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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NUMBER 1-5254
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MAPCO INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 73-0705739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1800 SOUTH BALTIMORE AVENUE
TULSA, OKLAHOMA 74119
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (918) 581-1800
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1.00 Par value New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
$400 million in Debt Securities
($400 million designated as Medium-Term
Notes, $353 million of which have been
issued (and $44 million of which have matured
and have been paid) as of March 22, 1996,
with maturities from 9 months to 30 years) None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of MAPCO Inc.'s ("MAPCO") voting stock held by
non-affiliates of MAPCO, based on the last sale price of MAPCO Common Stock on
the New York Stock Exchange on March 22, 1996 was $1,500,938,429. On that date,
28,852,506 shares of MAPCO Common Stock were outstanding, of which 27,227,908
shares were held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: Proxy Statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14-A under the Securities Exchange Act of 1934 (to the extent set forth in Part
I, Item 1 and Part III, Items 10, 11, 12 and 13 of this Annual Report).
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business................................................................... 1
BUSINESS OF MAPCO.......................................................... 1
NATURAL GAS LIQUIDS........................................................ 1
PETROLEUM.................................................................. 5
COAL....................................................................... 8
EXECUTIVE OFFICERS OF MAPCO INC............................................ 12
EMPLOYEES.................................................................. 13
Item 2. Properties................................................................. 13
Item 3. Legal Proceedings.......................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........................ 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 15
Item 6. Selected Financial Data.................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 16
Item 8. Financial Statements and Supplementary Data................................ 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 28
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 28
Item 11. Executive Compensation..................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 28
Item 13. Certain Relationships and Related Transactions............................. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 29
SIGNATURES............................................................................ 33
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PART I
ITEM 1. BUSINESS.
BUSINESS OF MAPCO
MAPCO Inc. ("MAPCO" or the "Company") is a diversified energy company
which, through separate subsidiaries and affiliates, is engaged in the
production of natural gas liquids ("NGLs") and coal; the transportation by
pipeline of NGLs, anhydrous ammonia, crude oil and refined petroleum products;
the transportation by truck of NGLs and refined petroleum products; the refining
of crude oil; the marketing of NGLs, refined petroleum products, coal,
fertilizers and crude oil; the trading of crude oil, refined petroleum products
and NGLs; NGL storage; and the marketing of motor fuel and merchandise through
convenience store operations. MAPCO was incorporated in Delaware in 1958 and has
its principal executive offices in Tulsa, Oklahoma. For convenience of reference
and simplification of this report, references herein to MAPCO or the Company
include its subsidiaries or affiliates, unless the context requires otherwise.
SEGMENT INFORMATION
The segment reporting structure for MAPCO is as follows:
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SEGMENT BUSINESS ACTIVITY INCLUDED WITHIN SEGMENT
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Natural Gas Liquids................ Liquid Petroleum Gas ("LPG") and Fertilizer Sales, NGL
Production and Gas Processing, Pipeline Operations,
Underground Storage and the Wholesale and Retail
Marketing of NGLs.
Petroleum.......................... Refining, Retail and Wholesale Marketing and Crude and
Refined Products Trading.
Coal............................... Coal Production and Marketing.
</TABLE>
Financial information about these segments for each of the three years
ended December 31, 1995 is set forth in Note 10 to the consolidated financial
statements on page F-16 and Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 16.
NATURAL GAS LIQUIDS
GENERAL
The Natural Gas Liquids segment operations include the transportation and
production of NGLs as well as pipeline transportation of anhydrous ammonia,
refined products and crude oil. The NGL segment operations also include
fractionation, underground storage, the wholesale and retail marketing of NGLs
and fertilizers and the wholesale and spot marketing of NGLs. The 1995 Natural
Gas Liquids segment revenues were $876.5 million and operating profit was $139.4
million compared to $824.7 million of revenues and $131.4 million of operating
profit in 1994.
LPG AND FERTILIZER SALES
Propane is used principally as a fuel in various domestic, agricultural,
commercial, industrial and vehicle motor fuel applications. Residential
customers (generally in areas not served by natural gas) use propane for home
heating, cooking and other domestic uses. The major portion of MAPCO's propane
sales is for domestic usage. Agricultural uses include crop drying and fuel for
tractors and irrigation engines. Commercial and industrial uses include fuel for
shopping centers and industrial plants.
The marketing of propane and related appliances is carried on under the
trade name "Thermogas" through 182 Company-owned and operated retail plants in
states in the upper Midwest and the Southeast regions of the United States.
Propane is also supplied to dealers operating in the same area, as well as to
wholesale outlets and industrial accounts. Based upon published industry data,
Thermogas is currently the
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fourth largest retail propane marketer in the United States. In 1995, MAPCO sold
326.5 million gallons of retail propane compared to 253.8 million gallons in
1994.
Approximately 95% of the propane sold by MAPCO in 1995 was purchased from
outside sources. The largest propane supplier accounted for approximately 25% of
such outside purchases during 1995. MAPCO's propane supply arrangements are
standard for the industry with prices being subject to adjustment in accordance
with changes in industry-wide market price levels.
MAPCO, at 39 of its Thermogas retail plants, also blends, markets and
applies nitrogen solutions, fertilizers, mixed fertilizers and agricultural
chemicals. Fluid fertilizers are sold under the trade name "Thermogas Fluid
Fertilizer." In 1995, 127,154 tons of wholesale and retail fluid fertilizer
ingredients were sold in the Midwest and Southeast as compared to 137,671 tons
in 1994. Most of these sales were made during the Spring.
On January 16, 1996, Thermogas Company, a wholly-owned subsidiary of MAPCO
Natural Gas Liquids Inc., signed a Purchase and Sale Agreement to sell its Iowa
retail propane and liquid fertilizer outlets to CENEX, Inc. The transaction is
expected to close on March 29, 1996, and will include the sale by Thermogas
Company of all of its remaining liquid fertilizer assets located in Arkansas,
Illinois, Indiana, Minnesota, Ohio, and Wisconsin. In 1995, the 38 Iowa plants
sold 53 million gallons of propane. In addition, total retail fertilizer sales
were 118,000 tons. Total sales and operating revenues for the operations
involved in this transaction were $68.8 million in 1995 and $67.9 million in
1994 and operating profit was $7.2 million in 1995 and $7.1 million in 1994.
NGL PRODUCTION AND TRADING AND GAS PROCESSING
MAPCO owns certain liquefiable hydrocarbons in natural gas under 234,000
acres in the West Panhandle gas field of Texas. MAPCO obtains its liquids
through the processing of the gas at three plants it owns and operates in this
field. Although only one of the plants is currently operating, these plants have
a combined processing capacity of 260 million cubic feet of gas per day. In
1995, an average of 4,975 barrels per day of NGLs was produced and sold from the
West Panhandle field, compared to 5,655 barrels per day in 1994. The extracted
liquids are moved through MAPCO's Mid-America and Seminole pipeline systems to
Midwestern and Gulf Coast markets.
Since 1991, MAPCO's West Panhandle field gas supplier has taken more than
its percentage ownership share of the field's production. The cumulative effect
of this acceleration in gas taken has resulted in the Westpan operations having
a 33.4 billion cubic feet and $31.7 million over-take position. This imbalance
will be adjusted by offsets from future field production. MAPCO uses the sales
method of accounting for its gas balancing arrangements which allows the
immediate recognition of all revenues on NGLs sold. The acceleration in gas
taken contributed an estimated $2.4 million, $5.7 million and $4.3 million to
MAPCO's consolidated operating profit in 1995, 1994 and 1993, respectively.
MAPCO owns a 50% interest in and operates a 107,000 barrel per day
fractionator at Conway, Kansas. This fractionator receives mixed NGLs from the
gathering areas in the Overthrust Belt area of Wyoming and Utah, New Mexico,
west Texas, western Oklahoma and Kansas for separation into ethane-propane mix,
propane, normal butane, iso-butane and natural gasoline. After separation, the
products are moved principally to markets in the Midwest and on the Texas Gulf
Coast through MAPCO's Mid-America and Seminole pipeline systems. MAPCO sold its
5,000 barrel per day depropanizer at Hobbs, New Mexico in October, 1995.
MAPCO buys, sells and exchanges domestic and imported NGLs in the Midwest,
Gulf Coast and Rocky Mountain regions. Although some NGLs are produced by MAPCO,
the majority is purchased from outside sources and sold under both short and
long-term arrangements.
NGL sales and purchases for 1995 averaged 70,276 barrels per day, compared
with 74,710 barrels per day in 1994. The supply of and demand for NGLs can
materially affect the volume of product available to MAPCO and also the market
for such product.
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MID-AMERICA PIPELINE
Mid-America Pipeline Company ("Mid-America"), a wholly-owned subsidiary of
MAPCO Natural Gas Liquids Inc., owns and operates 7,619 miles of pipeline and
related storage facilities. The main system consists of 7,600 miles of pipeline;
the remaining 19 miles is the portion of the pipeline which runs from near
Collierville, Tennessee to the Memphis Refinery.
The Mid-America pipeline system transports NGLs which consist of : propane
used as fuel and petrochemical feedstock; butane and natural gasoline used as
refinery and petrochemical feedstock; ethane-propane mixtures and ethylene used
as petrochemical feedstock; and mixed NGLs for further fractionation. The
pipeline system consists of 7,600 miles of pipe varying in diameter from two to
twelve inches. The main line of this pipeline system runs from the Wyoming-Utah
Overthrust Belt area through the northwestern New Mexico portion of the Four
Corners area to near Hobbs, New Mexico, and from Hobbs to Conway, Kansas, where
it branches into east and west legs. The west leg extends to near Minneapolis,
Minnesota, and the east leg leads to near Janesville, Wisconsin. Spurs from
these legs extend into southeast Kansas, Iowa and Illinois.
Mid-America also transports crude oil from St. James, Louisiana to Memphis,
Tennessee. This crude oil is transported in pipeline space leased by Mid-America
in the Capline Pipeline system, which extends from St. James to near
Collierville, Tennessee. Crude oil is then transported through a 32-mile
pipeline, operated and partially owned (19 miles only) by Mid-America to MAPCO
Petroleum's Memphis Refinery. Effective January 1, 1996, the Mid-America space
on the Capline System was leased by MAPCO Petroleum Pipeline Systems, Inc., a
subsidiary of MAPCO Petroleum Inc.
In 1995, Mid-America completed a 413-mile expansion of its main line
pipeline system in New Mexico and the connection of El Paso Natural Gas
Company's Chaco gas processing plant near Farmington, New Mexico. This expansion
increased the capacity on the lower leg of the Rocky Mountain Pipeline by 50,000
barrels per day to a total of 185,000 barrels per day. In addition, in November
1995, Juarez Pipeline Company (a subsidiary of Mid-America), Amoco Rio Grande
Pipeline Company and Navajo Southern Inc. announced the formation of a
partnership under the name Rio Grande Pipeline Company ("Rio Grande"). Rio
Grande will transport NGLs from Mid-America's Hobbs Station in Texas and other
Mid-America origins to the Pemex Gas y Petroquimica Basica ("Pemex") Mendez
terminal in Ciudad Juarez, Mexico. The Mexican customer purchasing the NGLs will
be PMI Trading Company. The partnership will connect with the 10 thousand-mile
Mid-America NGL system by purchasing an existing 8-inch line from Navajo
Pipeline Company running from west of Odessa, Texas to near El Paso, Texas, then
build a new 8-inch pipeline connecting it to the Pemex terminal in Ciudad
Juarez. Rio Grande will also construct additional facilities at the terminal to
efficiently receive incoming shipments. Rio Grande will be operated by
Mid-America and first shipments on the new pipeline system are planned to begin
in late 1996.
MAPCO AMMONIA PIPELINE
MAPCO Ammonia Pipeline (the "Ammonia System") transports liquid anhydrous
ammonia for use as fertilizer. This system consists of 1,093 miles of pipeline
varying from four to eight inches in diameter. It receives ammonia from plants
in the Texas Panhandle and near Enid and Tulsa, Oklahoma for delivery to points
principally in Kansas, Nebraska, Iowa and southern Minnesota.
SEMINOLE PIPELINE
Seminole Pipeline Company ("Seminole") owns 1,311 miles of pipeline,
predominantly fourteen inches in diameter, extending from Hobbs Station in west
Texas to the Mont Belvieu Terminal on the Texas Gulf Coast, together with
related pumping, metering and storage facilities. MAPCO owns 80% of the stock of
Seminole and operates and manages the pipeline.
Seminole operates as a batch system moving demethanized mix, ethane-propane
mix and specification liquid products. Products are received from gas processing
plants and from Mid-America for delivery to various destinations along the
pipeline system. The Texas Gulf Coast market served by Seminole is predominantly
for petrochemical and refining feedstock.
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See "Legal Proceedings," Item 3 beginning on page 13 for information
concerning litigation proceedings connected with Seminole.
LIQUID MOVEMENTS
The following table summarizes the Mid-America, Ammonia and Seminole
Systems' total movements of liquids in millions of barrel miles (barrels of
liquids times number of miles transported) and revenue per 100 barrel miles for
each of the past five years:
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BARREL MILES (IN MILLIONS)
AND REVENUE PER 100 BARREL MILES
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1995 1994 1993 1992 1991
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Natural Gas Liquids................ 108,476 109,854 95,568 90,951 87,966
Anhydrous Ammonia.................. 3,505 3,851 3,587 3,976 3,743
Crude Oil and Refined Products..... 4,787 5,215 4,971 4,811 4,264
------- ------- ------- ------ ------
Total.................... 116,768 118,920 104,126 99,738 95,973
======= ======= ======= ====== ======
Revenue Per 100 Barrel Miles....... 18.8c 18.7c 19.2c 19.7c 20.2c
======= ======= ======= ====== ======
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The Mid-America, Ammonia and Seminole Systems operate as common carriers.
The single largest shipper accounted for 22.7% of pipeline transportation
revenues during 1995. Total pipeline deliveries in 1995 were 265 million
barrels, compared with 276 million barrels in 1994.
LIQUIDS SUPPLY
The United States Department of Energy estimates of total proved reserves
of NGLs for Mid-America's and Seminole's source of supply areas in Texas, New
Mexico, Oklahoma, Kansas, Colorado, Wyoming and Utah are as follows:
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TOTAL INDUSTRY RESERVES
IN MILLIONS OF BARRELS
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December 31, 1991.................................................. 4,316
December 31, 1992.................................................. 4,351
December 31, 1993.................................................. 4,172
December 31, 1994.................................................. 4,145
December 31, 1995.................................................. Not Available
</TABLE>
Mid-America's and Seminole's supply areas are also served by other
pipelines.
UNDERGROUND STORAGE
Underground storage facilities for NGLs are owned or operated by MAPCO at
locations along its pipeline system in the states of Iowa, Kansas, Nebraska,
Oklahoma and Texas. The capacity of these facilities on December 31, 1995 was
approximately 18 million barrels. Other storage operations compete with MAPCO
for storage leasing in the Conway and Hutchinson, Kansas areas. Competition is
extremely competitive in the storage business.
COMPETITIVE CONDITIONS
The marketing of NGLs and fertilizer and the transportation businesses in
which MAPCO operates are highly competitive. MAPCO competes with a number of
companies engaged in propane marketing, some of which are larger than MAPCO and
may have more significant financial resources. In addition, other pipelines,
tank cars, trucks, barges and local sources of supply (refineries, gasoline
plants and ammonia plants) and other sources of energy such as natural gas,
coal, oil and electricity, all provide competition for pipeline operations.
Propane competes with natural gas in areas served by natural gas distribution
systems and extension of natural
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gas service may result in the loss of customers. Competition for retail and
wholesale fertilizer customers is intense in all of the areas served by MAPCO.
REGULATIONS AND ENVIRONMENTAL MATTERS
Federal, state and local environmental and safety laws and regulations
affect the Natural Gas Liquids segment's marketing of NGLs, nitrogen solution
fertilizers, mixed fertilizers and agricultural chemicals and the operation of
its natural gas processing plants. It is the policy of the Natural Gas Liquids
segment to comply with such laws and regulations. At this time, MAPCO cannot
accurately predict the effect which such laws and regulations may have on such
activities and future earnings. Pipeline operations are subject to the
provisions of the Interstate Commerce Act applicable to interstate common
carrier pipelines and the Hazardous Liquid Pipeline Safety Act. The Federal
Energy Regulatory Commission regulates tariff rates, shipping regulations and
other practices of Mid-America and Seminole. Tariff rates for liquid anhydrous
ammonia transported by the Ammonia System are regulated by the Interstate
Commerce Commission. Under the Interstate Commerce Act, MAPCO is required to
file reasonable and nondiscriminatory tariff rates and is subject to certain
other regulations relating to, among other things, permissible depreciation
charges.
The United States Department of Transportation has prescribed safety
regulations for common carrier pipelines. The pipeline systems are subject to
various state laws and regulations concerning safety standards, exercise of
eminent domain and similar matters. Mid-America and Seminole also file tariff
rates covering intrastate movements with various state commissions.
The Natural Gas Liquids segment did not incur in 1995 and does not at this
time anticipate any material capital expenditures for environmental control
facilities in 1996.
PETROLEUM
GENERAL
The Petroleum segment operates two refining and marketing systems: the
Alaska System and the Mid-South System. The Alaska System includes a refinery at
North Pole, Alaska, the wholesale marketing of refined petroleum products, and a
22-unit chain of retail motor fuel and convenience store outlets. The Mid-South
System includes a refinery at Memphis, Tennessee, the wholesale and spot
marketing of refined petroleum products, a 207-store chain of retail motor fuel
convenience stores and interstate fuel stops in eight Southeastern states and in
Texas.
The 1995 Petroleum segment revenues were $2,000.9 million and operating
profit was $48.2 million compared to $1,828.0 million of revenues and $26.2
million of operating profit in 1994 ($94.9 million before the $68.7 million
negative impact from the Alaska Royalty Oil settlement).
ALASKA SYSTEM
ALASKA REFINING AND MARKETING
MAPCO's refinery, located near Fairbanks at North Pole, Alaska ("North Pole
Refinery"), is the largest refinery in the state. The Refinery is located
approximately two miles from its supply point for crude oil, the Trans-Alaska
Pipeline System ("TAPS"). The North Pole Refinery's processing capability is
approximately 134,000 barrels per day. At maximum crude throughput, 45,000
barrels per day of refined product can be produced. These products are gasoline,
commercial and military jet fuel, heating oil, diesel fuel, fuel oil, naphtha
and asphalt. MAPCO's principal market for these products in Alaska is to
governmental, wholesale, commercial and industrial customers and to MAPCO's
retail marketing operations. MAPCO's retail marketing operations, as described
below, accounted for about 9% of the North Pole Refinery's 1995 product sales
volume, and MAPCO Express' retail gasoline sales, as described below, accounted
for about 71% of the Refinery's gasoline production. In 1995, average throughput
at the North Pole Refinery was 128,539 barrels per day of crude oil which
resulted in the average production of 39,683 barrels per day of petroleum
products compared to 123,346 barrels per day of average crude throughput and
average production of 37,609 barrels per day of petroleum products in 1994.
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The North Pole Refinery's crude oil is purchased from the state of Alaska
or is purchased or received on exchanges from crude oil producers. The North
Pole Refinery has an agreement with the state of Alaska for the purchase of
royalty oil which is scheduled to expire on December 31, 2003. The agreement
provides for the purchase of up to 35,000 barrels per day of the State's royalty
share of crude oil produced from Prudhoe Bay, Alaska. These volumes, along with
crude oil either purchased from crude oil producers or received under exchange
agreements, are utilized as throughput in the production of products at the
Refinery. Approximately 30% of the throughput is refined and sold as finished
product and the remainder is returned to the TAPS and either delivered to repay
exchange obligations or sold.
RETAIL MARKETING
MAPCO, under the brand name "MAPCO Express," is engaged in the retail
marketing of gasoline, diesel fuel, other petroleum products, convenience
merchandise and deli snack foods at 22 stores in Anchorage, Fairbanks and
Juneau, Alaska. Convenience merchandise and deli fast food accounted for
approximately 33% of MAPCO Express' gross margin in both 1995 and 1994. All of
the motor fuel sold by MAPCO Express stores is supplied either by exchanges or
directly from the North Pole Refinery.
MID-SOUTH SYSTEM
MID-SOUTH REFINING AND MARKETING
MAPCO's refinery in Memphis, Tennessee ("Memphis Refinery") enjoys a niche
position as the only refinery in Tennessee and has a throughput capacity of
approximately 100,000 barrels per day. In 1995, the Memphis Refinery processed
an average 81,218 barrels per day compared to 86,347 barrels per day in 1994.
Processed barrels declined in 1995 because the Refinery was shut down for a
month to complete a scheduled four-year turnaround. Products produced by the
Memphis Refinery are gasoline, low sulfur diesel fuel, jet fuel, K-1 kerosene,
No. 6 fuel oil, propane and elemental sulfur. These products are exchanged or
marketed primarily in the Mid-South region of the United States to wholesale
customers, such as industrial, governmental and commercial consumers, jobbers,
independent dealers, other refiner/marketers and MAPCO's retail marketing
operations. Sales to MAPCO's retail marketing operations accounted for about 18%
of the Memphis Refinery's 1995 sales volume, with no other single customer
accounting for more than 8% of total sales. During 1995, the Memphis Refinery's
gasoline sales to MAPCO's retail marketing operations were 32% of the Refinery's
gasoline production.
During 1995, certain capital improvements were made to the Memphis
Refinery. These improvements are expected to improve margins by $8 million to
$10 million per year through an increase in jet fuel production combined with an
expansion and modernization of the fluid catalytic cracking unit.
The Memphis Refinery has access to crude oil from the Gulf Coast via common
carrier pipeline and by river barges. In addition to domestic crude oil, the
Memphis Refinery has the capability of receiving and processing certain foreign
crudes. During 1995, the majority of the crude oil processed at the Memphis
Refinery was purchased from various suppliers on a posted-plus price basis.
Although this method of purchase reduces the financial effect of volatile crude
oil markets, the financial results of the Refinery may be significantly impacted
by changes in the market prices for crude oil and refined products. MAPCO cannot
with any assurance predict the future of crude oil and product prices or their
impact on the financial results of the Petroleum segment.
RETAIL MARKETING
MAPCO, primarily under the brand names "MAPCO Express" and "Shell," is
engaged in the retail marketing of gasoline, diesel fuel, other petroleum
products, convenience merchandise and deli fast food items at 207 stores,
primarily in Tennessee.
MAPCO's stores have been designed to be modern neighborhood-type
facilities, attracting convenience-oriented customers with a variety of today's
most widely-used products and services. In 1995, convenience merchandise and
deli fast food accounted for approximately 50% of MAPCO Express' gross margin
compared
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to 49% in 1994. All of the motor fuel sold by MAPCO Express stores is supplied
either by exchanges or directly from the Memphis Refinery.
During 1995, MAPCO Express acquired 27 gasoline/convenience stores in the
Nashville area and made substantial progress in the Petroleum Retail Marketing
asset high-grading program.
OTHER PETROLEUM OPERATIONS
CRUDE AND REFINED PRODUCTS TRADING
MAPCO buys, sells and exchanges domestic and foreign crude oil to supply
its refinery systems in Tennessee and Alaska. During 1995, in addition to
refinery supply, MAPCO purchased and sold an average of 4,265 barrels per day of
crude oil compared to 17,776 barrels per day in 1994. In addition, MAPCO
purchased and sold an average of 33,544 barrels per day of refined petroleum
products in 1995 compared to 28,645 barrels per day in 1994.
COMPETITIVE CONDITIONS
The petroleum industry is highly competitive in all phases from the
procurement of crude oil to the refining, distribution and marketing of refined
products. Many of MAPCO's competitors are large integrated oil companies, which,
because of their diverse operations, strong capitalization and recognized brand
names may be better able to withstand volatile industry conditions, shortages of
crude oil or intense price competition.
The principal competitive forces affecting MAPCO's refining businesses are
feedstock costs, refinery efficiency, refinery product mix, product distribution
and marketing costs. Some of MAPCO's competitors in the refining business can
more easily process sour crudes, and accordingly, are more flexible in the
crudes which may be processed. Since MAPCO has no crude oil reserves and does
not engage in crude oil exploration, it must obtain its crude oil requirements
from unaffiliated sources. MAPCO believes that it will be able to obtain
adequate crude oil and other feedstocks at generally competitive prices for the
foreseeable future.
The principal competitive factors affecting MAPCO's retail marketing
businesses are location, product price and quality, appearance and cleanliness
of stores and brand-name identification.
REGULATIONS AND ENVIRONMENTAL MATTERS
Federal, state and local pricing and environmental laws and regulations
affect MAPCO's refining and marketing operations. It is the policy of the
Petroleum segment to comply with such laws and regulations. MAPCO's petroleum
operations are subject to regulations relating to air emissions, water
discharges and soil and groundwater contamination which may result from spillage
or discharge of petroleum and hazardous materials at its refineries, terminals
and retail outlets. Groundwater monitoring and remediation is ongoing at both
refineries and at various MAPCO retail outlets. Air and water pollution control
equipment is operating at both refineries to comply with applicable regulations.
The Clean Air Act Amendments of 1990 (the "CAAA") continue to impact the
Petroleum segment, particularly its refinery operations, through a number of
programs and provisions of the CAAA. The provisions impacting the Petroleum
segment include Maximum Achievable Control Technology (MACT) rules which are
being developed for the refining industry, controls on individual chemical
substances present at its facilities and new operating permit rules which may be
applicable to its facilities. These provisions impact other companies in the
industry in similar ways and are not expected to adversely impact the Company's
competitive position.
MAPCO's retail petroleum operations are subject to federal, state and local
regulations regarding petroleum underground storage tanks ("USTs"). The United
States Environmental Protection Agency ("EPA") and several states in which MAPCO
conducts retail operations have adopted laws requiring owners and operators of
USTs used for petroleum products to register such tanks with state offices. In
addition, these
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UST regulations have imposed new technical standards, corrective action and
financial responsibility requirements relating to such tanks. The regulations
establish requirements for owners and operators of USTs, including leak
detection systems, corrosion protection systems, tank system repairs and
replacement, tank closure and corrective action for leaking tanks. EPA
regulations were issued in late 1988 and compliance is to be phased in over the
course of a ten (10) year period.
The Petroleum segment incurred approximately $15.4 million in capital
expenditures for environmental control facilities in 1995 and has budgeted $11.5
million in capital expenditures for environmental control facilities in 1996.
Such expenditures are not deemed by the segment to be material. See "Legal
Proceedings," Item 3 beginning on page 13 for information concerning
environmental proceedings connected with the Petroleum segment.
COAL
GENERAL
MAPCO's Coal segment operations produce and market bituminous coal for
domestic and foreign markets from one surface and six underground mining
complexes located in Kentucky, Maryland, Illinois and Virginia. MAPCO also
operates a coal terminal on the Ohio River near Mt. Vernon, Indiana, used for
the transloading of coal. The 1995 Coal segment revenues were $453.4 million and
operating profit was $8.6 million ($38.6 million before the impact of applying
Statement of Financial Accounting Standards ("SFAS") No. 121) compared to $425.5
million in revenues and $35.9 million in operating profit in 1994.
On January 15, 1996, MAPCO signed a letter of intent with The Beacon Group
Energy Investment Fund LP ("Beacon") to form a limited liability company which
will own substantially all of the net assets of MAPCO's Coal segment. Beacon
will own 75% of the new company and MAPCO will own the remaining 25%. The
transaction is expected to close in the second quarter of 1996. See Note 3 on
page F-8 of the consolidated financial statements for further information
regarding this transaction.
COAL PRODUCTION
Tonnage produced by the Coal segment in 1995 was 13,043,621 tons(1),
compared with 13,033,311 tons in 1994. Tonnage sold in 1995 was 15,638,347
tons, compared with 14,549,451 tons in 1994. Tonnage transloaded at the Mt.
Vernon coal terminal in 1995 was 2,660,007 tons compared with 3,427,399 tons in
1994. In 1995, approximately 81% of MAPCO's production was mined by underground
mining methods and approximately 19% by surface mining methods. Of the total
amount of tons sold by MAPCO's Coal segment, approximately 49% consisted of low
sulfur coal (33% steam and 16% metallurgical coal), 19% medium sulfur steam
coal and 32% high sulfur steam coal.
On January 27, 1995, MAPCO Coal's Webster County Coal Corporation
subsidiary ceased the production and shipping of coal at its Retiki Mine located
near Henderson, Kentucky. Due to the negative impact of the Clean Air Act, the
low BTU content of the coal and the lack of customers for the mine's output, the
Company decided to close the mine. See "Legal Proceedings," Item 3 beginning on
page 13 for information concerning litigation connected with a coal sales
contract at the Retiki Mine.
COAL MARKETING
MAPCO's steam coal is sold primarily to electric utilities and industrial
and cogeneration customers located in the eastern United States and, to a lesser
extent, in Europe. MAPCO's metallurgical coal is sold to steel and coke
producers located in the United States, South America, the Far East, Europe and
Northern Africa. Of the 15.6 million tons sold during 1995, 64.4% was to
domestic utilities, 19.9% to export customers, 5.9% to domestic industrial
users, 3.9% to cogeneration customers, and 5.9% to other coal-related entities.
- ---------------
(1) As referred to throughout the description of the Coal segment, "tons" are
defined as short tons of 2,000 pounds, unless otherwise indicated.
