this Agreement and the other Loan Documents are not intended to, and shall not,
inure to the benefit of any third party.
9.15 Participation and Holder.
(a) Participants. Any Bank may, in the ordinary
course of its commercial banking business and in accordance with applicable Law,
at any time sell participations to one or more commercial banks or other persons
(each a "Participant") in all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Revolving Credit Commitment and the Loans owing to it and
any Note held by it); provided, that:
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(i) any such Bank's obligations under this
Agreement and the other Loan Documents shall remain unchanged,
(ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such
obligations,
(iii) the parties hereto shall continue to
deal solely and directly with such Bank in connection with such Bank's
rights and obligations under this Agreement and each of the other Loan
Documents,
(iv) such Participant shall, by accepting
such participation, be bound by the provisions of Section 8.01(j)
hereof,
(v) if such Participant is not already a
Participant or a Bank, and if such participation gives such Participant
any direct voting rights, such participation shall be subject to
consent of the Agent, and the Banks pursuant to Section 9.15(b)(i)
hereof as if such participation were an assignment described therein,
and
(vi) any participation shall be in an amount
of at least $2,000,000.
The Borrower agrees that any such Participant shall be entitled to the benefits
of Sections 2.11, 2.15, 7.03, 9.06, 9.18 and 9.19 of this Agreement with respect
to its participation in the Revolving Credit Commitments and the Loans
outstanding from time to time; provided, that no such Participant shall be
entitled to receive any greater amount pursuant to such Sections than the
transferor Bank would have been entitled to receive in respect of the amount of
the participation transferred to such Participant had no such transfer occurred.
(b) Assignments. Any Bank may, in the ordinary course
of its commercial banking business and in accordance with applicable Law, at any
time assign all or a portion of its rights and obligations under this Agreement
and the other Loan Documents (including, without limitation, all or any portion
of its Revolving Credit Commitment and Loans owing to it and any Note held by
it) to any Bank, any affiliate of a Bank or to one or more additional commercial
banks or other persons (each a "Purchasing Bank"); provided, that:
(i) if a Bank makes such an assignment of
less than all of its then remaining rights and obligations under this
Agreement and the Loan Documents, such transferor Bank shall retain,
after such assignment, at least $5,000,000 of the Revolving Credit
Commitments and the Loans and such assignment shall be in a minimum
aggregate principal amount of $5,000,000 of the Revolving Credit
Commitments and the Loans except that if the
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Bank making the assignment holds prior to the assignment less than
$10,000,000 of the Revolving Credit Commitments and the Loans, the
assignment shall be in the aggregate principal amount of the Revolving
Credit Commitments and the Loans held by such Bank in excess of
$5,000,000,
(ii) each such assignment shall be of a
constant, and not a varying, percentage of the Revolving Credit
Commitment and the Loans, of the transferor Bank, and of all of the
transferor Bank's related rights and obligations under this Agreement
and the other Loan Documents,
(iii) each such assignment shall be made
pursuant to a Transfer Supplement in substantially the form of Exhibit
H to this Agreement, duly completed (a "Transfer Supplement"), and
(iv) if the Purchasing Bank is not chartered
under the laws of the United States or a state thereof, the Agent may
require the Borrower to enter into an amendment hereto containing the
Agent's customary provisions on indemnity, withholding and backup
withholding, and the Borrower agrees to enter into such amendment.
In order to effect any such assignment, the transferor Bank and the Purchasing
Bank shall execute and deliver to the Agent a duly completed Transfer Supplement
(including the consents required by clause (i) of the preceding sentence) with
respect to such assignment, together with any note or notes subject to such
assignment (the "Transferor Bank Notes") and a processing and recording fee of
$3,000; and, upon receipt thereof, the Agent shall accept such Transfer
Supplement. Upon receipt of the Purchase Price Receipt Notice (as defined in the
Transfer Supplement) pursuant to such Transfer Supplement, the Agent shall
record such acceptance and recording, and from and after the close of business
at the Agent's Office on the Transfer Effective Date (as defined in the Transfer
Supplement) specified in such Transfer Supplement:
(x) the Purchasing Bank shall be a party hereto and,
to the extent provided in such Transfer Supplement,
shall have the rights and obligations of a Bank
hereunder, and
(y) the transferor Bank thereunder shall be released
from its obligations under this Agreement to the
extent so transferred (and, in the case of a Transfer
Supplement covering all or the remaining portion of a
transferor Bank's rights and obligations under this
Agreement, such transferor Bank shall cease to be a
party to this Agreement) from and after the Transfer
Effective Date.
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On or prior to the Transfer Effective Date specified in a Transfer Supplement,
the Borrower shall execute and deliver to the Agent (for delivery to the
Purchasing Bank) new Notes evidencing such Purchasing Bank's assigned
Commitments or Loans and (for delivery to the transferor Bank) replacement Notes
in the principal amount of the Loans or Revolving Credit Commitments retained by
the transferor Bank (such Notes to be in exchange for, but not in payment of,
those Notes then held by such transferor Bank). Each such Note shall be dated
the date and be substantially in the form of the predecessor Note. The Agent
shall mark the predecessor Notes "exchanged" and deliver them to the Borrower.
Accrued interest and accrued fees shall be paid to the Purchasing Bank at the
same time or times provided in the predecessor Notes and this Agreement.
(c) Register. The Agent shall maintain at its office
a copy of each Transfer Supplement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Banks and the
Revolving Credit Commitment of, and principal amount of the Loans owing to, each
Bank from time to time. The entries in the Register shall be conclusive absent
manifest error and the Borrower and each Bank Party may treat each person whose
name is recorded in the Register as a Bank hereunder for all purposes of the
Agreement. The Register shall be available for inspection by the Borrower or any
Bank at any reasonable time and from time to time upon reasonable prior notice.
(d) Financial and Other Information. Subject to
Section 9.15(f) hereof, the Borrower authorizes the Agent and each Bank to
disclose to any Participant or Purchasing Bank, or prospective Participant or
Purchasing Bank, any and all financial and other information in such Person's
possession concerning the Borrower and their respective Subsidiaries and
affiliates which has been or may be delivered to such person by or on behalf of
the Borrower or Bank in connection with this Agreement or any other Loan
Document or such person's credit evaluation of the Borrower and their respective
Subsidiaries and affiliates. At the request of any Bank, the Borrower, at the
Borrower' expense, shall provide to each prospective transferee the conformed
copies of documents referred to in Section 4 of the form of Transfer Supplement.
(e) Syndication. The Borrower shall, at the Agent's
reasonable request from time to time, at the Borrower' expense, use all
reasonable efforts to cooperate with the Agent's syndication effort (including,
without limitation, assisting the Agent from time to time in preparing
information packages for delivery to prospective Participants and Purchasing
Banks containing relevant information about the Borrower and the Loan Documents,
and causing appropriate officers, representatives and
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experts to meet with prospective participants and Purchasing Banks from time to
time).
(f) Confidentiality. Each Bank agrees to take
reasonable precautions to maintain the confidentiality of information designated
in writing as confidential and provided to it by the Borrower or any Subsidiary
in connection with this Agreement; provided, however, that any Bank may disclose
such information (i) at the request of any bank regulatory authority or other
Official Body or in connection with an examination of such Bank by any such
Official Body, (ii) upon notice to the Borrower, pursuant to subpoena or other
court process, (iii) upon notice to the Borrower, to the extent such Bank is
required (or believes in good faith that it is required) to do so in accordance
with any applicable Law, (iv) to such Bank's independent auditors and other
professional advisors, (v) in connection with the enforcement of any of its
rights under or in connection with any Loan Document, and (vi) to any actual or
potential Participant or Purchasing Bank, so long as, in the case of this clause
(vi), such actual or potential Participant or Purchasing Bank agrees to comply
with the provisions of this Section 9.15(f).
(g) Assignments to Federal Reserve Bank. Any Bank may
at any time assign all or any portion of its rights under this Agreement,
including without limitation any Loans owing to it and any Note held by it, to a
Federal Reserve Bank. No such assignment shall relieve the transferor Bank from
any of its obligations hereunder.
9.16 Exhibits. All exhibits and schedules attached to this
Agreement are incorporated and made a part of this Agreement.
9.17 Headings. The section headings contained in this
Agreement are for convenience only and do not limit or define or affect the
construction or interpretation of this Agreement in any respect.
9.18 WAIVER OF TRIAL BY JURY. EACH OF
THE Borrower AND THE BANKS EXPRESSLY, KNOWINGLY AND INITIAL:
VOLUNTARILY WAIVE ALL BENEFIT AND ADVANTAGE OF ANY /s/
RIGHT TO A TRIAL BY JURY, AND IT WILL NOT AT ANY --------
TIME INSIST UPON, OR PLEAD OR IN ANY MANNER
WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF --------
A TRIAL BY JURY IN ANY ACTION ARISING IN CONNECTION
WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER
LOAN DOCUMENTS.
101
<PAGE> 102
9.19 Limitation of Liability. TO THE FULLEST EXTENT PERMITTED
BY LAW, NO CLAIM MAY BE MADE BY THE Borrower OR ANY OF THE SURETIES AGAINST THE
AGENT, ANY BANK OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR AGENT
OF ANY OF THEM FOR ANY SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES IN RESPECT OF ANY CLAIM ARISING FROM OR RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH (WHETHER FOR BREACH OF
CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY). THE Borrower HEREBY WAIVE,
RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER SUCH
CLAIM PRESENTLY EXISTS OR ARISES HEREAFTER AND WHETHER OR NOT SUCH CLAIM IS
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. THIS SECTION 9.19 SHALL NOT LIMIT ANY
RIGHTS OF THE Borrower ARISING SOLELY OUT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
102A
<PAGE> 103
IN WITNESS WHEREOF, and intending to be legally
bound, the parties, by their duly authorized officers, have executed and
delivered this Agreement as of the date set forth at the beginning of this
Agreement.
BORROWER:
PEN HOLDINGS, INC.
By: /s/ WILLIAM E. BECKNER
-------------------------
Title: President
----------------------
AGENT:
MELLON BANK, N.A.
By: /s/ STANLEY MAHARAM
-------------------------
Title: First Vice President
----------------------
103
<PAGE> 104
Signature pages for Banks
Revolving Credit Commitment: CIBC INC.
$20,000,000
By: WILLIAM W. KOSLO
-------------------------
Title: Exec. Director
----------------------
Lending Office and Notice
Address for all Loans:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, GA 30339
Attention: Charlene Harris
Telecopier No.:
--------------
and
425 Lexington Avenue, 8th Floor
New York, New York 10017
Attention: Howard Palmer
Telecopier No.: 212-856-6066
104
<PAGE> 1
Exhibit 10.2
Tab B
Contract No. 78-AM-L1102
COAL SUPPLY AGREEMENT
THIS AGREEMENT is made as of this 15th day of June , 1989, by and
between TAIWAN POWER COMPANY, a corporation organized and existing under and by
virtue of the laws of the Republic of China, with its principal office at 242,
Roosevelt Road, Section 3, Taipei 10763, Republic of China (hereinafter referred
to as the "Buyer") and P & C "BITUMINOUS COAL", INC., a corporation organized
and existing under and by virtue of the laws of the State of Tennessee, U. S.
A., with its principal office at Third Floor, Center Court Building, 5110
Maryland Way, Brentwood, Tennessee 37027, U. S. A. (hereinafter called
"Seller").
WITNESSETH
WHEREAS, the Seller owns coal reserves in Wayne, Lincoln, and
Mingo Counties, West Virginia, referred to collectively as the Kiah
Creek Reserve, and produces coal therefrom through contract miners, and
has the authority to perform the obligations contemplated in this
Agreement; and
WHEREAS, the Buyer intends to purchase coal from the Seller
for its power plants; and
WHEREAS, the Seller is willing to supply coal to the Buyer in
accordance with the terms and conditions hereinafter set forth:
NOW THEREFORE, the Parties hereby agree as follows:
1. DEFINITIONS
The terms and expressions used in this Agreement shall have the
following meanings respectively assigned to them unless the context
shall otherwise require:
"Coal" means steam coal from Seller's Kiah Creek Reserve or from other
reserves with coal of similar qualities to those on the Kiah Creek
Reserve which Seller may from time to time acquire, provided however
that Buyer reserves the right to approve such newly acquired other
reserves, which approval shall not be unreasonably withheld. "Coal"
also means steam coal acquired by Seller from other sources in the
United States, but coal supplied from other sources shall not exceed
thirty percent (30%) of the coal shipped by Seller to Buyer in any
calendar year, unless otherwise agreed by both Parties.
1
<PAGE> 2
"C" means degree(s) centigrade or degrees(s) Celsius as defined in the
"International System of Units".
"Year" means a calendar year commencing 1st January and ending 31st
December.
"F.O.B.T." means free on board a vessel designated by the Buyer,
including trimming and stowage.
"Kcal" means Kilocalorie(s) as defined in the "International System of
Units".
"Kg" means Kilogram(s) as defined in the "International System of
Units".
The expression "mm" means Millimeter(s) as defined in the
"International System of Units".
"Port of Loading" means the loading facilities of Coal Monitor I or
International Marine Terminals near the Port of New Orleans at Seller's
option, or another suitable loading facility as may be agreed by Buyer
and Seller.
The term "pratique" means permission to do business at a port by a ship
that has complied with all applicable government regulations.
"Ton(s)" means metric ton(s) as defined in the "International System of
Units".
"United States dollar(s)" or U.S. dollar(s) or "US$" means the
dollar(s), the lawful currency of the United States of America.
A fraction of a cent in any calculation shall be rounded up to a cent
if such fraction is one-half of a cent or more, and shall be rounded
down otherwise.
"ASTM" means American Society for Testing & Materials.
The term "trimming" means any and all work of trimming by manpower,
spouts, or any such trimmers as may be available at the Port of
Loading.
2. PURPOSE
In reliance on Seller's representations and warranties in Articles 18
and 19, and subject to the terms and conditions herein, Buyer agrees to
purchase and Seller agrees to sell certain Coal as specified herein.
2
<PAGE> 3
3. QUANTITY
3.1 Quantity For the Term of This Agreement
The quantity of Coal to be supplied by the Seller and purchased by the
Buyer hereunder shall be as follows:
Year Quantity
- - - - - - - - - - - -
1994 1,100,000 Tons
1995 1,100,000 Tons
1996 1,100,000 Tons
1997 1,100,000 Tons
1998 1,100,000 Tons
1999 1,100,000 Tons
3.2 Annual Quantity
The nominal quantity of Coal for each year as determined pursuant to
Section 3.1 shall be subject to increase or reduction by an amount not
to exceed ten percent (10%) thereof at the sole option of the Buyer.
3.3 Dedicated Quantity
Seller hereby dedicates to this Agreement sufficient coal reserves from
its Kiah Creek Reserve, or from any other reserves which it may
hereafter acquire, as shall be required to enable Seller to meet its
ongoing obligations hereunder. If during the term of this Agreement
Seller desires to sell or otherwise dispose of its Kiah Creek Reserve,
or any part thereof, it shall first notify Buyer and shall provide
Buyer with satisfactory evidence, as Buyer may reasonably require, that
Seller retains ownership of coal reserves sufficient to satisfy its
ongoing obligations hereunder.
3.4 Reduced Need
In the event that Buyer's need for the Coal hereunder is reduced, as a
consequence of a reduction in Buyer's system electric load
requirements, a change in the construction schedule for a power plant,
a suspension, cessation, or interruption of the operation of a power
plant, environmental regulations, or other reasons beyond Buyer's
reasonable control, Buyer may reduce its purchases hereunder by more
than the contracted variance under Section 3.2 by giving written notice
not shorter than six months to the Seller. After such notice from Buyer
to Seller, and as long as Buyer continues to reduce purchases to less
than the minimum quantities otherwise to be delivered under this
Agreement,
3
<PAGE> 4
Buyer shall not enter into any new agreement for purchase of similar
coal to be delivered during such time as this Agreement remains in
effect. In the event of reduced need as a result of Buyer's general
reduction of coal supplies or purchasing, Buyer will allocate the
reduction ratably among all of its suppliers. In the event a reduced
need is produced for coal of specific characteristics, Buyer will
allocate the reduction ratably among all of its suppliers of coal of
those particular characteristics.
4. QUALITY
The Coal supplied hereunder shall be in accordance with the following
specifications, based on ASTM standards, determined under and pursuant
to Article 6 hereof:
<TABLE>
<CAPTION>
Nominal Minimum/Maximum
------------- ---------------
<S> <C> <C>
Gross Heating Value 6300 Kcal/Kg 6000 Kcal/Kg min
(as received)
Total Moisture 8% 13% max
(as received)
Inherent Moisture 2% 3% max
(air dried)
Ash Content 13% 16% max
(air dried)
Sulfur Content 1% 1.25% max
(air dried)
Volatile Matter 30% 28% min
(air dried)
Grindability 48 Index 45 Index
(H.G.I.) Points Points min
Na20 in Ash (dry) 0.5% 1.2% max
Ash Softening Temp. (H=W) 1400 C 1200 C min
(under reducing condition)
Size 40 mm max 50 mm max
Under 2 mm 23% max 30% max
</TABLE>
5. PRICE
5.1 Base Price
Subject to Coal meeting the specifications in Article 4, the base price
for Coal to be delivered in a given year shall be as determined in this
Article 5 (hereinafter referred to as the "Base Price"). The Base Price
shall be per Ton of Coal having the nominal values listed in Article 4
FOBT Port of Loading. Adjustments to the Base Price for each shipment
of Coal and the actual price to be paid by Buyer for each shipment of
Coal shall be determined under and pursuant to Articles 6, 7 and 8
hereof.
4
<PAGE> 5
The Base Price for each year shall be determined by mutual agreement in
accordance with the following:
For each year during which Coal shall be delivered under this
Agreement, the parties shall commence negotiation of the Base Price on
or about October 1 of the immediately preceding year and shall attempt
in good faith to reach mutual agreement on the Base Price for a given
year not later than December 31 of the immediately preceding year. In
the event that the parties are unable to reach an agreement on or
before such date, either party may refer the price issue to arbitration
in accordance with the provisions in Article 16. In no event shall the
failure of the Parties to agree on a Base Price constitute grounds for
withholding shipments or termination of this Agreement.
5.2 Provisional Price
In the event that, prior to January 1 of any particular year, the
Parties are unable to agree upon a Base Price, shipments of Coal for
that year shall be made at a Provisional Price in the same manner as if
the Parties had agreed upon a Base Price. The Provisional Price for any
particular year shall be the Base Price in effect in the last year in
which a Base Price was established. In the event that the Parties are
unable to agree upon a Base Price for 1994, the Provisional Price for
1994 quantities shall be the average base price per Ton, weighted by
actual quantities delivered and adjusted for gross heating value, paid
by Taipower for Coal delivered in 1993 under its contracts for the
purchase of steam coal from U.S. East Coast and Gulf Coast suppliers,
except contracts in which the 1993 price was established with reference
to an escalation formula. Shipments at the Provisional Price shall
continue until a Base Price has been agreed upon or determined in
arbitration.
5.3 Retroactive Price Adjustment
To the extent that it is ultimately agreed or determined that the Base
Price for the period when the Provisional Price was in effect should
have been different from the Provisional Price, that difference (as
calculated for the quantities actually shipped) will be repaid by the
benefitted party to the other party with interest at the prime rate of
the Bank of America, San Francisco. With respect to each shipment of
Coal at a Provisional Price, interest shall be payable for the period
commencing on the date P & C draws down the letter of credit in payment
for the shipment and ending on the date upon which the Base Price is
agreed or determined. Should the Base Price be determined by a decision
in arbitration, the date of determination shall be deemed to be the
date of the decision. After the Base Price is agreed upon or
determined, the party that has the right to receive the difference plus
interest shall notify the benefitted party promptly by telex or telefax
of the amount due, and the benefitted party shall make its payment to
the other party within 21 days after receipt of said notice.
5
<PAGE> 6
5.4 Determination of Base Price
In determining the Base Price, the Parties and, in the event of
arbitration, the Arbitrators shall seek to approximate to the greatest
extent possible the current market price for similar quality U.S. steam
coal delivered through U.S. East Coast or Gulf Coast ports under
contracts requiring multiple shipments during a minimum term of one
year providing for annual price renegotiation. In making such
determination, the Parties, and the Arbitrators as appropriate, shall
use as a reference the current prices at which similar quality steam
coal is then actually being bought and sold in arms-length transactions
between willing buyers and sellers, adjusting such prices to make such
transactions comparable insofar as possible with the terms and
conditions of this Agreement.
6. DETERMINATION OF QUANTITY AND QUALITY:
6.1 Determination of Quantity and Expenses
The weight of each shipment of Coal shall be determined upon loading to the
vessel designated by the Buyer hereunder at the Port of Loading by an
independent licensed marine surveyor of international standing ("Marine
Surveyor"). On each vessel, the Buyer shall have the option:
(i) Buyer to nominate the Marine Surveyor subject to Seller's
agreement, which agreement shall not be unreasonably withheld.
All charges of survey to be for Seller's account, or
(ii) Seller to nominate Marine Surveyor subject to Buyer's
agreement, which agreement shall not be unreasonably withheld,
and survey charges to be for Buyer's account, provided that
under option (ii), Seller will rebate the Buyer the costs of
survey upon Buyer's submission of a copy of the paid invoice
for Marine Surveyor services.
The determination of the Marine Surveyor hereunder shall be final,
conclusive and binding on the Parties.
The weight of a shipment of Coal stated in the bills of lading shall
correspond to the weight stated in the certificate of weight given by
such Marine Surveyor. A fraction of a Ton shall be rounded up to a Ton
if the fraction is one half of a Ton or more, and shall be disregarded
if it is less than one half of a Ton.
The Marine Surveyor shall determine the weight of each shipment of Coal
on the basis, if reasonably possible, of a survey of the vessel's
draft, utilizing the vessel immersion scale weights. In the event that
the Marine Surveyor has been unable to carry out a successful draft
survey on the vessel which is to be loaded, then the certificate of
weight shall be based on a deadweight survey. The Seller will
6
<PAGE> 7
inform the Buyer as soon as possible of the situation. The Marine
Surveyor will produce a report detailing, with reference to the
standard procedure for undertaking draft surveys, the reasons why the
draft survey was not carried out successfully and a copy of this report
promptly will be forwarded to the Buyer.
6.2 Hold Cleaning Inspection Certificate
The Marine Surveyor shall also conduct inspection of all holds of the
vessel designated by the Buyer at the Port of Loading to ensure that
they have been thoroughly cleaned and are suitable for carrying that
shipment of Coal under this Agreement, and shall give a hold cleaning
inspection certificate.
6.3 Standards and Determination of Quality and Expenses
(a) The quality of each shipment of Coal shall be determined, subject to
Section 6.4, upon loading to the vessel designated by Buyer an
independent inspection company of international standing ("Inspection
Company"). On each vessel, the Buyer shall have the option:
(i) Buyer to nominate the Inspection Company subject to Seller's
agreement, which agreement shall not be unreasonably withheld.
All charges of inspection to be for Seller's account, or
(ii) Seller to nominate Inspection Company subject to Buyer's
agreement, which agreement shall not be unreasonably withheld,
and inspection charges to be for Buyer's account, provided
that under option (ii), Seller will rebate the Buyer the costs
of inspection upon Buyer's submission of a copy of the paid
invoice for inspection services.
(b) The quality of each shipment of Coal shall be determined in accordance
with the sampling and analysis procedure set out in the ASTM standards
for each characteristic specified in Article 4. Determination shall be
made to the nearest 0.01% and to the nearest degree, millimeter or
index point. For the first shipment of each quarter during the term of
this Agreement, Seller shall cause, at its cost, an analysis to be made
by the Inspection Company of the ash component to determine its
characteristics of that shipment of coal with the following compounds:
Si02 - - - - - - - - % Ca0 - - - - - - - %
K20 - - - - - - - - % P205 - - - - - - - %
A1203 - - - - - - - - % Mgo - - - - - - - %
Fe203 - - - - - - - - % MN304 - - - - - - - %
Ti02 - - - - - - - - % S03 - - - - - - - - %
Undetermined - - - - - - - - - - - - - - - - - -
7
<PAGE> 8
Buyer reserves the right to have performed an Ash Analysis on any
shipment at Buyer's cost.
(c) Determination of quality shall be by analysis of samples extracted from
each vessel shipment. The number of samples shall be as determined by
the Inspection Company to be representative of each vessel shipment.
The procedure for extraction and retention of samples shall be as
follows:
(i) Samples of each shipment of Coal shall be extracted in sublots
and prepared, all in accordance with ASTM standards and
requirements. The mechanical sampling method shall be used.
(ii) Samples so extracted and prepared shall be divided into three
parts, of which:
(A) One shall be used for analysis of that shipment of
Coal by the Inspection Company to determine its
quality and characteristics pursuant to the
requirements set out in Section 6.3(b);
(B) One shall be delivered at the Seller's cost to the
Buyer in a suitable airtight container, properly
sealed, by air parcel or in such other manner as the
Buyer may direct; and
(C) One shall be retained by the Inspection Company in a
suitable airtight container (hereinafter referred to
as "Umpire Sample"), properly sealed and labeled, for
a period of eighty-four (84) days after completion of
loading, trimming and stowage of that shipment of
Coal F.O.B.T. vessel.
6.4 Umpire Sample
Either party may, within sixty-three (63) days from the date of its
receipt of the Inspection Company's report, challenge the determination
of the quality of a shipment of Coal. In such an event, the Umpire
Sample shall be sent to an independent laboratory ("Umpire Laboratory")
agreeable to both Parties for analysis, and the determination by such
Umpire Laboratory, based on its analysis of the Umpire Sample, of the
quality and characteristics of said shipment of the Coal shall be
final, conclusive and binding on the Parties hereto; provided, however,
that if the difference between such Umpire Laboratory's determination
and the determination of the Inspection Company under Section 6.3
hereof is within the tolerance level recognized under the ASTM
standards for "Reproducibility," such difference shall be disregarded
for all purposes and the Inspection Company's determination shall be
final, conclusive and binding on the Parties hereto, the cost of the
analysis by such Umpire Laboratory shall be borne and paid for by the
party requesting such further determination.
8
<PAGE> 9
6.5 Buyer's Right to Attend Survey and Inspection
The Buyer, at Buyer's expense, shall have the right to appoint
representative(s) to attend and observe the survey and inspection of
the weight and/or quality of any shipment of the Coal at the Port of
Loading at any time.
7. ADJUSTMENT OF PRICE BASED ON QUALITY; REJECTION OF SHIPMENT
Base Price per Ton as applicable to a shipment of Coal shall be adjusted
pursuant to this Article 7 to account for quality variations determined in
accordance with Article 6. Adjustments under this Article 7 initially shall be
made in accordance with, and the initial commercial invoice to Buyer under
Section 9.1(a) shall be based upon, the quality determinations made by the
Inspection Company. Further adjustments to the Base Price and the invoice as may
be necessitated by determinations of the umpire Laboratory under Section 6.4
shall be made as provided in Section 8.2. As used in this Article 7, the
"applicable Base Price" shall be deemed to be the Base Price applicable to a
particular shipment of Coal as determined under Article 5.
7.1 Gross Heating Value
(a) If the gross heating value ("GHV") of a shipment of Coal as determined
by the Inspection Company is in the range of 6200 Kcal/Kg and 6800
Kcal/Kg, inclusive, the Base Price of that shipment of Coal shall be
increased or decreased in accordance with the formula set forth below:
Base Price Increase or Decrease =
applicable actual GHV thereof - Contract Nominal GHV (6300)
Base Price x - - - - - - - - - - - - - - - - - - - - - - - -
Contract Nominal GHV (6300)
(b) If the GHV of a shipment of Coal as determined as by the Inspection
Company is in the range of 6000 Kcal/Kg to 6199 Kcal/Kg, inclusive, the
Base Price of that shipment of Coal shall be reduced in accordance with
the formula set forth below:
Base Price reduction =
applicable (Contract Nominal GHV (6300) - actual GHV thereof)
Base price x - - - - - - - - - - - - - - - - - - - - - x 1.2
Contract Nominal GHV (6300)
(c) The Buyer shall have the right to reject any shipment of Coal if the
GHV of that shipment of Coal as determined by the Inspection Company is
below 6000 Kcal/Kg. If Buyer determines not to reject such shipment of
Coal, further price reduction shall be made as mutually agreed by the
Parties.
9
<PAGE> 10
(d) If the GHV of a shipment of Coal as determined by the Inspection
Company exceeds 6800 Kcal/Kg, it shall be deemed to be 6800 Kcal/Kg for
the purpose of determining the GHV Base Price adjustment for that
shipment of Coal.
7.2 Ash Content
(a) If the ash content of a shipment of Coal as determined by the
Inspection Company is in the range of 16 % and 14 %, inclusive, price
reductions in the Base Price of that shipment of Coal shall be made as
follows:
The applicable Base price shall be reduced in an amount computed at the rate of
0.7 % for each 1 % difference between the actual ash content percentage and 14
%, pro rata reduction to be made for differences less than one percent.
(b) The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the ash content of that
shipment exceeds 16 %. If Buyer determines not to reject such shipment
of Coal, a further price adjustment for such shipment shall be made as
mutually agreed by the Parties.
7.3 Sulfur Content
(a) If the sulfur content of a shipment of Coal as determined by the
Inspection Company is in the range of 1.1 % and 1.25 %, inclusive,
price reductions in the Base Price of that shipment of Coal shall be
made as follows:
The applicable Base Price shall be reduced in an amount computed at the
rate of 0.7 % for each 0.1 % difference between the actual sulfur
content percentage and 1.1 % pro rata reduction to be made for
differences less than point one percent.
(b) The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the actual sulfur content is
above 1.25 %. If Buyer determines not to reject such shipment of Coal,
then a further price reduction shall be made as mutually agreed by the
Parties.
7.4 Volatile Matter
(a) If the volatile matter of a shipment of Coal as determined by the
Inspection Company is in the range of 30 % and 28 %, inclusive, then
price reduction in the Base Price of that shipment of Coal shall be
made as follows: the applicable Base Price shall be reduced in an
amount computed at the rate of 0.1 % for each 1 % difference between 30
% and the actual volatile matter percentage, pro rata reduction to be
made for differences less than one percent.
10
<PAGE> 11
(b) The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the volatile matter therein
is below 28 %. If Buyer determines not to reject such shipment of Coal,
a further price reduction shall be made as mutually agreed by the
Parties.
7.5 Grindability
The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the grindability of that
shipment of Coal is below 45, provided however; Buyer shall not
exercise the right of rejection if the value determined by the
Inspection Company is within the tolerance level recognized under the
ASTM standards for "Reproducibility"; provided further however, a price
reduction shall be made as mutually agreed by the Parties.
7.6 Total Moisture
(a) If the total moisture percentage of a shipment of Coal as determined by
the Inspection Company is in the range of 10% and 13% inclusive, then
adjustment of total weight for invoice and price of that shipment of
Coal pursuant to Section 8.1 shall be made as follows:
(i) If the total moisture of a shipment of Coal exceeds 10 %, the
exceeded percentages shall be applied to and deducted from the
total weight of Coal for calculation of the total invoice
amount.
(ii) If the total moisture of a shipment of Coal exceeds 11.5 %,
the price of that shipment of Coal pursuant to Section 8.1 (i)
shall be further reduced by the following amount to compensate
for additional ocean freight payable by the Buyer for that
shipment of Coal by reason of such excessive moisture content:
Ocean Freight Quantity per M - 11.5 %
Rate per Ton X Section 6.1 X - - - - - - - -
100 % - 11.5 %
Where "M" represents the actual total moisture percentage of
that shipment of Coal as determined by the Inspection Company.
The deduction and charge in (i) and (ii) above shall be cumulative.
(b) The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the total moisture exceeds
13 %. If Buyer determines not to reject such shipment of Coal, a
further price reduction for such shipment shall be made as mutually
agreed by the Parties.
11
<PAGE> 12
7.7 Combined Total Moisture and Ash
The Buyer shall have the right to reject any shipment of Coal if, based
on the Inspection Company's determination, the combined total moisture
percentage and the ash content percentage on as received basis exceed
twenty-five (25%) percent . If Buyer determines not to reject such
shipment of Coal, a further price reduction for such shipment shall be
made as mutually agreed by the Parties.
7.8 Other Coal Characteristics
If the quality for a shipment of Coal does not meet the minimum or
maximum specifications as set forth in Article 4 for Ash Softening
Temperature, Na20 in Ash, Inherent Moisture or Size, the Seller shall
be liable to the Buyer for any and all damages, losses, or other costs
caused by or related to failure to meet such specifications.
7.9 Rejection of Shipment
The Seller shall be liable for any and all losses and damages suffered
by the Buyer resulting from the Buyer's rejection of any shipment of
Coal under this Article 7, which losses and damages shall include,
without limitation, any and all amounts payable by the Buyer under or
in connection with the Buyer's charter of any vessel for the carriage
of that shipment of Coal, her voyage to the Port of Loading and any and
all amounts payable to the port authorities in that regard. Without
prejudice to the foregoing, if the Buyer rejects a shipment of Coal
under this Article 7 after the vessel with that shipment of Coal on
board has sailed from the loading terminal, the Buyer and the Seller
shall immediately confer with each other with a view to reaching
commercial arrangements satisfactory to them so as to minimize
resultant losses to either or both of them. In the absence of
agreement, Buyer's determination shall control. In the event a total of
two shipments of Coal either are subject to rejection under this
Article 7 during any two consecutive calendar years (whether or not
actually rejected), then the Buyer shall have the right to terminate
this Agreement and claim all losses and damages the Buyer may suffer as
a result of or in connection with such rejection of shipments and
termination of this Agreement.
8. DETERMINATION AND ADJUSTMENT OF PRICE OF EACH SHIPMENT OF COAL
8.1 The price for each shipment of Coal shall be determined in the
following two steps:
(i) the price per Ton shall be multiplied by the total tonnage of
the shipment of Coal as determined by the Marine Surveyor
under Section 6.1 and adjusted pursuant to Paragraph (i) of
Section 7.6(a); and
(ii) the resulting amount shall be reduced, as appropriate, by the
Freight Rate Adjustment specified in Paragraph (ii) of Section
7.6(a).
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<PAGE> 13
As used in this Section 8.1, the price per Ton shall be the Base Price for a
shipment of Coal under Article 5 as adjusted pursuant to Article 7, all as
determined utilizing the Inspection Company's determinations under Article 6.
The adjustments to Base Price under Article 7 shall be cumulative.
The Seller shall advise the Buyer by telex, telefax or telegram of the price so
determined, stating in such telex, telefax or telegram the contract number of
this Agreement. Such price shall be stated in the Seller's commercial invoice
("Initial Commercial Invoice") to the Buyer, which shall be paid by the Buyer in
accordance with Section 9.1.
8.2 If a characteristic of the quality of a shipment of Coal is adjusted in
accordance with Section 6.4 and such characteristic is covered by
Article 7, then the calculations in Article 7 shall be reperformed
utilizing the quality determinations of the Umpire Laboratory, and the
price of Initial Commercial Invoice for that shipment of Coal shall be
further adjusted utilizing the revised calculations based on the
quality determinations of the Umpire Laboratory in place of the
determinations of the Inspection Company. Upon such further adjustment
of the price of the shipment of Coal, the Seller shall prepare and
submit to the Buyer another commercial invoice, setting out the price
of the shipment of Coal as so adjusted ("the New Invoice"). The New
Invoice shall supersede the Seller's Initial Commercial Invoice to the
Buyer under Section 9.1(a) for the same shipment of Coal. Upon the
Buyer's receipt of the New Invoice, the Parties hereto shall
immediately determine the difference between the amounts of the Initial
Commercial Invoice and the New Invoice. Such difference shall be paid
to the party to whom it is due, free of interest, within twenty-one
(21) days of the Buyer's receipt of the New Invoice.
9. PAYMENT
9.1 Payment by Letter of Credit
Not later than seven (7) days prior to the scheduled date of arrival of
the carrying vessel at the Port of Loading, the Buyer shall have
established an unconfirmed irrevocable sight letter of credit or sight
Buyer's usuance letter of credit through a first class bank in favor of
the Seller negotiable at any bank in the U.S.A. for an amount in U.S.
currency adequate to pay the Seller for the contract price of the Coal
to be shipped on that vessel in accordance with the terms of the
Agreement. The Seller shall receive payment under the the above letter
of credit upon presentation to the negotiating bank of the following
documents.
(a) The Seller's signed Initial Commercial Invoice in duplicate, setting
out the total quantity of Coal shipped (determined in accordance with
Section 6.1), the price of that shipment of Coal as determined in
accordance with Section 8.1, the applicable Base Price, all adjustments
made under Article 7 , and the calculations and data on which the price
is based, the name of the vessel, and the bills of lading date.
(b) Original clean on-board bills of lading in triplicate.
(c) Cargo manifest in duplicate.
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(d) Stowage plan in duplicate.
(e) The certificate of weight and the hold cleaning inspection certificate,
each in duplicate, issued by the marine Surveyor under Sections 6.1 and
6.2.
(f) The certificate of analysis in duplicate, issued by the Inspection
Company under Section 6.3.
(g) One copy of the Seller's telex advice to the Buyer regarding the
particulars of relevant shipment.
(h) Statement of fact in duplicate.
(i) A certificate of origin endorsed by a Chamber of Commerce certifying
that the Coal is of U.S. origin.
(j) Seller's certificate stating that, with respect to this Agreement and
that shipment of Coal: (1) no person has been employed or retained upon
an agreement or understanding for a commission, percentage, brokerage
or contingent fee in violation of the warranty in Section 19(a) of this
Agreement; (2) no commission, percentage, brokerage or contingent fee
has been paid in violation of the warranty in Section 19(a) of this
Agreement; and (3) no person has been or will be admitted to any share
or part of this Agreement or that shipment of Coal, or to any benefit
that may accrue therefrom, in violation of the warranty in Section
19(b) of this Agreement.
9.2 Shipment Advice
Upon completion of loading of a shipment of Coal on board the vessel
designated by the Buyer hereunder, the Seller shall by telex, telefax
or telegram immediately advise the Buyer of the contract number of this
Agreement, the letter of credit number and Republic of China import
permit number applicable to that shipment of Coal, details of
commercial invoice as set out in Section 9.1(a) above, the date of
completion of loading, trimming and stowage, and the full text of the
certificate given by the Inspection Company under Section 6.3. Within
five (5) days after completion of loading of a shipment of Coal, the
Seller shall forward to the Buyer by express registered air-mail one
original and one copy of the bills of lading, together with a copy of
each of other documents listed in Section 9.1. The face of the envelope
shall be marked "Shipping Documents", stating clearly the name of
carrying vessel and the contract number of this Agreement.