8
<PAGE> 11
The following table sets forth the volume of coal sold by MAPCO's Coal
segment and the average sales price per ton for each of the past five years:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Produced Tons Sold........................ 12,846 12,949 13,209 13,520 13,791
Purchased Tons Sold....................... 2,792 1,600 1,149 1,191 1,063
------ ------ ------ ------ ------
Total Tons Sold........................... 15,638 14,549 14,358 14,711 14,854
====== ====== ====== ====== ======
Average Sales Price Per Ton............... $27.97 $28.93 $28.44 $28.88 $29.28
====== ====== ====== ====== ======
</TABLE>
In 1995, MAPCO Coal sold 126,675 tons of coke through brokers at an average
sales price of $94.30 per ton. MAPCO Coal had no brokerage coke sales in 1994.
During 1995, 68.8% of the total tons marketed by MAPCO's Coal segment was
sold under contracts having a term of more than one year ("long-term
contracts"), many of which contain price adjustment provisions designed to
reflect changes in market conditions, labor and other production costs and, when
the coal is sold other than FOB the mine, changes in railroad and/or barge
freight rates. The relevant provisions of such long-term contracts, however, are
not identical, and the selling price of the coal does not necessarily reflect
every change in production costs incurred by the producing coal mine. Certain of
MAPCO's long-term contracts may be reopened periodically for price renegotiation
or be adjusted periodically according to a pre-determined formula or mutually
agreed-to amount. The remainder of MAPCO's coal production is sold under spot
market arrangements having terms of one year or less. In the case of
metallurgical coal sold in the domestic market and both metallurgical and steam
coal sold in the export market, such contracts are generally subject to
negotiation each year or have annual price renegotiation provisions if longer
than one year.
In January 1996, Mettiki Coal Corporation, a wholly-owned subsidiary of
MAPCO Coal Inc., finalized negotiations on a new coal supply contract with
Virginia Electric and Power Company ("VEPCO"), a major customer of the Mettiki
Mine. The 10-year agreement to provide 2.25 million annual tons begins in
January 1997 and will replace the current contract with VEPCO to supply 1.0
million annual tons which expires at the end of 1996.
During 1995, total demand for coal produced in the United States was 1,030
million tons as determined by the United States Department of Energy. This was
0.3% more than the 1994 demand level of 1,027 million tons. Consumption for 1995
was approximately 1,033 million tons while 1994 consumption was 1,011 million
tons. Domestic utility coal consumption, which represented approximately
eighty-seven percent (87%) of total domestic consumption, increased by
approximately 6.7 million tons compared to 1994, while domestic industrial and
coking coal consumption decreased 0.7 million tons. International demand for
United States-produced steam and metallurgical coals increased approximately 19%
with total deliveries of approximately 85 million tons. In general, demand for
United States steam and metallurgical coals was impacted by stronger worldwide
economies. Most international steel mills operated at near capacity levels,
strengthening demand for metallurgical coals. The increase in demand for
U.S.-produced coal came, however, primarily from steam coal customers in Europe.
Consequently, there was an increase in the sales price of coals placed in the
export market.
LABOR MATTERS
On February 1, 1993, the collective bargaining agreement between MC Mining,
Inc. ("MC Mining"), a wholly-owned subsidiary of MAPCO Inc., and the United Mine
Workers of America ("UMWA") expired. Previously, in December 1992, MC Mining had
given the UMWA notice of its intention to enter into decision-and-effects
bargaining concerning MAPCO's decision to either sell MC Mining or contract out
its operation. After approximately eighteen months of bargaining, MC Mining
declared impasse and partially implemented its last-and-best offer made to the
UMWA. In September 1994, the UMWA filed several unfair labor practices with the
National Labor Relations Board ("NLRB") alleging that MC Mining had failed to
bargain in good faith to legitimate impasse and improperly implemented portions
of the last bargaining proposal to the UMWA. On November 22, 1994, the NLRB
acknowledged the UMWA's request to withdraw
9
<PAGE> 12
these charges and approved the withdrawal with closure of the case. On February
6, 1995, the UMWA filed charges with the NLRB alleging that MC Mining had
engaged in unfair labor practices by refusing to bargain with the UMWA since
August 22, 1994. On May 4, 1995, after completing a full investigation, the NLRB
dismissed the UMWA charge. Shortly thereafter, the UMWA filed an appeal before
the NLRB's Office of the General Counsel. MC Mining took strong exception to the
appeal and on August 11, 1995, the Office of the General Counsel determined that
the NLRB's decision was appropriate. Such decision is final, binding and
non-appealable by the UMWA.
RESERVES
The following table sets forth MAPCO's Coal segment's estimated
economically recoverable coal reserves for 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
MAPCO's Coal Reserves................................... 287,150,000(2) 343,087,000(2)
=========== ===========
</TABLE>
Estimated economically-recoverable coal reserves in 1995 for MAPCO's Coal
segment by type of coal is set forth in the following table:
<TABLE>
<CAPTION>
MEASURED INDICATED
TYPE OF COAL(3) TONS TONS TOTAL TONS
---------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
High Sulfur................................... 51,839,000 40,632,000 92,471,000
Medium Sulfur................................. 32,380,000 12,165,000 44,545,000
Low Sulfur.................................... 73,325,000 53,558,000 126,883,000
Low Sulfur/Metallurgical...................... 11,085,000 12,166,000 23,251,000
----------- ----------- -----------
Total Coal Reserves........................... 168,629,000 118,521,000 287,150,000
=========== =========== ===========
</TABLE>
MAPCO's reserve base is estimated using guidelines defined by the U.S.
Geological Survey in its publication Circular 891 entitled "Coal Resource
Classification System of the U.S. Geological Survey" ("USGS 891"). The estimates
of economically-recoverable coal reserves are based upon MAPCO's analysis of
local seam conditions in keeping with USGS 891 and upon the operating experience
of the appropriate technical mining personnel. In general, such reserve
estimates are based on yearly evaluations made by the Coal segment's
professional engineers and geologists. As discussed herein, MAPCO's Coal segment
periodically modifies estimates of reserves owned or controlled by MAPCO which
may increase or decrease previously reported amounts. The annual reserve
evaluations are based on information developed by core hole drilling programs,
examination of outcrops, acquisitions, dispositions, actual production amounts,
changes in
- ---------------
(2) Included in MAPCO's coal reserve figures for 1995 and 1994 are 26,309,000
and 35,072,000 tons, respectively, owned or controlled by MC Mining, an
affiliate of MAPCO Coal Inc. MC Mining's decrease in coal reserves is a
result of certain real property reversions and a downward adjustment to the
mine recovery rate used in calculating the amount of economically
recoverable reserves. The coal reserve figure for 1994 includes
approximately 2,569,286 tons associated with Webster County Coal
Corporation's Retiki Mine that ceased production on January 27, 1995. In the
normal course of business, the Coal segment continuously reviews its coal
assets and properties for the purpose of purchasing or disposing of coal
assets and businesses to optimize operating profit and cash flow potentials.
As part of this process, the Company recently initiated a review of its coal
reserves and various recovery factors, including, but not limited to,
recovery percentages and preparation plant recovery percentages. In
addition, the Company has completed several coal reserve mine studies that
incorporated new core drilling data and adjustments for adverse mining
conditions.
(3) Definitions for low, medium and high sulfur coal are as follows: (a) low
sulfur coal means coal containing less than 1.0% sulfur; (b) medium sulfur
coal means coal containing between 1.0% and 2.0% sulfur; and (c) high sulfur
coal means coal containing in excess of 2.0% sulfur.
10
<PAGE> 13
mining methods, abandonments, reserve studies conducted by independent mine
consulting firms and other relevant information.
All measured or indicated reserves referred to in the table at page 10 can
be mined by current mining practices and techniques. In addition, MAPCO's
available coal resources include incremental tons in excess of the indicated or
measured tons that may be mined in the future following potential improvements
in mining equipment and techniques. For economic and other operational reasons,
a portion of MAPCO's reserves described at page 10 may be mined only after the
construction of additional mining facilities and additional capital investment.
Nevertheless, the extent to which all of the coal in MAPCO's recoverable
reserves will eventually be mined will depend on a myriad of factors, including
but not limited to, future domestic and foreign economic and energy supply
conditions, coal mining practices and capabilities and governmental regulations.
See "Regulations and Environmental Matters" at page 12.
The reserve classifications in the table referred to at page 10 have been
determined using the following criteria:
Measured -- Accessed and virgin coal that lies within a radius of 1/4
mile of a point of thickness of coal measurement. The sites for thickness
measurement are so closely spaced and the geologic character so well
defined that the average thickness, areal extent, size, shape and depth of
coal beds are well established. This classification has the highest degree
of geologic assurance.
Indicated -- Virgin coal that lies between 1/4 mile and 3/4 mile from
a point of thickness of coal measurement. The assurance, although lower
than for measured, is high enough to assume continuity between points of
measurement. There are no sample and measurement sites in areas of
indicated coal and the classification has a moderate degree of geologic
assurance.
COMPETITIVE CONDITIONS
The coal industry is highly competitive. MAPCO's Coal segment competes with
many other large coal producers, several of which may have greater coal reserves
or more substantial financial resources, as well as the hundreds of small and
medium-sized producers in North America and abroad. Additionally, in the last
several years, a consolidation of the coal industry has been occurring, and is
expected to continue, as evidenced by various mergers and/or reorganizations
involving coal companies and coal properties.
In many cases, the Coal segment faces competitors, particularly in the
export market, which benefit from favorable exchange rates, government-supported
or subsidized coal production, lower costs by virtue of such factors as less
difficult mining conditions, less severe governmental regulations, and lower
transportation costs, all of which may provide a competitive advantage with
respect to price. Steam coal also competes with other fuels and energy sources,
including oil, natural gas, hydroelectric power, solar and nuclear energy.
In addition to the factors of price, availability and public acceptance of
alternative energy sources, the impact of federal energy policies and taxation
may have an impact on MAPCO's Coal segment. MAPCO is not able to predict at this
time the effect, if any, on the Coal segment's operations of any changes in
federal energy or tax policy and its concurrent impact or the particular pricing
levels of competing fuels (i.e., oil and natural gas). Nevertheless, any
sustained and marked increase in the cost of coal sold resulting from any
governmental imposition, tax or other, could have a material adverse effect on
such business, both domestic and abroad.
In 1995, based upon data established by the U.S. Department of Labor's Mine
Safety and Health Administration, MAPCO ranked 20th in total production among
U.S. coal producers. While MAPCO's Coal segment's annual production accounts for
only about 1.2% of the United States' coal production, MAPCO believes that it
will remain competitive due to its above-average productivity per man day and
sufficient financial resources, the latter of which enables MAPCO to employ
reasonably modern and efficient production equipment.
11
<PAGE> 14
REGULATIONS AND ENVIRONMENTAL MATTERS
MAPCO's Coal segment, as well as the domestic coal industry, is subject to
the U.S. Department of Labor's Mine Safety and Health Administration's
comprehensive regulatory requirements and guidelines. In addition, MAPCO's coal
mining operations are subject to regulation with respect to its environmental
effects, including air and water quality control, reclamation of disturbed
surface land, limitations on land use, solid waste and industrial waste
disposal, noise, aesthetics and other matters by various federal, regional,
state and local authorities. In this connection, numerous permits are required
for construction projects and for the operation of existing facilities.
Additionally, such operations are subject to state and federal health and safety
rules and regulations. In general, compliance with these health and safety laws
is a cost common to all producers to some extent. MAPCO believes that the Coal
segment's competitive position has not been, nor should it be, adversely
impacted by these laws and regulations, except in the export market where
MAPCO's Coal segment competes with various foreign producers subject to less
stringent health and safety regulations.
In 1990, Congress enacted the Clean Air Act Amendments of 1990 ("Clean Air
Act") which imposed, among other things, additional controls on the emissions of
sulfur dioxide ("SO(2)") and nitrogen oxides from coal-fired power plants. About
seventy-five percent of the high sulfur coal produced from MAPCO's Illinois
Basin operations is sold pursuant to long-term agreements for use in electric
utility generating units which are currently fitted with flue gas
desulfurization systems for the removal of SO(2) emissions. Since implementation
of the provisions of the Clean Air Act, these generating units have used, and
MAPCO believes they will continue to use, its Illinois Basin coals. The primary
utility customers for the medium sulfur coal produced at MAPCO's Mettiki Mine in
western Maryland have installed scrubbers as their compliance strategy. MAPCO's
east Kentucky and Virginia operations produce both low sulfur and compliance
coals. Compliance coals are generally coals that have SO(2) content less than or
equal to 1.20 lbs. per million BTU.
MAPCO's Coal segment is subject to various federal, state, and local
environmental laws, including but not limited to, the Clean Water Act, the Clean
Air Act and the Safe Drinking Water Act as well as mining and reclamation
standards of the Surface Mining Control and Reclamation Act of 1977 and the
regulations promulgated thereunder. It is the policy of the Coal segment to
operate in compliance with such standards, laws and regulations. MAPCO believes
that this policy will not substantially affect its ability to compete with
similarly situated and complying competitors in the marketplace. Present
compliance is largely a result of capital expenditures made in prior years and
of current maintenance and monitoring activities conducted in the ordinary
course of business. Although the coal industry is subject to these numerous
environmental regulations, MAPCO's Coal segment did not incur in 1995 any
material capital expenditures in order to comply with applicable federal, state
and local environmental laws and regulations. No material capital expenditures
are anticipated for environmental control facilities for 1996 with respect to
MAPCO's Coal segment's operations.
EXECUTIVE OFFICERS OF MAPCO INC.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES PRESENTLY YEAR FIRST
NAME AGE HELD WITH REGISTRANT BECAME OFFICER
- ------------------------------ --- --------------------------------------------- --------------
<S> <C> <C> <C>
James E. Barnes............... 62 Chairman of the Board, President and Chief
Executive Officer 1983
Philip W. Baxter.............. 47 Senior Vice President and Chief Financial
Officer 1985
David W. Bowman............... 55 Senior Vice President, General Counsel and
Secretary 1987
Joseph W. Craft III........... 45 Senior Vice President -- Coal 1982
W. Jeffrey Hart............... 54 Senior Vice President -- Petroleum 1983
Jack D. Maynard............... 52 Senior Vice President -- Human Resources and
Administration 1984
Donald A. Nyberg.............. 44 Vice President -- Strategic Planning 1996
Robert G. Sachse.............. 47 Senior Vice President -- Natural Gas Liquids 1993
Gordon E. Schaechterle, 41 Vice President, Controller and Tax
Jr. ........................ 1995
Donald R. Wellendorf.......... 43 Vice President, Treasurer and Investor
Relations 1994
</TABLE>
12
<PAGE> 15
During 1995, two of MAPCO's executive officers elected to take early
retirement and one executive officer retired on his normal retirement date.
Each of the executive officers named above are elected annually by the
directors of MAPCO and serve at the directors' discretion. Each individual named
above has been an officer or employee of MAPCO for at least the past five years,
except for Donald A. Nyberg, who was elected by the Board of Directors on March
26, 1996. Prior to joining MAPCO, from August of 1994 to January of 1996, Mr.
Nyberg was a private investor and consultant in Houston, Texas, operating under
the name Marya Resources. From January of 1991 to July of 1994, Nyberg was
President of BP Pipeline Inc. (Alaska) and Vice President of BP Exploration Inc.
in Anchorage, Alaska.
There are no family relationships between or among any of the above-named
persons or between or among any of the above-named persons and any directors of
MAPCO.
EMPLOYEES
As of December 31, 1995, MAPCO and its subsidiaries had 6,204 employees. Of
the total number of employees, 2,140 were employed in the Natural Gas Liquids
segment; 2,469 in the Petroleum segment; 1,345 in the Coal segment; and 250 in
the general corporate area. Less than three percent of MAPCO's work force is
unionized and covered by collective bargaining agreements. Such an agreement has
been entered into with the Oil Chemical and Atomic Workers Union covering 165
employees in the Petroleum segment.
ITEM 2. PROPERTIES.
All the various physical properties are discussed in PART I, Item 1, SUPRA,
pertaining to MAPCO's business.
ITEM 3. LEGAL PROCEEDINGS.
LITIGATION.
Texas Explosion Litigation
On April 7, 1992, a liquefied petroleum gas explosion occurred near an
underground salt dome storage facility located near Brenham, Texas and owned by
an affiliate of the Company, Seminole Pipeline Company ("Seminole"). The
National Transportation Safety Board and the Texas Railroad Commission
essentially determined that the probable cause of the explosion was the result
of overfilling the storage facility.
The Company, as well as Seminole, Mid-America Pipeline Company, MAPCO
Natural Gas Liquids Inc. and other non-MAPCO entities have been named as
defendants in civil actions filed in state district courts in Texas. During
1993, Seminole received reimbursements from its insurers for settlements which
disposed of all of the death claims and substantially all of the serious injury
claims resulting from the incident. Generally, the types of remaining claims
consist of personal injury, mental anguish and property damage claims, coupled
with theories of nuisance and diminished property value.
In March 1996, a judgment was rendered in a case tried in the state
district court in Houston, Texas against Seminole, Mid-America Pipeline Company
and MAPCO (the "defendants"). The judgment totaled approximately $72 million in
actual damages, exemplary damages and interest, with only $5.4 million
pertaining to actual damages found by the jury. The defendants have requested a
new trial and will also pursue an appeal, if necessary.
The plaintiffs in cases which remain to be tried in Harris, Maverick and
Washington counties in Texas, seek unspecified amounts for actual and exemplary
damages.
Management believes that it has defenses of considerable merit and will
vigorously litigate all pending disputes and/or seek settlements favorable to
the Company, but is not able to predict the ultimate outcome of these matters at
this time. The Company has accrued a liability representing an estimate of
amounts it may incur in connection with the final resolution of all the
remaining claims related to the explosion. The Company
13
<PAGE> 16
has also recorded a receivable which corresponds to the remainder of its
insurance coverage to be reimbursed by its insurance carrier. Resolutions
unfavorable to the Company could result in material liabilities and charges
which have not been reflected in the accompanying consolidated financial
statements.
Seminole Loop/Aquila-LaGrange Line Litigation
In May 1993, Seminole completed its Seminole loop project and in January
1994, Seminole completed its Aquila-LaGrange line project. Seminole is the
plaintiff in over 70 eminent domain lawsuits in which defendant landowners claim
additional compensation for and/or damages to tracts of land traversed by these
projects in 12 counties in the state of Texas. Many of the lawsuits claim
punitive damages for alleged fraud, illegal entry and other wrongful conduct.
Claims in this litigation are not covered by the Company's insurance.
The Company believes that complete resolution of the Seminole
loop/Aquila-LaGrange line litigation will not have a material adverse effect on
the Company's business, results of operations or consolidated financial
position.
Retiki Mine Contract Litigation
The Coal segment's Retiki Mine sold all of its production to Big Rivers
Electric Corporation ("Big Rivers") under a cost-plus fee management contract
that was scheduled to terminate in mid-January 1996. The Retiki Mine was
expected to close concurrently with contract expiration. MAPCO Coal's Webster
County Coal Corporation subsidiary ("Webster County") has invoiced Big Rivers
for certain costs associated with the operation of the Retiki Mine which Big
Rivers has declined to pay. A breach of contract and declaratory judgment action
was initiated by Webster County against Big Rivers in mid-January 1994, in order
to collect the invoiced amounts due from Big Rivers as well as to obtain a
declaratory judgment by which Big Rivers would be determined to be liable for
other operating costs associated with the Retiki Mine.
In January of 1995, Webster County and Big Rivers entered into a limited
settlement agreement partially resolving this dispute and leading to the
immediate cessation of production of coal at the Retiki Mine. Under the terms of
the partial settlement agreement, Webster County continued to supply Big Rivers
with the total tons of coal that would have been delivered during the remaining
term of the contract, but from alternative sources. A trial on the issues which
remained in dispute was conducted in October and November of 1995 with a verdict
expected from the presiding judge late in 1996 or the first half of 1997.
ENVIRONMENTAL.
Memphis Refinery
On September 2-3, 1993, the Environmental Protection Agency ("EPA"), Region
IV, conducted an inspection of MAPCO Petroleum Inc.'s ("MPI") Memphis Refinery
to evaluate the Refinery's compliance status under the New Source Performance
Standards ("NSPS") promulgated under Section 111 of 42 U.S.C. sec.7411.
Following the inspection, the EPA issued a Notice of Violation to MPI dated May
5, 1994. This notice requested that MPI respond with requested information
relevant to various alleged Clean Air Act violations. After MPI furnished the
requested information, a meeting between MPI and the EPA was held June 9, 1994
to discuss the alleged violations. Subsequently, additional negotiations between
MPI and the EPA have occurred resulting in a tentative settlement under which
MPI will pay the EPA a penalty of $95,000, together with MPI's agreement to
perform a Substitute Environmental Project (replacement of pumps at the
Refinery) having a capital value of approximately $250,000. The terms and
conditions of the Consent Decree under which the five (5) outstanding NSPS
violations will be settled is expected to be executed by MPI and the EPA by
August 1, 1996.
North Pole Refinery.
During the week of May 10-14, 1993, the EPA, Region X, conducted a
multimedia inspection at MAPCO Alaska Petroleum Inc.'s ("MAPI") North Pole
Refinery located near Fairbanks, Alaska. Following the inspection, the EPA
issued two Information Requests pursuant to Section 114 of the Clean Air Act,
14
<PAGE> 17
42 U.S.C. sec.7414. Each request, to which MAPI timely responded, related to
NSPS under Subparts J, Kb, UU, XX, GGG, and QQQ of 40 CFR Part 60.
On June 9, 1995, the U.S. Department of Justice, Environmental and Natural
Resources Division, served written notice upon MAPI of civil claims under the
NSPS of the Clear Air Act. All civil claims relate to the same general areas of
the NSPS described in the preceding paragraph. Although the Department of
Justice indicated a willingness to bring suit against MAPI in federal court for
recovery of civil penalties and injunctive relief, the Department of Justice
offered to defer litigation if MAPI would enter into settlement negotiations
with the Department of Justice.
Settlement discussions with the Department of Justice and the EPA, Region
X, commenced in July of 1995 and have continued up to the present date. During
such discussions, considerable focus has been given to the merit of MAPI's legal
and equitable defenses raised as to the various alleged violations. It is MAPI's
belief that its defenses are exceedingly strong and will result in substantial
reduction of the Department of Justice's initial penalty calculations. Although
the eventual agreed to settlement sum and resulting penalty will not be material
to MAPI, or its parent, MPI, it is anticipated that the penalty subsequently
assessed against MAPI will be in excess of $100,000.
It is expected that the Department of Justice and MAPI will reach a
mutually agreeable settlement of the pending dispute. It is MAPI's intent to
continue settlement discussions with the Department of Justice in expectation of
resolving this dispute during 1996.
GENERAL
The Company and its subsidiaries are involved in various other lawsuits,
claims and regulatory proceedings incidental to their businesses. In the opinion
of management, the outcome of such matters will not have a material adverse
effect on the Company's business, consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding the market for MAPCO's common equity and related
stockholder matters is set forth herein at pages 26-27.
ITEM 6. SELECTED FINANCIAL DATA.
The following table contains selected financial data for the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and Operating Revenues................... $3,310.0 $3,059.3 $2,715.3 $2,786.8 $2,782.8
Net Income..................................... $ 74.7 $ 79.1 $ 127.0 $ 100.7 $ 125.9
Earnings per Common Share...................... $ 2.51 $ 2.64 $ 4.24 $ 3.37 $ 4.20
Cash Dividends Declared per Common Share....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Working Capital................................ $ 268.3 $ 52.5 $ 73.3 $ 65.3 $ 66.8
Total Assets................................... $2,293.3 $2,166.1 $1,961.1 $1,911.7 $1,702.3
Long-Term Debt (excluding current
maturities).................................. $ 801.0 $ 720.9 $ 585.5 $ 669.4 $ 638.8
Stockholders' Equity........................... $ 642.3 $ 622.6 $ 574.3 $ 477.5 $ 412.7
</TABLE>
15
<PAGE> 18
In January 1996, MAPCO announced that it had signed a letter of intent with
Beacon to form a limited liability company which will own substantially all of
the net assets of MAPCO Coal Inc. and MC Mining Inc. The transaction is expected
to close in the second quarter of 1996. Beacon will own 75 percent of the new
company and MAPCO will own 25 percent. Seventy-five percent of the net assets of
MAPCO Coal Inc. and MC Mining Inc. that are a part of the transaction have been
classified as current assets in 1995, which had the impact of increasing working
capital by $190.5 million. Also during January 1996, Thermogas Company, a
wholly-owned subsidiary of MAPCO Natural Gas Liquids Inc., announced that it had
signed an agreement to sell its Iowa propane and liquid fertilizer assets to
CENEX Inc. The transaction also involves the sale to CENEX Inc. of the remaining
Thermogas liquid fertilizer assets in Arkansas, Illinois, Indiana, Minnesota,
Ohio and Wisconsin. The net assets of Thermogas Company which are a part of this
transaction were classified as current assets which had the impact of increasing
working capital by $10.1 million.
Net income in 1995 was reduced $18.8 million for charges associated with
applying SFAS No. 121 and $6.5 million for severance and early retirements
associated with reorganizations in the Natural Gas Liquids segment and
Corporate.
On September 1, 1994, MAPCO completed the acquisition of certain assets of
Emro Propane Company. The purchase price included a $186 million cash payment
and the transfer to Emro Marketing Company of the retail convenience store
assets of MAPCO Florida Inc.
During 1994, MAPCO settled its long-standing dispute with the state of
Alaska relative to its royalty oil purchase agreements. Refer to Management's
Discussion and Analysis of Financial Condition and Results of Operations on
pages 16 through 27 and Note 12 -- Commitments and Contingencies to MAPCO Inc.'s
consolidated financial statements on page F-19 for further information regarding
the impact of this settlement on MAPCO's financial condition and results of
operations.
During 1995, 1994, 1993, 1992 and 1991, MAPCO purchased a total of 581,600,
148,466, 101,949, 288,100 and 463,871 shares, respectively of its common stock
on the open market at a cost of $31.1 million, $8.7 million, $6.2 million, $16.5
million and $20.2 million, respectively. At January 31, 1991, MAPCO had the
authority from its Board of Directors to repurchase 2.5 million shares primarily
for employee stock option and other benefit plans. As of December 31, 1995,
1,583,986 shares had been purchased at a cost of $82.7 million under this
authority.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of MAPCO Inc. and its subsidiaries'
("MAPCO" or the "Company") financial condition and results of operations should
be read in conjunction with the financial statements and segment information
presented on pages F-2 through F-22 of this report.
FINANCIAL CONDITION
CASH GENERATION
Cash generation (usage) was as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Funds provided by operations............................... $ 249 $ 214 $ 246
Changes in operating assets and liabilities................ (19) (79) 7
----- ----- -----
Net cash provided by operating activities.................. 230 135 253
Net cash used in investing activities...................... (244) (293) (123)
Net cash provided by (used in) financing activities........ 17 119 (116)
----- ----- -----
Cash generation (usage).................................... $ 3 $ (39) $ 14
===== ===== =====
</TABLE>
16
<PAGE> 19
The increase in funds provided by operations in 1995 was primarily due to
lower operating profit in the Petroleum segment in 1994 resulting from the State
Royalty Oil settlement. (See comments under Results of Operations on page 19 for
additional information regarding segment operating results.)
The negative impact of the changes in operating assets and liabilities of
$79 million in 1994 primarily resulted from the decrease in litigation reserves
and taxes payable as a result of the State Royalty Oil settlement.
Capital expenditures and acquisitions in 1995 were $251 million, of which
$69 million was for capital items necessary to maintain existing operations.
Capital expenditures and acquisitions in 1994 were $304 million, of which $65
million was for capital items necessary to maintain existing operations. Capital
expenditures in 1995 included $82 million for the expansion of the Rocky
Mountain Pipeline System, $30 million for capital improvements at the Memphis
Refinery, $12 million related to the expansion of the Martiki mine, $11 million
for the acquisition of 27 retail gasoline/convenience stores in the Nashville,
Tennessee, market area and $16 million for environmental projects. Capital
expenditures in 1994 included $186 million for the acquisition of the assets of
Emro Propane Company ("Emro") and $6 million for environmental projects.
Financing activities in 1995 included a net increase in short-term
borrowings of $105 million used primarily for capital expenditures, the payment
of $26 million of Medium Term Notes, the payment of $30 million of dividends and
the repurchase of 581,600 shares of MAPCO common stock for $31 million pursuant
to MAPCO's authorized stock repurchase program. Financing activities in 1994
included a net increase in short-term borrowings of $165 million used primarily
for the acquisition of the assets of Emro and payment of the State Royalty Oil
settlement. Other financing activities in 1994 included payment of an $8 million
scheduled maturity of a Medium Term Note, payment of $30 million of dividends
and the repurchase of 148,466 shares of MAPCO common stock for $9 million
pursuant to the Company's stock repurchase program.
CAPITALIZATION
Capitalization, which includes long-term debt (excluding current
maturities) and stockholders' equity, increased from $1,344 million at December
31, 1994, to $1,443 million at December 31, 1995. The increase represents the
favorable impact of 1995 operating results on stockholders' equity and the net
increase in short-term debt, partially offset by the repurchase of MAPCO common
stock and the payment of dividends. MAPCO's long-term debt as a percentage of
capitalization increased from 54% at December 31, 1994, to 56% at December 31,
1995.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two of Natural Gas
Liquids' subsidiaries to MAPCO. At December 31, 1995, $190 million of net assets
were restricted by such provisions.
LIQUIDITY AND CAPITAL RESOURCES
MAPCO's primary sources of liquidity are its cash and cash equivalents,
internal cash generation and external financing. At December 31, 1995, MAPCO's
cash and cash equivalents were $33 million compared to $31 million at December
31, 1994.
MAPCO's external financing sources include its bank credit agreements and
its ability to issue public or private debt, including commercial paper. MAPCO's
bank credit agreements represent a total committed line of credit of $350
million. The commitment under the first bank credit agreement is for $300
million and reduces in quarterly amounts of $25 million commencing June 30,
1998. In December 1995, MAPCO obtained an additional $50 million commitment
under a bank credit agreement which matures in December 1996. Both agreements
serve as a back-up for outstanding commercial paper and for borrowings against
bank money market lines. As of December 31, 1995, no borrowings were outstanding
under the bank credit agreements.
In 1990, MAPCO filed a shelf registration statement with the Securities and
Exchange Commission providing for the issuance of up to $400 million of debt
securities. As of December 31, 1995, MAPCO had
17
<PAGE> 20
outstanding $309 million of Medium Term Notes issued pursuant to this
registration. MAPCO has the authorization to issue up to an additional $47
million of Medium Term Notes. The proceeds from any debt issued under the shelf
registration statement have been and will continue to be used for general
corporate purposes, including working capital, capital expenditures, reduction
of other debt and acquisitions.
In January 1996, MAPCO announced that it had signed a letter of intent with
The Beacon Group Energy Investment Fund LP ("Beacon") to form a limited
liability company which will own substantially all of the net assets of the Coal
segment (see Notes 3 and 16 to the consolidated financial statements for further
discussion of this issue). The transaction will provide MAPCO with approximately
$280 million of proceeds with the potential to receive up to an additional $35
million from the development of certain coal reserves. Also in January 1996, the
Company signed an agreement to sell its Thermogas Iowa propane and liquid
fertilizer assets to CENEX Inc. The transaction also involves the sale to CENEX
Inc. of the remaining Thermogas liquid fertilizer assets in Arkansas, Illinois,
Indiana, Minnesota, Ohio and Wisconsin (see Notes 3 and 16 to the consolidated
financial statements for further discussion of this issue). In connection with
this transaction, the Company expects to receive approximately $36 million in
cash plus working capital. MAPCO anticipates the majority of the proceeds from
these transactions will be used for capital expenditures, share repurchases
and/or debt reduction.
On September 1, 1994, MAPCO completed the acquisition of the assets of Emro
which included the transfer to Emro Marketing Company of MAPCO Florida Inc.'s
retail convenience store assets in Florida. The cash payment for this
acquisition has been reflected in the capital expenditures for 1994. MAPCO
financed this acquisition primarily through the issuance of commercial paper and
bank money market lines.
MAPCO's existing debt and credit agreements contain covenants which limit
the amount of additional indebtedness the Company can incur. Management
believes, however, that MAPCO has sufficient capacity to fund its anticipated
needs.
Capital expenditures in 1996, exclusive of the above-mentioned
transactions, are currently expected to be about $130 million, of which $76
million will be for expansion projects and $12 million for environmental
projects. MAPCO expects to utilize cash from operations, short-term funding
sources and proceeds from the sale of assets, as needed, to meet anticipated
1996 capital expenditures. MAPCO's long-term liquidity is expected to increase
since cash from operations is anticipated to exceed currently projected capital
expenditures, environmental projects, debt service and dividends. MAPCO
anticipates that future excess internal cash generation will be used primarily
for debt reduction and to fund new capital projects.
INFLATION
During the past five years, MAPCO has benefitted from the relatively low
rates of inflation experienced in the United States. MAPCO's operating costs are
influenced to a greater extent by specific price changes in oil and gas and
related industries than by changes in general inflation. Crude, refined product
and natural gas liquids ("NGL") prices are particularly sensitive to OPEC
production levels and/or the attitudes of traders concerning the supply and
demand balance in the near future. These costs could increase with a possible
adverse effect on MAPCO's profitability. Although every effort will be made to
do so, it is possible that MAPCO, like many other companies, may not be able to
adjust its sales prices to maintain parity with inflation-driven operating
costs.
The Company attempts to minimize the impact of inflation on operating costs
through on-going productivity improvements and cost-reduction programs.
Significant volumes of MAPCO Coal's production are sold pursuant to long-term
contracts that provide for cost adjustments which are generally inflation-
related. MAPCO Petroleum uses the last-in, first-out method of inventory
valuation for crude oil, refined petroleum products and retail merchandise
inventories. This method of inventory valuation results in cost of sales which
more closely represent current costs.
18
<PAGE> 21
OTHER
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
which encourages, but does not require, employers to adopt a fair value method
of accounting for stock-based employee compensation, and which requires certain
disclosures about costs associated with stock-based employee compensation plans.
MAPCO will not adopt the fair value method of accounting for stock-based
employee compensation but will continue to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. MAPCO will adopt the
disclosure requirements of SFAS No. 123 in 1996, which will have no effect on
the Company's financial position, liquidity or results of operations.
MAPCO maintains property and liability insurance at limits believed to be
sufficient to cover estimated potential risks. Losses up to deductible amounts
of the various coverages would not have a material effect on MAPCO's financial
position, liquidity or results of operations.
RESULTS OF OPERATIONS
INCOME STATEMENT
1995 Results Compared to 1994
Net income was $75 million in 1995 compared to $79 million in 1994.
Excluding unusual items, net income was $100 million in 1995 and $125 million in
1994. Net income in 1995 was reduced by $19 million for the impact of applying
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, and $6 million for reorganization charges. Net
income in 1994 was reduced by $46 million for the impact of the State Royalty
Oil settlement. Earnings per common share, before the impact of the above-noted
charges, were $3.36 in 1995 and $4.16 in 1994. Reported earnings per common
share were $2.51 in 1995 and $2.64 in 1994. Average common shares outstanding
were 29.7 million in 1995 and 30.0 million in 1994.
Sales and operating revenues by segment were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Natural Gas Liquids................................................ $ 877 $ 825
Petroleum.......................................................... 2,001 1,828
Coal............................................................... 453 425
Eliminations....................................................... (21) (19)
------ ------
$3,310 $3,059
====== ======
</TABLE>
Sales and operating revenues increased $251 million in 1995, principally
due to increased sales in the Petroleum segment. Higher average refined
petroleum product sales prices in the Mid-South region, increased demand for
diesel fuel and naphtha on the West Coast and in the Asian markets and increased
petroleum trading activities were the principal reasons for the increase in
Petroleum segment sales. Petroleum trading activities, other than for refinery
supply and risk management purposes, were discontinued during the 1995 third
quarter. Natural Gas Liquids' sales and operating revenues increased $52 million
primarily because of increased propane and appliance sales and higher Westpan
revenues. These increases were partially offset by lower NGL trading and
transportation revenues. Propane and appliance sales increased significantly
over 1994 because of additional sales volumes from operating the retail plants
acquired from Emro. Westpan revenues increased over 1994 primarily because of
higher prices and condensate volumes which more than offset the impact of lower
NGL volumes. NGL trading revenues decreased in 1995 primarily because of
unusually heavy trading activity in December 1994. Transportation revenues
decreased in 1995 principally because deliveries of demethanized mix to the Gulf
Coast markets were significantly curtailed. Low ethane prices throughout 1995
prompted producers in the Rocky Mountain region to leave ethane in the gas
stream and sell the product as natural gas. Increased volumes from new plant
connections and plant expansions partially offset
19
<PAGE> 22
the impact of lower demethanized mix shipments to the Gulf Coast. The $28
million increase in Coal sales and operating revenues was primarily attributable
to higher production and sales volumes at the Martiki and Pontiki mines and
increased brokerage sales volumes. These increases were partially offset by
lower sales volumes from the Retiki mine which was closed in January 1995.
Production increased at the Martiki mine because of lower overburden stripping
ratios which resulted from moving mining operations to a new reserve area during
1995 and from the installation of new equipment. Pontiki's productivity increase
reflects the installation of new mining equipment and improved employee morale.
Brokerage volumes increased primarily because of a new brokerage arrangement
with a large customer and from supplying Big Rivers Electric Corporation ("Big
Rivers") with brokerage tons in lieu of amounts previously supplied from the
Retiki mine.
Outside purchases and operating expenses by segment are provided below (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994
---------------------- ----------------------
OUTSIDE OPERATING OUTSIDE OPERATING
PURCHASES EXPENSES PURCHASES EXPENSES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Natural Gas Liquids.......................... $ 465 $ 185 $ 436 $ 188
Petroleum.................................... 1,722 174 1,515 234
Coal......................................... 81 286 44 301
------ ---- ------ ----
$ 2,268 $ 645 $ 1,995 $ 723
====== ==== ====== ====
</TABLE>
Outside purchases in 1995 increased $273 million from 1994. The $29 million
increase in outside purchases by Natural Gas Liquids reflects increased
purchases of propane and appliances attributable to the Emro operations, which
were partially offset by lower trading activity. Petroleum's outside purchases
increased $207 million primarily because of higher crude prices, increased
volumes and increased petroleum trading activities. Petroleum trading
activities, other than for refinery supply and risk management purposes, were
discontinued during the 1995 third quarter. Coal's outside purchases were $37
million higher than 1994 reflecting increased brokerage volumes.
Operating expenses in 1995 were $78 million lower than 1994. Excluding the
$69 million Alaska State Royalty Oil settlement charge in 1994, operating
expenses were $9 million lower than 1994. Natural Gas Liquids' operating
expenses decreased $3 million, despite higher operating expenses from the Emro
operations, principally because of: (a) decreased pipeline power costs resulting
from lower natural gas prices, (b) the favorable impact on 1995 costs from the
buy-out of a gas supply contract in 1994, (c) decreased Westpan expenses in 1995
after the expiration of a volume subsidy agreement at the end of 1994 and (d)
gains recognized from the sale of a depropanizer unit and certain retail propane
plants in 1995. Operating expenses in Petroleum decreased $60 million; however,
excluding a $69 million charge in 1994 attributable to the Alaska State Royalty
Oil settlement and an $8 million favorable crude pricing settlement in 1995,
operating expenses increased $17 million. This increase is due primarily to: (a)
a $3 million charge for surplus and obsolete assets at the Memphis Refinery
written-off after completion of a scheduled four-year turnaround in 1995, (b)
high maintenance costs at the Memphis Refinery during the four months prior to
the start of the turnaround, (c) higher utility costs at the North Pole Refinery
and (d) increased Retail Marketing labor and advertising costs. Coal's operating
expenses decreased $15 million due to decreased expenses from closing the Retiki
mine and lower costs associated with the productivity improvements at the
Martiki and Pontiki mines.
Selling, general and administrative expense was $5 million higher in 1995
primarily because of: (a) increases in outside services associated with various
reengineering efforts, (b) higher payroll and payroll-related expenses and (c)
relocation charges during 1995 in the Petroleum segment.
Depreciation, depletion and amortization was $111 million in 1995 and $103
million in 1994. The increase in these expenses was primarily attributable to
depreciation and amortization charges associated with the Emro assets acquired
in 1994, and increased units-of-production depreciation charges associated with
the higher production volumes and capital additions at the Martiki and Pontiki
mines.
20
<PAGE> 23
Interest and debt expense was $58 million in 1995 compared to $53 million
in 1994. Higher debt levels, resulting from the Emro acquisition, the payment of
the State Royalty Oil settlement and capital projects in 1995, and higher
interest rates were the principal reasons for the increase.
Unusual items in 1995 consist of a $30 million charge associated with
applying SFAS No. 121 and $10 million of charges associated with reorganizations
in the Natural Gas Liquids' segment and in Corporate.
MAPCO's effective tax rate for 1995 was 32.6% compared to 30.8% in 1994.
The difference between the statutory Federal income tax rate of 35% and the
effective tax rate for 1995 and 1994 was primarily due to statutory depletion,
partially offset by state income taxes.
1994 Results Compared to 1993
Net income was $79 million in 1994, a $48 million decrease from the $127
million reported in 1993. Net income in 1994 was reduced $46 million by the
impact of the State Royalty Oil settlement. Earnings per common share were $4.16
in 1994, before the $1.52 per share impact of the State Royalty Oil settlement,
compared to $4.24 in 1993. Net income and earnings per share in 1993 included
$0.12 per share of mostly non-recurring charges. Average common shares
outstanding were 30.0 million in both 1994 and 1993.
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Natural Gas Liquids................................................ $ 825 $ 715
Petroleum.......................................................... 1,828 1,604
Coal............................................................... 425 414
Eliminations....................................................... (19) (18)
------ ------
$3,059 $2,715
====== ======
</TABLE>
The $344 million increase in sales and operating revenues was due
principally to a change in strategies associated with trading activities in the
Petroleum segment. Natural Gas Liquids' sales and operating revenues increased
$110 million due to additional propane sales volumes resulting from the
September 1, 1994, Emro acquisition and higher transportation revenues. These
increases were partially offset by decreased trading activities. The increase in
transportation revenues resulted from: (a) increased deliveries of demethanized
mix as higher Gulf Coast ethane prices prompted increased ethane recovery by
producers, (b) additional throughput volumes from new plant connections and (c)
a new long-term contract with a major customer. Petroleum segment sales and
operating revenues increased $224 million over 1993. Trading strategies employed
in 1994 involved the purchase and sale of actual product in contrast to 1993
when trading was conducted primarily on the New York Mercantile Exchange where
physical ownership of wet barrels is not required. The $11 million increase in
Coal sales and operating revenues was primarily attributable to higher
production and sales volumes at the Mettiki mine and higher brokerage sales
volumes. Coal revenues also benefitted from index-driven contract price
increases and two new long-term sales contracts.
Outside purchases and operating expenses by segment are provided below (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993
----------------------- -----------------------
OUTSIDE OPERATING OUTSIDE OPERATING
PURCHASES EXPENSES PURCHASES EXPENSES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Natural Gas Liquids....................... $ 436 $ 188 $ 478 $ 162
Petroleum................................. 1,515 234 1,170 160
Coal...................................... 44 301 33 293
------ ---- ------ ----
$ 1,995 $ 723 $ 1,681 $ 615
====== ==== ====== ====
</TABLE>
Outside purchases in 1994 increased $314 million from 1993. Natural Gas
Liquids' outside purchases decreased $42 million despite additional purchases
added by the Emro operations. The decrease in non-Emro purchases was
attributable to lower propane prices, decreased trading purchases and reduced
volumes from
21
<PAGE> 24
operating fewer retail stores. Petroleum's outside purchases increased $345
million reflecting significantly higher petroleum trading activities. The $11
million increase in Coal's outside purchases reflects higher brokerage volumes.
Operating expenses in 1994 were $108 million higher than 1993. Natural Gas
Liquids' operating expenses increased $26 million principally due to: (a) the
incremental operating costs associated with the Emro operations, (b)
refurbishing a portion of pipeline in connection with a new long-term contract,
(c) costs associated with the buy-out of a gas supply contract and (d) higher
product storage costs. Operating expenses in Petroleum increased $74 million, of
which $69 million is attributable to the State Royalty Oil settlement. Excluding
the State Royalty Oil settlement and $12 million of unusual items ($8 million
received relative to a North Pole Refinery contract settlement and $4 million
received from a North Pole Refinery environmental claim) which reduced 1993
operating expenses, 1994 expenses were $7 million less than in 1993 primarily
due to lower fuel costs at the North Pole Refinery. Coal's operating expenses
increased $8 million primarily as a result of higher operating levels and
increased overburden removal costs at the Martiki mine, higher production levels
at the Mettiki mine and reduced productivity at the Pontiki, Dotiki and Pattiki
mines.
Depreciation, depletion and amortization was $103 million in 1994 and $97
million in 1993. The increase was primarily attributable to: (a) depreciation
and amortization associated with the Emro assets acquired in 1994, (b) a full
year of depreciation for the 1993 Seminole Pipeline expansion and (c) additional
costs associated with the phasing-out of conventional mining equipment in
conjunction with the conversion to continuous mining equipment at the Dotiki and
Pattiki mines.
Interest and debt expense was $53 million in 1994 compared to $47 million
in 1993. Higher debt levels resulting from the Emro acquisition and State
Royalty Oil settlement, and higher interest rates were the principal reasons for
the increase.
MAPCO's effective tax rate for 1994 was 30.8% compared to 36.7% in 1993.
The difference between the statutory Federal income tax rate of 35% and the
effective tax rate for 1994 and 1993 was primarily due to statutory depletion,
partially offset by state income taxes and, for 1993, the deferred tax impact of
the increase in the corporate income tax rate included in the Omnibus Budget
Reconciliation Act of 1993.
OPERATING PROFIT
1995 Results Compared to 1994
Operating profit by segment was as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
---- ----
<S> <C> <C>
Natural Gas Liquids................................................... $139 $131
Petroleum............................................................. 48 27
Coal.................................................................. 9 36
---- ----
$196 $194
==== ====
</TABLE>
Natural Gas Liquids Segment Results
The $8 million increase in 1995 operating profit was attributable to higher
Thermogas and Westpan profits, partially offset by lower transportation profits.
Thermogas' operating profit increased $8 million over 1994; however, excluding a
$3 million reorganization charge in 1995, Thermogas' profits increased $11
million over 1994. Incremental profits from the Emro operations, acquired in
September 1994, accounted for most of the $11 million increase. Westpan's
profits increased $5 million over 1994 as higher prices and a 42% increase in
condensate volumes more than offset a 23% NGL volume decrease. NGL and
condensate prices increased $2 and $1 per barrel, respectively, and subsidy
costs were lower. Transportation's operating profit decreased $5 million from
1994 due to a decrease in revenues coupled with higher operating expenses.
Excluding reorganization charges of $6 million in 1995, Transportation's
operating profit was comparable to 1994. Transportation revenues were $3 million
lower in 1995 principally because of lower demethanized mix shipments to the
Gulf Coast caused by decreased ethane recoveries. Transportation expenses
increased
22
<PAGE> 25
$2 million due to higher depreciation and employee benefit costs and a $6
million reorganization charge; however, these costs were largely offset by
decreased power and other expenses.
Petroleum Segment Results
Petroleum segment operating profit increased $21 million over 1994;
however, excluding a $69 million charge in 1994 related to the State Royalty Oil
settlement and an $8 million favorable crude pricing settlement in 1995,
operating profit decreased $56 million. The decrease in operating profit was
primarily attributable to lower margins and higher expenses at both the Memphis
and North Pole Refineries and lower Retail Marketing profits. Margins decreased
$0.73 per barrel at the Memphis Refinery primarily because higher crude costs
more than offset the increases in refined product sales prices. The lower
Memphis margins accounted for $20 million of the $56 million operating profit
decrease. Expenses at the Memphis Refinery increased $7 million because of: (a)
a $3 million charge to write-off surplus and obsolete equipment following the
turnaround in 1995, (b) a $1 million charge to relocate Tulsa-based employees to
Memphis and (c) higher-than-normal maintenance expense during the four months
prior to the start of the turnaround. Margins at the North Pole Refinery
decreased $1.29 per barrel because average crude costs increased during 1995
while product sales prices averaged close to 1994 amounts. Excluding the charge
in 1994 related to the State Royalty Oil settlement and the positive impact of
the crude pricing settlement in 1995, expenses at the North Pole Refinery
increased $7 million primarily due to higher utility costs. Retail Marketing's
operating profit decreased $5 million primarily due to higher labor and
advertising costs.
Coal Segment Results
Coal segment operating profit decreased $27 million; however, excluding the
$30 million charge associated with applying SFAS No. 121, Coal's operating
profit increased $3 million over 1994. The improvement reflects increased sales
volumes and reduced costs at the Martiki and Pontiki mines. Production increased
at the Martiki mine because of lower overburden stripping ratios which resulted
from moving mining operations to a new reserve area during 1995 and from the
installation of new equipment. Pontiki's productivity increase reflects the
installation of new mining equipment and improved employee morale. The
productivity improvements at Martiki and Pontiki were the principal reasons for
the decrease in costs at both mines.
1994 Results Compared to 1993
Operating profit by segment was as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1994 1993
---- ----
<S> <C> <C>
Natural Gas Liquids................................................... $131 $120
Petroleum............................................................. 27 108
Coal.................................................................. 36 47
---- ----
$194 $275
==== ====
</TABLE>
Natural Gas Liquids Segment Results
The $11 million increase in 1994 operating profit is primarily attributable
to $7 million contributed by the Emro operations which were acquired in 1994 and
an increase in transportation operating profit. Transportation operating profit
improved because revenue increases exceeded higher operating costs. (Increases
in Transportation's revenues and operating expenses are described in the Income
Statement section on page 19). Excluding the incremental operating profit from
Emro, retail propane operating profit decreased $4 million as a result of warmer
weather and operating fewer stores.
23
<PAGE> 26
Petroleum Segment Results
Petroleum segment operating profit decreased $81 million. A $69 million
charge related to the State Royalty Oil settlement accounted for most of the
change. The remaining $12 million decrease was primarily attributable to lower
refinery margins at the North Pole Refinery. Increased competition and a weaker
Alaska market were the principal reasons for the lower North Pole refined
product margins.
Coal Segment Results
Coal segment operating profit decreased $11 million primarily due to higher
production costs at the Dotiki, Pattiki, Pontiki and Martiki mines. These higher
costs were partially offset by the positive impact on operating profit of higher
production and sales volumes at the Mettiki mine, higher average sales prices in
1994 which resulted from index-driven contract price increases and two new sales
contracts. Numerous equipment failures contributed to higher production costs at
Pontiki. Martiki's higher costs were attributable to increased overburden
removal costs associated with higher stripping ratios during 1994. Dotiki's and
Pattiki's higher production costs were primarily due to increased depreciation
and reduced productivity.
ENVIRONMENTAL ISSUES
Estimated liabilities for environmental costs, primarily in the Petroleum
segment, were determined independently of any potential claims for recovery.
Estimated liabilities for environmental matters were $33 million and $31 million
at December 31, 1995, and 1994, respectively. Receivables recorded in connection
with laws permitting reimbursement by the states of certain expenses associated
with underground storage tank containment problems and repairs were $20 million
and $19 million at December 31, 1995, and 1994, respectively.
OTHER ISSUES
Natural Gas Liquids Segment
In response to new plant connections and increased shipper demands, MAPCO
Natural Gas Liquids constructed an $82 million loop of its Four Corners
Pipeline. The 413-mile, 12-inch pipeline extends from the Four Corners area in
northwest New Mexico to Hobbs, New Mexico, and was completed in December 1995.
The new pipeline has a capacity of 50 thousand barrels per day.
In November 1995, Juarez Pipeline Company (a subsidiary of Mid-America
Pipeline Company), Amoco Rio Grande Pipeline Company and Navajo Southern Inc.
announced the formation of a joint venture under the name, Rio Grande Pipeline
Company ("Rio Grande"). Rio Grande will transport NGLs from Mid-America
Pipeline's Hobbs Station in Texas and other Mid-America Pipeline origins to the
Pemex Gas y Petroquimica Basica ("Pemex") Mendez terminal in Ciudad Juarez,
Mexico. The Mexican customer purchasing the NGLs will be PMI Trading Company.
The joint venture will connect with the 10 thousand-mile Mid-America Pipeline
NGL system by purchasing an existing 8-inch line from Navajo Pipeline Company
running from west of Odessa, Texas, to near El Paso, Texas, then construct a new
8-inch pipeline connecting it to the Pemex terminal in Ciudad Juarez. The joint
venture will also construct additional facilities at the terminal to efficiently
receive incoming shipments. Rio Grande will be operated by Mid-America Pipeline
Company and first shipments on the new pipeline system are planned for late
1996.
In January 1996, Thermogas Company, a wholly-owned subsidiary of MAPCO
Natural Gas Liquids Inc., announced that it had signed an agreement to sell its
Iowa propane and liquid fertilizer assets to CENEX Inc. The transaction, which
is expected to be completed by March 29, 1996, also involves the sale to CENEX
Inc. of the remaining Thermogas liquid fertilizer assets in Arkansas, Illinois,
Indiana, Minnesota, Ohio and Wisconsin. Sales and operating revenues for the
assets involved in this transaction were $69 million, $68 million and $70
million in 1995, 1994 and 1993, respectively, and operating profit was estimated
to be $7 million for each of the years 1995, 1994 and 1993. This transaction is
discussed further in Note 16 to the consolidated financial statements.
24
<PAGE> 27
Since 1991, MAPCO's West Panhandle field gas supplier has taken more than
its percentage ownership share of the field's production. The cumulative effect
of this acceleration in gas taken has resulted in the Westpan operations having
a 33 billion cubic feet and $32 million over-take position. This imbalance will
be offset by limiting gas taken from future field production. MAPCO anticipates
that its gas supplier's allocation of natural gas will be severely curtailed
after 1996 which will negatively impact MAPCO's NGL production from the West
Panhandle field. MAPCO uses the sales method of accounting for its gas balancing
arrangements which allows recognition of all revenues on NGLs sold. The
acceleration in gas taken contributed an estimated $2 million, $6 million, and
$4 million to MAPCO's consolidated operating profit in 1995, 1994 and 1993,
respectively.
On April 7, 1992, a liquefied petroleum gas explosion occurred near an
underground salt dome storage facility near Brenham, Texas and owned by an
affiliate of the Company, Seminole Pipeline Company. The matter was investigated
by the National Transportation Safety Board and the Texas Railroad Commission. A
discussion of this matter and its effect on MAPCO is contained in Note 12 to the
consolidated financial statements.
Petroleum Segment
During 1995, certain capital improvements were made to the Memphis
Refinery. These improvements are expected to increase margins and operating
profit by $8 million to $10 million per year through an increase in jet
production combined with other enhancements.
Since 1978, MAPCO Alaska Petroleum Inc. (and/or its predecessor) has had
long-term agreements with the state of Alaska (the "State") to purchase royalty
oil from the State at prices linked to amounts payable by North Slope oil
producers in satisfaction of their royalty obligations to the State. In 1977,
the State commenced suit against the producers (in an action entitled State of
Alaska v. Amerada Hess, et al.) alleging that the producers incorrectly
calculated their royalty payments. After a successful settlement with the
producers, the State then claimed monies due from MAPCO Alaska Petroleum. MAPCO
Alaska Petroleum settled this dispute with the State in 1994. A discussion of
the settlement is contained in Note 12 to the consolidated financial statements.
Coal Segment
In January 1996, MAPCO announced that it had signed a letter of intent with
Beacon to form a limited liability company which will own substantially all of
the net assets of MAPCO's Coal segment. Beacon will own 75 percent of the new
company and MAPCO will own 25 percent. The transaction is expected to close in
the second quarter of 1996. See Notes 3 and 16 to the consolidated financial
statements for further discussion of this matter.
In January 1996, Mettiki Coal Corporation, a wholly-owned subsidiary of
MAPCO Coal Inc., finalized negotiations on a new coal supply contract with
Virginia Electric and Power Company ("VEPCO"), a major customer of the Mettiki
mine. The 10-year agreement to provide 2.25 million annual tons begins in
January 1997 and will replace the current contract with VEPCO to supply 1.0
million annual tons which expires at the end of 1996.
The Coal segment has significant long-term contracts at sales prices above
current spot market prices. In addition to the VEPCO contract discussed above, a
long-term contract for 0.5 million annual tons expired in 1995 and contracts for
2.0 and 0.2 million annual tons will expire in 1996 and 1997, respectively. In
1997, 2.25 million annual tons will be subject to market price adjustments.
MAPCO Coal's wholly-owned subsidiary, Webster County Coal Corporation
("Webster County"), owned and operated the Retiki Coal Mine. The Retiki mine has
always operated under a cost-plus management fee contract with Big Rivers
whereby the production from the Retiki mine was sold exclusively to Big Rivers.
Webster County's contract with Big Rivers was scheduled to expire in January
1996. In January 1995, Webster County entered into a Partial Settlement
Agreement ("Agreement") with Big Rivers that closed the Retiki mine. Under the
terms of the agreement, MAPCO Coal delivered from alternative
25
<PAGE> 28
sources the tons that would have been delivered from Retiki during the remaining
term of the cost-plus management fee contract. Webster County and Big Rivers
have litigated the payment responsibility for certain costs associated with the
operation of the Retiki mine, which Big Rivers has disputed. The trial was
conducted in October and November of 1995, with a verdict expected from the
presiding judge late in 1996 or the first half of 1997. Management believes that
Webster County will prevail in this litigation and that all, or substantially
all, of the net receivable associated with the disputed costs will be collected.
Operations at the Retiki mine contributed less than 2% of MAPCO's consolidated
operating profit during 1994 and 1993.
The Clean Air Act is expected to alter the pattern of United States coal
consumption resulting in a general decrease in demand for high sulfur coals and
an increase in demand for low sulfur coals. Legislation of this type is not
expected to materially impact the Coal segment's future operating profits
primarily because most of MAPCO Coal's higher sulfur coals are sold to customers
with scrubbers or to customers that have indicated an intention to install
scrubbers. Additionally, MAPCO Coal's Management believes the anticipated
strength of the low sulfur and compliance coal markets should offset any
financial impact to MAPCO related to the Clean Air Act.