9.3 Seller's Default
If the Buyer is unable to receive or unload the Coal in the Republic of
China hereunder, or encounters difficulties in such receipt or
unloading or in clearing Republic of China customs of such a shipment
of Coal, as a result of the Seller's delay in making available to the
Buyer, pursuant to Section 9.2, one or more of the shipping documents
or the telex, telefax or telegram advice to the Buyer, or as a result
of any such document, upon presentment, failing to conform to the
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requirements stated in Section 9.1, regardless of whether that document
is acceptable to the negotiating bank upon the Seller's presentment of
indemnities, quarantees, undertakings and/or demurrage collaterals, or
otherwise, then in any such event, all costs, expenses, charges,
losses, damages and liabilities incurred by the Buyer in respect of
that shipment of Coal and/or the carriage thereof arising from such
delay or failure shall be borne and paid for by the Seller.
9.4 Banking Charges
Banking charges outside of Taiwan, Republic of China, if any, in
respect of or in connection with this payment under this Article 9
shall be for the Seller's account.
10. FOREIGN MATERIALS CONTAMINATION
10.1 Each shipment of the Coal hereunder will be of good grade meeting the
requirements set out in Article 4 hereof and substantially free of
impurities such as wood, iron, nonferrous materials, blast materials or
other foreign materials, whether emanating from mining operations,
storage, handling, loading or otherwise.
10.2 The Seller shall be liable to the Buyer for any and all damages,
losses, or other costs caused by or related to foreign materials found
in a shipment of Coal.
10.3 Buyer may suspend deliveries or terminate this Agreement if the weight
of foreign materials in any one shipment exceeds 10 Tons or the weight
of foreign materials in any two shipments within any twelve-month
period exceeds a total of 15 Tons.
10.4 Buyer will immediately notify Seller of the presence and weight of
foreign materials in any vessel for which damages, losses or other
costs or for which suspension of deliveries or termination of the
Agreement is sought. Buyer shall immediately segregate said foreign
materials for Seller's inspection, which inspection Seller shall
conduct, if at all, within fourteen (14) days after Seller's receipt of
Buyer's notice pursuant to this Section 10.4. Buyer shall have no
obligation to retain the segregated materials after the expiration of
such period.
11. RISK AND DELIVERY
11.1 Delivery
Prior to the first day of March in each year in which Coal is to be
supplied under this Agreement, Buyer shall provide Seller with a
tentative shipping schedule for that year, which schedule shall be
mutually agreed by both Parties. Seller shall deliver Coal to Buyer in
accordance with such schedule, as the schedule may be adjusted by Buyer
and as further specified in Buyer's shipment instructions pursuant to
Section 11.5. The schedule as adjusted by Buyer shall provide for
shipments in reasonable cargo lots evenly throughout the year on a
quarterly basis, meaning that approximately one-fourth of the annual
quantity (plus or minus twenty percent (20%) thereof at Buyer's option)
shall be lifted during each quarter of the year. Unless otherwise
agreed by the Parties in writing or unless caused by Force Majeure or
by P&C's refusal to accept nominations, failure by
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Taipower to lift approximately one-fourth of the annual quantity (plus
or minus twenty percent (20%) thereof at Buyer's option) in each
quarter of the year shall constitute a material breach of this
Agreement. This provision shall in no way increase or decrease the
annual quantity otherwise provided for in the Agreement.
11.2 Transfer of Title and Risk of Loss
Title to and risk of loss of each shipment of the Coal shall remain
with the Seller until the completion of loading, trimming and stowage
of that shipment as a whole F.O.B.T. vessel. At such time title and
risk of loss shall pass to Buyer and therafter insurance shall be
Buyer's responsibility. For Coal that is rejected hereunder, title and
risk of loss shall revert to Seller immediately upon rejection by
Buyer.
11.3 Seller's Responsibilities
The Seller shall be solely responsible for inland transportation and
insurance of the Coal and other related matters up to the point of
delivery F.O.B.T. vessel(s) at the Port of Loading and for the timely
delivery and orderly and proper loading, trimming and stowage of each
shipment of Coal hereunder on board the vessel designated by the Buyer.
The Seller shall be responsible for the loading, trimming and stowage
of each shipment of Coal on board the vessel to the satisfaction of the
shipmaster of that vessel. The Seller shall also provide free of charge
to the Buyer a safe berth with minimum draft at least equal in depth to
the depth of the Southwest Pass below New Orleans unless prevailing
river conditions mandate a lesser draft as determined by the Pilots'
Associations where a vessel either laden with a full and complete cargo
of the Coal or in ballast can safely reach and leave, and where it can
always lie safely afloat, and where the loading, trimming and stowage
of a cargo of Coal can be carried out as contemplated herein. In the
event the Pilots' Associations require a lesser draft at Coal Monitor I
north of New Orleans, Seller will move or cause to be moved Coal
Monitor I to a point south of Baton Rouge, but north of the Southwest
Pass, to a reasonable anchorage allowing a minimum draft equal in depth
to the depth of the Southwest Pass if such an anchorage is available.
11.4 Buyer's Responsibilities
The Buyer shall be solely responsible for the ocean transportation of
the Coal and shall arrange for single deck bulk carriers suitable to
enter, berth at and leave the Port of Loading. The Buyer shall be
entitled to make such arrangements under which the vessel designated by
it to carry any amount of Coal hereunder may take the Coal as a part of
her cargo or may load the Coal together with the coal not covered by
this Agreement. The Buyer shall ensure that each vessel designated by
it for the carriage of the Coal hereunder will: (a) provide the Seller
with free use of winches and related electricity power required by the
Seller during loading, trimming and stowage of the Coal on board such
vessel; and (b) have lighting facilities and crew available during the
loading operation.
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11.5 Buyer's Shipment Instructions
Not later than thirty (30) days before the estimated time of arrival at
the Port of Loading of the vessel designated by the Buyer, the Buyer
shall give written notice to the Seller of the matters stated below and
the Seller shall within two (2) working days after receipt of such
notice confirm to the Buyer that the vessel specified by Buyer is
acceptable to the shipping terminal and shall designate a safe berth
for vessel to load:
(i) The name and the particulars of the vessel;
(ii) A fourteen (14) - day laydays spread and the estimated time of
arrival ("ETA") of said vessel at the Port of Loading; and
(iii) The amount of Coal to be loaded on board said vessel, with ten
percent (10%) more or less at shipmaster's option.
The Buyer shall by telefax, telex or telegram immediately advise the
Seller of any change to the abovementioned notice.
The Buyer shall ensure that the shipmaster of each vessel designated by
it to carry the Coal hereunder will advise the Seller by radio of that
vessel's ETA at the nominated loading berth in the Port of Loading
approximately 168 hours, 72 hours and 24 hours in advance. The Buyer
shall also ensure that, not later than 72 hours prior to the vessel's
ETA at the nominated loading berth in the Port of Loading, the
shipmaster will provide Seller with written notice of the maximum
tonnage of Coal which vessel will load.
11.6 Delivery Obligations and Loading Rates
The Seller shall cause and ensure that:
(a) The amount of Coal for each shipment hereunder shall be as specified by
the Buyer in its notice given under Section 11.5 (subject to adjustment
at shipmaster's option pursuant to Section 11.5 (iii)) and shall be
available and ready for loading at the nominated loading berth, and
(b) The loading rates shall be agreed upon by the Parties at the time of
the negotiation on the Base Price for 1994. Thereafter, the loading
rates shall be reviewed annually.
11.7 Loading and Laytime
(a) Each vessel designated by the Buyer to carry any shipment of Coal may
tender the notice of readiness to load to the Seller or its agent at
any time upon that vessel's arrival at the Port of Loading, whether in
berth or not; provided that the vessel is in free pratique and ready in
all respects to load the Coal. The Seller shall confirm in writing its
receipt of such notice of readiness on the day when such notice is
tendered, if such notice is tendered between 0600 and 1800 hours on
that day; otherwise the Seller's written confirmation shall be given
during those hours of the day immediately following; provided however,
that if the Buyer's notice is tendered on a Christmas Day (December
25), the Seller's
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written confirmation shall be given during those hours on the day
immediately following. If the vessel is prevented from entering the
commercial limits of the Port of Loading because loading berth or
layberth or anchorage is not available under the order of Seller's
agent or the Port Authorities and the vessel is ready in all respects
to load, the notice of readiness may be tendered by radio within the
hours stated above.
(b) Laytime shall commence to run twenty-four (24) hours after the notice
of readiness to load is tendered and received, whether the vessel is in
berth or not; provided that if loading commences before the expiry of
such 24-hour period, laytime then commences to run upon commencement of
loading.
(c) Time required for shifting from anchorage to the berth shall not be
included in the laytime if the vessel was ordered by the Port Authority
or terminal to wait for the berth. Otherwise, all shifting time shall
be counted as laytime used.
(d) Time required for loading of vessel's bunkers and lubricants shall not
be included in the laytime except to the extent that the loading of the
Coal is carried out concurrently. Laytime shall end upon the completion
of loading, trimming and stowage of the relevant shipment of Coal on
board the vessel, provided that time required for vessel draft survey
pursuant to Section 6.1 shall be counted as part of the laytime.
(e) Time lost due to any cause described in Article 12, of which Seller has
given the Buyer written notice in accordance with that Article, shall
not be counted as laytime; provided, however, that time between the
occurrence of such Force Majeure and receipt of notice of its
occurrence by Buyer shall count as laytime.
11.8 Demurrage
(a) In the event that the Seller is unable to complete the loading,
trimming and stowage of a shipment of Coal F.O.B.T. vessel within the
laytime allowed hereunder, the Seller shall pay to the Buyer demurrage
at the rates shown below per running day (pro rata for fractions of a
day) for all time lost after expiry of the laytime allowed.
PARCEL SIZE IN THE RANGE DEMURRAGE/DESPATCH RATES
( Tons ) (U.S. Dollars/Day)
- - - - - - - - - - - - - - - - - - - - - - - - - -
45,000 - 75,000
75,001 and above subject to annual review
In the event that the loading, trimming and stowage of a shipment of
the Coal F.O.B.T. vessel are completed before the expiry of the laytime
allowed, the Buyer shall pay to the Seller despatch money at 50% of the
demurrage rate for all laytime saved. All claims for demurrage or
despatch money, as the case may be, in respect of the loading, trimming
and stowage of Coal F.O.B.T. vesssel shall be settled within 60 days
after the completion of loading, trimming and stowage of that shipment.
The demurrage rates shall be reviewed by the Parties hereto on an
annual basis.
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(b) Without limitation by any other provision in this Agreement including
the preceding Section 11.7 but as limited by Section 11.10, once the
vessel is on demurrage, all time lost, including time lost due to Force
Majeure, shall continue to count as demurrage.
(c) The Statement of Facts for presentment to the Buyer as one of the
documents required under the Buyer's payment by letter of credit under
Section 9.1 hereof shall be prepared by Seller's agent at Seller's cost
and confirmed by vessel's agent.
11.9 Overtime
The expense required for overtime work shall be borne by the party who
has requested same. If overtime work is ordered by the port
authorities, the expenses therefor shall be borne by the Seller;
provided however, the expenses for overtime of the officers and crew of
the vessel shall always be borne by the owner or operator of the
vessel.
11.10 Warping and Shifting of the Vessel
If warping and shifting alongside the wharf is necessary after the
vessel has berthed thereat, the time required therefor shall be
included in the laytime and demurrage, and the costs required for the
warping and/or shifting shall be borne by the Seller; provided that if
the shipmaster decides to shift the vessel after it has berthed
alongside the wharf for any reason other than the request, order or
recommendation of the Seller or the port authorities, the time required
for the shifting shall not be included in the laytime or demurrage, and
the costs required therefor shall be for the Buyer's account.
11.11 Cost of Delivery
The Seller shall bear all of the costs and expenses of and relating to
the loading of the Coal on the vessel, wharfage, export and other
taxes, imposts and other charges imposed by any Government or its
agencies having jurisdiction at Port of Loading, as well as other
similar costs which are normally considered to be for the Seller's
account. The Buyer shall bear the shipping agency, berthage, pilotage,
tugboat and line-handling fees, port charges and other similar costs
which normally are considered to be for the vessel's account. If there
is doubt as to which party should bear particular costs or expenses
related to the delivery, the Parties hereto agree that costs or
expenses directly related to the vessel shall be borne by the Buyer,
with all other costs and expenses borne by the Seller.
11.12 Seller's Shipment Default
In the event that the amount of Coal which the Seller has for any
shipment hereunder is insufficient to meet the Buyer's requirement for
that shipment stated in the Buyer's notice given under Section 11.5
(after taking into account the effect of any action by the shipmaster
in accordance with Section 11.5(iii), the Seller shall pay for all
losses and damages (including, without limitation, dead freight and
other expenses claimed by the shipping company) suffered by the Buyer
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arising from such insufficiency, and shall in addition pay for all
damages for delay in making that shipment.
12. FORCE MAJEURE
12.1 Events Constituting Force Majeure
Neither party hereto shall be liable for any delay or failure in the
performance of its obligations under this Agreement if and to the
extent that such delay or failure is directly caused by any event of
Force Majeure. The expression "Force Majeure," as used in this
Agreement, means cause or causes not within the control of the party or
parties claiming Force Majeure and includes, but is not limited to:
(a) Acts of God, War (declared or undeclared), blockage, riots, revolution,
insurrection, civil commotions, mobilizations, strikes, plagues,
epidemics, fires, floods, landslides, obstruction of navigation at the
Port of Loading, acts of government including court orders of any
branch or subdivision thereof, acts of public enemies; and major
break-downs of or damages to plants, equipment or facilities at mines,
railroads or ports, or other locations directly connected with
supplying, loading, or conveying the cargo from the mines to the
vessel, and
(b) Major breakdown of or damage to vessels nominated by the Buyer, however
caused, including, without limitation, acts of God, perils of the seas,
fire, barratry of the Master and/or crew, pirates, collisions,
strandings and accidents of navigation or latent defects in or
accidents to hull and/or machinery and/or boilers, whether occasioned
by the negligence, default or error of judgement of the pilot, Master,
mariners or other persons employed by the shipowner, or for those acts
the shipowner is responsible, and other causes of whatsoever kind or
nature beyond the control of the Buyer.
During any period in which mining or delivery of Coal is suspended or
curtailed at Seller's mines as a result of Force Majeure, Seller shall
allocate Coal shipped from the Seller's mines among Seller's customers
under contract from Seller's mines, including Buyer, in a fair and
reasonable manner.
12.2 Notices
The party whose performance of any obligation is directly affected by a
Force Majeure event under Section 12.1 shall, within three (3) working
days after the occurrence thereof, give notice thereof to the other
party by telex, telefax or telegram, and shall also within ten (10)
days thereafter as well as after the termination of such events, notify
the other party concerned in writing of particulars of the relevant
events and supply supporting evidence. The party affected by Force
Majeure shall use best efforts to mitigate the adverse effect thereof
on its performance hereunder, and shall resume, with the least possible
delay, performance of its obligations upon cessation of such cause.
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12.3 Affected Deliveries
With respect to any quantity of Coal as to which delivery was delayed
by Force Majeure, the party who has received the notice under Section
12.2 shall have the option to cancel such quantities or to take or
deliver same at a later date, such option to be exercised within six
(6) months after the Force Majeure event is terminated. The timing of
any such later deliveries shall be as reasonably specified by the party
who received notice of the Force Majeure.
12.4 Obligations Unaffected by Force Majeure
Should either Seller or Buyer declare Force Majeure, nothing in this
Article 12 shall relieve either the Seller or the Buyer from any of its
obligations under this Agreement (such as, but not limited to, the
obligation of the Buyer or the Seller to pay any amount which has
become due and payable under this Agreement) which are unaffected by
such declaration.
12.5 Extended Force Majeure
In the event Force Majeure events persist in the aggregate for more
than 300 days in any 365-day period, then the party not claiming Force
Majeure within a reasonable time thereafter may terminate this
Agreement by giving no less than 60 days prior notice to the other
party. No such termination shall excuse either party from performing
all obligations which became due under this Agreement before the date
of such termination.
13. TERMINATION
Without prejudice to and in addition to the Buyer's right of
termination of this Agreement under other articles hereof, if any of
the following events occurs, the Buyer shall have the right to
terminate this Agreement, holding Seller responsible for all resulting
damages, by serving on the Seller written notice of termination with
immediate effect.
(a) If all or a substantial portion of the Seller's property is subject to
a court order for disposal by public sale, disposal for failure to pay
taxes or any other similar disposal by a public authority; or if the
Seller files a petition or has a petition filed against it by any
person for reorganization, bankruptcy or other similar proceedings for
the rehabilitation of debtors; or
(b) the Seller undertakes a dissolution, a transfer of all or a substantial
portion of its business or a material alteration or abandonment of its
business as is presently conducted; or
(c) If the Seller is unable to meet any payment obligation as and when it
becomes due; or
(d) If the Seller ceases or loses the right to own or operate the Kiah
Creek Reserve and has no other substitute reserve approved by Buyer, or
if at any time the proven recoverable Kiah Creek Reserve or approved
substitute reserve is
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insufficient to satisfy the full remaining delivery requirements under
this Agreement.
14. CONFIDENTIALITY
The Parties shall treat this Agreement as confidential and neither
Party shall disclose its terms without the prior written consent of the
other, except to the extent required to carry out the obligations
herein, or to remedy any breach or as otherwise required by the laws,
rules, regulations and directions of the Governments of the Republic of
China and the Government of the United States or of any of the states
of the United States or any branch or subdivision thereof.
15. NO ASSIGNMENT
Except to the extent as the Parties may agree in writing, which
agreement shall not be unreasonably withheld , no assignment shall be
made by either Party or by operation of law of any of the Parties
rights or interest in this Agreement. Seller may not delegate any part
or all of its obligations hereunder to any third party. Seller shall
not be prohibited from hiring the services of contract miners, trucking
companies, barging companies, stevedoring companies, or of any other
companies which may be required for supplying coal to Buyer's vessel.
16. ARBITRATION
Except as to decisions identified as final and binding in other
provisions of this Agreement and except as otherwise provided herein,
all disputes arising in connection with the present Agreement shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in
accordance with the procedure set forth below and the said Rules. In
the Request for Arbitration and the Answer to the Request respectively,
each party shall appoint a party-appointed arbitrator. In the absence
of such an appointment by either of the Parties, the Court of
Arbitration of the International Chamber of Commerce shall make the
appointment.
Within thirty (30) days (or any extended period upon which the parties
agree) of the appointment of the second party-appointed arbitrator, the
two arbitrators so appointed shall select a third arbitrator to serve
as Chairman of the panel. If the two party-appointee arbitrators are
unable to agree upon a third arbitrator within the said 30-day period ,
the third arbitrator shall be selected by the ICC Court of Arbitration.
The arbitration shall take place in New York, New York, U.S.A. The
arbitration award shall be final and binding on the Parties and a
judgment may be entered thereon.