GENERAL MANAGEMENT DISCUSSION
The consolidated financial statements were prepared by Management who is
responsible for their integrity and objectivity. These financial statements,
which include amounts based on management's best estimates and judgments, were
prepared in accordance with generally accepted accounting principles. The
consolidated financial statements were independently audited by Deloitte &
Touche LLP, whose report appears on page F-1.
MAPCO maintains a system of internal controls that is designed to provide
reasonable assurance that financial records are accurate, assets are protected,
and consolidated financial statements are stated fairly. This system is
supported by the selection and training of qualified personnel, management
oversight, proper division of responsibilities, the dissemination of written
policies and procedures, and an internal audit program to monitor the system's
effectiveness. Management believes the present system of internal controls
effectively provides the assurances described above.
The MAPCO Board of Directors, through its Audit Committee, comprised
entirely of Directors not employed by the Company, monitors management's
financial reporting responsibilities. The Audit Committee meets periodically
with representatives of management, internal audit and Deloitte & Touche LLP to
discuss specific accounting, reporting, internal control, and regulatory
compliance matters. Deloitte & Touche LLP and the Company's internal auditors
have unlimited access to members of the Audit Committee.
Approximately 17% of MAPCO stockholders participate in the voluntary
Dividend Investment Plan whereby cash dividends are used to purchase additional
MAPCO common stock. This service is free and is administered by the Harris Trust
Company of New York. Stockholders with questions about dividend reinvestment
accounts should contact the Harris Bank, Dividend Reinvestment, P.O. Box A-3309,
Chicago, Illinois 60690-9939 or call Harris Bank at (312) 461-2731.
During 1995 and 1994, MAPCO declared quarterly dividends of $0.25 per
common share. Dividends were payable in March, June, September and December. The
annual dividend in 1995 and 1994 was $1.00 per common share.
MAPCO common stock is traded on the New York, Chicago, and Pacific Stock
Exchanges under the symbol MDA. MAPCO had 5,070 stockholders of record on
December 31, 1995.
26
<PAGE> 29
The high and low closing prices of MAPCO common stock on the New York Stock
Exchange during the quarterly periods of 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
QUARTER HIGH LOW HIGH LOW
------------------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
First........................................... $55.75 $51.75 $63.75 $58.63
Second.......................................... 58.88 54.38 64.50 59.00
Third........................................... 59.13 51.50 61.13 55.38
Fourth.......................................... 54.63 49.25 55.75 49.75
</TABLE>
The closing price of MAPCO's common stock on the New York Stock Exchange on
March 27, 1996 was $55.13.
27
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of MAPCO Inc., together with the
report thereon of Deloitte & Touche LLP dated January 26, 1996 (March 7, 1996 as
to Note 12) and the supplementary financial data specified by Item 302 of
Regulation S-K are set forth on pages F-1 through F-22 hereof. See Item 14 for
Index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of MAPCO is incorporated by reference
herein from MAPCO's Proxy Statement to be filed for its 1996 Annual Meeting of
Stockholders. See "Executive Officers of MAPCO Inc." in PART I, Item 1, SUPRA,
regarding executive officers of MAPCO.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference herein from MAPCO's Proxy Statement to be filed
for its 1996 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference herein from MAPCO's Proxy Statement to be filed
for its 1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference herein from MAPCO's Proxy Statement to be filed
for its 1996 Annual Meeting of Stockholders.
28
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report.................................................... F-1
Consolidated Statements of Income for the years ended December 31, 1995, 1994
and 1993...................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994.................... F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993.............................................. F-5
F-6 through
Notes to Consolidated Financial Statements...................................... F-22
(a) 2. Financial Statement Schedules.
S-1 through
Schedule I -- Condensed financial information of registrant..................... S-4
Schedule II -- Valuation and qualifying accounts for the years ended December
31, 1995, 1994 and 1993....................................................... S-5
</TABLE>
Other schedules of MAPCO Inc. and its subsidiaries are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the Financial Statements or Notes thereto.
(a) 3. Exhibits
<TABLE>
<CAPTION>
ITEM
- ----------
<S> <C>
3.(i) -- Restated Certificate of Incorporation, as amended and restated
effective May 14, 1987 [Exhibit 3.(i) to Report on Form 10-K for
the fiscal year ended December 31, 1994*]
3.(ii) -- MAPCO Inc. By-Laws, as amended April 16, 1989 [Exhibit 3.(ii) to
Report on Form 10-K for the fiscal year ended December 31, 1994*]
4.(a) -- Specimen of Common Stock Certificate [Exhibit 4.(a) to Report on
Form 10-K for the fiscal year ended December 31, 1994*]
4.(b) -- Note Agreement between Mid-America Pipeline Company and The
Prudential Insurance Company of America dated as of April 30, 1992
[a copy of this Agreement will be furnished to the Commission on
request as provided in sec.229.601(b)(4)(iii)(A) of Regulation S-K]
4.(c) -- Note Agreement between Mid-America Pipeline Company and The
Prudential Insurance Company of America dated as of May 20, 1992 [a
copy of this Agreement will be furnished to the Commission on
request as provided in sec.229.601(b)(4)(iii)(A) of Regulation S-K]
4.(d) -- Note Agreement between Mid-America Pipeline Company and The
Prudential Insurance Company of America dated as of July 13, 1992
[a copy of this Agreement will be furnished to the Commission on
request as provided in sec.229.601(b)(4)(iii)(A) of Regulation S-K]
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
ITEM
- ----------
<S> <C>
4.(e) -- Note Agreement between Mid-America Pipeline Company and The
Prudential Insurance Company of America dated as of July 20, 1992
[a copy of this Agreement will be furnished to the Commission on
request as provided in sec.229.601(b)(4)(iii)(A) of Regulation S-K]
4.(f) -- Note Agreement between Mid-America Pipeline Company and The
Prudential Insurance Company of America dated as of November 20,
1992 [a copy of this Agreement will be furnished to the Commission
on request as provided in sec.229.601(b)(4)(iii)(A) of Regulation
S-K]
4.(g) -- Competitive Advance and Revolving Credit Facility Agreement dated
as of April 29, 1994, among MAPCO Inc., Chemical Bank, as Agent and
the Lenders named therein [Exhibit 4.(g) to Quarterly Report on
Form 10-Q for the period ended March 31, 1994*]
4.(h) -- Amendment No. 1 dated as of March 28, 1995, to the Competitive
Advance and Revolving Credit Facility dated as of April 29, 1994,
among MAPCO Inc., the Lenders named therein and Chemical Bank, as
Agent for the Lenders [Exhibit 10 to Quarterly Report on Form 10-Q
for the period ended March 31, 1995*]
4.(i) -- Amendment No. 2 dated as of November 1, 1995, to the Competitive
Advance and Revolving Credit Facility dated as of April 29, 1994,
among MAPCO Inc., the Lenders named therein and Chemical Bank, as
Agent for the Lenders [Filed herewith*]
4.(j) -- Revolving Credit Facility dated as of December 22, 1995 among MAPCO
Inc., the Lenders named therein and Chemical Bank as Agent for the
Lenders [a copy of this Agreement will be furnished to the
Commission on request as provided in sec.229.601(b)(4)(iii)(A) of
Regulation S-K]
4.(k) -- Rights Agreement dated as of June 12, 1986 between MAPCO Inc. and
Harris Trust Company of New York, as amended [Exhibit 4.(h) to
Report on Form 10-K for the fiscal year ended December 31, 1994*]
4.(l) -- Note Agreement dated as of June 16, 1989 between MAPCO Inc. and IDS
Life Insurance Company of New York, American Enterprise Life
Insurance Company, et al. [Exhibit 4.(i) to Report on Form 10-K for
the fiscal year ended December 31, 1994*]
4.(m) -- Note Agreement dated as of December 1, 1993 between Seminole
Pipeline Company and Principal Mutual Life Insurance Company, et
al. [a copy of this Agreement will be furnished to the Commission
on request as provided in sec.229.601(b)(4)(iii)(A) of Regulation
S-K]
4.(n) -- Indenture dated as of March 31, 1990 between MAPCO Inc. and Bankers
Trust, Trustee [Exhibit 4.0 to Current Report on Form 8-K dated
February 19, 1991*]
Management Contracts and Compensatory Plans or Arrangements
10.(a) -- Form of Agreement between MAPCO Inc. and Directors relating to
indemnification [Exhibit 10.(c) to Report on Form 10-K for the
fiscal year ended December 31, 1992*]
10.(b) -- Form of Agreement between MAPCO Inc. and certain officers and key
employees relating to indemnification [Exhibit 10.(b) to Report on
Form 10-K for the fiscal year ended December 31, 1994*]
10.(c) -- MAPCO Inc. 1986 Retirement Plan for Directors, as amended and
restated effective January 23, 1996 [Filed herewith*]
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
ITEM
- ----------
<S> <C>
10.(d) -- Form of Agreement between MAPCO Inc. and certain officers relating
to employment dated December 20, 1989, effective January 1, 1990
[Exhibit 10.(d) to Report on Form 10-K for the fiscal year ended
December 31, 1994*]
10.(e) -- Form of Amendment Letter to Agreement Dated December 20, 1989
between MAPCO Inc. and certain officers relating to employment
dated March 14, 1990 [Exhibit 10.(e) to Report on Form 10-K for the
fiscal year ended December 31, 1994*]
10.(f) -- Amendments to Letter Agreement relating to employment dated
December 18, 1991 between MAPCO Inc. and James E. Barnes [Exhibit
10.(h).1 to Report on Form 10-K for fiscal year ended December 31,
1991*]
10.(g) -- Supplemental Retirement Agreement, as amended and restated, as of
December 12, 1991 between MAPCO Inc. and James E. Barnes [Exhibit
10.(i) to Report on Form 10-K for the fiscal year ended December
31, 1991*]
10.(h) -- MAPCO Inc. 1986 Stock Option Plan, effective January 1, 1986
[Exhibit 10.(k) to Report on Form 10-K for the fiscal year ended
December 31, 1992*]
10.(i) -- MAPCO Inc. Supplemental Executive Retirement Plan effective January
1, 1986 [Exhibit 10(n) to Report on Form 10-K for the fiscal year
ended December 31, 1993*]
10.(j) -- MAPCO Inc. 1989 Stock Incentive Plan, as amended and restated
effective June 1, 1992 [Exhibit 10.(l) to Report on Form 10-K for
the fiscal year ended December 31, 1994*]
10.(k) -- MAPCO Inc. 1989 Outside Director Stock Option Plan, as amended
January 23, 1996 [Filed herewith*]
10.(l) -- MAPCO Inc. Long-Term Investment Savings Plan, effective January 1,
1994 [Exhibit 10(q) to Report on Form 10-K for the fiscal year
ended December 31, 1993*]
10.(m) -- MAPCO Inc. Long-Term Investment Savings Trust, effective January
10, 1994 [Exhibit 10(r) to Report on Form 10-K for the fiscal year
ended December 31, 1993*]
10.(n) -- MAPCO Inc. Incentive Compensation Plan effective January 1, 1995
[Exhibit 10 to Quarterly Report on Form 10-Q for the period ended
June 30, 1995*]
10.(o) -- Severance and Consulting Agreement dated as of September 1, 1995,
between MAPCO Inc. and Robert M. Howe [Filed herewith*]
10.(p) -- Settlement Agreement dated as of August 31, 1995 between MAPCO Inc.
and Frank S. Dickerson, III [Filed herewith*]
10.(q) -- MAPCO Inc. Outside Director Phantom Stock Plan [Filed herewith*]
Other Material Contracts
10.(r) -- Settlement Agreement between the state of Alaska and MAPCO Alaska
Petroleum Inc. executed on August 31, 1994 and effective August 1,
1994 [Exhibit 10 to Quarterly Report on Form 10-Q for the period
ended September 30, 1994*]
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
ITEM
- ----------
<S> <C>
10.(s) -- Purchase and Sale Agreement dated August 3, 1994 between Emro
Propane Company and Emro Marketing Company and MAPCO Natural Gas
Liquids Inc., MAPCO Petroleum Inc. and MAPCO Florida Inc. [Exhibit
10 to Form 8-K filed on September 12, 1994*]
10.(t) -- Coal Supply Agreement dated January 15, 1996 between Mettiki Coal
Corporation and Virginia Electric and Power Company [Filed
herewith*]
11. -- Statement re: computation of per share earnings
12. -- Computation of Ratio of Earnings to Fixed Charges
21. -- List of Subsidiaries
23. -- Independent Auditors' Consent
24. -- Power of Attorney, included as part of the signature page of this
report
27. -- Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference
All other schedules and exhibits are omitted because they are not required
or are not applicable.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1995.
32
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, MAPCO Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAPCO INC.
Dated: March 26, 1996 By: /s/ JAMES E. BARNES
---------------------------------
James E. Barnes
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
We, the undersigned officers and directors of MAPCO Inc. hereby severally
constitute James E. Barnes and Philip W. Baxter, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below, any and all
amendments to this report, and generally to do all such things in our names and
behalf in our capacities as officers and directors to enable MAPCO Inc. to
comply with the provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
either of them, to any and all amendments to this report.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
/s/ JAMES E. BARNES Chairman of the Board, March 26, 1996
------------------------------------ President and Chief
(James E. Barnes) Executive Officer
/s/ PHILIP W. BAXTER Senior Vice President and March 26, 1996
------------------------------------ Chief Financial Officer
(Philip W. Baxter)
/s/ GORDON E. SCHAECHTERLE, JR. Vice President, Controller and March 26, 1996
------------------------------------ Tax (Principal Accounting
(Gordon E. Schaechterle, Jr.) Officer)
/s/ HARRY A. FISCHER, JR. Director March 26, 1996
------------------------------------
(Harry A. Fischer, Jr.)
/s/ WAYNE K. GOETTSCHE Director March 26, 1996
------------------------------------
(Wayne K. Goettsche)
/s/ DONALD PAUL HODEL Director March 26, 1996
------------------------------------
(Donald Paul Hodel)
/s/ MALCOLM T. HOPKINS Director March 26, 1996
------------------------------------
(Malcolm T. Hopkins)
/s/ PHILIP C. LAUINGER, JR. Director March 26, 1996
------------------------------------
(Philip C. Lauinger, Jr.)
/s/ DONALD L. MELLISH Director March 26, 1996
------------------------------------
(Donald L. Mellish)
/s/ ROBERT L. PARKER Director March 26, 1996
------------------------------------
(Robert L. Parker)
/s/ HERMAN J. SCHMIDT Director March 26, 1996
------------------------------------
(Herman J. Schmidt)
/s/ SAMUEL F. SEGNAR Director March 26, 1996
------------------------------------
(Samuel F. Segnar)
</TABLE>
33
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
MAPCO Inc., its Directors and Stockholders:
We have audited the accompanying consolidated financial statements of MAPCO
Inc. and subsidiaries, listed at Item 14(a)1 herein. Our audits also included
the financial statement schedules listed at Item 14(a)2. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MAPCO Inc. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 12 to the consolidated financial statements, the
Company is a defendant in litigation relating to an LPG explosion in April 1992,
that occurred near an underground salt dome storage facility located near
Brenham, Texas.
As discussed in Note 1 to the consolidated financial statements, in 1995
the Company changed its method of accounting for the impairment of long-lived
assets and for long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1993,
1992 and 1991, and the related consolidated statements of income, cash flows,
and changes in stockholders' equity for the years ended December 31, 1992 and
1991 (none of which are presented herein); and our opinions on the 1993 and 1992
consolidated financial statements included an explanatory paragraph applicable
to the Company's litigation relating to retroactive increases in prices paid to
the state of Alaska under its royalty oil purchase agreements which was resolved
in 1994 and we expressed an unqualified opinion on the 1991 consolidated
financial statements. In our opinion, the information set forth in the selected
financial data for each of the five years in the period ended December 31, 1995,
appearing in Item 6 herein, is fairly stated, in all material respects, in
relation to the consolidated financial statements from which it has been
derived.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 26, 1996
(March 7, 1996 as to Note 12)
F-1
<PAGE> 37
MAPCO INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Sales and Operating Revenues(1)................................ $3,310.0 $3,059.3 $2,715.3
-------- -------- --------
Expenses:
Outside purchases and operating expenses(1).................. 2,912.8 2,718.2 2,296.4
Selling, general and administrative.......................... 72.9 68.1 72.8
Depreciation, depletion and amortization..................... 111.4 102.9 97.3
Interest and debt expense.................................... 58.3 53.2 46.5
Unusual items (Note 2)....................................... 40.3 -- --
Other (income) expense -- net................................ .1 .3 (.6)
-------- -------- --------
3,195.8 2,942.7 2,512.4
-------- -------- --------
Income before Minority Interest and Provision for Income
Taxes........................................................ 114.2 116.6 202.9
Provision for Income Taxes (Note 7)............................ 37.2 35.9 74.5
-------- -------- --------
Income before Minority Interest................................ 77.0 80.7 128.4
Minority Interest in Earnings of Subsidiary.................... (2.3) (1.6) (1.4)
-------- -------- --------
Net Income..................................................... $ 74.7 $ 79.1 $ 127.0
======== ======== ========
Earnings per Common Share (Notes 8 and 9)...................... $ 2.51 $ 2.64 $ 4.24
======== ======== ========
</TABLE>
- ---------------
(1) Includes consumer excise taxes of $158.1 million, $157.2 million and $148.7
million in 1995, 1994 and 1993, respectively.
See notes to consolidated financial statements.
F-2
<PAGE> 38
MAPCO INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 33.3 $ 30.6
Receivables, less allowance for doubtful accounts
(1995 -- $1.5; 1994 -- $2.3)....................................... 237.8 263.3
Inventories (Note 5).................................................. 117.1 111.0
Prepaid expenses...................................................... 22.3 44.1
Other current assets.................................................. 27.0 29.9
Net assets held for sale (Notes 2 and 3).............................. 248.3 --
-------- --------
Total current assets.......................................... 685.8 478.9
-------- --------
Property, Plant and Equipment, at cost:
Natural Gas Liquids................................................... 1,401.7 1,326.0
Petroleum............................................................. 621.4 569.5
Coal.................................................................. 147.0 570.8
Corporate............................................................. 39.0 35.2
-------- --------
2,209.1 2,501.5
Less -- accumulated depreciation, depletion, amortization and
impairment (Note 2)................................................ (835.4) (1,027.3)
-------- --------
1,373.7 1,474.2
-------- --------
Other Assets............................................................ 233.8 213.0
-------- --------
$2,293.3 $2,166.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.................................. $ 26.9 $ 32.2
Accounts payable...................................................... 270.7 270.0
Accrued taxes......................................................... 49.0 37.8
Accrued payroll and related expenses.................................. 16.3 14.0
Other current liabilities............................................. 54.6 72.4
-------- --------
Total current liabilities..................................... 417.5 426.4
-------- --------
Long-Term Debt, excluding current maturities (Note 6)................... 801.0 720.9
-------- --------
Other Liabilities....................................................... 116.2 77.8
-------- --------
Deferred Income Taxes (Note 7).......................................... 289.3 293.8
-------- --------
Minority Interest....................................................... 27.0 24.6
-------- --------
Commitments and Contingencies (Note 12)
-------- --------
Stockholders' Equity (Notes 8, 9 and 11):
Capital stock:
Preferred Stock, without par value, 1 shares authorized; no shares
issued
Series A Junior Participating Preferred Stock, without par value,
.2 shares authorized; no shares issued
Common Stock, $1 par value, 75 shares authorized; 62.9 shares
issued -- 1995; 62.8 shares issued -- 1994........................ 62.9 62.8
Capital in excess of par value........................................ 203.0 202.6
Retained earnings..................................................... 1,401.8 1,356.4
-------- ---------
1,667.7 1,621.8
Treasury Stock, at cost, 33.5 shares -- 1995; 32.9 shares -- 1994..... (966.7) (935.6)
Loan to ESOP.......................................................... (58.7) (63.6)
-------- ---------
642.3 622.6
-------- ---------
$2,293.3 $2,166.1
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 39
MAPCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................. $ 74.7 $ 79.1 $ 127.0
Reconciliation of net income to net cash provided by
operating activities:
Depreciation, depletion and amortization................. 111.4 102.9 97.3
Provision for deferred income taxes...................... 1.5 12.7 12.5
Other items not requiring cash (Note 4).................. 61.3 19.0 9.7
------- ------- -------
Funds provided by operations........................ 248.9 213.7 246.5
Changes in operating assets and liabilities (Note 4)..... (18.6) (78.5) 6.7
------- ------- -------
Net cash provided by operating activities........... 230.3 135.2 253.2
------- ------- -------
Cash Flows from Investing Activities:
Capital expenditures and acquisitions, net of liabilities
assumed (Note 4)......................................... (250.5) (303.9) (144.3)
Proceeds from sales of property, plant and equipment........ 7.5 10.8 18.5
Other....................................................... (1.6) -- 2.7
------- ------- -------
Net cash used in investing activities............... (244.6) (293.1) (123.1)
------- ------- -------
Cash Flows from Financing Activities:
Purchase of common stock.................................... (31.1) (8.7) (6.2)
Increase (decrease) in borrowings........................... 104.6 165.1 (139.5)
Dividends................................................... (29.7) (30.0) (30.0)
Issuance of long-term debt.................................. -- .1 75.4
Payments on long-term debt.................................. (27.3) (8.4) (17.3)
Exercise of stock options................................... .1 .9 1.0
Other....................................................... .4 (.3) .6
------- ------- -------
Net cash provided by (used in) financing
activities........................................ 17.0 118.7 (116.0)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents.............. 2.7 (39.2) 14.1
Cash and Cash Equivalents, January 1.......................... 30.6 69.8 55.7
------- ------- -------
Cash and Cash Equivalents, December 31........................ $ 33.3 $ 30.6 $ 69.8
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 40
MAPCO INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
$1 PAR VALUE IN TREASURY STOCK
---------------- EXCESS OF RETAINED ----------------- LOAN TO
SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT ESOP
------ ------ --------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992..... 62.6 $62.6 $ 199.0 $1,209.1 (32.7) $(920.7) $ (72.5)
Net income................... 127.0
Dividends ($1.00 per
share).................... (30.0)
Purchase of common stock..... (.1) (6.2)
ESOP loan repayments......... 4.3
Exercise of stock options.... .1 .1 1.3
Other........................ (.3) .6
---- ---- ------ -------- ----- ------- ------
Balance, December 31, 1993..... 62.7 62.7 200.0 1,306.7 (32.8) (926.9) (68.2)
Net income................... 79.1
Dividends ($1.00 per
share).................... (30.0)
Purchase of common stock..... (.1) (8.7)
ESOP loan repayments......... 4.6
Exercise of stock options.... .1 .1 2.7
Other........................ (.1) .6
---- ---- ------ -------- ----- ------- ------
Balance, December 31, 1994..... 62.8 62.8 202.6 1,356.4 (32.9) (935.6) (63.6)
Net income................... 74.7
Dividends ($1.00 per
share).................... (29.7)
Purchase of common stock..... (.6) (31.1)
ESOP loan repayments......... 4.9
Exercise of stock options.... .1 .1 .1
Other........................ .3 .4
---- ---- ------ -------- ----- ------- ------
Balance, December 31, 1995..... 62.9 $62.9 $ 203.0 $1,401.8 (33.5) $(966.7) $ (58.7)
==== ==== ====== ======== ===== ======= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 41
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of MAPCO Inc. and its subsidiaries ("MAPCO" or the "Company"). Certain
reclassifications have been made to prior year amounts to conform to current
year presentations. All intercompany accounts and transactions have been
eliminated.
Estimates in the Financial Statements -- The preparation of MAPCO's
financial statements in conformity with generally accepted accounting principles
requires Management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents -- Cash equivalents consist of short-term, highly
liquid investments which are readily convertible into cash. All investments
classified as cash equivalents have original maturities of three months or less.
Inventories -- Inventories include crude oil, refined petroleum products,
natural gas liquids ("NGL"), coal, fertilizer, chemicals, appliances and retail
merchandise. Inventories are valued at the lower of cost or market. Crude oil,
refined petroleum products and retail merchandise inventories in the Petroleum
segment are determined on a last-in, first-out ("LIFO") basis. Appliances,
chemicals, fertilizer and other inventories related to fertilizer in the Natural
Gas Liquids segment are determined on an average cost basis. All other
inventories are determined on a first-in, first-out basis. Net exchange balances
are classified as inventory.
Advance Royalties -- Rights to leased coal lands are often acquired through
royalty payments. Where royalty payments represent prepayments recoupable
against future production, they are capitalized, and amounts expected to be
recouped within one year are classified as a current asset. As mining occurs on
those leases, the prepayment is included in the cost of mined coal. Amounts
estimated to be nonrecoverable are expensed.
Long-Lived Assets -- In the fourth quarter of 1995, the Company applied
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In
accordance with SFAS No. 121, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Long-lived assets that are held for disposal are valued at the lower of carrying
amount or fair value less cost to sell, except for assets that constitute a
discontinued operation.
Depreciation, Depletion and Amortization -- Depreciation and depletion is
computed on the straight-line method at rates based upon estimated useful lives
or, if applicable, on the units-of-production method based on estimated
recoverable reserves. Maintenance, repairs and minor replacements are expensed.
Costs of replacements constituting improvements are capitalized. Gains or losses
arising from retirements are included in income currently, except for certain
assets within the Natural Gas Liquids segment, which are depreciated using
regulatory group depreciation methods.
Excess of Purchase Price over Net Assets of Companies Acquired -- Amounts
applicable to acquisitions are amortized on a straight-line basis over periods
not exceeding forty years. MAPCO continually evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revision of the estimated useful lives of acquired assets.
Revenue Recognition -- MAPCO's revenue recognition policies provide that
revenues are recognized when earned based on transfer of title or delivery.
Environmental Expenditures -- Environmental expenditures that relate to
current or future revenues are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past
F-6
<PAGE> 42
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations that do not contribute to current or future revenue generation are
expensed. Environmental liabilities are recorded independently of any potential
claim for recovery. Receivables are recognized in cases where reimbursements of
remediation costs are available from state funds and the realization of those
funds is considered probable. Accruals related to environmental matters are
generally determined based upon site-specific plans for remediation, taking into
account prior remediation experience of MAPCO and other companies. Environmental
liabilities are discounted only if the aggregate obligation of a specific matter
and the amount and timing of the related cash payments are fixed or reliably
determinable. The effect of discounting environmental liabilities is not
material to MAPCO's financial statements.
Debt Discount and Expense -- Debt discount and expense arising from the
issuance of debt securities are capitalized and amortized using the principal
outstanding method.
Gas Balancing Arrangements -- MAPCO uses the sales method of accounting for
its gas balancing arrangements. Under the sales method, MAPCO recognizes
revenues on all West Panhandle gas field liquids sold to its customers without
regard to the under/over take position of its gas supplier. Imbalances resulting
from under/over take should be offset by future field production.
Futures Activity -- Futures, forward and option contracts are used to hedge
against the risk of price changes for selected sales commitments of crude oil
and refined petroleum products. Contracts that qualify as hedges are correlated
to price movements of crude oil and refined petroleum product inventory and any
gains or losses resulting from market changes will be substantially offset by
losses or gains on the hedged inventory. Contracts which do not qualify as
hedges are classified as speculative and are marked-to-market at the end of each
month. MAPCO did not engage in any material hedging, speculative or other
activities involving derivative financial instruments during 1995, 1994 and
1993. Commodity speculative trading activity was immaterial to MAPCO's results
of operations in 1995, 1994 and 1993.
Treasury Stock -- MAPCO common stock purchased by the Company is recorded
as treasury stock, at cost.
Income Taxes -- Deferred income tax expense is recognized based upon the
net change for the year in the deferred income tax liability, except for changes
resulting from differences between the assigned values and tax basis of assets
acquired and liabilities assumed in purchase business combinations. Deferred
income tax assets and liabilities are based upon enacted tax laws and the
expected reversal of the temporary differences between the book and tax bases of
assets and liabilities.
Earnings per Common Share -- Earnings per common share are based on the
weighted average number of common shares outstanding. Average common shares
outstanding were 29.7 million in 1995 and 30.0 million in 1994 and 1993.
Employee Stock Ownership Plan -- MAPCO's loan to its Employee Stock
Ownership Plan ("ESOP") is recorded as a reduction of stockholders' equity in
MAPCO's consolidated balance sheets. Compensation and interest expense are
recognized based on MAPCO's cash contributions to the ESOP.
Nature of Business -- Natural Gas Liquids segment operations include the
transportation, processing and underground storage of NGLs, the pipeline
transportation of anhydrous ammonia, refined products and crude oil, the sale of
appliances, NGLs and fertilizer and the trading of NGLs. The pipeline main line
runs from the Wyoming-Utah Overthrust Belt to Hobbs, New Mexico and from Hobbs
through the Midwest into Minnesota and Wisconsin. The main line also runs from
Hobbs across Texas to the Gulf Coast. Tariff charges for pipeline operations are
made on account to shippers who are engaged in energy or energy-related
businesses. Operations at three gas processing plants (only one of which is
currently operating) in the West Panhandle gas field in Texas produce NGLs which
are sold in the Midwestern and Gulf Coast markets. Propane, appliances and
fertilizer are marketed through retail plants to residential, agricultural,
commercial and industrial
F-7
<PAGE> 43
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customers located in the upper Midwest and the Southeast regions of the United
States. Sales are generally made on account.
Petroleum segment operations include two refining and marketing systems:
the Alaska System and the Mid-South System. The Alaska System includes a
refinery at North Pole, Alaska, whose unaffiliated customers include wholesale,
commercial, governmental and industrial consumers. Products produced include
gasoline, commercial and military jet fuel, heating oil, diesel fuel, fuel oil,
naphtha and asphalt. Sales are generally made on account. The Alaska system also
includes retail convenience stores in Fairbanks, Anchorage and Juneau, Alaska.
The Alaska retail convenience stores, under the brand name "MAPCO Express",
engage in the retail marketing of gasoline, diesel fuel, other petroleum
products, convenience merchandise and deli fast foods. The Mid-South System
includes a refinery at Memphis, Tennessee, whose unaffiliated customers include
wholesale, industrial, governmental and commercial consumers, jobbers,
independent dealers and other refiner/marketers primarily located in the
Mid-South region of the United States. Products produced include gasoline, low
sulfur diesel fuel, commercial and military jet fuel, K-1 kerosene, No. 6 fuel
oil, propane and elemental sulfur. Sales are generally made on account. The
Mid-South System also includes retail convenience store operations located in
eight Southeastern states and in Texas. The Mid-South retail convenience stores,
primarily under the brand names "MAPCO Express" and "Shell", engage in the
retail marketing of gasoline, diesel fuel, other petroleum products, convenience
merchandise and deli fast food items. MAPCO buys, sells and exchanges crude oil
to supply its refinery systems. MAPCO also buys, sells and exchanges refined
petroleum products to help supply its retail convenience store operations and
for general trading activities. These transactions are with companies engaged in
energy or energy-related businesses and sales are generally made on account.
Coal segment operations produce and market steam and metallurgical coal for
sale in domestic and foreign markets. Steam coal is sold primarily to electric
utilities located in the eastern United States and, to a lesser extent, Europe.
Metallurgical coal is sold to steel and coke producers located primarily in the
United States, South America, the Far East, Europe and Northern Africa. Sales
are generally made on account. Financing security through letters of credit or
other similar guarantees are obtained based on Management's assessment of credit
risk.
NOTE 2. UNUSUAL ITEMS
In the 1995 fourth quarter, MAPCO received an offer, and later signed a
letter of intent (see Note 16), which valued substantially all of the Coal
segment's net assets. Based on the $330.5 million carrying value of the Coal
segment's net assets covered by the letter of intent, an impairment loss of
$30.0 million was recorded. Management believes the offer represents a
reasonable estimate of the fair value of the net assets of the Coal segment.
Upon completion of the transaction discussed in Note 16, the fair value of the
net assets of the Coal segment could differ materially from the amounts
estimated in determining the amount of the impairment.
During 1995, the Company recorded $10.3 million of charges associated with
reorganizations in the Natural Gas Liquids segment and in Corporate. The primary
employee groups affected are field service personnel in the Natural Gas Liquids
segment. The charges are primarily related to an early retirement program which
resulted in the reduction of 111 employees. Principal items included in the
charge are enhanced pension benefits, postretirement benefits, severance pay and
other related benefits. While the early retirement program has been
substantially completed, due to the timing of the payouts, the majority of the
liability remains to be paid.
NOTE 3. NET ASSETS HELD FOR SALE
In January 1996, the Company signed a letter of intent to sell 75 percent
of substantially all of the net assets of its Coal segment to The Beacon Group
Energy Investment Fund LP ("Beacon"). Also in January 1996, the Company signed
an agreement to sell its Thermogas Iowa propane and liquid fertilizer
F-8
<PAGE> 44
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets, as well as its remaining liquid fertilizer assets in Arkansas, Illinois,
Indiana, Minnesota, Ohio and Wisconsin, to CENEX Inc. (see Note 16).
For financial reporting purposes, the assets and liabilities attributable
to these two pending transactions have been classified in the consolidated
balance sheet as Net Assets Held for Sale and consist of the following at
December 31, 1995 (in millions):
<TABLE>
<CAPTION>
COAL THERMOGAS TOTAL
------ --------- ------
<S> <C> <C> <C>
Current Assets......................................... $ 68.0 $14.4 $ 82.4
Property, Plant and Equipment, net..................... 184.9 10.0 194.9
Other Assets........................................... 26.5 .1 26.6
------ ----- ------
Total assets................................. 279.4 24.5 303.9
------ ----- ------
Current Liabilities.................................... 33.6 1.1 34.7
Other Liabilities...................................... 20.9 -- 20.9
------ ----- ------
Total liabilities............................ 54.5 1.1 55.6
------ ----- ------
Net assets............................................. $224.9 $23.4 $248.3
====== ===== ======
</TABLE>
Sales and operating revenues attributable to the Coal segment and the
Thermogas propane and fertilizer assets are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Coal..................................................... $453.4 $425.5 $414.4
Thermogas................................................ 68.8 67.9 70.3
------ ------ ------
$522.2 $493.4 $484.7
====== ====== ======
</TABLE>
Operating profit attributable to the Coal segment and the Thermogas propane
and fertilizer assets are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Coal..................................................... $ 8.6 $ 35.9 $ 46.9
Thermogas................................................ 7.2 7.1 7.2
----- ----- ------
$ 15.8 $ 43.0 $ 54.1
===== ===== ======
</TABLE>
The Coal segment's 1995 operating profit includes a $30.0 million charge
relative to the application of SFAS No. 121.
F-9
<PAGE> 45
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other items not requiring (providing) cash reported in cash flows from
operating activities consist of (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net periodic pension income................................... $(2.5) $ (.1) $(1.1)
(Gain) loss on sales of property, plant and equipment......... .6 2.4 (5.4)
Minority interest in earnings of subsidiary................... 2.3 1.6 1.4
Impairment of long-lived assets............................... 30.0 -- --
Restructuring charges......................................... 9.2 -- --
Refinery turnaround accrual................................... 5.7 3.9 3.2
Workers' compensation adjustment.............................. 4.6 -- --
Recovery of advance royalties................................. 4.1 4.0 3.7
Litigation and environmental accruals......................... -- 1.0 5.7
Other non-cash income and expense items -- net................ 7.3 6.2 2.2
----- ----- ----
$61.3 $19.0 $ 9.7
===== ===== ====
</TABLE>
Changes in operating assets and liabilities consist of (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Decrease (increase) in:
Receivables.............................................. $(24.1) $(33.7) $ 7.7
Inventories.............................................. (21.9) 8.3 6.5
Prepaid expenses......................................... 7.2 (17.0) 3.9
Other current assets..................................... (3.1) (6.3) .6
Other assets............................................. (5.3) (12.9) (6.0)
Increase (decrease) in:
Accounts payable......................................... 21.6 22.9 (19.8)
Accrued taxes............................................ 14.7 (7.1) 5.8
Accrued payroll and related expenses..................... 4.7 (7.2) 4.8
Other current liabilities................................ (16.8) 8.2 1.3
Other liabilities........................................ 4.4 (33.7) 1.9
------ ------ ------
$(18.6) $(78.5) $ 6.7
====== ====== ======
</TABLE>
Income taxes paid were $13.2 million, $37.9 million and $64.8 million
during 1995, 1994 and 1993, respectively.
Interest paid, net of amounts capitalized, was $59.6 million, $51.9 million
and $47.3 million during 1995, 1994 and 1993, respectively.
Total accrued interest costs were $60.0 million, $53.2 million and $49.3
million during 1995, 1994 and 1993, respectively. Interest capitalized during
1995 was $1.7 million. No interest was capitalized during 1994 and $2.8 million
was capitalized during 1993.
In connection with the 1994 acquisition of Emro Propane Company, MAPCO
purchased assets with a fair value of $117 million, assumed liabilities of $3
million and transferred to Emro Marketing Company $12 million of MAPCO Florida
Inc.'s assets.
F-10
<PAGE> 46
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. INVENTORIES
Inventories consist of (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Raw materials -- crude oil......................................... $ 24.1 $ 21.8
------ ------
Finished products:
Refined petroleum products....................................... 43.6 26.1
Fertilizer and natural gas liquids............................... 24.2 31.5
Retail merchandise............................................... 22.1 23.7
Coal............................................................. 3.1 7.9
------ ------
93.0 89.2
------ ------
Inventories........................................................ $117.1 $111.0
====== ======
</TABLE>
Excluded from the December 31, 1995, fertilizer and natural gas liquids,
retail merchandise and coal inventory balances were $7.2 million, $.5 million
and $9.3 million, respectively, which were reclassified to Net Assets Held for
Sale on the consolidated balance sheet (see Note 3).
The cost to replace the Petroleum segment's crude oil, refined petroleum
products and retail merchandise inventories in excess of LIFO carrying values
was approximately $16.5 million and $11.6 million at December 31, 1995, and
1994, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
<S> <C> <C>
MAPCO INC.
Commercial paper and bank money market lines........................ $289.7 $185.1
8.43% ESOP Notes, payable in mortgage type principal reductions
annually through 2003............................................. 58.7 63.6
Medium Term Notes, various maturities through 2022.................. 308.8 334.8
------ ------
657.2 583.5
------ ------
SUBSIDIARIES
Senior Notes:
8.51% Notes, payable in 2007...................................... 15.0 15.0
8.95% Notes, payable in 2012...................................... 35.5 35.5
8.20% Notes, payable $2.5 annually 2007 through 2012.............. 15.0 15.0
8.59% Notes, payable in 2017...................................... 14.5 14.5
8.70% Notes, payable $2.0 annually 2018 through 2022.............. 10.0 10.0
6.67% Notes, payable $15.0 annually 2001 through 2005............. 75.0 75.0
Other............................................................... 5.7 4.6
------ ------
170.7 169.6
------ ------
827.9 753.1
Less -- current maturities.......................................... (26.9) (32.2)
------ ------
Long-term debt...................................................... $801.0 $720.9
====== ======
</TABLE>
F-11
<PAGE> 47
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest rates on commercial paper and bank money market lines ranged from
5.75% to 6.25% and from 3.49% to 6.29% during 1995 and 1994, respectively.
Commercial paper and bank money market lines outstanding at December 31, 1995,
and 1994, were classified as long-term debt. MAPCO has the ability and the
intent, if necessary, under a bank credit agreement to refinance up to $300
million of commercial paper and bank money market lines with long-term debt
having maturities in excess of one year.
MAPCO has bank credit agreements which represent a total committed line of
credit of $350 million. The commitment under the first bank credit agreement is
for $300 million and reduces in quarterly amounts of $25 million commencing June
30, 1998. In December 1995, MAPCO obtained an additional $50 million commitment
under a bank credit agreement which matures in December 1996. Interest on
borrowings under the bank credit agreements would be at rates generally less
than the prime interest rate. MAPCO must pay a commitment fee to maintain the
bank credit agreements. The agreements serve as a back-up for outstanding
commercial paper and for borrowings against bank money market lines. As of
December 31, 1995, no borrowings were outstanding under the bank credit
agreements.
The ESOP Notes' interest rate is subject to revision in the event there is
a change in Internal Revenue Service regulations regarding taxability of the
interest to the lenders.
MAPCO had $308.8 million of Medium Term Notes outstanding as of December
31, 1995. The Notes mature at various times through 2022 and bear interest at
rates ranging from 7.60% to 8.87%. Previously issued Medium Term Notes of $26.0
million and $8.0 million matured and were paid during 1995 and 1994,
respectively.
The scheduled amounts to be paid on long-term debt during the next five
years are: 1996 -- $27 million, 1997 -- $32 million, 1998 -- $37 million,
1999 -- $32 million and 2000 -- $23 million.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two of Natural Gas
Liquids' subsidiaries to MAPCO. At December 31, 1995, $190 million of net assets
were restricted by such provisions.
NOTE 7. INCOME TAXES
MAPCO adopted SFAS No. 109, Accounting for Income Taxes, effective January
1, 1993. The cumulative effect of adopting SFAS No. 109 on the Company's
financial statements was to increase 1993 net income by $.4 million.
F-12
<PAGE> 48
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's net deferred tax liability are as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property............... $297.6 $295.6
Other............................................................ 20.1 21.7
------ ------
317.7 317.3
------ ------
Deferred tax assets:
Accrued expenses not currently deductible........................ 30.4 29.3
Reserves not currently deductible................................ 4.3 6.0
Other............................................................ 9.7 10.2
------ ------
44.4 45.5
------ ------
Net deferred tax liability......................................... 273.3 271.8
Net current deferred tax asset..................................... 16.0 22.0
------ ------
Deferred income taxes.............................................. $289.3 $293.8
====== ======
</TABLE>
Income before provision for income taxes is substantially all derived from
domestic operations. Significant components of the provision for income taxes
are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Current:
Federal................................................... $32.9 $22.5 $58.0
Enacted change in Federal tax rate........................ -- -- 1.7
State..................................................... 2.8 .7 2.3
----- ----- -----
35.7 23.2 62.0
----- ----- -----
Deferred:
Federal................................................... 2.0 12.0 5.1
Enacted change in Federal tax rate........................ -- -- 6.9
State..................................................... (.5) .7 .5
----- ----- -----
1.5 12.7 12.5
----- ----- -----
Provision for income taxes.................................. $37.2 $35.9 $74.5
===== ===== =====
</TABLE>
A reconciliation of the statutory United States Federal income tax rate and
MAPCO's effective income tax rate is as follows (in percents):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate................................................. 35.0 35.0 35.0
Increase (decrease) resulting from:
Excess of tax over book depletion............................ (5.0) (5.1) (3.1)
State income taxes, net of Federal benefit................... 1.2 1.0 1.0
Deferred tax impact of change in the Federal tax rate........ -- -- 3.4
Other........................................................ 1.4 (.1) .4
---- ---- ----
Effective income tax rate...................................... 32.6 30.8 36.7
==== ==== ====
</TABLE>
F-13
<PAGE> 49
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, a subsidiary of MAPCO had Federal income tax net
operating loss carryforwards of $6.9 million which expire as follows: $2.3
million in 1996, $3.0 million in 1997, $1.0 million in 1998, $.5 million in 2002
and $.1 million in 2003.
NOTE 8. STOCK RIGHTS
Under a Rights Agreement (as amended in 1989), MAPCO has one Right
outstanding for each outstanding share of MAPCO common stock. Under certain
limited conditions as defined in the Rights Agreement, each Right entitles the
registered holder to purchase from MAPCO one two-hundredth of a share of Series
A Junior Participating Preferred Stock ("Preferred Stock") at $175 subject to
adjustment. At December 31, 1995, there were 29.4 million Rights outstanding,
that if exercised, would result in the issuance of 146,749 shares of Preferred
Stock.
The Rights are not exercisable until the Distribution Date (as defined in
the Rights Agreement) which will occur upon the earlier of (i) ten days
following a public announcement that an Acquiring Person has acquired beneficial
ownership of 15% or more of MAPCO's outstanding common stock or (ii) ten
business days following the commencement of a tender offer or exchange offer
that would result in a person or group owning 15% or more of MAPCO's outstanding
common stock.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire MAPCO without
conditioning the offer on a substantial number of Rights being redeemed. Upon
exercise and the occurrence of certain events as defined in the Rights
Agreement, each holder of a Right, except the Acquiring Person (as defined in
the Rights Agreement), will have the right to receive MAPCO common stock or
common stock of the acquiring company having a value equal to two times the
exercise price of the Right.
The Rights should not interfere with any merger or other business
combination approved by MAPCO since the Board of Directors may, at its option,
at any time prior to the close of business on the earlier of the tenth day
following the Stock Acquisition Date (as defined in the Rights Agreement) or
July 7, 1996, redeem all but not less than all of the then outstanding Rights at
$.05 per Right. The Rights expire on July 7, 1996, and do not have voting power
or dividend privileges.
NOTE 9. STOCK INCENTIVE PLANS
Under the MAPCO Inc. 1989 Stock Incentive Plan (the "Plan"), stock options,
stock appreciation rights, restricted stock, phantom stock and stock purchase
rights may be issued to key employees. At December 31, 1995, only stock options
and restricted stock had been awarded under the Plan. Each stock option entitles
the holder to purchase from MAPCO one share of common stock at the option price,
which is determined by the closing sales price of MAPCO common stock on the
grant date. Options expire ten years from the date of the grant. One-third of
the options granted in 1995 will vest in 1999, one-third in 2000 and one-third
in 2001.
Options granted under the Plan contain a Replacement Option feature. The
Replacement Option feature is triggered when an optionee uses stock, rather than
cash, to exercise an option. Upon exercise by an exchange of stock, Replacement
Options are granted equal to the number of shares tendered for the exercise of
the option plus the number of shares of stock withheld for income tax purposes.
The exercise price per share for any Replacement Option is equal to the fair
market value of a share of common stock on the date the Replacement Option is
granted. A Replacement Option is not exercisable for at least six months from
the grant date for those granted prior to January 22, 1992, and twelve months
for those granted after January 22, 1992.
In May 1992, MAPCO stockholders approved an amendment to the Plan which
increased the number of gross shares (i.e., the number of options issuable,
including shares forfeited for tax withholding and shares
F-14
<PAGE> 50
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
surrendered to exercise an option) which may be issued under the Plan to 7
million; however, the maximum number of actual net shares which may be issued
under the Plan remained at 2 million (plus a small number of shares from prior
plans). The number of gross shares available for future grants under the Plan
was 3,192,056 at December 31, 1995. The cumulative number of actual net shares
issued under the Plan was 274,804 at December 31, 1995.
A summary of employee stock option activity for options issued pursuant to
the Plan and prior plans is as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE NUMBER EXERCISE
OUTSTANDING PRICE EXERCISABLE PRICE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
At December 31, 1992.......... 1,625,001 $18.94-$63.63 269,475 $18.94-$63.63
Granted..................... 653,191 $49.25-$64.25
Exercised................... (413,600) $18.94-$60.13
Canceled.................... (50,835) $37.00-$61.63
--------- ------------- --------- -------------
At December 31, 1993.......... 1,813,757 $18.94-$64.25 677,144 $18.94-$63.63
Granted..................... 648,170 $50.38-$64.50
Exercised................... (384,714) $18.94-$60.50
Canceled.................... (33,122) $40.25-$63.38
--------- ------------- --------- -------------
At December 31, 1994.......... 2,044,091 $18.94-$64.50 853,329 $18.94-$64.50
Granted..................... 672,074 $50.75-$58.88
Exercised................... (45,969) $18.94-$48.00
Canceled.................... (82,420) $50.38-$63.88
--------- ------------- --------- -------------
At December 31, 1995.......... 2,587,776 $18.94-$64.50 1,457,512 $18.94-$64.50
========= ============= ========= =============
</TABLE>
MAPCO has a Director Stock Option Plan ("Directors' Plan") which provides
for the grant of stock options to MAPCO's non-employee Directors. Under the
Directors' Plan, stock options are granted at the closing price of MAPCO's
common stock on the date of the grant. The number of options granted, which is
fixed by the plan, become fully exercisable on the date of grant. The maximum
number of shares which may be issued under the Directors' Plan is 200,000
shares. Options were granted to purchase 18,000 shares for each of the years
1995, 1994 and 1993 at $58.88, $62.38 and $57.25 per share, respectively.
Options outstanding and exercisable at December 31, 1995, 1994 and 1993 were
119,927 shares, 101,927 shares and 83,927 shares, respectively.
F-15
<PAGE> 51
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. SEGMENT INFORMATION
MAPCO's operations are organized into three segments: Natural Gas Liquids,
Petroleum and Coal. Natural Gas Liquids includes the movement by pipeline of
NGLs, refined products, crude oil, and anhydrous ammonia, and includes the
retail and wholesale marketing of NGLs (including propane, ethane, butane and
natural gasolines), appliances and fertilizer, the trading of NGL's and the
operation of natural gas processing plants (only one of which is currently
operating) and underground storage facilities; Petroleum includes the refining
of crude oil and refined petroleum products, the wholesale and retail marketing
of refined petroleum products, the retail marketing of merchandise and deli fast
foods and the trading of crude oil and refined petroleum products; Coal includes
the production and marketing of coal. Intersegment sales and operating revenues
are generally made at prevailing market prices. Segment information is as
follows (in millions):
<TABLE>
<CAPTION>
SALES AND OPERATING REVENUES ADDITIONS
---------------------------------------- TO PROPERTY, DEPRECIATION,
UNAFFILIATED OPERATING IDENTIFIABLE PLANT AND DEPLETION &
CUSTOMERS INTERSEGMENT TOTAL PROFIT ASSETS EQUIPMENT AMORTIZATION
------------ ------------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Natural Gas Liquids....... $ 867.2 $ 9.3 $ 876.5 $ 139.4* $1,258.5 $139.4 $ 43.6
Petroleum................. 1,989.4 11.5 2,000.9 48.2 620.9 66.5 31.2
Coal...................... 453.4 453.4 8.6* 425.0 33.1 34.5
Eliminations.............. (20.8) (20.8) (.8)
-------- ------ -------- ------ -------- ------ ------
Total segments.... 3,310.0 3,310.0 196.2* 2,303.6 239.0 109.3
General corporate......... (23.6) 45.3 3.9 2.1
Interest and debt
expense................. (58.3)
Other income
(expense) -- net........ (.1)
-------- ------ -------- ------ -------- ------ ------
$3,310.0 $3,310.0 $ 114.2 $2,348.9 $242.9 $111.4
======== ====== ======== ====== ======== ====== ======
YEAR ENDED DECEMBER 31,
1994
Natural Gas Liquids....... $ 817.2 $ 7.5 $ 824.7 $ 131.4 $1,085.1 $164.8 $ 36.5
Petroleum................. 1,816.6 11.4 1,828.0 26.2** 593.6 26.9 31.3
Coal...................... 425.5 425.5 35.9 442.2 30.8 32.2
Eliminations.............. (18.9) (18.9) (.8)
-------- ------ -------- ------ -------- ------ ------
Total segments.... 3,059.3 3,059.3 193.5** 2,120.1 222.5 100.0
General corporate......... (23.4) 46.0 1.3 2.9
Interest and debt
expense................. (53.2)
Other income
(expense) -- net........ (.3)
-------- ------ -------- ------ -------- ------ ------
$3,059.3 $3,059.3 $ 116.6 $2,166.1 $223.8 $102.9
======== ====== ======== ====== ======== ====== ======
YEAR ENDED DECEMBER 31,
1993
Natural Gas Liquids....... $ 707.0 $ 7.8 $ 714.8 $ 119.7 $ 833.7 $ 97.4 $ 32.5
Petroleum................. 1,593.9 10.3 1,604.2 108.0 619.4 28.6 32.1
Coal...................... 414.4 414.4 46.9 428.2 17.4 29.6
Eliminations.............. (18.1) (18.1) (.9)
-------- ------ -------- ------ -------- ------ ------
Total segments.... 2,715.3 2,715.3 274.6 1,880.4 143.4 94.2
General corporate......... (25.8) 80.7 .7 3.1
Interest and debt
expense................. (46.5)
Other income
(expense) -- net........ .6
-------- ------ -------- ------ -------- ------ ------
$2,715.3 $2,715.3 $ 202.9 $1,961.1 $144.1 $ 97.3
======== ====== ======== ====== ======== ====== ======
</TABLE>
- ---------------
* Includes charges of $30.0 million in Coal relative to the application of SFAS
No. 121 and $9.2 million in Natural Gas Liquids for severance and early
retirement benefits.
** Includes a $68.7 million charge relative to the State of Alaska Royalty Oil
settlement.
In 1995, MAPCO transferred the NGL trading activities from the Petroleum
segment into the Natural Gas Liquids segment. In 1994, MAPCO transferred the
liquefied petroleum gas ("LPG") supply unit of the
F-16
<PAGE> 52
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Petroleum segment into the Natural Gas Liquids segment. All prior year amounts
have been restated to reflect the transfers.
NOTE 11. EMPLOYEE BENEFIT PLANS
MAPCO has two defined benefit plans covering substantially all employees.
One of these plans is the MAPCO Inc. and Subsidiaries Pension Plan which has two
separate benefit structures. The benefit formula for the MAPCO Inc. and
subsidiaries (except Coal) structure is a step-rate-plan formula based on final
average pay and years of service, while the benefit formula for the Coal
structure is a flat dollar unit formula based on years of service. The second
plan, which is significantly smaller and covers employees of South Atlantic Coal
Company, has a career average pay formula based on years of service. MAPCO's
funding policy for both of these plans is to make the minimum annual
contributions required by the Employee Retirement Income Security Act. No
contributions were required for 1995 and 1994 due to the current favorable
funded status of these plans. The assets in these plans are primarily comprised
of equity securities, but also include fixed income securities, guaranteed
investment contracts and equity real estate investments.
Net periodic pension income from MAPCO's defined benefit pension plans
includes the following components (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ (4.6) $ (5.9) $ (5.4)
Interest cost on projected benefit obligation............ (11.2) (10.5) (9.8)
Actual return on plan assets............................. 39.0 .5 27.6
Net amortization and deferral............................ (20.7) 16.0 (11.3)
------ ------ ------
Net periodic pension income.............................. $ 2.5 $ .1 $ 1.1
====== ====== ======
</TABLE>
The funded status of MAPCO's defined benefit pension plans and the amounts
recognized in MAPCO's consolidated balance sheets are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Vested benefit obligation........................................ $(151.3) $(109.2)
======= =======
Accumulated benefit obligation................................... $(157.4) $(115.4)
======= =======
Projected benefit obligation..................................... $(174.4) $(129.4)
Plan assets at fair value........................................ 186.7 153.2
------- -------
Plan assets in excess of projected benefit obligation............ 12.3 23.8
Unrecognized net actuarial loss.................................. 12.3 8.9
Unrecognized prior service cost.................................. 2.1 2.5
Remaining unrecognized net asset existing at date of initial
application.................................................... (3.7) (7.2)
------- -------
Prepaid pension cost............................................. $ 23.0 $ 28.0
======= =======
</TABLE>
The rates used in determining the funded status of the two pension plans on
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
SOUTH
MAPCO INC. ATLANTIC
AND SUBSIDIARIES COAL COMPANY
---------------- ------------
<S> <C> <C>
Discount rate........................................... 7.5% 7.5%
Rate of increase in compensation........................ 5.0% 4.0%
Long-term rate of return on plan assets................. 10.0% 10.0%
</TABLE>
F-17
<PAGE> 53
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rates used in determining pension income for the two pension plans for
1995 and the funded status of the plans on December 31, 1994, are as follows:
<TABLE>
<CAPTION>
SOUTH
MAPCO INC. ATLANTIC
AND SUBSIDIARIES COAL COMPANY
---------------- ------------
<S> <C> <C>
Discount rate........................................... 9.0% 9.0%
Rate of increase in compensation........................ 5.0% 4.0%
Long-term rate of return on plan assets................. 10.0% 10.0%
</TABLE>
The rates used in determining pension income for the two pension plans for
1994 are as follows:
<TABLE>
<CAPTION>
SOUTH
MAPCO INC. ATLANTIC
AND SUBSIDIARIES COAL COMPANY
---------------- ------------
<S> <C> <C>
Discount rate........................................... 7.5% 7.5%
Rate of increase in compensation........................ 5.0% 4.0%
Long-term rate of return on plan assets................. 10.0% 10.0%
</TABLE>
The rates used in determining pension income for the two pension plans for
1993 are as follows:
<TABLE>
<CAPTION>
SOUTH
MAPCO INC. ATLANTIC
AND SUBSIDIARIES COAL COMPANY
---------------- ------------
<S> <C> <C>
Discount rate........................................... 8.5% 8.5%
Rate of increase in compensation........................ 6.0% 4.0%
Long-term rate of return on plan assets................. 10.0% 10.0%
</TABLE>
Upon adoption of SFAS No. 87, Employers' Accounting for Pensions, the
excess of the assets in the MAPCO Pension Plan over the projected benefit
obligation is being amortized on a straight-line basis over the average
remaining service period of plan participants.
The Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") imposed
obligations for certain retiree medical costs upon MAPCO. The undiscounted
liability at December 31, 1995, relative to MAPCO's obligations under the Coal
Act was $26.1 million. The expected payments under the Coal Act are $.4 million
in each of the years 1996 through 1998, $.5 million in each of the years 1999
and 2000 and $23.9 million thereafter. MAPCO's recorded liability relative to
the Coal Act at December 31, 1995 was $7.1 million. The difference between the
expected aggregate undiscounted liability of $26.1 million and the liability
reflected in the financial statements is the result of discounting the expected
payments which span more than 30 years.
MAPCO has an ESOP that includes substantially all employees through
voluntary participation. Allocation of the MAPCO common stock held by the ESOP
to individual employees is based on the employee's eligible contribution to the
ESOP and the number of shares of common stock available for allocation. The
common stock available for allocation will be released in quarterly installments
over the term of the ESOP's loan from MAPCO.
MAPCO's cash contributions to the ESOP will equal the ESOP's principal and
interest payments on its loan from MAPCO reduced by the dividends the ESOP
receives on the MAPCO common stock held by the ESOP. Dividends of $2.3 million
in 1995 and in 1994 and $2.5 million in 1993 on the MAPCO common stock owned by
the ESOP were used for debt service. MAPCO made cash contributions to the ESOP
of $8.1 million in 1995, $8.0 million in 1994 and $7.8 million in 1993. MAPCO
recognized compensation expense in connection with the ESOP of $2.7 million,
$2.3 million and $1.7 million and interest expense of $5.4 million, $5.7 million
and $6.1 million in 1995, 1994 and 1993, respectively.