17. NOTICE
Any service of process, notice, certificate, statement, report,
declaration or other communication which either Party hereto will give
or make or may be required to give or make to the other Party hereunder
shall, unless otherwise mutually agreed or specifically provided
herein, be in writing and sent to such other Party's address specified
below or to such other address as the other Party by written notice may
specify, and shall be deemed to be properly given or made: (i) if
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delivered by hand, when received; (ii) if sent by registered mail (air
mail, if international), postage prepaid, when received; and (iii) if
given or made by telefax, telegram or telex on the day (which is a
business day at such place of receipt) following the date on which the
telefax, telegram or telex is dispatched; provided that in the case of
notice by telex, it was given with confirmed answerback, and provided
further that service of process may only be made by hand or by
registered mail.
To Seller: P & C "Bituminous Coal," Inc.
Third Floor, Center Court Building
5110 Maryland Way
Brentwood, Tennessee 37027
U.S.A.
Telex No. 555187 Answerback: P&K INTL NAS
Telefax No. (615) 377-1179
To Buyer: Taiwan Power Company
Fuel Department
9th Floor, Taipower Building
No. 242, Roosevelt Road, Section 3,
Taipei, 10763, Republic of China
Telex No. 27254 Answerback: TPCFUEL
Cable Address: TPCFUEL
Telefax No. (2) 341-0597
18. REPRESENTATIONS AND WARRANTIES
(a) This Agreement is entered into by the Buyer in reliance on the Seller's
representations and warranties as follows:
(i) As to Coal to be furnished from Seller's reserves, Seller has
and at all times will continue to have all right, title and
interest in and to the Coal; as to Coal which may come from
other sources, Seller will have at the time of delivery of
said Coal all right, title and interest therein.
(ii) Seller has the corporate right and governmental authority to
enter into and perform its obligations under this Agreement;
(iii) The Coal purchased hereunder will be delivered to Buyer free
and clear of any liens and encumbrances, claims of third
parties or restrictions regarding its use;
(iv) The proven recoverable mine reserves dedicated to this
Agreement in accordance with Section 3.3 are, and at all times
during the term of this Agreement will be, sufficient to
satisfy all delivery requirements under this Agreement; and
have not been and will not be sold to third parties;
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(v) As of the date of this Agreement, Seller is 100% owned by Pen
Holdings, Inc., a corporation organized and existing under and
by virtue of the laws of the State of Tennessee, U.S.A. with
its principal office at 3rd Floor, Center Court Building, 5110
Maryland Way, Brentwood, Tennessee 37027 U.S.A.; and
(vi) During the term of this Agreement if there is any change in
the percentages of ownership mentioned above, the Seller shall
immediately notify the Buyer in writing of such change.
These representations and warranties constitute the basis of this
Agreement, and if all or part thereof was incorrect when made or
becomes incorrect hereafter for whatever reason, the Buyer shall be
entitled to forthwith rescind, cancel or terminate this Agreement at
its option, and upon such rescission, cancellation or termination, in
addition to other remedies available to the Buyer, all of the Buyer's
obligations under this Agreement shall immediately cease and terminate.
(b) Seller represents and warrants that the production from the Kiah Creek
Reserve and from any other reserve approved by Buyer shall equal or
exceed 1.1 million Tons each year during the term of this Agreement. If
the production from Seller's reserves as aforesaid should in any year
for any reason, including Force Majeure, breach or otherwise, become
insufficient to satisfy such portion of the tonnage required to be
furnished from Seller's reserves, then in addition to other rights
Buyer may have, the following shall apply:
At Buyer's request, Seller shall use its best efforts to make up the
deficit by supplying substitute coal in accordance with the quality,
price and other terms and conditions of this Agreement from alternative
sources available to Seller.
(c) At the end of each year during the term of this Agreement, Seller's
Chief Production Officer shall provide the Buyer with written
certification under oath that all Coal required to be furnished in that
year from Seller's reserves was in fact furnished from such reserves.
(d) At any time during the course of this Agreement, and during any
arbitration under Article 16 or other litigation, Seller shall provide
Buyer at the request of Buyer such documentation, including related
documentation reasonably requested by Buyer, as establishes that Seller
meets the above representations and warranties. Further, Seller grants
Buyer and Buyer's authorized representative(s) the right to visit
Seller's mines and related facilities, from time to time, during normal
business hours and upon reasonable notice, to witness and review with
Seller its operations, mining plans, and shipping and other facilities,
and to examine mine reserves and review pertinent documents concerning
mine reserves.
19. WARRANTY AGAINST CONTINGENT FEES AND BENEFITS
(a) The Seller warrants that no person has been employed or retained to
solicit, secure or administer this Agreement or one or more shipments
of Coal upon an agreement or understanding for a commission,
percentage, brokerage or contingent fee, excepting bona fide full time
employees employed by the Seller
24
<PAGE> 25
for the purpose of securing or administering business and no such
commission, percentage, brokerage or contingent fee has been paid. For
breach or violation of this warranty the Buyer shall have the right to
annul this Agreement without liability and at the Buyer's discretion,
to deduct from the contract price the amount of consideration, or
otherwise recover, the full amount of such commission, percentage,
brokerage, or contingent fee.
(b) The Seller warrants that no officials or employees of the Government of
the Republic of China, including any subdivision or branch thereof, no
employees of the Buyer, and no consultants (or employees of a
consultant) retained by the Buyer whose service is in any way related
to the Buyer's selection of coal, coal mines or coal producers have
been or will be admitted, directly or indirectly, to any share or part
of this Agreement or to any one or more shipments of Coal or to any
benefit that may arise therefrom. Violation of this warranty will
subject the Seller to penalties under applicable law as well as give
the Buyer the right to annul this Agreement without liability and at
the Buyer's discretion to deduct from the contract price the amount of
consideration, or otherwise recover, the full amount of such benefit to
which any party has been admitted in violation of this warranty.
20. NO WAIVER; CUMULATIVE REMEDIES
(a) The failure of either party to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by
the other party of any of the provisions hereof, shall in no way be
construed to be a waiver of such provision, nor in any way to affect
the validity of this Agreement or any part hereof, or the right of
either party thereafter to enforce each and every provision.
(b) All remedies afforded under this Agreement shall be taken and construed
as cumulative and in addition to every other remedy provided for herein
or otherwise available to a party.
21. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement of the Parties with
respect to the subject matter hereof and shall supersede any prior
expression of intent or understanding with respect to the transactions
contemplated herein. This Agreement may be amended or modified only in
writing, signed by the duly authorized representatives of the Parties
hereto.
22. SEVERABILITY
If any of the provisions of the Agreement shall be held to be illegal
or unenforceable, the validity, legality and enforceability of the
remaining provisions of the Agreement shall not in any way be affected
or impaired thereby.
23. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, U.S.A.
25
<PAGE> 26
24. SURVIVAL
The provisions of Article 14 (Confidentiality), Article 16
(Arbitration), Article 18 (Representations and Warranties), Article 19
(Warranty Against Contingent Fees and Benefits), and Article 23
(Governing Law), as well as any other provisions of this Agreement
affording a party a remedy hereunder, shall survive the termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
by their respective authorized representatives.
SELLER: P&C "BITUMINOUS COAL", BUYER: TAIWAN POWER COMPANY
INC.
By: /s/ EDDIE P. S. PEN By: /s/ J. H. CHEN
------------------------- ---------------------------
Name: Eddie P. S. Pen Name: J. H. Chen
Title: President Title: President
ATTESTED:
By: /s/ S. M. CHANG
-----------------------
Name: S. M. Chang
TPC Contract
26
<PAGE> 27
ADDENDUM NO. 1 OF CONTRACT NO. 78-AM-L1102
DATE: March 28, 1990
This Addendum, made by the undersigned parties, is based upon the
following premises:
A. The above-referenced contract (the "Contract") was entered into on
June 15, 1989 by Taiwan Power Company, as Buyer, and P & C "Bituminous Coal",
Inc., as Seller.
B. Effective January 15, 1990, the name of P & C "Bituminous Coal",
Inc. was changed to Pen Coal Corporation.
C. The parties hereto wish to amend the Contract to recognize the
change of name from P & C "Bituminous Coal", Inc. to Pen Coal Corporation.
In consideration of the premises recited above, the parties agree as
follows:
1. All references in the Contract to "Seller" shall be deemed from
January 15, 1990 forward to be references to Pen Coal Corporation.
2. All other terms and conditions of the Contract shall remain
unaltered.
IN WITNESS WHEREOF, the parties have executed this Addendum by their
duly authorized representatives.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
By: /s/ JAMES R. MORRIS By: /s/ S. C. HSI
--------------------------- -------------------------
James R. Morris S. C. Hsi
Executive Vice President Vice President
& Chief Operating Officer
<PAGE> 28
ADDENDUM NO. 2 OF CONTRACT NO. 78-AM-L1102
DATE: June 17, 1994
In accordance with the provisions of Clause 5.1, the Seller and Buyer
mutually agree that the Base Price for the year 1994 shall be FOBT USD36.60 per
metric ton.
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
indicated by their duly authorized representatives. All other terms and
conditions of the original Contract and Addendum No. 1 remain unaltered.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
BY: /s/ WILLIAM E. BECKNER BY: /s/ S. C. HSI
---------------------- -------------------------
WILLIAM E. BECKNER S. C. HSI
PRESIDENT VICE PRESIDENT
<PAGE> 29
ADDENDUM NO. 3 OF CONTRACT NO. 78-AM-L1102
DATE: SEP 26, 1994
In accordance with the provisions of Clause 11.6 (b), and Clause 11.8
(a), the Seller and Buyer mutually agree that the Loading Rate and the
Demurrage/Dispatch Rates for the year 1994 shall be as follows:
(1) at loading facilities of Coal Monitor 1
Parcel Size Loading Rate Demurrage/Dispatch
(Tons) (Ton/Day) (US$/Day)
--------------- ------------- ------------------
45,000 - 75,000 19,000 5,000/2,500
PWWD SSHINC
(2) at International Marine Terminals
Parcel Size Loading Rate Demurrage/Dispatch
(Tons) (Ton/Day) (US$/Day)
--------------- ------------- ------------------
45,000 - 75,000 30,000 5,000/2,500
75,001 and above 35,000 6,000/3,000
PWWD SSHINC
PWWD SSHINC means per weather working days of 24 consecutive
Hours, Saturdays, Sundays, Holidays included.
IN WITNESS WHEREOF, the parties have executed this Addendum on the
date indicated by their duly authorized representatives. All other terms and
conditions of the original Contract and Addenda No. 1 and No. 2 remain
unaltered.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
BY: /s/ WILLIAM E. BECKNER BY: /s/ C. T. HSU
-------------------------- -------------------------
WILLIAM E. BECKNER C. T. HSU
PRESIDENT CHIEF ENGINEER
<PAGE> 30
ADDENDUM NO. 4 OF CONTRACT NO. 78-AM-L1102
DATE: June 1, 1995
In accordance with the provisions of Clause 5.1, the Seller and Buyer
mutually agree that the Base Price for the year 1995 shall be FOBT USD38.10/MT
per metric ton.
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
indicated by their duly authorized representatives. All other terms and
conditions of the original Contract and Addendum Numbers 1, 2 and 3 remain
unaltered.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
By: /s/ WILLIAM E. BECKNER By: /s/ S. Y. LEE for
--------------------- ---------------------
William E. Beckner S. C. Lai
President Vice President
<PAGE> 31
ADDENDUM NO. 5 OF CONTRACT NO. 78-AM-L1102
DATE: OCTOBER 9, 1996
In accordance with the provisions of Clause 5.1, the Seller and Buyer
mutually agree that the Base Price for the year 1996 shall be FOBT USD37.71/MT
per metric ton.
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
indicated by their duly authorized representatives. All other terms and
conditions of the original Contract and Addendum Numbers 1, 2, 3 and 4 remain
unaltered.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
By: /s/ WILLIAM E. BECKNER By: /s/ S. C. LAI
----------------------- -------------------------
William E. Beckner S. C. Lai
President Vice President
<PAGE> 32
ADDENDUM NO. 6 OF CONTRACT NO. 78-AM-L1102
DATE: DECEMBER 8, 1997
In accordance with the provisions of Clause 5.1, the Seller and Buyer
mutually agree that the Base Price for the year 1997 shall be FOBT USD38.05/MT
per metric ton.
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
indicated by their duly authorized representatives. All other terms and
conditions of the original Contract and Addendum Numbers 1, 2, 3, 4 and 5 remain
unaltered.
SELLER: BUYER:
PEN COAL CORPORATION TAIWAN POWER COMPANY
By: /s/ WILLIAM E. BECKNER By: /s/ S. C. LAI
----------------------- -------------------------
William E. Beckner S. C. Lai
President Vice President
<PAGE> 1
Exhibit 10.3
Pen/DP&L
3/1/93
COAL SUPPLY AGREEMENT
BETWEEN
PEN COAL CORPORATION
AND
THE DAYTON POWER AND LIGHT COMPANY
DATED EFFECTIVE JULY 1, 1992
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3/1/93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS...................................................................2
ARTICLE II TERM
Section 2.01 - Base Term...............................................4
Section 2.02 - First Option Term.......................................4
Section 2.03 - Second Option Term......................................4
Section 2.04 - Third Option Term.......................................4
Section 2.05 - Term Administration.....................................5
Section 2.06 - Base Price Renegotiation................................5
ARTICLE III SOURCE OF COAL
Section 3.01 - Designated Reserves -
Designation and New Reserves............................6
3.01.1 - Designation.............................................6
3.01.2 - New Reserves............................................6
3.01.3 - Co-Mingled Shipments....................................7
Section 3.02 - Reserves - Alienation/Assignment........................7
Section 3.03 - Substitute Coal.........................................8
ARTICLE IV QUANTITY
Section 4.01 - Base Tonnage............................................9
Section 4.02 - Shipping Schedule......................................11
Section 4.03 - Tonnage Flexibility....................................11
Section 4.04 - Coal Quality Selection -
Compliance Sulfur Coal Option..........................13
Section 4.05 - Liquidated Damages.....................................16
Section 4.06 - Limitation on Purchase Obligation......................18
ARTICLE V SHIPMENT AND SAMPLING
Section 5.01 - Shipping...............................................18
5.01.1 - Terms and Method.......................................18
5.01.2 - Loading................................................19
Section 5.02 - Sampling and Analysis..................................20
Section 5.03 - Weighing...............................................22
ARTICLE VI COAL CHARACTERISTICS
Section 6.01 - Type...................................................22
</TABLE>
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TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
ARTICLE VI COAL CHARACTERISTICS
Section 6.02 - Quality................................................22
Section 6.03 - Remedies...............................................23
ARTICLE VII PRICE AND PRICE ADJUSTMENT
Section 7.01 - FOB Barge..............................................25
Section 7.02 - Price..................................................25
Section 7.02.1 - Contract Price.........................................25
Section 7.03 - Price Adjustments......................................26
7.03.1 - Contract Price Adjustment..............................26
7.03.2 - Quality Adjustment.....................................27
7.03.3 - Quality Administration.................................29
Section 7.04 - Price Escalation Caps..................................29
Section 7.05 - Payment................................................30
ARTICLE VIII FORCE MAJEURE
Section 8.01 - Definition.............................................31
Section 8.02 - Effect.................................................31
ARTICLE IX NEW LEGISLATION
Section 9.01 - General Rule...........................................32
ARTICLE X RESOLUTION OF DISPUTES
Section 10.01 - Arbitration............................................33
ARTICLE XI NOTICES
Section 11.01 - Notices................................................35
ARTICLE XII RISK OF LIABILITY
Section 12.01 - Indemnification........................................37
ARTICLE XIII AMENDMENT, MODIFICATION AND WAIVER
Section 13.01 - General Rule...........................................37
</TABLE>
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TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
ARTICLE XIV MISCELLANEOUS
Section 14.01 - Waiver and Remedies....................................38
Section 14.02 - Construction of Term...................................38
Section 14.03 - Confidentiality........................................38
Section 14.04 - Representations and Warranties.........................39
Section 14.05 - Assignment.............................................39
Section 14.06 - Counterparts...........................................39
Section 14.07 - Captions and Exhibits..................................40
Section 14.08 - Equal Opportunity and Employment Clause................40
Section 14.09 - Whole Agreement/Severability;
Effect of Agreement....................................40
EXHIBIT A DESIGNATED RESERVES - OWNERSHIP LEASEHOLD
EXHIBIT B PRICE ADJUSTMENT MECHANISM
EXHIBIT C PRICE ADJUSTMENT EXAMPLE
EXHIBIT D COAL QUALITY SELECTION TABLES
</TABLE>
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Pen/DP&L
3/1/93
COAL SUPPLY AGREEMENT
BETWEEN
PEN COAL CORPORATION
AND
THE DAYTON POWER AND LIGHT COMPANY
THIS AGREEMENT, is made and entered into as of the 1st day of
July 1992 (Effective Date), by and between PEN COAL CORPORATION, a coal
producing corporation existing under the laws of the State of Tennessee, with
its principal mailing address at 5110 Maryland Way, Post Office Box 2128,
Brentwood, Tennessee 37027, (hereinafter called "Pen"), and THE DAYTON POWER AND
LIGHT COMPANY, a corporation existing under the laws of the State of Ohio with
its principal mailing address at P. O. Box 8825, Dayton, Ohio (hereinafter
called "DP&L").
WITNESSETH That:
WHEREAS, DP&L operates the J. M. Stuart Electric Generating
Station (Stuart Station) located near Aberdeen, Ohio, at Ohio River mile post
404.5, and the Killen Electric Generating Station (Killen Station) located near
Wrightsville, Ohio, at Ohio River mile post 389.8, which stations require large
quantities of acceptable quality coal to operate; and
WHEREAS, Pen represents and warrants that it is in the
business of producing high volatile bituminous coal and that it owns or controls
coal that is suitable for use in said Stations in sufficient quantities to
fulfill the requirements of this Agreement; and
WHEREAS, DP&L desires to purchase from Pen, and Pen desires to
sell to DP&L such quantities and qualities of coal as are hereinafter set forth.
NOW, THEREFORE, in consideration of the payments, covenants
and agreements of the parties, as herein stated, Pen agrees to sell and DP&L
agrees to accept and
<PAGE> 6
Pen/DP&L
3/1/93
pay for, coal of the quantity and quality hereinafter specified, during the
period, at the prices, and upon the terms and conditions as herein set forth.
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms shall have
the following meanings:
(1) Alienation or Assignment: Any conveyance, lease, sublease,
or relinquishment of rights or duties in or to any property involved in this
Agreement.
(2) As received: The analysis determined based on the sample
taken at the sampling point.
(3) B.T.U.: A standard British Thermal Unit.
(4) Barge: For the purpose of this Agreement, Barge shall mean
a sea worthy jumbo type Barge of approximately 1,500 Ton capacity with a cargo
box with top dimensions of one hundred eighty-nine feet (189') in length and
twenty-eight feet (28') in width.
(5) Compliance Sulfur Coal: Coal having the quality
characteristics specified in Article VI - Coal Characteristics, Section 6.02 (a)
Quality, under the heading "Compliance Sulfur Coal."
(6) Contract Year: Each twelve (12) calendar month period,
beginning with the Effective Date of this Agreement.
(7) CWT: Refers to "hundred weight" which, for the purpose of
this Agreement, is calculated as 2000 lbs. Equals 20 CWT for each individual
shipment.
(8) Day, week, month, and year: Calendar time references,
unless otherwise stated.
2
<PAGE> 7
Pen/DP&L
3/1/93
(9) Designated Reserves: Land groupings dedicated for contract
performance to the supply of coal under this Agreement with mineable and
merchantable coal of the qualities required hereunder, permitted and proven in
amounts equal to or greater than the total tonnage required by this Agreement.
(10) Effective Date: The Effective Date of this Agreement is
July 1, 1992.
(11) Low Sulfur Coal: Coal having the Quality Characteristics
specified in Article VI - Coal Characteristics, Section 6.02 (a) Quality, under
the heading "Low Sulfur Coal."
(12) Mid Sulfur Coal: Coal having the Quality Characteristics
specified in Article VI - Coal Characteristics, Section 6.02 (a) Quality, under
the heading "Mid Sulfur Coal".
(13) Notice: Actual or constructive communication of
information, either written or verbal, as more specifically defined in Article
XI - Notices, Section 11.01, Notices. Written notice shall be deemed to occur
upon delivery to a party, and verbal upon actual communication with an agent of
a party.
(14) Power Plant: Stuart Station, and/or Killen Station,
whichever DP&L may deem appropriate to take the type of coal being Tendered
under this Agreement.
(15) Quarter: Refers to a three (3) calendar month period. For
the purpose of this Agreement, a new Quarter will begin on each December 1,
March 1, June 1, and September 1.
(16) Substitute Coal: Coal produced from land outside of the
Designated Reserves and Tendered to DP&L in accordance with this Agreement.
(17) Tender: For FOB Barge Shipment, means a shipment of coal
loaded in DP&L's contracted Barge Carrier's Barges, ready for shipment.
(18) Term: Refers to either the Base Term or an Option Term,
as described in
3
<PAGE> 8
Pen/DP&L
3/1/93
Article II - Term, depending on the point in time to which the Agreement is
being applied.
(19) Ton: A net ton of 2,000 pounds avoirdupois weight.
(20) Transload: Shall mean all activities and attendant
facilities incident to the transfer of coal from the FOB Barge Loading Point
facility into Barges.
ARTICLE II - TERM
Section 2.01 Base Term
The Base Term of this Agreement begins on the Effective Date
and continues through June 30, 1996.
Section 2.02 First Option Term
DP&L has the unilateral option to extend the Term of this
Agreement for an additional four (4) Contract Years (i.e., through the First
Option Term) by giving written notice to Pen on or before January 1, 1996. If
exercised, the First Option Term will begin on July 1, 1996 and continue through
June 30, 2000.
Section 2.03 Second Option Term
If DP&L extends this Agreement through the First Option Term,
then DP&L shall have the unilateral option to extend the Term of this Agreement
for an additional five (5) Contract Years (i.e., through the Second Option Term)
by giving written notice to Pen on or before January 1, 2000. If exercised the
Second Option Term will begin on July 1, 2000 and continue through June 30,
2005.
Section 2.04 Third Option Term
If DP&L extends this Agreement through the Second Option Term,
then DP&L
4
<PAGE> 9
Pen/DP&L
3/1/93
shall have the unilateral option to extend the Term of this Agreement for an
additional five (5) Contract Years (i.e., through the Third Option Term) by
giving written notice to Pen on or before January 1, 2005. If exercised, the
Third Option Term will begin on July 1, 2005 and continue through June 30, 2010.
Section 2.05 Term Administration
(a) The terms and conditions governing the Base Term will also
govern the Option Term(s), except where this Agreement specifically provides
otherwise.
(b) The parties understand and agree that DP&L's coal quality
nomination per Article IV, Section 4.04, Compliance Sulfur Coal, hereunder,
shall not constitute an election to extend the Term of this Agreement.
Section 2.06 Base Price Renegotiation
(a) This provision is effective when DP&L decides not to
exercise its option to extend this Agreement per Section 2.02, Section 2.03 or
Section 2.04, solely because of price. In such event, DP&L shall notify Pen of
its intention no later than:
(i) November 1, 1995 for the First Option Term election.
(ii) November 1, 1999 for the Second Option Term election.
(iii) November 1, 2004 for the Third Option Term election.
(b) For a sixty (60) day period from such notice, DP&L and Pen
agree to diligently negotiate in good faith and use their best efforts to
establish a new Contract Price.
(c) Where alternatives available to DP&L for the purchase of
coal of a quality (i.e., sulfur content) similar to that to be supplied under
this Agreement are based on terms or conditions (including, but not limited to
duration of supply or price adjustment methodologies) dissimilar to those
provided hereunder or those proposed by Pen through negotiations under this
Section, the reconciliation of the terms of such alternative(s) to the terms of
this Agreement or to Pen's proposal for purposes of comparison shall be a matter
of DP&L's sole discretion. DP&L will provide Pen with a written document
detailing its reconciliation.
5
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Pen/DP&L
3/1/93
(d) If DP&L and Pen cannot agree on a new Contract Price
within the sixty (60) day period, DP&L has the unilateral option to allow this
Agreement to expire as scheduled.
ARTICLE III - SOURCE OF COAL
Section 3.01 Designated Reserves - Designation and New
Reserves
3.01.1 Designation:
Pen shall Tender coal pursuant to this Agreement from its Kiah
Creek Reserves, located in Wayne, Lincoln and Mingo Counties, West Virginia,
which it holds under lease and in fee (as set forth in Exhibit "A" to this
Agreement) hereunder referred to as "Designated Reserves." Active mining
sections on the Designated Reserves are the Cub Branch Surface Mine (MSHA
#46-06606), the Devilstrace Section (MSHA #46-07809) and development of the
Bluewater Section (MSHA #________). Pen dedicates that portion of the Designated
Reserves necessary to perform under this Agreement and warrants that the
Designated Reserves contain commercially recoverable coal of the qualities
required hereunder in quantities sufficient to satisfy Pen's obligations under
this Agreement.
Section 3.01.2 New Reserves:
(a) At the request of either party, Pen and DP&L agree to
discuss adding new coal reserves acquired by Pen Coal Corporation or its
affiliate companies to the Designated Reserves described by this Agreement. Such
proposed new reserves must meet all of the coal quality specifications described
herein in order to be considered. Their designation as Designated Reserves,
however, is subject to the mutual agreement of the parties hereto.
(b) Pen shall supply DP&L or its contracted consultant all
operating, reserve analysis and financial data, including any necessary legal
documents, required by DP&L for evaluating the suitability and reliability of
any proposed new reserves, including the economic consequence of allowing the
inclusion. Such data may include, but shall not be limited to, available
information pertaining to location and reserves, operational records and
expenses. If
6
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Pen/DP&L
3/1/93
there is a conflict of interest between Pen and DP&L's consultant, and where the
data Pen is providing pursuant to Section 3.01.2 is related to the conflict;
such data shall be provided directly to DP&L or to an alternative consultant, as
designated by DP&L.
Section 3.01.3 Co-Mingled Shipments:
(a) Pen represents that it intends to produce 100% of the Coal
to be Tendered under this Agreement from the Designated Reserves, and shall use
its best efforts to do so. In consideration of this representation and as
required to accommodate Pen's shipping logistics, DP&L shall allow Pen to
comingle the coal Tendered hereunder at the FOB Loading Point subject to the
following:
(i) Pen will supply at least ninety-five percent (95%) of the
coal from the Designated Reserves, and;
(ii) The quality of such coal, not originating from the
Designated Reserves, shall meet all of this Agreement's coal quality
specifications.
Section 3.02 Reserves - Alienation/Assignment
(a) Pen shall not Alienate or Assign its rights in the
Designated Reserves to the prejudice of DP&L. In the event Pen wishes to
Alienate or Assign its rights in the Designated Reserves, it shall first confer
with DP&L and dedicate Substitute Reserves to the performance of this Agreement.
Pen shall prove, to DP&L's satisfaction, that such dedicated Substitute Reserves
contain commercially recoverable coal of the qualities required hereunder in
sufficient quantities to meet Pen's obligations throughout the Term hereof,
including the Option Terms.
(b) Failure to notify and consult with DP&L prior to
Alienation or Assignment of the Designated Reserves or failure to provide
adequate Substitute Reserves pursuant to Section 3.02 (a) constitutes a material
breach of this Agreement. In such event, DP&L may, without waiver of any other
remedies at law or in equity that it may have, declare the Agreement terminated
with no further obligation to Pen other than to pay for accepted coal.
Furthermore,
7
<PAGE> 12
Pen/DP&L
3/1/93
Pen shall reimburse DP&L for the differential cost incurred - if any - for
replacement fuel of the quality and quantity required hereunder, including any
differential in the cost of transportation thereof, throughout the remaining
Term of this Agreement, including the Option Terms.
(c) Pen shall not sell nor contract to sell to others coal
from the Designated Reserves in such quantities as to jeopardize Pen's ability
to Tender the total quantity and quality of coal Pen is obligated to Tender to
DP&L hereunder. This subsection is not to be construed as preventing Pen from
selling coal from the Designated Reserves to other parties so long as Pen may do
this without impairing its ability to comply with all of the provisions of this
Agreement.
Section 3.03 Substitute Coal
(a) In the event of a temporary necessity to accommodate Pen's
operational anomalies resulting from Force Majeure or other unforeseen,
non-economically motivated reasons that prevent Pen from providing the coal
required under this Agreement, and, subject to DP&L's approval, which shall not
be unreasonably withheld, Pen may temporarily Tender Substitute Coal hereunder.
(b) Pen shall not Tender Substitute Coal without the prior
consent of DP&L. If in any month Pen Tenders Substitute Coal without obtaining
DP&L's prior written consent, DP&L shall be under no obligation to accept it. If
Pen Tenders Substitute Coal hereunder without DP&L's prior consent, such
substitution shall be considered a material breach of this Agreement. DP&L shall
have the right, in addition to and without waiver of any other remedies
available at law or in equity, to terminate this Agreement without further
obligation to Pen. In the event of such termination, Pen shall reimburse DP&L
for the increased cost incurred--if any--for replacement coal of the quantity
and quality required hereunder, including any differential in the cost of
transportation, throughout the remaining Term of this Agreement.
(c) When Substitute Coal is permitted hereunder, such Coal
shall meet all of the quality specifications described in Article VI - Coal
Characteristics. The price of Substitute Coal shall be set at a level no higher
than that which would have applied if the same quantities of Substitute Coal had
been produced from the Designated Reserves; PROVIDED, HOWEVER,
8
<PAGE> 13
Pen/DP&L
3/1/93
that if the cost to Pen to produce or obtain Substitute Coal is lower than that
which would have been incurred if the same quantities had been produced from the
Designated Reserves, the price paid by DP&L for such Substitute Coal shall be
reduced to reflect fifty percent (50%) of the difference in cost.
ARTICLE IV - QUANTITY
Section 4.01 Base Tonnage
(a) Except as provided in Section 4.01 (c), (e) and 4.04, and
subject to the terms of this Agreement, during each Contract Year that this
Agreement is in effect Pen shall produce and DP&L shall purchase at least:
(1) Base Term
. one million (1,000,000) Tons of coal for the Contract
Years commencing July 1, 1992 and July 1, 1993,
and
. one million two hundred fifty thousand (1,250,000) Tons of
coal for the Contract Years commencing July 1, 1994 and
July 1, 1995.
(2) First Second and Third Option Terms
. one million five hundred thousand (1,500,000) Tons of
coal.
The amounts described above shall constitute the Base Tonnage,
in each Contract Year, Pen shall supply at least the Base Tonnage in accordance
with the Shipping Schedule provided by DP&L per Section 4.02.
(b) During the Base Term, the Base Tonnage shall be comprised
of Mid Sulfur Coal. Pen shall begin Tender of coal under this Agreement in
August, 1992. Commencing July 1, 1996 and during the Option Terms specified in
Section 2.02, 2.03 and 2.04, the Base
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Tonnage may be comprised of a combination of Mid Sulfur Coal, Low Sulfur Coal
and/or Compliance Sulfur Coal, or exclusively of Mid Sulfur Coal, Low Sulfur
Coal or Compliance Sulfur Coal, at DP&L's sole option pursuant to the Coal
Quality Selection Table attached as Exhibit D hereto.
(c) Between August 1, 1992 and June 30, 1993, the Base Tonnage
shall be nine hundred and seventeen thousand (917,000) Tons of coal.
(d) Pen shall continually maintain, at the mine complexes
and/or FOB Loading Point facility, a minimum combined total of twenty-five
thousand (25,000) Tons inventory of coal ready for Tender to DP&L pursuant to
the terms of this Agreement. Such inventory shall meet the monthly coal quality
characteristics for the type of coal Pen is then obligated to supply hereunder,
in accordance with Sections 4.01(b) and 4.04.
(e) The provisions of this Section and Section 4.04
notwithstanding, unless otherwise agreed by the parties the maximum quantity of
coal that Pen shall be obligated to supply in any Contract Year shall be one
million five hundred thousand (1,500,000) Tons, as adjusted for DP&L's Tonnage
Flexibility under Section 4.03.
(f) If in any Contract Year Pen shall, for any cause which
neither results from Force Majeure nor from default of DP&L, fail to Tender a
quantity of coal at least equal to the required Base Tonnage (subject to Section
4.03), then DP&L may purchase the difference between the tonnage Tendered and
the Base Tonnage from sources other than Pen. In such event, Pen shall reimburse
DP&L for any increased cost to DP&L between the delivered price per million BTUs
delivered by Pen hereunder at the time of such purchase and the delivered price
per million BTUs purchased by DP&L to substitute for Pen's deficiency. In the
event DP&L suspends deliveries under Section 6.03, DP&L likewise shall have the
right to purchase Substitute Coal from sources other than Pen during the period
of suspension and the provisions of this Section 4.01(f) will apply to such
purchases.
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Section 4.02 Shipping Schedule
(a) DP&L shall provide Pen with a "Shipping Schedule" thirty
(30) days prior to the start of each Quarter. The Shipping Schedule will notify
Pen of the quantity of coal to be Tendered hereunder during each of the ensuing
three (3) months. DP&L shall update the Shipping Schedule on a monthly basis. It
may be necessary for DP&L to change the Shipping Schedule per its monthly
revisions, or within a given month. DP&L may change the Tons scheduled for
shipment by plus or minus fifteen percent (15%) of the Tons scheduled for Tender
during that month. Pen agrees to begin Tendering coal according to such revised
Shipping Schedule as soon as reasonably possible after receipt of DP&L's notice.
DP&L may change the Tons schedule for shipment beyond plus or minus fifteen
percent (15%) with Pen's prior consent, which consent shall not be unreasonably
withheld. These adjustments will not change the total of DP&L's annual or three
(3) month Base Tonnage obligation as declared per Section 4.03. DP&L shall
advise Pen of planned outages at the Power Plant to which DP&L is shipping the
coal and for planned unloader maintenance at DP&L's dock. To the extent
reasonably practicable, DP&L shall schedule tonnage in substantially equal
monthly quantities.
Section 4.03 Tonnage Flexibility
(a) For the purpose of this Agreement, "Tonnage Flexibility"
shall refer to unilateral adjustments that DP&L may make in the amount of coal
that is purchased under this Agreement in a Contract Year. DP&L may unilaterally
change the schedule for Tender plus or minus ten percent (+ 10%) of the annual
Base Tonnage obligation. The Tonnage Flexibility is applied Quarterly throughout
the Contract Year for the applicable coal type. (For example: Given a 1,500,000
Ton Per Contract Year Base Tonnage Obligation, DP&L's Tonnage Flexibility is
1,500,000 x 10% = 150,000 Tons, or 37,500 Tons per Quarter for a permissible
annual range between 1,350,000 Tons and 1,650,000 Tons). DP&L may exercise
Tonnage Flexibility at its option and from time to time during the term by
giving Pen at least three (3) months advance notice. In no event will the
quantity of tonnage changed at anytime be in excess of two and one-half percent
(2.5%) of the annual Base Tonnage. What is allowed and what is not allowed
pursuant to Tonnage Flexibility is exemplified below:
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Example: (i) The following is allowed,
Assume: 1,000,000 Base Tons
Quarter Flexibility Scheduled
Base Tons % Tons Tons Change
--------- --- ---- ---- ------
Quarter 1 250,000 +5% +12,500 262,500
Quarter 2 250,000 -5% -12,500 237,500 25,000 Tons
In this example, the change in the Scheduled Tons between
Quarter 1 and Quarter 2 did not exceed the Base Tonnage times two and one-half
percent (1,000,000 x 2.5%), or twenty-five thousand (25,000) Tons; therefore,
this is allowed per this Section 4.03(a).
(ii) This, however, is not allowed,
Quarter Flexibility Scheduled
Base Tons % Tons Tons Change
--------- --- ---- ---- ------
Quarter 1 250,000 +10% +25,000 275,000
Quarter 2 250,000 -10% -25,000 225,000 50,000 Tons
In this example, the change in the Scheduled Tons between
Quarter 1 and Quarter 2 exceeded the Base Tonnage times two and one-half percent
(1,000,000 x 2.5%), or twenty-five thousand (25,000) Tons; therefore, this is
not allowed per this Section 4.03(a).
(b) Adjustments pursuant to Section 4.03(a) above shall not
reduce the amount of coal Pen is required to produce and Tender to DP&L per
Section 4.01.
(c) Spot Coal Option: If DP&L decides to purchase spot coal
during a Quarter in which DP&L has reduced the annual Base Tonnage schedule
hereunder per this Section 4.03, DP&L shall offer Pen the opportunity to supply
a quantity of such spot coal, equal to the
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difference between the Base Tons and the declared minimum Tons, before entering
into an agreement to obtain such coal from a third party. DP&L's offer shall
include the price DP&L is willing to pay for such coal and the contract's
quality specification at which DP&L will reject shipments. The price shall be
set by DP&L based upon DP&L's good faith estimate of the weighted average spot
coal price for the Quarter less a factor to account for transportation
(Transportation Factor). If Pen accepts DP&L's offer within three (3) business
days after receipt of said offer, then Pen shall supply the spot coal from the
Dedicated Reserves in accordance with the terms (including but not limited to
price) of the offer. If Pen declines or fails to respond to DP&L's offer by 5:00
p.m. E.S.T. on the third work day, then Pen shall be deemed to have rejected the
opportunity and DP&L shall be free to obtain the spot coal in question from
third parties, with no further obligation to Pen. For purposes of this
provision, spot coal purchases are transactions having a duration of three (3)
months or less. In no event is spot tonnage awarded to Pen under the terms of
this section to be counted to satisfy DP&L's obligation for liquidated damages,
make-up Tons, or Base Tons.
Section 4.04 Coal Quality Selection-Compliance Sulfur Coal
Option
4.04.1: (a) DP&L has the option to substitute purchases of Low
Sulfur Coal or Compliance Sulfur Coal, or purchase a combination of Mid Sulfur
Coal, Low Sulfur Coal and Compliance Sulfur Coal, pursuant to the Coal Quality
Selection Tables attached as Exhibit D hereto. DP&L may exercise this option
from time to time and its sole discretion. DP&L may unilaterally exercise this
option, by giving Pen notification pursuant to the dates defined in the Coal
Quality Selection Tables attached as Exhibit D to this Agreement. Once DP&L
nominates to reduce the sulfur content of the Base Tonnage (i.e., Mid Sulfur to
Low Sulfur to Compliance Sulfur, etc.) The sulfur level of those Tons cannot be
increased above the levels prescribed in Section 6.02 unless mutually agreed to
by the parties. The Coal Quality Selection Options may be changed or exercised
at any time subject to mutual agreement between Pen and DP&L, which agreement
shall be confirmed in writing between the parties.