F-18
<PAGE> 54
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES
MAPCO leases land, buildings and equipment under lease agreements which
provide for the payment of minimum rentals. The annual rental expense under
operating leases was $20 million, $19 million and $17 million in 1995, 1994 and
1993, respectively.
Future minimum payments under operating leases are $56 million in total and
during the next five years are: 1996 -- $10 million, 1997 -- $8 million,
1998 -- $7 million, 1999 -- $6 million and 2000 -- $5 million.
TEXAS EXPLOSION LITIGATION
On April 7, 1992, an LPG explosion occurred near an underground salt dome
storage facility located near Brenham, Texas and owned by an affiliate of the
Company, Seminole Pipeline Company ("Seminole"). The National Transportation
Safety Board and the Texas Railroad Commission essentially determined that the
probable cause of the explosion was the result of overfilling the storage
facility.
The Company, as well as Seminole, Mid-America Pipeline Company, MAPCO
Natural Gas Liquids Inc. and other non-MAPCO entities have been named as
defendants in civil actions filed in state district courts in Texas. During
1993, Seminole received reimbursements from its insurers for settlements which
disposed of all of the death claims and substantially all of the serious injury
claims resulting from the incident. Generally, the types of remaining claims
consist of personal injury, mental anguish and property damage claims, coupled
with theories of nuisance and diminished property value.
In March 1996, a judgement was rendered in a case tried in the state
district court in Houston, Texas against Seminole, Mid-America Pipeline Company
and MAPCO (the "defendants"). The judgement totaled approximately $72 million in
actual damages, exemplary damages and interest, with only $5.4 million
pertaining to actual damages found by the jury. The defendants have requested a
new trial and will also pursue an appeal, if necessary.
The Plaintiffs in cases which remain to be tried in Harris, Maverick and
Washington counties in Texas, seek unspecified amounts for actual and exemplary
damages.
Management believes that it has defenses of considerable merit and will
vigorously litigate all pending disputes and/or seek settlements favorable to
the Company, but is not able to predict the ultimate outcome of these matters at
this time. The Company has accrued a liability representing an estimate of
amounts it may incur in connection with the final resolution of all the
remaining claims related to the explosion. The Company has also recorded a
receivable which corresponds to the remainder of its insurance coverage to be
reimbursed by its insurance carrier. Resolutions unfavorable to the Company
could result in material liabilities and charges which have not been reflected
in the accompanying consolidated financial statements.
SEMINOLE LOOP/AQUILA-LAGRANGE LINE LITIGATION
In May 1993, Seminole completed its Seminole loop project and in January
1994, Seminole completed its Aquila-LaGrange line project. Seminole is the
plaintiff in over 70 eminent domain lawsuits in which defendant landowners claim
additional compensation for and/or damages to tracts of land traversed by these
projects in 12 counties in the state of Texas. Many of the lawsuits claim
punitive damages for alleged fraud, illegal entry and other wrongful conduct.
Claims in this litigation are not covered by the Company's insurance.
The Company believes that complete resolution of the Seminole
loop/Aquila-LaGrange line litigation will not have a material adverse effect on
the Company's business, results of operations or financial position.
F-19
<PAGE> 55
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATE ROYALTY OIL SETTLEMENT
The refining and marketing arm of the Company, MAPCO Petroleum Inc.,
operates a refinery in Alaska through its subsidiary, MAPCO Alaska Petroleum
Inc. ("MAPI"). Since 1978, MAPI (and/or its predecessor) has had long-term
agreements with the state of Alaska (the "State") to purchase royalty oil from
the State at prices linked to amounts payable by North Slope oil producers in
satisfaction of their royalty obligations to the State. In 1977, the State
commenced suit against the producers (in an action entitled State of Alaska v.
Amerada Hess, et al.) alleging that they incorrectly calculated their royalty
payments.
As of April 1992, the State had settled its royalty oil claims against all
of the producers. On the basis of these settlements, the State billed MAPI for
retroactive increases in the prices paid by MAPI under all four of its royalty
oil purchase agreements. The State's claims were comprised of retroactive price
adjustments of $98 million, $9.2 million, $2.9 million and $6.4 million, not
including future interest. MAPI commenced litigation against the State in 1992
seeking a determination that it was not liable for retroactive price increases.
The parties settled all pending claims and entered into a settlement
agreement effective August 1, 1994, whereby MAPI paid the State $95 million.
MAPI accrued $68.7 million during the second quarter of 1994 related to the
settlement.
GENERAL LITIGATION
The Company and its subsidiaries are involved in various other lawsuits,
claims and regulatory proceedings incidental to their businesses. In the opinion
of management, the outcome of such matters will not have a material adverse
effect on the Company's business, consolidated financial position or results of
operations.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and long-term receivables: The carrying amounts
reported in the balance sheet for cash and cash equivalents and long-term
receivables approximate their fair value.
Long-term debt, including current maturities: The carrying amounts of
commercial paper and other variable-rate debt instruments approximate their fair
value. The fair values of fixed-rate long-term debt are estimated using
discounted cash flow analyses based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.
Insurance accruals: The fair value of insurance accruals, which represent
contractual obligations to pay cash in the future, is estimated based on a
discounted cash flow analysis using the Company's incremental borrowing rate as
the discount rate.
F-20
<PAGE> 56
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 33.3 $ 33.3 $ 30.6 $ 30.6
Long-term receivables.......................... 9.8 9.8 13.8 13.8
Long-term debt, including current maturities... 827.9 912.2 753.1 732.2
Insurance accruals............................. 8.4 7.4 11.2 9.1
</TABLE>
The assumed incremental borrowing rates used to determine the fair value of
fixed-rate long-term debt were 6.27% to 7.50% and 8.73% to 9.08% for 1995 and
1994, respectively. The incremental borrowing rates used to determine the fair
value of insurance accruals were 6.47% for 1995 and 8.69% for 1994.
Futures, forward and option contracts are used to hedge against the risk of
price changes for selected sales commitments of crude oil and refined petroleum
products. These contracts permit settlement by delivery of commodities and
therefore, are not financial instruments. Contracts that qualify as hedges are
correlated to price movements of crude oil and refined petroleum product
inventory and any gains or losses resulting from market changes will be
substantially offset by gains or losses on the hedged inventory. MAPCO's crude
oil and refined petroleum products hedging activities resulted in an unrealized
gain of $.1 million and $1.3 million at December 31, 1995, and 1994,
respectively.
NOTE 14. ENVIRONMENTAL MATTERS
Estimated liabilities for environmental costs, primarily in the Petroleum
segment, at December 31, 1995, and 1994, were $32.7 million and $30.9 million,
respectively. Receivables of $19.5 million and $18.5 million at December 31,
1995, and 1994, respectively, have been recognized as recoverable from state
funds in connection with laws permitting reimbursement by the states of certain
expenses associated with underground storage tank problems and repairs.
NOTE 15. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
---------------------------------------
1 2 3 4
------ ------ ------ ------
(DOLLARS IN MILLIONS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1995
Sales and operating revenues.................... $777.2 $927.6 $801.7 $803.5
Operating profit................................ $ 65.2 $ 53.7 $ 46.0 $ 31.3
Net income...................................... $ 29.0 $ 21.2 $ 16.5 $ 8.0
Earnings per common share....................... $ .97 $ .71 $ .55 $ .27
1994
Sales and operating revenues.................... $692.1 $738.1 $805.3 $823.8
Operating profit (loss)......................... $ 81.0 $(16.3) $ 55.0 $ 73.8
Net income (loss)............................... $ 41.4 $(24.6) $ 24.7 $ 37.6
Earnings (loss) per common share................ $ 1.38 $ (.82) $ .83 $ 1.25
</TABLE>
Net income in the 1995 fourth quarter was reduced by $24.6 million from
charges related to applying SFAS No. 121 and for severance and early retirements
associated with reorganizations in the Natural Gas Liquids segment. Net income
in the 1995 fourth quarter increased $4.9 million from a favorable settlement of
a crude pricing dispute.
F-21
<PAGE> 57
MAPCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net income in the second quarter of 1994 was reduced by $45.5 million
associated with the settlement of the royalty oil dispute with the state of
Alaska.
NOTE 16. SUBSEQUENT EVENTS
In January 1996, the Company announced that it had signed a letter of
intent with Beacon to form a limited liability company which will own
substantially all of the net assets of the Coal segment. Beacon will own 75
percent of the new company and MAPCO will own 25 percent. The transaction is
expected to be finalized in the second quarter of 1996.
In January 1996, the Company finalized negotiations on a new coal supply
contract with The Virginia Electric & Power Company ("VEPCO"). The 2.25 million
ton per year contract is a 10-year agreement that begins in January 1997. The
contract will replace the Company's current 1.0 million ton per year supply
agreement with VEPCO which expires at the end of 1996.
In January 1996, the Company signed an agreement to sell its Thermogas Iowa
propane and liquid fertilizer assets, as well as its remaining liquid fertilizer
assets in Arkansas, Illinois, Indiana, Minnesota, Ohio and Wisconsin, to CENEX
Inc. The Company expects to receive $35.8 million in cash plus working capital
and realize a gain, based on the terms of the agreement. The transaction is
expected to be completed by March 29, 1996. The operations from the Thermogas
properties to be sold represented approximately two percent of the Company's
1995 sales and operating revenues.
F-22
<PAGE> 58
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Expenses:
Selling, general and administrative.............................. $ 21.4 $ 20.4 $ 14.5
Depreciation and amortization.................................... 2.1 2.9 3.1
Interest and debt expense........................................ 46.0 39.8 40.0
Other income -- net.............................................. (3.4) (2.9) (10.7)
------ ------ ------
Loss before Provision for Income Taxes............................. (66.1) (60.2) (46.9)
Provision for Income Taxes......................................... 22.1 21.5 15.8
Equity in Net Income of Subsidiaries............................... 118.7 117.8 158.1
------ ------ ------
Net Income......................................................... $ 74.7 $ 79.1 $127.0
====== ====== ======
</TABLE>
See notes to condensed financial statements.
S-1
<PAGE> 59
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
(DOLLARS IN
ASSETS MILLIONS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................................. $ 9.8 $ 7.3
Receivables............................................................ .2 .3
Prepaid expenses and other............................................. 5.7 18.7
Net assets held for sale............................................... 248.3 --
-------- --------
Total current assets........................................... 264.0 26.3
-------- --------
Property, Plant and Equipment, net....................................... 11.0 8.9
-------- --------
Other Assets:
Receivables from and investments in subsidiaries....................... 1,107.8 1,226.3
Other assets........................................................... 24.3 4.9
-------- --------
Total other assets............................................. 1,132.1 1,231.2
-------- --------
$1,407.1 $1,266.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt................................... $ 25.4 $ 31.0
Accounts payable....................................................... 33.8 24.5
Accrued taxes.......................................................... 12.7 .5
Other current liabilities.............................................. 5.8 5.7
-------- --------
Total current liabilities...................................... 77.7 61.7
-------- --------
Long-Term Debt, excluding current maturities............................. 631.8 552.6
-------- --------
Other Liabilities........................................................ 50.3 20.0
-------- --------
Deferred Income Taxes.................................................... 5.0 9.5
-------- --------
Stockholders' Equity:
Common stock........................................................... 62.9 62.8
Capital in excess of par value......................................... 203.0 202.6
Retained earnings...................................................... 1,401.8 1,356.4
-------- --------
1,667.7 1,621.8
Treasury stock, at cost................................................ (966.7) (935.6)
Loan to ESOP........................................................... (58.7) (63.6)
-------- --------
642.3 622.6
-------- --------
$1,407.1 $1,266.4
======== ========
</TABLE>
See notes to condensed financial statements.
S-2
<PAGE> 60
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................... $ 74.7 $ 79.1 $ 127.0
Reconciliation of net income to cash provided by operating
activities:
Depreciation and amortization.............................. 2.1 2.9 3.1
Provision for deferred income taxes........................ 1.5 (7.9) (1.2)
Equity in net income of subsidiaries....................... (118.7) (117.8) (158.1)
Other items not requiring cash............................. 2.0 5.7 1.3
Changes in operating assets and liabilities................ 37.5 (16.5) (3.0)
------- ------- -------
Net cash used in operating activities................. (.9) (54.5) (30.9)
------- ------- -------
Cash Flows from Investing Activities:
Capital expenditures.......................................... (3.9) (1.3) (.6)
Proceeds from sales of property, plant and equipment.......... -- 1.0 1.4
Accounts with subsidiaries.................................... (11.1) (109.4) 241.8
------- ------- -------
Net cash provided by (used in) investing activities... (15.0) (109.7) 242.6
------- ------- -------
Cash Flows from Financing Activities:
Purchase of common stock...................................... (31.1) (8.7) (6.2)
Increase (decrease) in borrowings............................. 104.6 165.1 (139.5)
Dividends..................................................... (29.7) (30.0) (30.0)
Payments on long-term debt.................................... (26.0) (8.0) (10.0)
Exercise of stock options..................................... .1 .9 1.0
Other......................................................... .5 .1 .6
------- ------- -------
Net cash provided by (used in) financing activities... 18.4 119.4 (184.1)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents................ 2.5 (44.8) 27.6
Cash and Cash Equivalents, January 1............................ 7.3 52.1 24.5
------- ------- -------
Cash and Cash Equivalents, December 31.......................... $ 9.8 $ 7.3 $ 52.1
======= ======= =======
</TABLE>
See notes to condensed financial statements.
S-3
<PAGE> 61
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Consolidation -- The financial statements of MAPCO Inc. reflect the
investment in subsidiaries using the equity method.
Statements of Cash Flow -- MAPCO Inc. made cash payments for interest of
$45.8 million, $38.6 million, and $41.3 million in 1995, 1994 and 1993,
respectively.
Income Taxes -- MAPCO Inc. files a consolidated Federal income tax return
with its subsidiaries. Members of the consolidated group are allocated income
tax expense or benefit based upon their results as reflected in the consolidated
Federal income tax return.
NOTE 2. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements and related
notes of MAPCO Inc. and subsidiaries for additional information.
NOTE 3. DEBT AND GUARANTEES
Information on the long-term debt of MAPCO Inc. is disclosed in Note 6 to
the Consolidated Financial Statements. MAPCO Inc. has guaranteed certain trade
payable obligations and performance guarantees arising in the ordinary course of
business. The scheduled amounts to be paid on long-term debt during the next
five years are: 1996 -- $25 million, 1997 -- $31 million, 1998 -- $36 million,
1999 -- $32 million and 2000 -- $23 million.
NOTE 4. DIVIDENDS RECEIVED
Subsidiaries of MAPCO Inc. do not make formal cash dividend declarations
and distributions to the parent. MAPCO Inc. receives and disburses cash on
behalf of its subsidiaries. Any restrictions in debt agreements on the transfer
of cash to MAPCO Inc. by its subsidiaries did not have any impact during 1995,
1994 or 1993.
S-4
<PAGE> 62
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------- ---------- ------------------------ ------------- ----------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- -------------------------------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for doubtful accounts --
Receivables...................... $2.3 $ .5 $ $ 1.3 $1.5
======== ======== ======== ========== ========
Allowance for doubtful accounts --
Other assets..................... $ $1.6 $ $ $1.6
======== ======== ======== ========== ========
Year Ended December 31, 1994
Allowance for doubtful accounts --
Receivables...................... $3.3 $ .3 $ $ 1.3 $2.3
======== ======== ======== ========== ========
Year Ended December 31, 1993
Allowance for doubtful accounts --
Receivables...................... $3.0 $1.3 $ $ 1.0 $3.3
======== ======== ======== ========== ========
Allowance for doubtful accounts --
Other assets..................... $1.9 $ $ $ 1.9 $
======== ======== ======== ========== ========
</TABLE>
- ---------------
(1) Bad debts written off, less recoveries (net).
S-5
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<S> <C>
4.(i) Amendment No. 2 dated as of November 1, 1995, to the
competitive Advance and Revolving Credit Facility dated
as of April 29, 1994, among MAPCO Inc., the Lenders
named therein and Chemical Bank, as Agent for the Lenders . . . . . . . . . . . . . . . . .
10.(c) MAPCO Inc. 1986 Retirement Plan for Directors,
as amended and restated effective January 23, 1996 . . . . . . . . . . . . . . . . . . . . .
10.(k) MAPCO Inc. 1989 Outside Director Stock Option Plan, as amended
January 23, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.(o) Severance and Consulting Agreement dated as of September 1, 1995,
between MAPCO Inc. and Robert M. Howe . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.(p) Settlement Agreement dated as of August 31, 1995,
between MAPCO Inc. and Frank S. Dickerson, III . . . . . . . . . . . . . . . . . . . . . .
10.(q) MAPCO Inc. Outside Director Phantom Stock Plan . . . . . . . . . . . . . . . . . . . . . .
10.(t) Coal Supply Agreement dated January 15, 1996
between Mettiki Coal Corporation and Virginia Electric and Power Company . . . . . . . . . .
11. Statement re: computation of per share earnings . . . . . . . . . . . . . . . . . . . . . .
12. Computation of Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . . . . .
21. List of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23. Independent Auditors' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24. Power of Attorney, included as part of the signature page of this report . . . . . . . . . .
27. Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 1
EXHIBIT 4.(i)
Amendment No. 2 dated as of November 1, 1995, to the
Competitive Advance and Revolving Credit Facility
dated as of April 29, 1994, among MAPCO Inc.,
the Lenders named therein and Chemical Bank,
as Agent for the Lenders
<PAGE> 2
AMENDMENT NO. 2 dated as of November ___,
1995 to the Competitive Advance and Revolving Credit
Facility dated as of April 29, 1994 (the "Credit
Agreement") among MAPCO Inc., a Delaware corporation
(the "Borrower"), the Lenders named therein and
CHEMICAL BANK, as Agent for the Lenders (in such
capacity, the "Agent").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this
Amendment are as defined in the Credit Agreement.
Pursuant to the Credit Agreement, the Lenders have
agreed to make Loans to the Borrower.
The Borrower has requested that the Credit Agreement
be amended as set forth herein.
Accordingly, the parties hereby agree as follows:
SECTION 1. Amendment to the Credit Agreement.
The Credit Agreement is hereby amended effective as
of November 1, 1995 (subject to the terms and conditions set forth in Section
2 hereof) as follows:
(A) Section 6.05 of the Credit Agreement is
hereby amended as follows:
SECTION 6.05. Funded Indebtedness. Permit
Consolidated Funded Indebtedness to exceed an amount
equal to the following percentage of Consolidated
Capitalization: 65% from the Effective Date through
December 31, 1994; 60% thereafter through December
31, 1996 and 55% thereafter.
SECTION 2. Conditions to Effectiveness.
This Amendment is subject to the satisfaction of the
following conditions precedent:
(A) the Agent shall have received executed
counterparts of this Amendment, which, when taken together, bear the signatures
of the Borrower and the Required Lenders; and
(B) all legal matters incident to this Agreement
shall be satisfactory to Morgan, Lewis & Bockius L.L.P., counsel for the Agent.
SECTION 3. Representations and Warranties.
(A) the representations and warranties contained
in Section 3 of the Credit Agreement are true and correct in all material
respects on and as of the date hereof as if such representations and warranties
had been made on and as of the date hereof; and
<PAGE> 3
(B) the Borrower is in compliance with all the
terms and provisions set forth in the Credit Agreement and no Event of Default
or event which with notice or lapse of time or both would constitute an Event
of Default has occurred.
SECTION 4. Full Force and Effect.
Except as expressly amended hereby, the Credit
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement, the
terms "Agreements", "this Agreement", this Credit Agreement", "herein",
"hereinafter", "hereto", "hereof", and words of similar import, shall, unless
the context otherwise requires, mean the Credit Agreement as amended by this
Amendment.
SECTION 5. APPLICABLE LAW.
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Counterparts.
This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
SECTION 7. Expenses.
The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the execution
and delivery of this Amendment, including, but not limited to, the reasonable
fees and disbursements of Morgan, Lewis & Bockius, counsel for the Agent.
SECTION 8. Headings.
The headings of this Amendment are for the purposes
of reference only and shall not affect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their duly authorized officers, all of
the date and year first above written.
[SEAL] MAPCO Inc.
/s/ James N. Cundiff /s/ Philip W. Baxter
- ----------------------------- ----------------------------
James N. Cundiff Philip W. Baxter
Assistant Secretary Senior Vice President and
Chief Financial Officer
2
<PAGE> 4
CHEMICAL BANK, for itself and
as Agent
By /s/ R. Potter
-------------------------------
Name R. Potter
-----------------------------
(Type or Print)
Title Managing Director
---------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ C Paige DiMaggio
-------------------------------
Name C Paige DiMaggio
-----------------------------
(Type or Print)
Title Vice President
---------------------------
THE FIRST NATIONAL BANK
OF CHICAGO
By /s/ Helen A. Carr
-------------------------------
Name Helen A. Carr
-----------------------------
(Type or Print)
Title Attorney In Fact
---------------------------
MORGAN GUARANTY TRUST COMPANY
By /s/ James S. Finch
-------------------------------
Name James S. Finch
-----------------------------
(Type or Print)
Title Vice President
---------------------------
3
<PAGE> 5
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. Ashby
----------------------------------
Name F.C.H. Ashby
--------------------------------
(Type or Print)
Title Senior Manager Loan Operations
------------------------------
NATIONAL WESTMINSTER BANK Plc
By /s/ David L. Smith
----------------------------------
Name David L. Smith
--------------------------------
(Type or Print)
Title Vice President
------------------------------
ABN AMRO BANK N.V.
By /s/ David P. Orr
----------------------------------
Name David P. Orr
--------------------------------
(Type or Print)
Title Vice President
------------------------------
By /s/ Ronald A. Mahle
----------------------------------
Name Ronald A. Mahle
--------------------------------
(Type or Print)
Title Group Vice President
------------------------------
BANK OF OKLAHOMA, N.A.
By /s/ Jane Faulkenberry
----------------------------------
Jane Faulkenberry
--------------------------------
(Type or Print)
Title Vice President
------------------------------
4
<PAGE> 6
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ Xavier Ratouis
-------------------------------
Name Xavier Ratouis
-----------------------------
(Type or Print)
Title Authorized Signature
---------------------------
By
-------------------------------
Name
-----------------------------
(Type or Print)
Title
---------------------------
THE FUJI BANK, LIMITED
By /s/ Kenichi Tatara
-------------------------------
Name Kenichi Tatara
-----------------------------
(Type or Print)
Title Vice President and Manager
---------------------------
THE SUMITOMO BANK, LIMITED
By /s/ Toshiro Kubota
-------------------------------
Name Toshiro Kubota
-----------------------------
(Type or Print)
Title Joint General Manager
---------------------------
5
<PAGE> 1
EXHIBIT 10.(c)
MAPCO Inc. 1986 Retirement Plan for Directors,
as amended and restated effective January 23, 1996
<PAGE> 2
MAPCO INC.
1986 RETIREMENT PLAN FOR DIRECTORS
EFFECTIVE MARCH 13, 1986
AS AMENDED AND RESTATED EFFECTIVE JANUARY 23, 1996
1. Name and Purpose
The name of this Plan is the MAPCO Inc. 1986 Retirement Plan for
Directors ("Plan"). The purpose of the Plan is to provide any Director of
MAPCO prior to January 1, 1996, who is not concurrently an employee of MAPCO or
any subsidiary thereof with continuing compensation for services rendered as a
retired Director and thereby assist MAPCO in the realization of its long-term
strategies and objectives.
It is intended that a person retired under this Plan will be available
to provide advice and counsel from time to time on such matters as the Chairman
of the Board shall request, and to be paid meeting fees and expenses related
thereto when applicable.
2. Definitions
"MAPCO" means MAPCO Inc., a Delaware corporation, or any successor to
a substantial portion of its business.
"Credited Service" means all months of service, whether or not
consecutive, as an Eligible Director of MAPCO, including service as an Eligible
Director prior to the Effective Date of the Plan. Service while a Director but
not an Eligible Director will not be deemed to be service for any purpose under
this Plan. Service as a director of a subsidiary of MAPCO will not be deemed
to be service for any purpose under this plan.
"Director" means any member of the Board of Directors of MAPCO on or
after the Effective Date.
1
<PAGE> 3
"Eligible Director" means any Director who began service to the
Company as a Director prior to January 1, 1996 and who is not and has not
concurrently been employed by MAPCO or any subsidiary thereof.
"Effective Date" means March 13, 1986.
"Participant" means any Eligible Director whose service has terminated
and who has otherwise qualified to commence to receive a benefit under the
terms of this Plan.
"Plan means this MAPCO Inc. 1986 Retirement Plan for Directors.
"Plan Administrator" means the General Counsel of MAPCO or any other
officer designated by the Chairman of the Board.
"Prior Plan" means the March 11, 1982 MAPCO Inc. Retirement Plan for
Directors as in effect, and as amended to terminate, on March 12, 1986, which
is superseded by this Plan effective March 13, 1986, except as otherwise
provided in Paragraph 3 hereof.
"Retainer" means the annual fee established by the Board of Directors
of MAPCO and paid monthly for service as a Director, but excludes any meeting
fee, expense reimbursement, or any other compensation received by a Director
unless such compensation is specifically included as a part of the Retainer by
action of the Board.
"Termination of Service" means cessation of service as a Director.
3. Eligibility for Benefits
Each Eligible Director who has sixty (60) or more months of Credited
Service shall be entitled to a benefit under the plan upon his or her
termination of service as a Director. The Prior plan shall continue to be
effective only as to any individual whose service had terminated and who was
entitled to receive benefits thereunder as of March 12, 1986.
2
<PAGE> 4
4. Plan Benefits
The annual benefit payable under the Plan shall be equal to the
Retainer in effect for Eligible Directors at the time an Eligible Director's
service terminates. This benefit may be paid to the Participant on a monthly
basis, on or before the last day of each month commencing with the month
following the month of his or her Termination of Service, or equivalent payment
may be made on a less frequent basis, at least annually, at the plan
Administrator's sole discretion.
5. Duration of Benefits
(a) Normal Retirement. In the case of a Participant who is age
seventy (70) or older and who has sixty (60) or more months of Credited Service
at the date of his or her Termination of Service, the benefits provided by this
Plan shall, subject to Sections 6 and 7, continue until the last day of the
month in which the death of the Participant occurs.
(b) Vested Benefits. In the case of a Participant who is younger
than age seventy (70) but who has sixty (60) or more months of Credited Service
at the date of his or her Termination of Service, the benefits provided by this
Plan shall, subject to Sections 6 and 7, continue until the first to occur of:
(a) the number of monthly payments made equals the number of months of Credited
Service by the Participant as an Eligible Director (or equivalent payments have
been made); or (b) 120 monthly payments (or equivalent payments) have been
made; or (c) the last day of the month in which the death of the Participant
occurs.
(c) Change in Control. Notwithstanding Section 5(b), in the event
that a Participant's service as a Director terminates following a "change in
control" of the Company (as hereinafter defined), such Participant shall not be
subject to the provisions of Section 7 (Forfeiture of Benefits). In addition,
any Participant who is not eligible to receive benefits under Section 5(a)
shall, subject to Section 6,
3
<PAGE> 5
receive the benefits otherwise provided by the Plan under Section 5(b), (i)
regardless of whether he has ten completed sixty (60) or more months of
Credited Service and (ii) during his lifetime for a period equal to the greater
of (x) 120 monthly payments (or equivalent payments) or (y) a period equal to
the number of months of his Credited Service (or equivalent payments). A
"change in control" means the first to occur of the following events:
(A) the members of the Board of Directors of MAPCO at the
beginning of any consecutive 24 month calendar period
cease for any reason to constitute 75% of the members
of such Board of Directors, unless the election, or
the nomination for election by MAPCO's stockholders,
of each new Director was approved by a vote of at
least 75% of the members of such Board of Directors
then in office who are members of such Board of
Directors at the beginning of such 24 calendar month
period; or
(B) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d)(ii) of the
Securities Exchange Act of 1934, as amended), but
excluding MAPCO, any of it subsidiaries or any
employee benefit plan of MAPCO or any of its
subsidiaries is or becomes the "beneficial owner" (as
defined in Rule 13(d)(iii) under the Securities
Exchange Act of 1934, as amended), directly or
indirectly, of securities of MAPCO representing 25%
or more of the combined voting power of MAPCO's then
outstanding securities; or
(C) the stockholders of MAPCO shall approve a definitive
agreement (1) for the merger or other business
combination of MAPCO with or into another
4
<PAGE> 6
corporation a majority of the directors of which were
not directors of MAPCO immediately prior to the
merger and in which the stockholders of MAPCO
immediately prior to the effective date of such
merger own less than 50% of the voting power or in
such corporation or (2) for the sale or other
disposition of all or substantially all of the assets
of MAPCO.
6. Suspension of Benefits
If a Participant returns to service as a Director or becomes an
employee of MAPCO or is or becomes a director or employee of any subsidiary of
MAPCO, payment of benefits under this Plan shall be immediately suspended and
shall commence again on the last day of the month following the month in which
such service or employment terminates.