(b) Pen shall Tender coal with the elected sulfur
specification no later than the implementation date specified in Exhibit D -
Coal Quality Selection Table, or no later than another date if so mutually
agreed upon by the parties. When DP&L exercises its unilateral
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Pen/DP&L
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option hereunder, all coal shipments shall be at the elected sulfur
specification levels by the implementation date specified in Exhibit D - Coal
Quality Selection Table.
(c) The administration of this provision will follow the
administration of the coal pricing and quality characteristics provisions. DP&L
shall begin paying the Contract Price then in effect for the coal it receives
with the elected sulfur specification on the date shipments are scheduled to
begin unless the parties agree to a starting date different from that shown in
Exhibit D, in which case DP&L will begin paying the Contract Price then in
effect for the quality of coal declared that it receives on the new starting
date.
(i) Example:
July 1, 1994 - DP&L notifies Pen it requires 1,000,000 Tons of
Low Sulfur Coal commencing January 1, 1995.
July 1, 1994 through December 31, 1994 - DP&L pays the Mid
Sulfur Coal price during the transition period specified in
Section 4.04(b), even if Pen immediately begins shipment of
Low Sulfur Coal. Since DP&L is paying Mid Sulfur Coal prices,
the Mid Sulfur Coal specifications shall apply.
January 1, 1995 - the Coal Tendered on and after this date
shall meet the Low Sulfur Coal quality specification DP&L
elected July 1, 1994. DP&L begins to pay the applicable Low
Sulfur Coal price for such coal.
4.04.2: (a) Upon DP&L's election of Coal Quality Selection
defined in Section 4.04.1 above, and providing Pen still continues to produce
coal from the sources supplying the Mid Sulfur and/or Low Sulfur coal, Pen will
allow DP&L to purchase such Mid and/or Low Sulfur Coal, displaced by the
Compliance Sulfur Coal, in addition to the Compliance Sulfur Coal nominated by
DP&L. Pen shall offer these Mid and/or Low Sulfur Coal Tons at the price for Mid
or Low Sulfur Coal (whichever is applicable) defined hereunder or, will present
DP&L an alternative that Pen is prepared to accept. Within sixty (60) days from
DP&L's election of Coal Quality defined in Paragraph G, Compliance Sulfur Coal,
DP&L will notify Pen of its intentions to
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Pen/DP&L
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purchase such coal at the price Pen presents as its alternative to sell Mid
and/or Low Sulfur Coal, or at the defined Contract Price for Mid and/or Low
Sulfur Coal absent Pen's alternative offer to sell the coal under comparable
terms as defined herein. In no event is Pen obligated to supply more than the
total Base Tonnage declared (pursuant to Sections 2.01, 2.02, 2.03, or 2.04 and
4.03 (c) Spot Option, and 4.04 (a) Coal Quality Selection Option) plus Tonnage
Flexibility, as a composite of Mid, Low and Compliance Sulfur Coal. If DP&L
elects to purchase such coal, the quantity of coal nominated pursuant to the
election shall not count against Pen's Base Tonnage obligation, but shall be
administered over and above the Base Tonnage obligation; for example:
Assume:
(1) DP&L's Base Tonnage Obligation per its election under
Section 4.04.1 is 1,250,000 tons per Contract Year, this being a composite of:
750,000 Tons Mid Sulfur Coal at 11,500 Btu/lb
250,000 Tons Low Sulfur Coal at 11,500 Btu/lb
250,000 Tons Compliance Sulfur Coal at 12,300 Btu/lb
(2) And, DP&L nominates 250,000 Tons per Contract Year of Mid
Sulfur Coal at 11,500 Btu/lb pursuant to Section 4.04.2.
(3) Then, the composite total tonnage purchased is 1,500,000
Tons per Contract Year being:
1,250,000 Tons Base Tonnage Obligation per Section 4.04.1
250,000 Tons elected per Section 4.04.2.
(b) DP&L shall provide Pen a ten (10) year forecast of its
anticipated requirements under this Agreement by December 31, 1992 and June 30
of each following Contract Year. This schedule shall be revised annually on a
Contract Year basis. The purpose of this exchange is to facilitate Pen's
production planning. In no event does DP&L represent the
15
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Pen/DP&L
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Forecast Schedule as an obligation or its intended obligation to purchase coal
per the terms and conditions of this Agreement.
Section 4.05 Liquidated Damages
(a) If in any Contract Year DP&L shall fail to purchase the
Base Tonnage, as otherwise adjusted pursuant to the Agreement, and such failure
results neither from an event of Force Majeure nor a default hereunder by Pen,
the DP&L shall pay liquidated damages, agreed upon as reasonable and in full
settlement for DP&L's failure to fulfill its obligation to purchase the Base
Tonnage. Liquidated damages shall be twenty percent (20%) of the weighted
average of the Contract Prices for coal delivered in effect on July 1 of the
then current Contract Year (i.e., If only Compliance Sulfur Coal is being
Tendered liquidated damages shall be twenty percent (20%) of the Compliance
Sulfur Coal Contract price then in effect) multiplied by the difference between
the Contract Tonnage for the Contract Year (as otherwise adjusted pursuant to
this Agreement) and the number of Tons of coal purchased hereunder by DP&L
during such Contract Year. Liquidated damages shall be due forty-five (45) days
after the end of the Contract Year.
(b) DP&L shall be entitled to purchase a quantity of make-up
coal during the next succeeding Contract Year instead of paying the liquidated
damages required hereunder, subject to the following:
1) Such make-up coal shall be the first Tons Pen Tenders
hereunder during the next succeeding Contract Year,
excluding Spot Option Tons per Section 4.03 (c).
2) Without Pen's prior consent, such make-up coal may
not exceed a maximum one-hundred thousand (100,000)
Tons per Contract Year. DP&L shall pay liquidated
damages pursuant to Section 4.05 (a) on quantities
exceeding the maximum.
3) Such make-up coal shall be in excess of the Base
Tonnage, as otherwise adjusted, for such succeeding
Contract Year. Pen, however, is not
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Pen/DP&L
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obligated to Tender quantities exceeding the annual
Base Tonnage plus Tonnage Flexibility during such
succeeding Contract Year.
4) The price for each Ton of such make-up coal shall be
the Contract Price in effect at the time such coal is
shipped.
5) DP&L may not schedule make-up coal for two
consecutive Contract Years, without Pen's prior
consent.
(b) So long as DP&L pays liquidated damages when due, neither
the amount nor the frequency of such payments shall be construed as or give rise
to a claim of material default or repudiation of this Agreement by DP&L.
(c) Any other provision of this Agreement to the contrary
notwithstanding, DP&L shall have the option to terminate this Agreement at any
time on six (6) month's prior notice to Pen, without further obligation to Pen
upon the payment of liquidated damages for the remainder of the then-effective
Term. Such liquidated damages, agreed upon as reasonable and in full settlement
for DP&L's exercise of the option granted by this subsection, shall be
calculated according to the following formula:
D = R x T x M where:
D = the amount of liquidated damages;
R = twenty-five percent (25%) of the weighted average of the
Contract Prices in effect on July 1 of the Contract Year
in which DP&L exercises the option; and
T = Base Period: 1992/93 = 75,000
1993/94 = 93,750
Option Period: 112,500
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M = the number of months remaining in the
then-effective Term, commencing with the month
following that in which DP&L notifies Pen that it is
exercising the option.
Section 4.06 Limitation on Purchase Obligations
Any other provision hereof to the contrary notwithstanding,
any designation of Ton in this Section 4 which is made for the purpose of
establishing a purchase obligation on the part of DP&L shall, for such purpose
only, be deemed not to exceed an equivalent number of BTU's, based on a standard
of the required Monthly Average Specification BTU per pound of coal for the type
of coal scheduled. As an example, a Base Tonnage of 1,000,000 Tons shall be
deemed to be the lesser of 1,000,000 Tons or
12
23.0 x 10 MMBTU's, based on As-Received analysis.
ARTICLE V - SHIPMENT AND SAMPLING
Section 5.01 Shipping
Section 5.01.1 Terms and Method:
(a) Coal delivered under this Agreement shall be Tendered FOB
Barge at Pen's Big Sandy Dock, located at mile post 4.7 on the Big Sandy River,
or at Pen's Wayne Country River Terminal located at Milepost 7.6 on the Big
Sandy River (herein referred to as "FOB Loading Point"). DP&L's barge
transportation carrier for coal purchased under this Agreement is M/G Transport
Services, Inc. (hereinafter called "Barge Carrier"), unless otherwise designated
by DP&L.
(b) Pen has the option, but only with DP&L's consent, to
change the FOB Loading Point for Barge shipments to other facilities that are
suitable and that use an automatic sampling system in the loading process. Pen
shall give DP&L at least thirty (30) days notice of a proposed change in the
loading point. Pen agrees to indemnify DP&L and hold it harmless against any and
all loss or risk (including but not limited to economic loss and reliability of
delivery) resulting from
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Pen/DP&L
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or related to such change, and will compensate DP&L for any increased
transportation cost applicable to the loading of coal at such other facility.
Pen understands that a change in FOB Loading Point may cause a change in the
Transportation Factors cited in Section 7.03.2 Quality Adjustment of this
Agreement. Pen is responsible for arranging, for administrating, and for the
cost of the transportation and transloading services used to ship the coal from
the identified sources to the designated FOB Loading Point.
(c) Title to the coal Tendered FOB Barge shall be considered
to pass from Pen upon DP&L's release of the shipment from the FOB Loading Point.
DP&L shall determine whether to release the shipment as soon as reasonably
practicable after it receives the results of a quality analysis of the coal in
each Barge.
Section 5.01.2 Loading:
(a) FOB Barge Shipments:
(1) Pen, or its contracted Transload operator, shall load
Barges for DP&L's account to a nine (9) foot draft unless otherwise authorized
by DP&L or Barge Carrier. When Pen loads Barges to a draft exceeding that
specified, such that it results in Barge Carrier requiring the excessive tonnage
be offloaded, Pen shall be responsible for all expense incurred to offload the
excessive tonnage. When pen loads Barges to a lesser draft, such that the Barge
Carrier charges or penalizes DP&L for failure to meet the Barge draft
requirement specified, such charges or penalties shall be paid by Pen. If Pen
fails to pay such charges or penalties within thirty (30) days of the date of
invoice (unless Barge Carrier has informed DP&L that other payment arrangements
were made), DP&L reserves the right to withhold the charge or penalty amount
invoiced from any amounts due Pen until Pen settles the claim. Pen shall
indemnify DP&L and hold it harmless against any barge retention costs, with the
exception of those occasioned solely by DP&L or DP&L's contracted
representatives.
(2) When Barges are not equipped with double sloped sheets
inside the cargo box, Pen shall load coal starting no less than approximately
five (5) feet from the box end(s)/bulkhead(s) of the Barge.
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Pen/DP&L
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(3) Pen will trim the Barges it loads in a workmanlike manner,
consistent with the recognized norms of the barge industry.
(4) DP&L reserves the right to refuse coal that Pen attempts
to Tender, if Pen, or its contracted Transload operator fails to load Barges to
the specifications required under this Agreement.
(5) Pen, or its contracted Barge Transloading operator shall
not load any Barge that contains any foreign matter (i.e., such as debris,
limestone, etc. ), and/or excess water. Pen shall be responsible for and shall
reimburse any subsequent cost to DP&L if Pen loads Barges containing foreign
materials and/or excess water.
Section 5.02 Sampling and Analysis
(a) Source Sample Analysis:
(1) DP&L will, at its own expense, source sample all coal on
an As-Received basis at the FOB Loading Point to determine if it exceeds any of
the Individual Shipment Rejection Specifications sets forth in Section 6.02 (a).
An independent laboratory, contracted by DP&L, shall perform the sampling and
analysis in accordance with methods approved by the ASTM Standard Method or a
mutually agreed upon industry accepted practice. Unless otherwise specified by
DP&L, the independent laboratory for sampling and analyzing coal purchased under
this Agreement is Mineral Labs, Inc. (hereinafter referred to as the
Laboratory).
(2) Pen shall schedule the source sampling with the
Laboratory. Pen shall use its best efforts to give the Laboratory a minimum 24
hour notice of its intent to begin loading a shipment of coal. Pen will notify
the Laboratory as to the time and date loading will start. The Laboratory will
be allowed 24 hours from the time notification of loading is given to arrive at
the FOB Loading Point facility and to take the sample. Pen understands that the
Laboratory will sample the coal as it is being loaded into the Barges. The
loading time for shipments shall not exceed a period considered reasonable in
the industry for the size of shipment being Tendered. DP&L is not obligated to
accept any shipment not Source Sampled by the Laboratory at the FOB
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Pen/DP&L
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Loading Point Facility. It is DP&L's option to make-up such shipments.
(3) DP&L, or its contracted consultant, has the right to
inspect the sampling equipment at the FOB Loading Point. Such an inspection
shall be arranged for by Pen and be scheduled for a time and a date acceptable
to both DP&L and the FOB Loading Point facility.
(b) Destination Sampling
(1) DP&L will sample and obtain an analysis, at its own
expense, of all coal received at the Power Plant using approved American Society
Testing and Materials (ASTM) standard methods or an equivalent industry accepted
practice.
(2) Each month, DP&L will weight-average the as-received
analysis it obtains from the destination sampling and analysis process during
that month. The parties shall consider the resultant weight-averaged analysis
representative of all coal Tendered by Pen hereunder during that particular
month for the purposes of determining Pen's compliance with Article VI Coal
Characteristics, and for determining coal quality for payment.
(3) If DP&L fails or is unable to sample or obtain a
representative analysis for a particular coal shipment unloaded at the Power
Plant, DP&L will base the coal quality assigned to the shipments on the
weighted-average quality for all other shipments unloaded during that month per
this Agreement. If DP&L fails or is unable to sample twenty-five percent (25%)
or more of Pen's coal unloaded at the Power Plant in a given month, DP&L will
base the coal quality assigned to these shipments on the As-Received source
sample's analysis as defined in Section 5.02 (a).
(4) Pen has the right to inspect DP&L's sampling equipment.
Pen also has the right to review the sample preparation and analytical
procedures and inspect such related equipment used by Laboratory. Such an
inspection shall be arranged for by DP&L and be scheduled for a mutually
acceptable time and date.
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Section 5.03 Weighing
(a) Weights of coal Tendered to DP&L will be determined by the
belt scales at the Power Plant. In the event that these scales are unavailable,
DP&L will determine weights using draft weights taken at the Power Plant.
(b) If either party believes the scales used are inaccurate
that party may designate an independent disinterested expert in weighing
devices, recognized in the industry as qualified, who shall check the scales.
Cost of retaining the expert shall be borne by the party requesting the service
unless said scales are found to be inaccurate, in which case, the cost will be
shared equally by both parties. Such a scale check shall be arranged for at a
time acceptable to DP&L. In the event the scales are found inaccurate the
parties agree to adjust the affected invoices for such inaccuracy for one half
the period from the last time the scales were inspected.
(c) If the expert finds an inaccuracy in said scales and it
proves impractical to make adjustments in weighing procedures or checking of
weights, then DP&L and Pen shall follow the recommendations of such expert for
determining a manner in which the coal can be accurately weighed in the future,
provided such instructions are practicable and reasonable.
(d) DP&L will unload barges Tendered hereunder in a
workmanlike manner and use diligent effort to unload coal from each barge.
ARTICLE VI - COAL CHARACTERISTICS
Section 6.01 Type
(a) Pen shall Tender high volatile bituminous washed or
crushed-run-of-mine coal that is clean and free of impurities and debris.
Section 6.02 Quality
(a) Pen will supply coal on the basis of the monthly weighted
average (as-
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Pen/DP&L
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received) analysis at the Power Plant that conforms to the Monthly Quality
Specification set forth below for the quality of coal being purchased by DP&L.
Pen will supply coal in individual shipments on the basis of the per Barge
(as-received) analysis at the FOB Loading Point that conforms to the Individual
Shipment Rejection Specification set forth below for the quality of coal being
purchased by DP&L:
<TABLE>
<CAPTION>
Mid-Sulfur Coal Low Sulfur Coal Compliance Sulfur Coal
--------------- --------------- ----------------------
Individual Individual Individual
Shipment Monthly Shipment Monthly Shipment Monthly
Reject Ave. Reject Ave. Reject Ave.
Spec. Spec. Spec. Spec. Spec. Spec.
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BTU/lb (min) 11,200 11,500 11,200 11,500 12,000 12,300
lbs Ash/MMBTU (Max) 14.31 13.06 14.31 13.06 9.83 8.13
lbs Moist./MMBTU (Max) - 7.39 - 7.39 - 6.91
lbs so2 /MMBTU (Max) 3.00 3.00 2.25 1.60 1.15 1.20
% Ash (Max) - 15.00 - 15.00 - 10.00
% Moisture (Max) - 8.50 - 8.50 - 8.50
% Sulfur (Max) - 1.725 - .98 - .74
AST (H=W) (Min) - 2500 - 2500 - 2700
Grind (HGI) (Min) - 45 - 45 - 45
Volatile Matter (Min) - 30 - 30 - 30
Size - 2x0 - 2x0 - 2x0
% Fines (Max) 45% 45% 45% 45% 45% 45%
</TABLE>
Note: DP&L may not reject individual Mid Sulfur Coal and Low
Sulfur Coal shipments for heating value (i.e., Btu/lb) if the Btu/lb value for
these individual Barges as determined by source sample and analysis per Section
5.02 is within 500 BTUs/lb of the Monthly Average Specification and the
composite analysis for the day's loadings meet or exceeds the Individual
Shipment Reject Specifications for the quality of coal being Tendered per
Section 6.02.
Section 6.03 Remedies
(a) If Pen delivers to DP&L for Tender four (4) consecutive
Bargeloads, or loads four (4) Barges in a single day for Tender to DP&L that
fail to meet any one of the Individual
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Pen/DP&L
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Shipment Reject Specifications, DP&L shall have the right to discontinue
shipments hereunder until Pen demonstrates the ability to provide coal that
meets such Specifications. In the event of four (4) or more such occurrences
during a Contract Year, if Pen fails to demonstrate its ability to perform
within thirty (30) days of such suspension, DP&L shall have the right, in
addition to and without waiver of any other remedies at law or in equity that it
may have, to terminate this Agreement and pursue other remedies without further
obligation to Pen. In the event of such termination, Pen shall reimburse DP&L
for any increase cost incurred for replacement fuel of the quality and quantity
required hereunder, including any increase in the cost of transportation,
throughout the remaining Term of this Agreement.
(b) If the coal Pen delivers hereunder fails to meet any one
of the Monthly Average Specification (excluding BTUs), or Section 6.01, for two
(2) consecutive months or for one (1) Quarterly quality period, DP&L shall have
the right to discontinue shipments hereunder until Pen demonstrates to DP&L's
satisfaction its ability to meet such Specifications. In the event of two or
more such occurrences (i.e., two (2) consecutive months or one Quarterly period
during which Pen fails to meet the applicable Monthly Quality Specifications of
this Agreement) over a continuous twenty-four (24) month period, or if Pen fails
to demonstrate its ability to perform within thirty (30) days of a suspension;
DP&L shall have the right, in addition to and without waiver of any other
remedies available at law or in equity, to terminate this Agreement without
further obligation to Pen. In the event of such termination, Pen shall reimburse
DP&L for the differential cost incurred--if any--for replacement fuels of the
quantity and quality required hereunder, including any differential in the cost
of transportation, throughout the remaining Term of this Agreement. For purposes
of the remedies described in this subsection only the percentage ash and
percentage moisture must deviate at least one percent (1%) from the applicable
Monthly Quality Specification before DP&L may implement its right to terminate
this Agreement under this subsection.
(c) If DP&L rejects a shipment, that shipment shall be
considered the property of Pen and Pen shall be responsible for any accrued
costs associated with the coal and all costs and arrangements to dispose of said
coal, including but not limited to transportation costs incurred by DP&L,
demurrage, unloading and reloading costs. If DP&L rejects coal prior to
unloading at the Power Plant if it contains visible impurities or debris, or at
anytime for failure to
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comply with the AST requirement established in Section 6.02, Pen shall be
responsible for and pay all subsequent costs with respect to the rejected coal,
including but not limited to Barge transportation cost or demurrage associated
with the rejected coal. Pen shall indemnify DP&L and hold it harmless from such
costs, and shall pay all invoices for such costs within thirty (30) days from
the date of invoice. DP&L reserves the right to withhold any unpaid amount of
such costs from amounts due Pen hereunder, until Pen makes full payment. DP&L
has the option, but not the obligation, to make-up rejected shipments.
ARTICLE VII - PRICE AND PRICE ADJUSTMENT
Section 7.01 FOB Barge
(a) DP&L shall purchase coal Tendered under this Agreement FOB
Barge as set out in Article V - Shipping and Sampling.
(b) Pen is responsible for arranging, administering and paying
the cost of the transportation and transloading services used to ship the coal
from the identified Dedicated Reserves to the designated FOB Loading Points, and
for transloading services to load the coal into the Barges.
Section 7.02 Price
(a) For the purpose of this Agreement the term "Contract
Price" shall be defined as follows:
7.02.1 Contract Price
"Contract Prices" for coal Tendered under this Agreement are
stated below. The prices are effective July 1, 1992:
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<TABLE>
<CAPTION>
Mid Low Compliance
Sulfur Coal Sulfur Coal Sulfur Coal
----------- ----------- -----------
<S> <C> <C> <C>
FOB Mine: $19.00/ton $19.25/ton $25.25/ton
Transportation &
Transloading $ 5.25/ton $ 5.25/ton $ 5.25/ton
---------- ---------- ----------
Contract Price
(FOB Barge) $24.25/ton $24.50/ton $30.50/ton
======---- ======---- ======----
</TABLE>
"Contract Price" for coal Tendered under this Agreement is
adjusted in accordance with Section 7.03.1 - Contract Price Adjustment and
Section 7.04 - Price Escalation Cap. Except as otherwise specifically provided
in this Agreement, the Contract Price constitutes the entire compensation
payable to Pen for all coal Tendered under this Agreement. Pen shall not, except
as otherwise specifically provided in this Agreement, seek to collect any
additional amounts from DP&L.
Section 7.03 Price Adjustments
7.03.1 Contract Price Adjustment
(a) The Contract Prices shall be increased or decreased by the
percent of change in the indices and the changes in government assessment
components identified and described in Exhibit B, Price Adjustment Mechanism
including the addition or deletion of such components resulting from revised,
new or discontinued laws enacted after the Effective Date of this Agreement, in
accordance with the methodology explained in Exhibit B Section II, D and
exemplified in Exhibit C, Hypothetical Example of Price Adjustment Calculation -
Low Sulfur Coal. The first adjustment shall be made on January 1, 1993.
Thereafter, the Contract Prices shall be adjusted effective January 1 and July 1
of each Contract Year throughout the Term of this Agreement.
(b) If any U.S. Department of Labor Bureau of Labor
Statistics' (BLS) index used in the Price Adjustment Mechanism is discontinued
or becomes unavailable, or if it is re-based or otherwise modified in a manner
that materially alters its composition or performance, the parties
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may agree to use the rebasing factors provided by the BLS to accommodate such
modification or may meet and attempt to agree on a substitute index which most
closely matches the economic structure and performance of the discontinued or
altered index. If the parties choose a substitute index, they shall make an
appropriate adjustment to the base index value under this Agreement, for each
Contract Price, to account for the substitute index. If the parties are unable
to agree upon a method (i.e., either the rebasing factor or to select a
substitute index) or, if they agree to select a substitute index and are unable
to agree on the substitute index within ninety (90) days after the previous
index is discontinued or materially altered, the determination of the method
and/or substitute index shall be made by arbitration pursuant to Article X. No
adjustment to the Contract Prices shall be made until the method and/or a
substitute index is selected, at which time retroactive adjustment(s) shall be
made.
(c) If errors are made in future Price Adjustment Mechanism
calculations and are acknowledged by the parties (or by the BLS, if the error is
in the reporting of an Index used in the Adjustment Mechanism), the parties
shall make adjustments to the Contract Price (using the correct index or
calculation), retroactive to the date of the error. Each party hereunder agrees
to pay any amounts determined to be due the other as the result of such
retroactive adjustment for the period beginning twelve (12) months prior to the
date the error was detected.
Section 7.03.2 Quality Adjustment
(a) Quality Adjustments hereunder shall be made to the
applicable adjusted Contract Price of coal after application of the Price
Escalation Cap and including adjustments for changes in government assessments.
(b) BTU Adjustment: Except as provided in 7.03.3 (b), DP&L
will make calorific premium or penalty adjustments to the applicable Contract
Price of coal based on the As- Received BTUs/lb quality of coal and its
delivered cost. DP&L will use a transportation factor to approximate the
delivered cost of the coal.
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The transportation factors DP&L will use are as follows:
Factor
------
Mid Sulfur Coal 1.03
Low Sulfur Coal 1.03
Compliance Sulfur Coal 1.02
DP&L will calculate the BTU Adjustment premium or penalty and
remit or prepare a credit invoice for the amount due Pen or invoice the amount
due DP&L at the end of each Quarter. The following formula shall be used to
determine the BTU adjustments:
[(FOB Contract Price x Transportation Factor) x [(Weight Average Received BTU/
Quoted BTU) -1]] = BTU Premium/Penalty per Ton
BTU Premium/Penalty + FOB Contract = FOB Contract price
Per Ton Price w/BTU Premium or Penalty
(c) Ash Adjustment: Except as provided in Section 7.03.3 (b),
DP&L shall make premium or penalty adjustments to the applicable Contract Price
of coal based on the As- Received Monthly Weighted Average % ash quality of coal
Tendered pursuant to this Agreement. If the As-Received Monthly Weighted Average
% ash quality of coal delivered is more than fourteen percent (14.0%) and less
than sixteen percent (16.0%) for Mid and Low Sulfur Coals, or is more than nine
percent (9%) and less than eleven percent (11%) for Compliance Sulfur Coal, no
adjustment shall be made under this subsection. If the difference exceeds these
limits, Pen will pay DP&L an ash adjustment equal to $.30/ton for each one
percent (1%) (or fraction thereof) of ash above the applicable Monthly Quality %
Ash Specification. In such circumstance, in lieu of an actual cash payment, DP&L
may, at its option, withhold an amount equal to the balance of such payment from
future payments due Pen. If the difference falls below these limits, DP&L will
pay Pen an ash adjustment equal to $.15/ton for each one percent (1%) (or
fraction thereof) of ash below the applicable Monthly Quality % Ash
Specification. DP&L will calculate any applicable Ash Adjustment, premium or
penalty, and remit or prepare a credit invoice the amount due Pen (if any) or
the amount due DP&L (if any) at the end of each Quarter.
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7.03.3 Quality Administration
(a) By the fifteenth (15th) day of each month, DP&L will
supply Pen with a summary listing the analysis of each shipment received during
the previous month.
(b) Pen shall not be entitled to a BTU Adjustment payment if
the lbs. Ash/MMBTU or lbs. so /MMBTU for the aggregate shipments received
2
during that month, as determined on a weight average basis, do not meet the
Monthly Average Specifications.
Section 7.04 Price Escalation Caps
(a) For the purpose of this Agreement, the "Escalation Cap" is
the maximum aggregate increase in the Contract Price allowed in any Contract
Year over the Contract Price in effect on the last day of the previous Contract
Year.
(b) The annual Escalation Caps for each Term of this Agreement
are as follows:
Escalation Cap
--------------
Mid Sulfur Coal $1.00/ton
Low Sulfur Coal $1.00/ton
Compliance Sulfur Coal $1.30/ton
Except as otherwise provided in Section II, D of Exhibit B,
the "Maximum Contract Price" allowed for any given Contract Year is the sum of
the applicable escalation Cap and the Contract Price in effect on the last day
of the previous Contract Year excluding any adjustments for quality.
(c) During any Contract Year in which the total of price
adjustments per the Price Adjustment Mechanism (described in Exhibit B) result
in a Contract Price that exceeds the Maximum Contract Price allowed by the
Escalation Cap the difference between such adjusted Contract Price and the
Maximum Contract price becomes unapplied escalation. Unapplied
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escalation may be applied in any subsequent adjustment period if the adjusted
Contract Price per Exhibit B totals less than the Maximum Contract Price allowed
for that Contract Year.
If DP&L elects to extend this Agreement at the existing Contract Price levels,
unapplied escalation shall be carried forward to subsequent option periods.
(d) Application of the Escalation Cap mechanism is exemplified
in Exhibit C, Note 5. The following example illustrates application of unapplied
escalation:
<TABLE>
<CAPTION>
Example Unapplied Escalation Application
(Hypothetical, Based on Mid Sulfur Coal):
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Escalation per the
Price Adjustment
Mechanism $.91/Ton $1.20/Ton $.90/Ton $.80/Ton $1.80/Ton $.10/Ton
Unapplied Escalation
Earned $.00/Ton $.00/Ton $.10/Ton $.10/Ton $.00/Ton $.80/Ton
Maximum Contract
Price Increase
Allowed $.91/Ton $1.00/Ton $1.00/Ton $.90/Ton $1.00/Ton $.90/Ton
Balance of unapplied
escalation $.00/Ton $.20/Ton $.10/Ton $.00/Ton $.80/Ton $.00/Ton
Escalated FOB
Contract Price $25.16/Ton $26.16/Ton $27.16/Ton $28.06/Ton $29.06/Ton $29.96/Ton
</TABLE>
Section 7.05 Payment
a) DP&L shall self-invoice for payment. DP&L shall pay Pen on
or before the fifteenth (15th) working day after the coal is unloaded. Except
for BTU adjustments, Pen shall initiate any reconciliations within thirty (30)
days after it receives payment. DP&L shall remit payments by check and to Pen's
lock box address as shown in Section 11.01.
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ARTICLE VIII - FORCE MAJEURE
Section 8.01 Definition
(a) The term "Force Majeure" as used hereunder shall mean any
cause not reasonably within the control of the party affected and which wholly
or partly prevents the producing and loading of coal by Pen or the receiving,
transporting, accepting, unloading or use of coal by DP&L, or the transmission
into DP&L's system of electricity produced from DP&L's Power Plant generating
stations, including but not limited to acts of God; acts of the public enemy;
blockades; insurrections; strikes; labor disputes or stoppage; riots; disorders;
storms; floods; landslides; washouts; civil disturbances; fires; explosions;
boycotts; breakdown of or damage to or unplanned shut down of Power Plant
generating stations or units or coal mines at Designated Reserves, equipment or
facilities (including any outage for inspection and/or maintenance of DP&L's
coal unloading equipment and facilities); maintenance or shutdown of Power Plant
generating station or units, equipment or facilities, including DP&L's coal
unloading equipment and facilities, that exceeds its planned length for reasons
beyond the reasonable control of DP&L, (e.g., it is expected to extend for more
than twice as long as what DP&L considers its normal length of time); absence or
unavailability of transportation or failure of transporters to transport
(resulting from a transporter filing force majeure with DP&L); embargoes; acts
of civil agencies; military authorities or regulatory bodies; and court actions.
It is expressly agreed that Pen's ability to sell coal for a price higher than
that prescribed under this Agreement shall not constitute an event of Force
Majeure.
Section 8.02 Effect
(a) If because of an event of Force Majeure either party is
unable to carry out any of its obligations under this Agreement, the obligations
of the party affected shall be suspended to extent made necessary by the Force
Majeure and during its continuance subject to Section 8.02 (b) below. DP&L, if
it so elects, shall have the right during the continuance of an event of Force
Majeure claimed by Pen to purchase coal from other sources. In the case of an
event of Force Majeure the extent of the suspension of DP&L's purchase
obligation occasioned by the Force Majeure shall be that portion of the coal use
forecast for the affected facility scheduled to be purchased under this
Agreement multiplied by the ratio of the number of days' duration of the Force
Majeure over the
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number of days in the year that the facility is scheduled to be in operation
(365 days minus the number of days regularly schedule outage).
(b) The affected party shall promptly notify the other party,
in writing, as to the nature of the Force Majeure. The party giving notice shall
use its reasonable best efforts to eliminate the Force Majeure insofar as
practicable with all reasonable dispatch. Nothing herein shall cause the
affected party to submit to unreasonable conditions or restrictions or to an
unfavorable labor agreement. If the event of Force Majeure causes only a partial
reduction in the total quantity of coal Pen is able to deliver, Pen shall
deliver for Tender hereunder DP&L's pro rata share of coal produced from the
Designated Reserves during the period of such partial reduction.
(c) When the Force Majeure condition has terminated, the party
claiming the Force Majeure shall notify the other party in writing as soon as
practicable, but not to exceed five (5) days, certifying the amount of time
expended due to the Force Majeure.
(d) At its option DP&L may, but shall not be obligated to,
make-up purchases of coal otherwise excused by events of Force Majeure. Such
make-up deliveries shall begin as soon as practicable after termination of the
Force Majeure. If DP&L exercises its option and the Force Majeure was claimed by
DP&L, DP&L shall purchase such make-up coal under the same terms and at the
Contract Price in effect at the time of shipment. If the Force Majeure was
claimed by Pen, DP&L shall purchase such make-up coal under the same terms and
at the Contract Price in effect at the time when the Force Majeure event
occurred. Pen shall Tender such make-up coal according to a mutually acceptable
Shipping Schedule.
ARTICLE IX - NEW LEGISLATION
Section 9.01 General Rule
(a) The parties hereto recognize that, during the term of this
Agreement, legislative or regulatory bodies or the courts having competent
jurisdiction over the subject matter hereof may enact laws, regulations, or
issue orders relating to the environment, such as but not limited to, those
relating to air pollution, the effect of which could make it impossible or
impractical for DP&L to utilize
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the coal subject hereto at the Power Plant generating station without
substantially changing or altering its utilization or equipment or incurring
substantially increased expense. Such laws, regulations or orders may pertain
to, but would not necessarily be limited to, sulfur content of the coal, and
shall be deemed to include, but not be limited to, the Federal Clean Air Act
Amendments of 1990 and regulations promulgated thereunder. DP&L has the ability
to perform under the Agreement and at the same time comply with the laws and
regulations in effect as of the Effective Date of this Agreement, as currently
interpreted and applied. Any other provision of this Agreement notwithstanding,
if any such laws, regulations or orders are imposed, or interpretations or
applications of same are changed, subsequent to the effective date of this
Agreement, DP&L shall notify Pen thereof and to the extent DP&L deems proper,
proceed to exhaust the administrative remedies available to it to avoid the
effect of such restriction. DP&L shall promptly consider what steps can be taken
in handling and combustion of coal at DP&L's Power Plant generating stations to
avoid such restriction; and if such steps are available, which in DP&L's good
faith judgement are practicable and will not result in substantially increased
or otherwise unreasonable expense to DP&L, DP&L shall promptly take such steps,
and this Agreement shall continue in full force and effect. If, in DP&L's
reasonable good faith judgement, no such steps are available, or if such steps
are not feasible or will result in unreasonable expense to DP&L, DP&L shall so
advise Pen. Thereupon, DP&L and Pen shall promptly consider what steps can be
taken in the mining and preparation of coal at any of Pen's mine to avoid such
restriction. If DP&L and Pen cannot agree on such steps, or if such steps are at
an expense that in DP&L's good faith judgement is unreasonable, DP&L shall have
the right to terminate this Agreement without penalty. No expense contemplated
by this paragraph shall be deemed reasonable if it would result in a total cost
to DP&L, in using Pen's coal, in excess of the total cost of using competitive
fuels which are then available to DP&L and which can be utilized in conformity
with all such restrictions.
ARTICLE X - RESOLUTION OF DISPUTES
Section 10.01 Arbitration
(a) Disputes arising under the provisions of this Agreement
that cannot be resolved by negotiation within one hundred and eighty (180) days
shall be resolved by binding arbitration.
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(b) To resolve an issue by arbitration, the party desiring
such arbitration shall give notice to the other party. Such notice shall state
the issue--i.e., question or controversy--to be resolved. Within 20 days of such
notice, the parties shall choose a single competent disinterested arbitrator and
shall submit to him the issue to be resolved. If the parties do not agree upon a
single arbitrator within this period, the issue shall be taken to a three-person
board for resolution. The parties shall choose the three people as follows:
1) Within 20 days after the expiration period for choosing a
single arbitrator, the party demanding arbitration shall notify the other party
of his desire to form an arbitration board. In its notice, the party shall
specifically state the issue to be submitted and nominate one arbitration board
member.
2) Within 20 days from receipt of the initiating party's
notice, the party to whom the notice is given may serve a reply, and shall
appoint a second arbitrator. He shall also notify the party demanding
arbitration of his selection. If the responding party does not, within this
twenty (20) day period, select an arbitrator and notify the party demanding
arbitration, the party making the demand shall make the selection within the
next twenty (20) day period.
3) Within 20 days from selection of the second arbitrator, the
arbitrators chosen shall select the third arbitrator. If they do not agree on a
candidate within this period, either party to this Agreement may file a motion
or application with the Chief Judge (or Acting Chief Judge) of the United States
District Court for the Southern District of Ohio, Western Division requesting
the court to appoint the third arbitrator.
(b) Arbitration Process: Upon selection of the arbitration
board of either one or three members, the arbitration board shall proceed to
inquire into and determine the questions and controversy at issue as disclosed
in such notice of reference an any reply thereto, and shall give to both parties
reasonable notice of the time and place where the board may take evidence. The
arbitration shall be conducted under the Commercial Arbitration Rules of the
American Arbitration Association, to the extent not inconsistent with the
provisions of this Agreement. If any arbitrator shall decline or fail to act,
the party (or parties in the case of a single arbitrator) by whom he or she was
chosen or the judge (in the case of an arbitrator selected through application
to the United States
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District Court for the Southern District of Ohio, Western Division) shall
appoint another to act in his place. After considering the evidence, and hearing
the testimony and arguments which may be submitted by each party, the board
shall deliver a written statement of its decision or award to the parties. This
statement of decision or award shall be delivered within two hundred and forty
(240) days after the selection of the third arbitrator (for a three-member
board). Such decision or award, when delivered to both parties, shall be final.
(c) Document Disclosure: The non-privileged documents, books
and papers of both parties, where they are relevant to any matter submitted to
arbitration, shall be open to examination of the other party and the
arbitrator(s). Confidential or proprietary information or documents shall also
be produced. However, the receiving party and the arbitrator(s) must first sign
a confidentiality agreement with the disclosing party. The purpose of the
confidentiality agreement is to protect the confidentiality of the materials to
be disclosed.