If a Participant returns to service as an Eligible Director, the
amount and duration of his or her benefits shall be redetermined under Sections
4 and 5, based on the Participant's age, cumulative periods of Credited Service
and the Retainer in effect upon his or her subsequent Termination of Service;
provided, however, that if the Participant is not yet seventy (70) years of age
upon his or her subsequent Termination of Service, the Participant's number of
monthly payments (or equivalent payments) for which he or she qualifies as a
result of his or her cumulative periods of Credited Service shall be reduced by
the number of monthly payments (or equivalent payments) previously received by
the Participant under this Plan.
If, however, a Participant returns to service as an employee of MAPCO
or as a director or employee of a subsidiary of MAPCO, there shall be no
adjustment in the Retainer used to determine the benefit payments and the
amount and the duration of his or her benefits shall not be redetermined, but
shall again be governed by Sections 4 and 5 as previously determined.
5
<PAGE> 7
7. Forfeiture of Benefits
No benefit shall be paid under this Plan with respect to any month in
which a Participant is employed by or serving as a director of any company if
such service constitutes or would in the opinion of the General Counsel of
MAPCO be deemed to constitute a conflict of interest or other legal impediment
of such a nature as would preclude such Participant from concurrently serving
as a Director of MAPCO. No benefit shall be paid hereunder to any Director
terminated for cause.
8. Funding
No promise under this Plan shall be secured by any specific asset of
MAPCO, nor shall any asset of MAPCO be designated as attributable to or be
allocated to the satisfaction of any such promise. Each benefit payment shall
be made from MAPCO's general revenues.
9. Administration
The Plan Administrator shall have full power and authority to
administer the Plan, including the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, the power to appoint agents and delegate his duties, and
the power to make such decisions or take such action as the Plan Administrator,
at his sole discretion, deems necessary or advisable to aid in the proper
administration of the Plan.
10. Alienation of Benefits
No Participant shall have the right to anticipate, alienate, sell,
transfer, assign, pledge or encumber his or her right to receive any benefit
under this Plan until the benefit is paid to him or her and any attempt thereat
shall be void.
11. Withholding Taxes
MAPCO shall deduct from the amount of any payment hereunder, any tax
required to be
6
<PAGE> 8
withheld by applicable law.
12. Governing Law
This Plan shall be governed and construed by the laws of the State of
Delaware.
13. Amendment, Modification, Or Termination Of the Plan
The Board of Directors may, at any time, terminate or, in any respect,
amend or modify the Plan, but such action shall not affect the rights of any
Participant then receiving benefits under the Plan.
7
<PAGE> 1
EXHIBIT 10.(k)
MAPCO Inc. 1989 Outside Director Stock Option Plan,
as amended January 23, 1996
<PAGE> 2
MAPCO INC.
1989 OUTSIDE DIRECTOR STOCK OPTION PLAN
AS AMENDED JANUARY 23, 1996
SECTION 1.
PURPOSE
1.1. The purpose of the "MAPCO INC" 1989 OUTSIDE DIRECTOR STOCK
OPTION PLAN" (the "Plan") is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by enabling
the Company to attract and retain the services of outstanding Outside Directors
whose judgment, interest, and special effort is essential to the successful
conduct of its operations.
SECTION 2.
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall
have the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Annual Award" means an Option for 1,000(1) shares of
Stock.
(c) "Annual Retainer Fee" means the annual fee payable to an
Outside Director for services as a member of the Board, but exclusive
of any fees paid for services as a member of a committee of the Board,
for attending meetings or for other special services provided to the
Company. Notwithstanding the foregoing, the amount treated as an
Annual Retainer Fee hereunder shall not exceed $20,000, increased at
the rate of 10% per annum on a compounded basis for each calendar year
beginning after December 31, 1989.
(d) "Board" means the Board of Directors of the Company.
(e) "Company" means MAPCO Inc., a Delaware corporation, and
any successor thereto.
(f) "Disability" means total disability, which if the Outside
Director were an employee of the Company, would be treated as a total
disability under the terms of the Company's long-term disability plan
for employees, as in effect from time to time.
________________________
(1) After giving effect to the two-for-one stock split
declared on April 16, 1989.
1
<PAGE> 3
(g) "Fair Market Value" on any date means the closing price of
the Stock as reported by the consolidated tape of the New York Stock
Exchange (or on such other recognized quotation system on which the
trading prices of the stock are quoted at the relevant time) on such
date. In the event that there are not Stock transactions reported on
such tape (or such other system) on such date, Fair Market Value shall
mean the closing price on the immediately preceding date on which
Stock transactions were so reported.
(h) "Option" means the right to purchase Stock at a stated
price for a specified period of time. The term Option shall include
Annual Awards.
(i) "Outside Director" means any member of the Board who is
not an employee of the Company or any of its subsidiaries.
(j) "Stock" means the common stock of the Company, par value
$1.00 per share.
2.2 Gender and Number. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Each Outside Director shall participate in the Plan.
SECTION 4.
STOCK SUBJECT TO PLAN
4.1 Number. The total number of shares of Stock subject to Awards
under the Plan may not exceed 200,000(2) shares, subject to adjustment pursuant
to Section 4.3. The shares to be delivered under the Plan may consist, in
whole or in part, of treasury Stock or authorized but unissued Stock, not
reserved for any other purpose.
4.2 Cancelled, Terminated, or Forfeited Awards. Any shares of
Stock subject to an Option which for any reason is cancelled or terminated
without the issuance of any Stock shall again be available for Awards under the
Plan.
4.3 Adjustment in Capitalization. In the event of any Stock
dividend or Stock split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to stockholders, exchange of shares, or
________________________
(2) After giving effect to the two-for-one stock split declared on April
16, 1989.
2
<PAGE> 4
other similar corporate change, the aggregate number of shares of Stock
available for issuance hereunder or subject to Options and the respective
exercise prices of outstanding Options may be appropriately adjusted by the
Board, whose determination shall be conclusive; provided, however, that any
fractional shares resulting from any such adjustment shall be disregarded.
SECTION 5.
STOCK OPTIONS
5.1 Grant of Options. (a) Annual Awards. During each calendar
year during the term of the Plan, each Outside Director shall be granted an
Annual Award on the later to occur of the first business day following the
annual meeting of the Company's stockholders or June 1.
(b) Option Agreement. Each Option shall be evidenced by an Option
agreement that shall specify the exercise price, the term of the Option, and
the number of shares of Stock to which the Option pertains.
5.2 Option Price. Options granted pursuant to Section 5.1(a) as
an Annual Award shall have an exercise price equal to the Fair Market Value of
a share of Stock on the date the Option is granted.
5.3 Exercise of Options. Options awarded under the Plan shall be
fully and immediately exercisable. Each Option shall be exercisable for 10
years after the date on which it is granted.
5.4 Payment. Options may be exercised by written notice of
exercise accompanied by payment in full of the Option price in cash or cash
equivalents, including by personal check, or with a partial or full payment in
Stock already owned by the Outside Director, valued at Fair Market Value on the
date of exercise. As soon as practicable after receipt of such written
exercise notice and full payment of the Option price, the Company shall deliver
to the Outside Director a certificate or certificates representing the acquired
shares of Stock.
SECTION 6.
TERMINATION OF DUTIES AS A DIRECTOR
6.1 Termination of Duties Due to Retirement. In the event an
Outside Director's membership on the Board ceases on or after he has attained
age 70, any Options then held by such Outside Director may be exercised at any
time prior to the expiration of the term of the Options or within three (3)
years following his cessation of Board membership, whichever period is shorter.
6.2 Termination of Duties Due to Death or Disability. In the
event an Outside Director's membership on the Board ceases by reason of his
death or Disability, any Options then held by such Outside Director may be
exercised by the Outside Director or his legal representative at any time
3
<PAGE> 5
prior to the expiration date of the terms of the Options or within one (1) year
following his cessation of Board membership, whichever period is shorter.
6.3 Termination of Duties for Any Other Reason. In the event an
Outside Director's membership on the Board ceases for any reason other than one
described in Section 6.1 or 6.2, any Options then held by such Outside Director
shall be cancelled.
6.4 Services as an Employee. If an Outside Director becomes an
employee of the Company or any of its subsidiaries, the Outside Director shall
be treated as continuing in service for purposes of this Plan, but shall not be
eligible to receive future grants while an employee. If the Outside Director's
services as an employee terminate without his again becoming an Outside
Director, the provisions of this Section 6 shall apply as though such
termination of employment were the termination of the Outside Director's
membership on the Board.
SECTION 7.
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board at any time may terminate or suspend the Plan, and from time
to time may amend or modify the Plan, but any amendment that materially
increases the benefits to be provided to Outside Directors shall be subject to
approval by the Company's stockholders. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any Option
theretofore granted under the Plan, without the consent of the Outside
Director.
SECTION 8.
MISCELLANEOUS PROVISIONS
8.1 Nontransferability of Awards. No Options may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. All rights with
respect to Options granted to an Outside Director shall be exercisable during
his lifetime only by him.
8.2 Beneficiary Designation. Each Outside Director may from time
to time name any beneficiary or beneficiaries (who may be named contingently or
successively) by whom any Option granted under the plan is to be exercised in
case of his death. Each designation will revoke all prior designations by such
Outside Director and will be effective only when filed by the Outside Director
in writing with the Secretary of the Company during his lifetime. In the
absence of any such designation, Options outstanding at the time of an Outside
Director's death shall be exercised by the Outside Director's surviving spouse,
if any, or otherwise by his estate.
8.3 No Guarantee of Membership. Nothing in the Plan shall confer
upon an Outside Director the right to remain a member of the Board.
4
<PAGE> 6
8.4 Requirements of Law. The granting of Options and the issuance
of shares of Stock upon the exercise of Options shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
8.5 Administration. The Plan shall, to the maximum extent
possible, be self-effectuating. Any determinations necessary or advisable for
the administration and interpretation of the Plan in order to carry out its
provisions and purposes shall be made by the Company.
8.6 Term of Plan. The Plan shall be effective upon its adoption
by the Board, subject to approval by the Company's stockholders at their next
annual meeting. The Plan shall continue in effect, unless sooner terminated
pursuant to Section 7, until the tenth anniversary of the date on which it is
adopted by the Board.
8.7 Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of
Delaware.
5
<PAGE> 1
EXHIBIT 10.(o)
Severance and Consulting Agreement dated as of September 1, 1995,
between MAPCO Inc. and Robert M. Howe
<PAGE> 2
SEVERANCE AND CONSULTING AGREEMENT
This Severance and Consulting Agreement (hereinafter the "Agreement")
is entered into this _____ day of September, 1995, by and between MAPCO, INC.,
its officers, directors, subsidiaries, successors and assigns and ROBERT M.
HOWE (hereinafter "Howe"), his heirs, beneficiaries, agents and assigns.
WHEREAS, Howe has served as President, Chief Operating Officer and
Director of MAPCO, Inc. and as an officer and Director of various subsidiaries
of MAPCO, Inc., including MAPCO Coal, Inc., MAPCO Petroleum, Inc. and MAPCO
Natural Gas Liquids, Inc. and their subsidiaries (hereinafter collectively
referred to as MAPCO);
WHEREAS, Howe has decided to elect early retirement and resign from
any positions he holds with MAPCO in any capacity as an officer, director or
employee, except as otherwise set forth herein;
WHEREAS, MAPCO recognizes Howe's dedicated and lengthy years of
service to MAPCO, as well as Howe's many contributions to the success of MAPCO,
and desires to set forth the terms of Howe's retirement, separation from MAPCO
and continuing consulting relationship with MAPCO;
WHEREFORE, MAPCO and Howe hereby agree as follows:
1. Howe will resign as an officer and director of MAPCO effective
upon execution of this Agreement;
2. Howe will remain as an employee of MAPCO, Inc. through
December 31, 1995 at his current gross salary and with his current benefits,
including tax preparation and estate planning reimbursement commitments,
vacation pay, health, disability and accident
<PAGE> 3
benefits and bonuses, if any, under the Incentive Compensation Plan ("ICP") for
1995 using the performance measures, targets and adjustments approved by the
Compensation Committee for all ICP participants;
3. Effective January 1, 1996, Howe will become a consultant to
MAPCO for a period of twenty-four (24) months and shall be compensated, on a
monthly basis, based upon Howe's 1995 annual gross base salary for such twenty-
four (24) month period, regardless of MAPCO's utilization of Howe's services,
the location of Howe's residence or Howe's future contributions to MAPCO and
shall not be reduced in any manner for any reason other than to comply with tax
withholding requirements, provided, however, that in the event Howe becomes
employed after December 31, 1996, any earnings Howe receives during the period
of his employment in 1997 shall be deducted from the remaining payments due by
MAPCO and not yet paid at the time Howe receives such earnings from such new
employer;
4. Notwithstanding paragraph 3 above, if Howe so elects and
notifies MAPCO, in writing, of his desire to do so prior to January 1, 1996, in
lieu of his consulting relationship with MAPCO, Howe may receive, in a lump sum
amount, a payment equal to eighteen (18) months of compensation, based upon
Howe's 1995 annual gross base salary, subject to tax withholding requirements;
5. In the event that a "change in control" of MAPCO shall occur,
as that term is defined in a certain Letter Agreement between MAPCO, Inc. and
Howe dated December 20, 1989, as amended or MAPCO fails to make any payment as
it may become due hereunder before Howe receives all payments he is entitled to
under this Agreement and
2
<PAGE> 4
MAPCO fails to remedy such non-payment within ten (10) days of being notified
of the same, all such payments shall become immediately due and payable to Howe
in a lump sum or as otherwise directed by Howe;
6. Howe's rights under any employee benefit or incentive
compensation plan shall be governed by the terms of such plans only as modified
herein, provided that it is the intent of MAPCO and Howe to maximize any rights
and benefits Howe might have under such plans, without increasing MAPCO's
monetary liability and subject to any restrictions required by law or
regulation, including but not limited to MAPCO's Supplemental Executive
Retirement Plan ("SERP"), MAPCO's Pension Plan, MAPCO's Stock Incentive Plan,
MAPCO and Subsidiaries Profit Sharing and Savings Plan and Howe's Supplemental
Retirement Agreement ("SRA"). The Company agrees to pay Howe, and Howe agrees
to accept a lump sum payment under the SRA on January 1, 1996, in accordance
with the terms of the SRA. The Company agrees to pay Howe on January 1, 1996,
$430,277 which amount represents payment to Howe in lieu of present or future
rights under the SERP.
7. MAPCO and Howe agree that for purposes of MAPCO's 1986 Stock
Option Plan and MAPCO's 1989 Stock Incentive Plans, Howe's deemed retirement
date will be the close of business on December 31, 1995, all previously issued
options are deemed vested as of January 1, 1996 and the non-qualified Stock
Option Agreement covering certain options granted to Howe effective January 24,
1995, at a closing New York Stock Exchange price of $53.00, and all options
thereunder which would otherwise be exercisable in 1996, 1997 and 1998 shall be
deemed vested as of January 1, 1996 and exercisable within the period three (3)
years thereafter. Effective January 1, 1996, reload or replacement
3
<PAGE> 5
options will no longer be granted. MAPCO will consider repurchase of common
stock held by Howe, subject to any restrictions or conditions of MAPCO's
current Stock Repurchase Program;
8. The Letter Agreement between MAPCO, Inc. and Howe, effective
December 20, 1989, as amended March 14, 1990 and November 18, 1991, shall
remain in effect until December 31, 1995. In the event that the terms of the
Letter Agreement are invoked by a Change in Control as defined therein and
Howe's benefits therein are greater than Howe's benefits herein, the terms of
the Letter Agreement shall control;
9. As set forth in paragraph two (2), Howe's health coverage
benefits will cease January 1, 1996. In the event Howe elects COBRA coverage,
effective January 1, 1996, MAPCO will pay all costs associated with such COBRA
premiums through June 30, 1997, provided, however, in the event Howe becomes
re-employed prior to June 30, 1997 and both he and his wife are eligible for
health coverage under Howe's new employer's plan, MAPCO will cease paying
Howe's monthly COBRA premiums except for preexisting condition exclusion
coverage if necessary through June 30, 1997.
10. All perks shall cease for Howe after December 31, 1995, except
MAPCO relinquishes any rights it might have to Howe's membership in the
Southern Hills Country Club and after December 31, 1995, Howe will be
responsible for any dues, assessments or other charges incurred by Howe after
December 31, 1995;
11. Effective January 1, 1996, Howe's access to all management
information systems shall cease and Howe shall return any mobile or other
off-location equipment supplied to Howe by MAPCO;
4
<PAGE> 6
12. For a period of one (1) year after December 31, 1995, MAPCO
shall supply to Howe at its expense and at a location determined by MAPCO,
adequate office space and secretarial help;
13. MAPCO shall provide Howe with out-placement services at a cost
up to Fifty Thousand Dollars ($50,000.00) or, at Howe's election, will
reimburse Howe for any out-placement service costs Howe incurs up to an amount
of $50,000.00. MAPCO acknowledges that Howe is not bound by any covenants not
to compete or restrictive covenants contained in any prior agreements with
MAPCO. MAPCO will also reimburse Howe for all reasonable consultant fees and
expenses Howe has incurred in negotiating this Agreement provided that such
fees and expenses shall not exceed Twenty-five Thousand Dollars ($25,000.00)
and shall reduce any out-placement payments or reimbursements Howe might
otherwise be entitled to under this paragraph;
14. MAPCO and Howe agree to keep the terms of this Agreement
confidential and neither shall disclose the same to anyone except their
respective tax advisors, attorneys or otherwise as required to execute or
enforce the terms hereof;
15. Howe agrees not to disclose any secret or confidential
information, knowledge or data of MAPCO, obtained by Howe during his employment
by MAPCO, which is not generally known to the public or recognized as standard
practice;
16. MAPCO agrees that any indemnification agreements in effect as
of the date prior to the execution of this Agreement shall remain in full force
and effect;
17. Any dispute or controversy arising hereunder or in connection
with this Agreement shall be settled by binding arbitration in accordance with
the rules of the
5
<PAGE> 7
American Arbitration Association then in effect, such arbitration to take place
in Tulsa. Judgment may be entered on the Arbitration Award in the City
selected for the arbitration in any court having jurisdiction;
18. Except as otherwise set forth herein, or in any surviving
agreements, Howe and MAPCO release one another from any and all claims and
liabilities known and unknown which may have accrued prior to September 1,
1995;
19. This Agreement shall inure to the benefit of and be
enforceable by Howe, his personal or legal representative, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Howe should die and any amount remains or becomes payable to Howe hereunder,
all such amounts shall be paid in accordance with the terms of this Agreement
to Howe's devisee, legatee or other designee or if there is no such designee,
to Howe's estate.
20. Except as otherwise specifically provided herein, this
Agreement supersedes any and all prior agreements between MAPCO and Howe.
MAPCO and Howe agree that this Agreement may be amended to conform to laws or
regulations and MAPCO agrees to such amendments provided that MAPCO's monetary
liability hereunder is not increased.
MAPCO, INC., and its Subsidiaries
By: /s/ James E. Barnes
------------------------------------
James E. Barnes
/s/ Robert M. Howe
------------------------------------
Robert M. Howe
6
<PAGE> 1
EXHIBIT 10.(p)
Settlement Agreement dated as of August 31, 1995,
between MAPCO Inc. and Frank S. Dickerson, III
<PAGE> 2
August 31, 1995
PERSONAL AND CONFIDENTIAL
Mr. Frank S. Dickerson, III
Senior Vice President, Chief Financial Officer
and Treasurer
MAPCO Inc.
P.O. Box 645
Tulsa, Oklahoma 74101-0645
Dear Skip:
This letter will confirm the settlement of the terms under
which you will be terminating employment with MAPCO Inc. ("MAPCO") .
1. Severance Pay. Concurrently with your signing this Letter
Agreement, you have signed officer and director letters of resignation attached
hereto and effective September 1, 1995, and it is agreed that you will be an
employee of MAPCO through the end of the year at your current salary level and
report to me on projects I will assign from time to time. On September 1,
1995, you will be paid, subject to withholding, the sum of $40,110.00 as
severance pay which represents one (1) week times your years of service.
2. Settlement of Claims. On September 1, 1995, you will be paid,
without withholding, $185,000.00 which we have agreed is settlement for any and
all claims for compensatory damages arising out of your employment with MAPCO
or the termination of that employment, based on contract, tort or tort-type
rights which may have resulted in personal injury, including claims for breach
of contract; wrongful termination of employment; fraud or misrepresentation;
defamation; intentional or negligent infliction of emotional distress; and any
other claim for unlawful employment action.
3. Various Benefit Distributions. Your rights under any employee
benefit or incentive compensation plan shall be governed by the terms of such
plan only as modified specifically by this Letter Agreement. Concerning the
Company's Supplemental Executive Retirement Plan ("SERP"), the Company will pay
you on January 1, 1996, $210,000.00 which amount represents payment to you in
lieu of your present and future benefits under the SERP. You will be eligible
to receive a pro rata actual bonus payout, if any, under the Incentive
Compensation Plan (ICP) for the period from January 1, 1995 through August 31,
1995 of the
<PAGE> 3
Frank S. Dickerson, III
August 31, 1995
Page 2
1995 calendar year using the performance measures, targets and adjustments
approved by the Compensation Committee for all participants in the ICP. The
award shall be paid at the normal payment date in 1996. You shall not be
eligible for any other awards under the ICP including the 1997 long-term
component.
4. Health Benefits. Your normal participation in the MAPCO Flex
Benefits Plan will cease on January 1, 1996, but you will be eligible for the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") extension at
that time. If you so elect COBRA coverage, MAPCO shall waive your monthly
COBRA "premiums" for the eighteen-month COBRA period.
If you become re-employed with or by any person, firm or
corporation, and are eligible for group health care coverage, MAPCO will cease
paying your monthly COBRA premiums and it will be your responsibility to
continue those payments if you so elect.
If you become re-employed prior to June 30, 1997, per the
above paragraph, and if you or your spouse are not eligible for group health
care coverage, or to the extent specific coverage is denied due to pre-existing
condition restrictions under your new employer plan, your COBRA benefits for
you or your spouse will continue for such time then remaining, up to the June
30, 1997 expiration date.
5. Vacation. You will be paid, as soon as practicable after
August 31, 1995, vacation entitlement, if due, in accordance with Company
vacation benefit policy.
6. Perks. Any perks which you presently enjoy shall cease as of
September 1, 1995, except that (a) your membership in the Southern Hills
Country Club shall be yours and MAPCO will relinquish any rights it may have in
said membership provided that continuing monthly dues, assessments or other
charges shall be your responsibility and (b) MAPCO will pay you on or after
September 1, 1995, any amounts remaining unpaid under tax preparation, estate
and financial planning reimbursement commitments to you for 1995.
7. Stock Options. For purposes of the 1986 Stock Option and 1989
Stock Incentive Plans, your deemed retirement date will be close of business
August 31, 1995. It is further agreed that under the Non-Qualified Stock
Option Agreement covering certain options granted to you effective January 24,
1995, at a closing NYSE price of $53.00, all options thereunder which would
otherwise be exercisable in 1996, 1997, and 1998, shall all be deemed vested as
of September 1, 1995 and exercisable within the period three (3) years
thereafter. Reload or replacement options will not be granted after August 31,
1995.
<PAGE> 4
Frank S. Dickerson, III
August 31, 1995
Page 3
8. Outplacement Assistance. If you so desire, MAPCO will
reimburse you for outplacement services retained by you including job search
expenses at a cost of up to $35,000.
9. Employment Continuation Agreement. The Employment
Continuation Agreement executed by you with MAPCO Inc. effective as of December
20, 1989, as amended, shall terminate effective September 1, 1995. The Company
represents to you that we currently are unaware of any change-in-control, or
potential change-in-control event that could result in the creation of rights,
or future rights, under the Employment Continuation Agreement.
10. Confidentiality. You agree to hold in a fiduciary capacity
for the benefit of MAPCO, all secret or confidential information, knowledge or
data of the Company obtained by you during your employment by MAPCO Inc.
(whether or not developed by you) which is not generally known to the public or
recognized as standard practice, including the existence and content of this
Letter Agreement and you agree not to communicate or divulge any such
information, knowledge or data to any person, firm or corporation except to
members of your immediate family, attorneys and professional advisors, or if
required by a court or other valid governmental authority.
11. Computer Equipment and Data Base. Effective September 1,
1995, your access to all management information systems shall cease. Upon
request you agree to return all mobile or off-location equipment supplied by
the Company, including computer equipment, FAX and mobile telephones.
12. General Release. You acknowledge and agree that upon
execution of this Letter Agreement and the honoring of the commitments set
forth herein, MAPCO has performed all of its obligations to you and that you
accept the considerations expressed in this Letter Agreement in full
satisfaction of all rights arising from and related to your employment by
MAPCO; and accordingly, in connection therewith you agree to forever discharge
and release MAPCO and its subsidiaries, and the officers, directors and
employees of either, from any and all claims and liabilities, known or unknown,
which may have otherwise accrued as of or prior to September 1, 1995, including
the termination of your employment.
13. Stock Repurchases. MAPCO will be willing to consider
repurchase of Common Stock of the Company held by you, subject to any
restrictions or conditions of the Company's current authorized stock repurchase
program.
<PAGE> 5
Frank S. Dickerson, III
August 31, 1995
Page 4
14. Entire Agreement. It is understood that the foregoing
contains our entire agreement, and no modifications hereof shall be binding
upon either of us unless it is in writing signed by each of us.
Sincerely,
MAPCO Inc.
/s/ James E. Barnes
--------------------------
James E. Barnes
JEB:DWB:lkc
I have read and accept the terms
and conditions of this certain
Letter Agreement dated August 31, 1995 .
-----------------
/s/ Frank S. Dickerson, III
- ----------------------------------------
Frank S. Dickerson, III
Date: August 31, 1995
----------------------------------
<PAGE> 1
EXHIBIT 10.(q)
MAPCO Inc. Outside Director Phantom Stock Plan
<PAGE> 2
MAPCO INC.
OUTSIDE DIRECTOR PHANTOM STOCK PLAN
1. PURPOSE.
This Outside Director Phantom Stock Plan (the "Plan") effective as of January
1, 1996, is intended to attract and retain the services of experienced and
knowledgeable directors of MAPCO Inc. (the "Company") for the benefit of the
Company and its shareholders and to provide such directors an economic interest
in the Company's Common Stock, $1.00 par value (the "Common Stock"), thereby
creating a long-term mutuality of interest between such directors and
stockholders.
2. ELIGIBILITY.
Each director of the company who is not an employee of the Company or a
subsidiary (each, an "Eligible Director") shall be eligible for participation
in the Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the "Committee")
of the Board of Directors of the Company (the "Board"); provided that the Plan
is intended to qualify for the exemption available under Rule 16b-3
("Rule 16b-3"), as promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), with respect
to awards made pursuant to a formula set forth in the Plan and shall be
administered so as to comply with the requirements of Rule 16b-3. Subject to
the express provisions of the Plan, the Board shall have plenary authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the awards made
pursuant to the Plan and to make all other determinations necessary or advisable
for the administration of the Plan. The Board's determinations of the matters
referred to in this Paragraph 3 shall be conclusive. No member of the Board
shall be held liable for any action taken in the administration of the Plan,
unless such action involves willful misconduct by such member, and each member
of the Board shall be indemnified and held harmless by the Company for all
actions taken in the proper administration of the Plan.
4. GRANT DATE/AMOUNT OF AWARD.
The award payable to each Eligible Director who serves as a director (the
"Award") shall be the amount represented by that number of shares of the
Company's $1.00 par value Common Stock (including fractional share values) as
of June 1 of each year which equals one-half of the amount of the then current
Annual Retainer payable to such Eligible Director or such greater or lesser
amount as the Board shall determine from time to time by resolution. The Award
shall be
1
<PAGE> 3
credited to the Eligible Director's Phantom Stock Account on June 1 of each
year or the next preceding date on which trading occurred if there was no
trading on that date. In addition to the Award, an Eligible Director's Phantom
Stock Account shall include that portion of the Director's Annual Retainer fee
which has been converted to Phantom Stock in accordance with Paragraph 5. The
Phantom Stock Account shall be paid to each Eligible Director solely in cash
upon the effective date of any of the following events: (1) resignation from
the Board of Directors of the Company, (2) failure to be elected or re-elected
to the Board of Directors by the Company's shareholders, (3) retirement of an
Eligible Director from the Board of Directors or (4) the death or permanent
disability of an Eligible Director. Payment shall be calculated based upon the
fair market value of the Phantom Stock in the Eligible Director's Phantom Stock
Account (including all fractional share values and accrued cash dividends) on
the date of distribution. Fair market value shall be determined based upon the
composite price of the Company's Common Stock on the New York Stock Exchange
("NYSE") as of the day of distribution. The Phantom Stock Account shall be
non-transferrable by the Eligible Director during his lifetime until after the
date of distribution. In the event of the death of an Eligible Director, the
proceeds of the Phantom Stock Account shall be paid to the designated
beneficiary of the Eligible Director, or if no beneficiary is designated, to
his or her surviving spouse. If no beneficiary is designated and the Eligible
Director dies without a surviving spouse, the proceeds of the Phantom Stock
Account shall be paid to the Eligible Director's estate.