(d) Cost: The parties shall bear equally all the fees and
expenses of arbitration before a one-member board, or of the third arbitrator
appointed to a three member board, pursuant to this Article. Each party shall
bear the fees and expenses of the arbitrator that it appoints (or should have
appointed) to a three-member board.
ARTICLE XI - NOTICES
Section 11:01 Notices
All notices under this Agreement shall be in writing, except
those of an emergency or operational nature (which shall be followed up in
writing) and as otherwise provided herein and sent by either: 1) U.S. certified,
registered or express mail; 2) telex or facsimile; or 3) private express carrier
to the appropriate address shown below:
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TO DP&L:
Dayton Power and Light Company
1065 Woodman Drive
P. O. Box 8825 (Zip Code 45401)
Dayton, OH 45432
Attn: Manager, Fuel and Natural Gas Supply
or, Fax Number: (513) 259-7382
TO PRODUCER:
Pen Coal Corporation
Center Court Building, 3rd Floor
5110 Maryland Way
P. O. Box 2128
Brentwood, TN 37024-2128
Attn: Vice President - Sales
or, Fax Number: (615) 371-7388
FOR PAYMENT TO PRODUCER:
Pen Coal Corporation
P. O. Box 360244
Pittsburgh, PA 15251-6244
or such other address as either party may designate in writing
to the other.
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ARTICLE XII - RISK OF LIABILITY
Section 12.01 Indemnification
(a) Pen shall indemnify, hold harmless and defend DP&L and all
of its respective officers, agents and employees, against any claim, loss,
damage, expense, lien, settlement or judgment including interest thereon,
whether to any person or property or both, arising directly or indirectly out of
or in connection with Pen 's performance under the Agreement, to which DP&L or
any of its respective officers, agents, or employees may be subject or put, by
reason of any act, action, neglect or omission on the part of Pen. Pen shall
indemnify, hold harmless and defend DP&L, its respective officers, agents and
employees against all fines, penalties, judgments or losses incurred for or by
reason of the violation by Pen in the performance of this Agreement, of any
ordinance, regulation, rule or statute of any political subdivision or duly
constituted public authority having jurisdiction over the work site premises.
(b) Pen or its contracted Barge Transload company shall be
responsible for maintaining any wharfinger's liability, Longshoremen and Labor
Workers Act liability, or Jones Act liability insurance that may be required by
Barge Carrier.
ARTICLE XIII - AMENDMENT, MODIFICATION AND WAIVER
Section 13.01 General Rule
(a) Any amendment, modification or waiver of any provision of
this Agreement, or any consent to any departure therefrom, shall not be
effective in any event unless the same is in writing and signed by the parties
hereto. In such cases, the modification, waiver or consent is effective only on
the specific instance and for the specific purpose given.
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ARTICLE XIV - MISCELLANEOUS
Section 14.01 Waivers and Remedies
(a) The failure of one of the parties hereto to insist in any
one or more instances upon strict performance of any of the obligations of the
other party pursuant to this Agreement or to take advantage of any of its rights
hereunder shall not be construed as a waiver of the performance of any such
obligation or the relinquishment of any such rights for the future, but the same
shall continue and remain in full force and effect.
Section 14.02 Construction of Terms
(a) The terms of this Agreement have been arrived at after
arms-length negotiation and, therefore, it is the intention of the parties that
its terms not be construed against either of the parties by reason of the fact
that it was the drafter thereof.
(b) This Agreement shall be considered made and shall be
construed under the laws of the State of Ohio.
Section 14.03 Confidentiality
(a) The parties shall protect the confidentiality of this
Agreement and any information developed by other parties in connection with this
Agreement; provided, however, that no party shall be precluded from disclosing
or using the Agreement, the terms hereof, or any such information in obtaining
or attempting to obtain financing for facilities or equipment, or in filing
reports with or furnishing other information to the Securities and Exchange
Commission, securities commissions of the various states, state regulatory
commissions, or any other appropriate governmental authorities; and further,
that to the extent practicable the party making such disclosure shall notify the
other parties in writing prior to the disclosure. When required, the parties
also may submit the Agreement or any such information to consultants and
contractors performing work on or related to the subject matter of this
Agreement, who agree in writing to protect the confidentiality of such
information in the same manner provided herein.
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Section 14.04 Representations and Warranties
(a) DP&L and Pen represent and warrant to one another that:
(i) they are duly organized and validly exist in good standing under the laws of
their states of residence and/or incorporation, and have all requisite power and
authority to enter into this Agreement and to carry out the terms and provisions
thereof and hereof; (ii) the person(s) executing this Agreement on behalf of
that party are duly authorized and empowered to bind their respective party to
this Agreement; (iii) there is no action, proceeding, or investigation current
or pending, and no term or provision of any charter, by-law, certificate,
license, mortgage, indenture, contract, agreement, judgement, decree, order,
stature, rule or regulation which in any way prevents, hinders, or otherwise
adversely affects, or would be violated by, entering into and performing this
Agreement.
(b) Each person executing this Agreement on behalf of his
respective company for himself and for his company, represents and warrants the
execution of this Agreement and that he personally has authority to sign on
behalf of his company.
Section 14.05 Assignment
The terms, conditions and covenants of this Agreement shall be
binding upon and shall inure to the benefit of each of the parties hereto, their
heirs, personal representatives, successors or assigns. This Agreement may be
assigned by Pen or DP&L to any business entity that is a parent, subsidiary or
affiliate of Pen or DP&L respectively. In addition, DP&L may assign this
Agreement to other entities than the above, upon written consent of Pen. Such
consent shall not be unreasonably withheld.
Section 14.06 Counterparts
This Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, and such
counterparts together shall constitute but one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
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Section 14.07 Captions and Exhibits
(a) The captions in this Agreement are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
(b) Each of the Exhibits A through D hereto is incorporated
herein by reference, and shall in all respects be deemed a part of this
Agreement.
Section 14.08 Equal Opportunity and Employment Clause
During the performance of this Agreement, Pen agrees that it
will comply with the following laws and corresponding regulations, as
applicable:
42 U.S.C. Section 12101 et seq. (The Americans With
Disabilities Act)
38 U.S.C. Section 2012 (Disabled Veterans & Vietnam Veterans
Provisions)
38 U.S.C. Section 2011 et seq. (Vietnam Era Veterans'
Readjustment Assistance Act of 1974 as amended)
15 U.S.C. Section 637 (Small Business Concerns & Small
Minority Business Provisions)
42 U.S.C. Section 2000e et. seq.(Title VII of the
Civil Rights Act of 1964, as amended by The Civil Rights Act
of 1991)
U.S. D.O.L. Office of Labor - Management Standards Beck notice
posting requirements.
Section 14.09 Whole Agreement/Severability; Effect of
Agreement
(a) Any provisions of this Agreement prohibited or
unenforceable by reason of any applicable law of any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Where,
however, the conflicting provisions of any such applicable law may be waived
they are hereby waived by the parties hereto to the full extent permitted by
law, to the end that this Agreement shall be enforced as written.
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(b) This Agreement exclusively and completely states the
rights of the parties hereto with respect to the subject matter of this
Agreement and supersedes all other agreements, oral or written, with respect
thereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers.
ATTEST: THE DAYTON POWER AND LIGHT COMPANY
/s/ J. W. Tomasiak /s/ THOMAS M. JENKINS
- ------------------------- ----------------------------------
Mr. Thomas M. Jenkins
Group Vice-President
ATTEST: PEN COAL CORPORATION
J. A. Davis, Jr. /s/ JAMES R. MORRIS
- ------------------------- ----------------------------------
Vice President
----------------------------------
TITLE
41
<PAGE> 46
AMENDMENT TO:
COAL SUPPLY AGREEMENT
DATED EFFECTIVE JULY 1, 1992
BETWEEN
PEN COAL CORPORATION
AND
THE DAYTON POWER AND LIGHT COMPANY
Whereas the Pen Coal Corporation ("Pen") and the Dayton Power
and Light Company ("DP&L") are parties to an existing agreement for the sale and
purchase of coal, and
Whereas Pen and DP&L wish to amend the payment method
stipulated in that agreement;
Now, therefore, Pen and DP&L agree to the following
modifications of the captioned Coal Supply Agreement, in accordance with ARTICLE
XIII thereof.
ARTICLE VII, SECTION 7.05 - PAYMENT
The following shall be substituted for the existing section:
DP&L shall self-invoice for payment. Payment shall be made no
later than the fifteenth (15th) calendar day of the month following the receipt
and unloading of coal. In the event that the fifteenth day falls on a Saturday
or Sunday, DP&L shall arrange for payment to be made no later than the last
working day prior to the fifteenth.
DP&L agrees to forward funds via an Automated Clearing House
(ACH) to an account designated by Pen. Effective March 15, 1997, and until such
time as designated otherwise by Pen, the following account will be used for
receipt of payment:
Mellon Bank NA
Three Mellon Bank Center
Pittsburgh, PA
ABA#043000261
Acct. #1972856
In the event that payment is received later than the time
period specified above, DP&L shall pay Pen a late payment fee for each day
payment is late. The amount of the fee shall be determined on an annual
percentage rate (APR) basis. Said percentage rate shall be one percent (1%)
above the prime rate in effect at the time the payment was due.
Except for BTU adjustments, Pen shall initiate any
reconciliation within thirty (30) days after it received payment.
<PAGE> 47
Pen Coal Amendment
Page 2
In addition, Article XI, Notices, shall be modified by deletion of the payment
address.
Agreed to this day of , 1997.
The Dayton Power and Light Company Pen Coal Corporation
/s/ J. W. Tomasiak /s/ J. A. Davis, Jr.
- ---------------------------------- ----------------------------------
Title: Managing Director Title: Senior Vice President Sales
- ---------------------------- ----------------------------------
<PAGE> 1
EXHIBIT 12
PEN HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes....................... $13,225 $ 9,821 $ 4,198 $ 5,596 $ 9,748 $ 727 $1,384
======= ======= ======= ======= ======= ====== ======
Add:
Fixed Charges, Excluding
Capitalized Interest........ 5,037 6,934 11,168 9,589 9,051 2,440 1,936
Equity and Net Loss
(Income) affiliate.......... 230 102 12 206 (10) 244 464
------- ------- ------- ------- ------- ------ ------
Net Earnings Available
for Fixed Charges........... $18,492 $16,857 $15,378 $15,391 $18,789 $3,411 $3,784
Fixed Charges:
Interest Expense......... 4,395 6,173 10,340 9,186 7,906 2,170 1,746
Capitalized Interest..... -- -- -- -- 97 -- 231
Amortization of Debt
Issuance Costs.............. 65 174 434 308 933 248 124
Interest Portion of Rent
Expense..................... 577 587 394 95 212 22 66
Total Fixed Charges............ $ 5,037 $ 6,934 $11,168 $ 9,589 $ 9,148 $ 2,440 $ 2,167
Ratio of Earnings to Fixed
Charges..................... 3.67x 2.43x 1.38x 1.61x 2.05x 1.40x 1.75x
- ----------------------------------
</TABLE>
-2-
<PAGE> 1
EXHIBIT 21
Subsidiaries of Pen Holdings, Inc.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation or Organization
---- -----------------------------
<S> <C>
The Elk Horn Coal Corporation West Virginia
Pen Coal Corporation Tennessee
Marine Terminals Incorporated Missouri
River Marine Terminals, Inc. West Virginia
Pen Cotton Company of South Carolina South Carolina
Pen Hardwood Company Tennessee
Pen Cotton Company Tennessee
Buck Coal, Inc. Virginia
The Elk Horn Corporation West Virginia
Ram Processing, Inc. West Virginia
Big River Mining Company Kentucky
Pen Sales Company, Inc. U.S. Virgin Islands
Pen Trading Company Tennessee
Pen Cotton Company of Alabama, Inc. Alabama
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated February 20, 1998
relating to the consolidated financial statements of Pen Holdings, Inc. which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the three years ended December 31, 1997
listed under Item 21 of this Registration Statement when such schedule is read
in conjunction with the consolidated financial statements referred to in our
report. The audits referred to in such report also included this schedule. We
also consent to the references to us under the headings "Experts," "Summary
Consolidated Condensed Historical Financial Data" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Summary Condensed
Historical Financial Data" or "Selected Consolidated Financial Data."
PricewaterhouseCoopers LLP
Nashville, Tennessee
August 4, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF STAGG ENGINEERING SERVICES, INC.
We hereby consent to (i) the reference to us under the caption
"Experts," and (ii) the use of the excerpts of our report entitled "Summary
Report, Underground Reserves and Resources, Drummond Coal Company Properties,
Boone, Kanawha, and Lincoln Counties, West Virginia" (the "Report") dated
September, 1997, both of which are included in the prospectus (the "Prospectus")
of Pen Holdings, Inc. (the "Company") and the Guarantors (as defined in the
Prospectus) for the registration of $100,000,000 of the Company's 9-7/8 Series B
Senior Notes due 2008 and the Guarantees (as defined in the Prospectus). The
Prospectus is part of the registration statement to which this consent is an
exhibit.
We hereby further consent to the inclusion of (i) any reference to our
name and (ii) the Report, or excerpts thereof, in any amendment to the
registration statement or any supplement to the Prospectus or any other filing
made by the Company with the Securities and Exchange Commission.
Respectfully submitted,
STAGG ENGINEERING SERVICES, INC.
By: /s/ ALAN K. STAGG
- -----------------------------
Name: Alan K. Stagg
Title: President
Date: July 30, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF MARSHALL MILLER & ASSOCIATES
We hereby consent to (i) the reference to us under the caption
"Experts," and (ii) the use of the excerpts of our report entitled "Audit of
Demonstrated Reserves Controlled by Pen Holdings, Inc." (the "Report") dated May
1998, both of which are included in the prospectus (the "Prospectus") of Pen
Holdings, Inc. (the "Company") and the Guarantors (as defined in the Prospectus)
for the registration of $100,000,000 of the Company's 9-7/8 Series B Senior
Notes due 2008 and the Guarantees (as defined in the Prospectus). The Prospectus
is part of the registration statement to which this consent is an exhibit.
We hereby further consent to the inclusion of (i) any reference to our
name and (ii) the Report, or excerpts thereof, in any amendment to the
registration statement or any supplement to the Prospectus or any other filing
made by the Company with the Securities and Exchange Commission.
Respectfully submitted,
MARSHALL MILLER & ASSOCIATES
By: /s/ J. SCOTT NELSON
- ----------------------------
Name: J. Scott Nelson
Title: Vice President
Date: July 30, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,151,000
<SECURITIES> 0
<RECEIVABLES> 17,933,000
<ALLOWANCES> 436,000
<INVENTORY> 4,760,000
<CURRENT-ASSETS> 31,887,000
<PP&E> 232,309,000
<DEPRECIATION> 59,794,000
<TOTAL-ASSETS> 224,847,000
<CURRENT-LIABILITIES> 28,954,000
<BONDS> 0
17,097,000
0
<COMMON> 45,000
<OTHER-SE> 41,441,000
<TOTAL-LIABILITY-AND-EQUITY> 224,847,000
<SALES> 182,289,000
<TOTAL-REVENUES> 182,289,000
<CGS> 164,670,000
<TOTAL-COSTS> 164,670,000
<OTHER-EXPENSES> (35,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,906,000
<INCOME-PRETAX> 9,748,000
<INCOME-TAX> 2,246,000
<INCOME-CONTINUING> 7,502,000
<DISCONTINUED> 35,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,467,000
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 0.99
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,885,000
<SECURITIES> 0
<RECEIVABLES> 18,235,000
<ALLOWANCES> 412,000
<INVENTORY> 7,134,000
<CURRENT-ASSETS> 30,379,000
<PP&E> 239,108,000
<DEPRECIATION> 58,988,000
<TOTAL-ASSETS> 231,753,000
<CURRENT-LIABILITIES> 31,382,000
<BONDS> 0
15,344,000
0
<COMMON> 45,000
<OTHER-SE> 35,741,000
<TOTAL-LIABILITY-AND-EQUITY> 231,753,000
<SALES> 182,469,000
<TOTAL-REVENUES> 182,469,000
<CGS> 164,963,000
<TOTAL-COSTS> 164,963,000
<OTHER-EXPENSES> 2,724,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,186,000
<INCOME-PRETAX> 5,596,000
<INCOME-TAX> 1,463,000
<INCOME-CONTINUING> 4,133,000
<DISCONTINUED> 1,448,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,685,000
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,160,000
<SECURITIES> 0
<RECEIVABLES> 20,555,000
<ALLOWANCES> 341,000
<INVENTORY> 15,168,000
<CURRENT-ASSETS> 46,677,000
<PP&E> 240,147,000
<DEPRECIATION> 50,077,000
<TOTAL-ASSETS> 257,629,000
<CURRENT-LIABILITIES> 53,414,000
<BONDS> 0
13,650,000
0
<COMMON> 43,000
<OTHER-SE> 34,750,000
<TOTAL-LIABILITY-AND-EQUITY> 257,629,000
<SALES> 186,043,000
<TOTAL-REVENUES> 186,043,000
<CGS> 167,111,000
<TOTAL-COSTS> 167,111,000
<OTHER-EXPENSES> 4,394,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,340,000
<INCOME-PRETAX> 4,198,000
<INCOME-TAX> 1,137,000
<INCOME-CONTINUING> 3,061,000
<DISCONTINUED> (70,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,131,000
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,496,000
<SECURITIES> 0
<RECEIVABLES> 19,396,000
<ALLOWANCES> 446,000
<INVENTORY> 5,461,000
<CURRENT-ASSETS> 30,355,000
<PP&E> 233,520,000
<DEPRECIATION> 63,232,000
<TOTAL-ASSETS> 221,133,000
<CURRENT-LIABILITIES> 27,382,000
<BONDS> 0
17,527,000
0
<COMMON> 45,000
<OTHER-SE> 41,959,000
<TOTAL-LIABILITY-AND-EQUITY> 221,133,000
<SALES> 40,548,000
<TOTAL-REVENUES> 40,548,000
<CGS> 37,223,000
<TOTAL-COSTS> 37,223,000
<OTHER-EXPENSES> 195,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,746,000
<INCOME-PRETAX> 1,384,000
<INCOME-TAX> 436,000
<INCOME-CONTINUING> 948,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,402,000
<SECURITIES> 0
<RECEIVABLES> 17,062,000
<ALLOWANCES> 412,000
<INVENTORY> 6,929,000
<CURRENT-ASSETS> 28,339,000
<PP&E> 238,829,000
<DEPRECIATION> 59,559,000
<TOTAL-ASSETS> 229,076,000
<CURRENT-LIABILITIES> 31,021,000
<BONDS> 0
15,768,000
0
<COMMON> 45,000
<OTHER-SE> 35,798,000
<TOTAL-LIABILITY-AND-EQUITY> 229,076,000
<SALES> 44,646,000
<TOTAL-REVENUES> 44,646,000
<CGS> 41,719,000
<TOTAL-COSTS> 41,719,000
<OTHER-EXPENSES> 30,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,170,000
<INCOME-PRETAX> 727,000
<INCOME-TAX> 247,000
<INCOME-CONTINUING> 480,000
<DISCONTINUED> 18,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