5. ELECTION TO HAVE RETAINER CONVERTED TO PHANTOM SHARES.
In addition to the Award payable hereunder, an Eligible Director may elect to
have all or a part of the Annual Retainer fee payable by the Company converted
to Phantom Stock and retained in the Eligible Director's Phantom Stock Account
in accordance with the Plan, except for 1996. Such election shall be available
to an Eligible Director on an annual basis only and notice of such election
shall be provided to the Senior Vice President - Human Resources of the Company
no later than December 15 of the year prior to the year in which the Annual
Retainer or any portion thereof is payable. In 1996, the election shall be
available to Eligible Directors for the second, third and fourth quarter
retainer payments only and notice of such election shall be provided no later
than March 15, 1996.
In the event an election is timely received by the Company, the Eligible
Director's Phantom Stock Account will be credited and the phantom stock valued
(including fractional share values) on the first NYSE trading day of each
quarter of the year. Once credited to the Director's Phantom Stock Account,
the Phantom Stock Account shall be adjusted to include cash dividends as
declared on the Common Stock and shall thereafter be proportionately adjusted
in accordance with Section 8 of the Plan.
6. NO RIGHTS AS STOCKHOLDERS.
An Eligible Director shall have no rights as a stockholder with respect to
shares of Phantom Stock granted hereunder. Nothing in the Plan shall confer on
any individual any right to continue as a
2
<PAGE> 4
director of the Company or interfere in any way with the right of the Company
to terminate the Plan participant's services as a director at any time.
7. VALUATION OF PHANTOM STOCK.
The number of shares of Phantom Stock to be credited to an Eligible Director's
account shall be determined based upon the composite price of the Company's
Common Stock on the New York Stock Exchange on June 1 of each year for annual
awards (or the next preceding date on which trading occurred if there was no
trading on such date) and as of the first trading day of each quarter for
Annual Retainer fee elections and shall include fractional share values as
appropriate. In the event that the Common Stock is no longer traded on the
New York Stock Exchange on the date of any such payment, then the Board shall
establish the price of the Common Stock at the fair market value determined
under Treasury Regulation Section 20.2031-2.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, the number and class of
Phantom shares held pursuant to the Plan (excluding fractional share values)
shall be proportionately adjusted in the event of changes in the outstanding
Common Stock by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of shares, split-ups,
split-offs, spin-offs, liquidations or other similar changes in capitalization,
or any distribution to common stockholders including cash dividends. The
Board's determination of any adjustment shall be conclusive.
9. AMENDMENT AND TERMINATION.
Unless the Plan shall theretofore have been terminated as hereinafter provided,
the Plan shall terminate on the date of the Annual Meeting of Stockholders in
2006. The Plan may be terminated, modified or amended by the Board of
Directors, provided that, to the extent required by Section 16 of the 1934 Act,
(i) in no event shall the provisions of the Plan relating to the determination
of the number of shares to be credited to an Eligible Director hereunder or the
eligibility of Eligible Directors be amended more frequently than once every
six months and (ii) no amendment shall become effective without the approval of
the Company's shareholders.
10. LIMITATIONS ON LIABILITY.
Neither the establishment of the Plan nor any modification thereof, nor the
creation of any account under the Plan, nor the payment of any benefits, shall
be construed as giving to any participant or other person any legal or
equitable right against the Company (or any person connected therewith), except
as provided by law or by any Plan provision. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a fiduciary relationship between the Company (or any person connected
therewith) and any participant or other person. In no event shall the Company
(or any person connected therewith)
3
<PAGE> 5
be liable to any person for the failure of any participant or other person to
be entitled to any particular tax consequences with respect to the Plan or any
contribution thereto or distribution therefrom.
11. CONSTRUCTION.
The Plan is intended to be exempt from ERISA and, if any provision of the Plan
is subject to more than one interpretation or construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the Plan being so exempted. In case any provision of the Plan
shall be held to be illegal or void, such illegality or invalidity shall not
affect the remaining provisions of the Plan, but shall be fully severable, and
the Plan shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein. For all purposes of the Plan, where
the context admits, words in the masculine gender shall include the feminine
and neuter genders, the singular shall include the plural, and the plural shall
include the singular. Headings of Paragraphs are inserted only for convenience
of reference and are not to be considered in the construction of the Plan.
12. SPENDTHRIFT PROVISION.
No amount payable under the Plan will, except as otherwise specifically
provided by law, be subject in any manner to anticipation, alienation,
attachment, garnishment, sale, transfer, assignment (either at law or in
equity), levy, execution, pledge, encumbrance, charge or any other legal or
equitable process, and any attempt to do so will be void; nor will any benefit
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled thereto. The foregoing shall not
preclude any arrangement for: (i) the withholding of taxes from Plan benefit
payments, (ii) the recovery of the Plan of overpayments of benefits previously
made to a participant, or (iii) the direct deposit of benefit payments to an
account in a banking institution (if not part of an arrangement constituting an
assignment or alienation).
In the event that any participant's benefits are garnished or attached by order
of any court, the Company may bring action for a declaratory judgment in a
court of competent jurisdiction to determine the proper recipient of the
benefits to be paid by the Plan. During the pendency of said action, any
benefits that become payable shall be paid into the court as they become
payable, to be distributed by the court to the recipient it deems proper at the
close of said action.
13. NO RIGHTS TO CORPORATE ASSETS.
The Plan is an unfunded plan of deferred compensation and nothing in the Plan
shall give a participant, the participant's beneficiaries or any other person
any interest of any kind in the assets of the Company or its affiliates or
create a trust or fiduciary relationship of any kind between the Company or its
affiliates and any such person.
4
<PAGE> 6
14. GOVERNING LAW.
Except to the extent preempted by the laws of the United States of America, the
laws of the state of Delaware shall govern, control and determine all questions
arising with respect to the Plan and the interpretation and validity of its
respective provisions.
5
<PAGE> 1
EXHIBIT 10.(t)
Coal Supply Agreement dated January 15, 1996
between Mettiki Coal Corporation and
Virginia Electric and Power Company
<PAGE> 2
THIS AGREEMENT, effective as of January 15, 1996, is by and between
the VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia public service corporation
with its principal office located in Richmond, Virginia, trading in Virginia as
Virginia Power and North Carolina as North Carolina Power (hereinafter referred
to as "Buyer"), and Mettiki Coal Corporation a Delaware corporation with its
principal office located in Tulsa, Oklahoma, (hereinafter referred to as
"Seller"). Both Buyer and Seller are herein individually referred to as
"party" and collectively referred to as "parties."
R E C I T A L S
WHEREAS, Buyer owns and operates Mt. Storm Power Station ("Station"),
which is located in Grant County, West Virginia; and
WHEREAS, Buyer desires to contract for a supply of coal for shipment
to the Station; and
WHEREAS, Seller owns, leases, or otherwise controls sufficient
reserves of coal from which Seller can produce coal in the quantity and of the
quality required by Buyer;
WHEREAS, as part of Seller's obligation to supply coal to Buyer
hereunder, Seller and/or Seller's subcontractor(s) will construct, operate,
use, maintain and repair a primary truck unloading facility at the Station as
provided herein;
WHEREAS, Seller's parent company, MAPCO Coal Inc., whose address is
the same as Seller's address, guarantees Seller's performance under this
Agreement under the conditions set forth in the Guarantee Agreement attached
hereto, this Agreement being expressly contingent upon execution of the
Guarantee Agreement, and MAPCO shall act as Seller's agent for administration
of this Agreement;
NOW THEREFORE, in consideration of the above Recitals which are
incorporated herein, and the covenants and premises herein set forth, Seller
agrees to sell and deliver and Buyer agrees
<PAGE> 3
to purchase, accept, and pay for coal in the quantity, of the quality, during
the period, at the Price and upon the other terms and conditions set forth
herein.
ARTICLE 1 - DEFINITIONS AND TERM
1.1 Definitions
Wherever the following terms appear in this Agreement, they shall
have the meaning stated below:
(a) As-Received - Analysis data calculated to the moisture condition
of the sample representing the coal as it arrived at the Station.
(b) Btu - British thermal unit of heat quantity.
(c) Business Day - Monday through Friday excluding legal holidays and
holidays recognized by Buyer or Seller.
(d) Calendar Day or day - A Calendar Day shall be the 24 hour period
beginning and ending at 12:00 midnight Eastern Standard Time (or
Eastern Daylight Saving Time, as applicable). The terms day and
Calendar Day may be used interchangeably and shall have the same
definition.
(e) Calendar Month or month - A Calendar Month shall begin at 12:00
midnight Eastern Standard Time (or Eastern Daylight Saving Time,
as applicable) on the last day of the preceding month and shall
end at 12:00 midnight Eastern Standard Time (or Eastern Daylight
Saving Time, as applicable) on the last day of the current month.
The terms month and Calendar Month may be used interchangeably
and shall have the same definition.
(f) Calendar Year or year - A Calendar Year shall be the 12 month
period beginning at 12:00 midnight Eastern Standard Time on
December 31 and ending at 12:00 midnight
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<PAGE> 4
Eastern Standard Time on December 31. The terms year and
Calendar Year may be used interchangeably and shall have the same
definition.
(g) Coal Remittance Advice - Buyer's documentation of coal received
from individual Shipments.
(h) Coal Silos - Two 10,000 ton coal silos located on Station
property.
(i) Delivered Cost - For truck/conveyor Shipments, the Delivered Cost
shall be the Price. For rail shipments, the Delivered Cost shall
be the sum of the Price minus $2.37/ton (with the figure
$2.37/ton to be adjusted by the percentage increase or decrease
in the Price as calculated in accordance with Article 7,
excluding claims, if any, made under Section 7.5), plus the
applicable rail freight rate for the coal supplied hereunder from
the Shipping Point to the Station. The Delivered Cost shall not
include extra costs related to transportation incurred by either
party due to circumstances such as demurrage or substitution of
sources.
(j) Dry Basis - Analysis data calculated to a theoretical base of no
moisture associated with the sample.
(k) Mine - The mining operation, identified by name in Section 3.2,
from which coal is supplied hereunder.
(l) Price - The price to be paid by Buyer to Seller for coal received
hereunder, shall be calculated in accordance with Article 7 of
this Agreement. There is a specific price related to the 1.5
pound sulfur/mmBtu and the 1.9 pound sulfur/mmBtu coal delivered
by Seller. Should Buyer purchase only one (1) sulfur
specification of coal under this Agreement, there will be only
one (1) Price. Should Buyer purchase two (2) sulfur
specifications of coal under this Agreement, there will be two
(2) Prices. Both the 1.5
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<PAGE> 5
pound sulfur/mmBtu Price and the 1.9 pound sulfur/mmBtu Price
shall be referred to as the Price.
(m) Proximate Analysis - Determination of moisture, volatile matter,
ash, and fixed carbon. For purposes of this Agreement, the
Proximate Analysis shall also include determination of total
sulfur, heating value, and ash fusion temperature.
(n) Receipt - For truck/conveyor Shipments, Receipt shall occur when
coal is progressively dumped into the two 10,000 ton Coal Silos
located on Station property or other mutually agreed location on
Station property. For rail Shipments, Receipt of coal supplied
under this Agreement shall occur at the point in time at which
the delivering rail carrier places railcars at the Station for
unloading.
(o) Shipment - For truck/conveyor deliveries, unless administratively
changed by the parties upon mutual agreement, a Shipment shall
consist of all coal weighed at the Mine and delivered into the
Buyer's Coal Silos, or other mutually agreed location on Station
property, in one Calendar Day consistent with other provisions of
this Agreement. For rail deliveries, Shipment of coal shall
consist of and shall occur at the point in time at which Seller
completes loading coal at the Shipping Point into one or more
railcars as provided in this Agreement and tenders the loaded
car(s) at one time in one Calendar Day along with the bill of
lading or individual mine cards/tags to the delivering carrier
for delivery to the Station. All railcars included in a bill of
lading or individual mine cards/tags for delivery to the Station
shall be considered part of the same Shipment.
(p) Shipping Point - The loading point, identified by name in Section
3.2, from which the Seller ships the coal supplied hereunder.
(q) Ton or ton - A short ton of 2,000 pounds (avoirdupois).
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<PAGE> 6
(r) Trainload - A Shipment of a minimum of 6,000 net tons loaded in a
24 hour period from a single origin on a single bill of lading,
with each car loaded to not less than the applicable minimum
weight.
(s) Calendar Week or week - A Calendar Week shall be the 7 day period
beginning at 12:00 midnight Eastern Standard Time (or Eastern
Daylight Saving Time, as applicable) on Sunday and ending at
12:00 midnight Eastern Standard Time (or Eastern Daylight Saving
Time, as applicable) on Sunday. The terms week and Calendar Week
may be used interchangeably and shall have the same definition.
1.2 Term
The term of this Agreement shall be ten years, eleven months and
sixteen (16) days, beginning January 15, 1996, and continuing through December
31, 2006, unless terminated or canceled sooner in accordance with the
provisions of this Agreement.
This Agreement shall terminate automatically, without further
obligation to either party, except for liabilities or obligations based upon
prior breach or performance, at the end of the term.
ARTICLE 2 - TRUCK UNLOADING FACILITY
2.1 Design, Construction, Operation and Maintenance of the Facility
Seller, and/or Seller's subcontractor(s), will design, construct,
operate, use, maintain, and repair a truck unloading and conveyor belt facility
("Facility") at the Station that will transfer coal to Buyer's Coal Silos, for
purposes of receiving, handling, sampling, and delivering of coal to Buyer as
part of Seller's performance under this Agreement. In addition to Seller's
other obligations specified herein, Seller shall provide the following in the
performance of this Agreement:
(a) Design and construct all physical systems, on Station property,
that are necessary for the Facility and its support, operation
and maintenance, and provide or make available all other physical
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<PAGE> 7
systems expressly required under this Agreement for Seller's
performance.
(b) Provide design and perform construction of the Facility that
shall meet or exceed the criteria of Annex J.
(c) Fulfill its obligations in accordance with the Performance
Schedule in Annex J.
Buyer's obligations under this Agreement are expressly contingent on
Buyer and Seller entering into a Lease Agreement for the parcel of Station
property, as described in Annex J, for the purposes of leasing land on the
Station to Seller for Seller's construction, operation, use, maintenance, and
repair of the Facility ("Lease") on or before January 15, 1996, unless mutually
extended by the parties.
2.2 Warranties - Design and Construction, and Availability
(a) Design and Construction - Seller warrants that as of the date of
approval of the Facility by Buyer for initial operation as provided herein, the
Facility shall be designed and constructed in a good and workmanlike manner;
that the Facility shall be designed and constructed in accordance with Annex J;
and that when completed, the Facility shall be free from material defects in
workmanship and from material defects in design and suitable for its intended
purpose. If the Facility fails to conform to this warranty, upon oral or
written notice from Buyer, Seller shall, as a condition to receiving Buyer's
approval for initial Facility operation as provided herein, at Seller's sole
expense, promptly take down, remove, replace, or repair as reasonably
determined by Buyer, all portions of the Facility that fail to conform to the
above warranties. The above warranty shall apply to all repair or replacement
work performed by Seller.
(b) Performance Availability - Seller warrants the performance of the
Facility will meet the requirements of Section 2.1 above and will be available
to support the delivery of coal ordered and scheduled beginning January 1,
1997. Consistent with the parties' performance obligations identified in Annex
J, in the event the Facility is not so available on January 1, 1997 for:
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<PAGE> 8
(1) Seller's nonperformance due to reasons other than force
majeure - Seller shall deliver by rail, at the same Delivered Cost for
truck/conveyor shipments all coal ordered and scheduled by Buyer hereunder
until Buyer determines that the Facility is fully operational as required in
this Agreement; or,
(2) Seller's or Buyer's nonperformance due to force majeure,
or Buyer's nonperformance due to reasons other than force majeure - Seller
shall deliver by rail, at the Price minus $2.37/ton (with the figure $2.37/ton
to be adjusted by the percentage increase or decrease in the Price as
calculated in accordance with Article 7, excluding claims, if any, made under
Section 7.5), and/or truck at the Station's truck dump facility, at the Price,
all coal ordered and scheduled by Buyer hereunder until Buyer determines that
the Facility is fully operational as required in this Agreement. Buyer shall
be responsible for payment of transportation costs for rail deliveries. Buyer
and Seller shall mutually schedule deliveries to fully utilize the excess
capacity of Buyer's truck dump facility.
The remedies set forth in this Article are in addition to such other
remedies as may be available to Buyer or Seller at law or in equity. Seller
shall not be excused from its obligations under this Article by Buyer's failure
to inspect, failure to discover defective work or approval of the work or any
portion thereof. If Seller fails within a reasonable time or refuses to
repair, replace, correct, or maintain the Facility as required herein, Buyer
may, at its reasonable discretion, repair, replace, maintain, or take other
remedial action. Seller shall indemnify Buyer for all costs so incurred.
ARTICLE 3 - SALE, PURCHASE AND TRANSPORTATION OF COAL
3.1 Type of Coal, Quantity and Scheduling
(a) As more specifically provided hereinafter in Section 3.1(f),
Buyer has the option to purchase a 1.50 lb. sulfur/mmBtu coal and/or a 1.90
lb. sulfur/mmBtu coal. Unless otherwise stated,
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<PAGE> 9
all tonnage volumes throughout this Agreement are for a 1.50 lb. sulfur/mmBtu
coal whether or not such descriptive reference is so stated.
(b) The quantity of coal to be ordered by Buyer hereunder for
delivery from January 1, 1997 through December 31, 2006 under this Agreement,
subject to reduction for Force Majeure events and other excused events, shall
be 11,250,000 tons + or - 5% during the five calendar year period 1997 through
2001, and 11,250,000 tons + or - 8% during the five calendar year period 2002
through 2006.
(c) During each of the calendar years 1997 through 2006, the base
annual tonnage sold and purchased hereunder shall be 2,250,000 tons. Through
Buyer's monthly scheduling orders, as hereinafter provided, Buyer shall have
the option to increase or decrease the calendar year base annual tonnage by
+ or - 10% each calendar year, provided however, the total tonnage elected by
Buyer for each calendar year during the separate five calendar year periods
1997 through 2001 and 2002 through 2006, when totaled in the aggregate,
satisfies the provisions of Section 3.1(b) above.
(d) Subject to the provisions of Section 3.1(c) above, the quantity
of coal ordered by Buyer during any Calendar Month shall be no less than
165,000 tons and no more than 212,500 tons unless otherwise mutually agreed
upon by both parties or makeup of shortfall tonnage is required under other
provisions of this Agreement. Notwithstanding the immediately preceding
sentence, due to anticipated adverse weather and adverse weather related road
conditions, Buyer shall not order more than 187,500 tons per month during the
Calendar Months of December, January and February, unless otherwise mutually
agreed to between the parties.
Seller shall deliver the monthly tonnage ordered by Buyer in
substantially equal daily quantities throughout the month seven (7) days per
week, excluding holidays, scheduled or unscheduled outages of the truck
load-out facility at the Mine and/or of the Facility at the Station, Buyer's
reasonable requests for delay of Shipments, force majeure events, or at such
other times as Seller may direct due to, in Seller's determination, abnormal
impacts on transportation of daily
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<PAGE> 10
truck/conveyor Shipments. Except as provided in the immediately preceding
sentence, Seller shall have the discretion to deliver truck shipments of coal
365 days a year, 7 (seven) days a week, 24 (twenty-four) hours a day to meet
Buyer's monthly coal orders. In no event shall Seller deliver more than 10,000
tons in one Calendar Day unless mutually agreed to by both parties.
Buyer and Seller shall exert all reasonable efforts to meet the
operational needs of the other party, taking into consideration Buyer's and
Seller's scheduled outages, the consumption of coal, transportation, mining,
seasons of the year as they relate to anticipated adverse weather conditions,
mining conditions, and storage capabilities of each party. Accordingly, the
parties shall exert all reasonable efforts to work toward mutually agreeable
delivery schedules and make changes in previously established shipping
schedules, if so requested by either party. The parties shall provide written
notice for scheduled outages and prompt notice of unscheduled outages that will
impact delivery.
Subject to the foregoing, Seller agrees to sell and deliver such
monthly quantities as Buyer shall order. Buyer shall order coal by providing
written notice to Seller by means of monthly forecast letters specifying the
quantities of coal to be purchased by Buyer for the following three months.
Quantities specified for delivery in the first and second months of the
forecast letters shall be firm quantities (to be confirmed by a Purchase Notice
from Buyer for those months), unless revisions are mutually agreed to and
confirmed in writing by Buyer and Seller. The quantities specified for the
third month of the forecast letters are for planning purposes only and shall
not be considered binding on either party hereto. Such three-month quantity
forecast letters shall be provided to Seller by the 20th of the month
preceeding the three (3) month period.
The actual tonnage delivered by Seller during any six-month period of
January through June and July through December must be within 10,000 tons of
the tonnage ordered by Buyer during such six-month period. If the actual
tonnage delivered is less than the ordered tonnage and such failure
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<PAGE> 11
is not the result of a force majeure event as defined in Section 9.1 or Buyer's
request to delay Shipments pursuant to Section 3.12, taking into account the
10,000 ton allowable variance, such shortfall quantity shall be made up within
twelve (12) months on a mutually agreed upon delivery schedule. Such coal shall
be shipped at the Price applicable during the month the coal was originally
scheduled to be delivered.
(e) Buyer shall not be required to accept any quantity of coal
shipped during a Calendar Month in excess of the total monthly amount ordered
by Buyer, but if Buyer accepts any excess quantity of coal, Buyer may, upon
written notice to Seller, require that such excess amount be deducted from the
total monthly quantity to be shipped during any of the six Calendar Months
immediately following the month in which the excess quantity was shipped.
(f) Throughout the term of this Agreement, Buyer may elect to scrub
its Unit No. 1 and/or Unit No. 2 at the Station and, therefore, upon providing
six months advance written notice to Seller, Buyer has the option to purchase
certain quantities of a 1.90 lb. sulfur/mmBtu coal in lieu of a 1.50 lb.
sulfur/mmBtu coal. If Buyer elects to receive any quantities of the 1.90 lb.
sulfur/mmBtu coal, the parties' obligations for the sale and purchase of the
1.90 lb. sulfur/mmBtu coal shall be determined by the tonnage volumes stated
herein for a 1.50 lb. sulfur/mmBtu coal adjusted upward by a tonnage conversion
factor of 1.21551 to arrive at the corresponding tonnage obligations for the
1.90 lb. sulfur/mmBtu coal (e.g., if Buyer elects to convert totally for the
supply of 1.90 lb. sulfur/mmBtu coal, calculation is as follows: 2,250,000
tons 1.50 lb. sulfur/mmBtu coal x 1.21551 equals 2,734,898 tons of 1.90 lb.
sulfur/mmBtu coal). Through Buyer's monthly coal ordering process set forth in
Section 3.1(d), Buyer shall specifically state the separate monthly quantities
of 1.50 lb. sulfur/mmBtu coal and/or 1.90 lb. sulfur/mmBtu coal Buyer elects to
receive. Buyer and Seller understand that all monthly, annual and/or any other
stated tonnage volumes stated throughout this Agreement and any attachments
hereto shall be appropriately increased to reflect application of
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<PAGE> 12
the tonnage conversion factor of 1.21551 for each one ton of 1.50 lb.
sulfur/mmBtu coal Buyer elects to receive as a 1.90 lb. sulfur/mmBtu coal.
If Buyer, through the order process given in this Article and Section
3.1(d) above, directs Seller to deliver both 1.50 and 1.90 lb. sulfur/mmBtu
coal in the same month(s) Seller will make delivery(ies) based upon individual
shipping schedules coordinated with the Station. Seller shall deliver only one
(1) sulfur specification in any given Calendar Day unless changed upon mutual
agreement of the parties. This coordination will permit Buyer to control the
different coal qualities going into Buyer's Coal Silos for Station operation.
(g) This Agreement is not and shall not be construed as a contract
for all of Buyer's coal requirements for the Station.
3.2 Source and Substitute Coal
The coal sold and purchased hereunder shall be produced from Seller's
Mettiki mine ("Mine") more specifically described in Annex A and shipped from
Mettiki Loadout, Garrett County, Maryland (origin station number B6377)
("Shipping Point"). Seller shall not produce coal for Shipment to Buyer from
any source other than the Mine nor load coal for Shipment to Buyer at any
location other than the Shipping Point unless Buyer shall have given its prior
written consent which shall not be unreasonably withheld. At Buyer's option,
such consent may be conditioned upon a test burn(s) of up to 30,000 tons of
coal for each test burn. If Seller proposes to supply coal hereunder from a
source other than the Mine and/or Shipping Point specified herein ("Substitute
Source"), such proposal shall be given to Buyer in writing and signed by
Seller. Buyer shall have no obligation to accept any Shipment of coal from a
Substitute Source prior to agreement in writing. Notwithstanding the above,
Seller at its option shall have the right to supply up to 100,000 tons of coal
per year from other sources provided that such coal is prepared and/or blended
and loaded with Seller's produced coal at the Mine and that the quality
specifications for the delivered coal hereunder
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<PAGE> 13
are met. In addition, Buyer pre-approves the use by Seller of coal produced
from the Steyer mine in Garrett county, MD, and/or its successor due to name
change or new ownership, for the purposes of being blended and loaded with
Seller's produced coal at the Mine. This pre-approval is made based on the
parties' recognition that the coal produced by Steyer mine (and/or its
successor due to name change or new ownership) is not, by itself, a natural
coal supply for the Station and it is being used for blending purposes to
support Seller's ability to meet the delivered sulfur quality specifications.
The Mine is to produce a substantial majority of the coal to be supplied under
this Agreement. Seller's right to supply substitute coal as provided in this
Section 3.2 shall not affect Seller's right to claim force majeure as provided
in Section 9.1
Seller shall reimburse Buyer for any additional cost incurred by
Buyer if the Delivered Cost of coal supplied from a Substitute Source pursuant
to Buyer's written consent exceeds the Delivered Cost of coal produced and
shipped from the Mine and Shipping Point specified herein. If the Delivered
Cost of coal produced from such source exceeds the Delivered Cost of coal
supplied from the Mine and Shipping Point, Buyer shall have the option (a) to
take credit for such excess cost at the time of payment for such coal or on a
future invoice covering payment for coal, or (b) to require cash reimbursement
of such excess cost from Seller within 15 Business Days of Seller's receipt of
Buyer's written request for reimbursement. Approved Shipments of coal supplied
from a Substitute Source shall comply with and be subject to all terms and
conditions of this Agreement.
Any coal sold and purchased hereunder produced in the State of West
Virginia shall be certified as such pursuant to Subsection 11-13H-4 of Article
13H of the West Virginia Tax Code (The West Virginia Business and Occupation
Tax Credit). Seller shall certify (and provide certification for the producer
of the coal, if Seller is not the producer) coal that is mined in West Virginia
in the manner set forth herein. For each year during the term of this
Agreement (or until Subsection 11-13H-4 of Article 13H of the West Virginia Tax
Code expires, is repealed, or is
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<PAGE> 14
otherwise declared null and void) Buyer shall mail Seller a West Virginia Coal
Certification form, provided as Annex H, during the first quarter of the year
following the year in which the coal was delivered. Seller shall complete and
return the form to Buyer within ten Business Days from the date the form is
received by Seller. Seller agrees to indemnify and hold harmless Buyer and
Buyer's employees, agents, officers, and directors against any and all expenses
(including reasonable attorney's fees), losses (including tax losses), damages,
and liabilities caused by or resulting from Seller's and/or the producer's
failure to provide or obtain approval of the required certification (including,
but not limited to, penalties imposed by the State of West Virginia). Upon
reasonable notice, the certification procedure specified herein may be modified
in accordance with changes in certification requirements established by Buyer
and/or the State of West Virginia.
3.3 Delivery Procedures
Unless otherwise mutually agreed to in writing, or unless Seller is
required to deliver by rail as a result of the performance warranty of Section
2.2(b), all coal supplied hereunder shall be delivered by Seller to Buyer by a
truck/conveyor method of delivery. For the full term of this Agreement, Seller
shall ensure a sufficient number of trucks are available to deliver the
quantities of coal as set forth in Section 3.1. Subject to the other terms of
this Agreement, Seller, at its sole discretion, may subcontract the truck
delivery of coal to independent third party trucking contractor(s), and/or
operate its own fleet of trucks to meet the delivery requirements hereunder.
For the purposes of delivering coal to the Station by the
truck/conveyor method of delivery, Seller shall, either directly or by the use
of subcontractor(s), design, construct, maintain and operate the Facility at
the Station. Upon arrival at the Station, the trucks shall unload the coal
into the Facility which shall transfer the coal directly into the Station's
storage Silo No. 1, and/or into the Station's storage Silo No. 2.
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<PAGE> 15
3.4 Facility Purchase Obligation
Buyer shall purchase the Facility upon expiration, termination or
cancellation of this Agreement. Upon such event, Seller and Buyer shall take
the following actions: (1) within sixty (60) days from receipt of Seller's
invoice, Buyer shall pay Seller the purchase price for the Facility specified
in the fifteen (15) year depreciation/buyout schedule set forth in Annex F;
(2) Seller shall submit with Seller's invoice for the purchase price for the
Facility, an itemized list of spare parts inventory for the Facility, including
the individual cost of each itemized spare part, and Buyer at its sole option
shall within twenty (20) days provide Seller a list of any of the spare parts
inventory it elects to purchase from Seller; (3) Seller shall submit to Buyer
with its invoice: all maintenance and operating cost records; all current
drawings, permits, operating manuals; in addition to all other relevant
information and records in Seller's possession deemed necessary by Buyer for
Buyer to take over the responsibility for overseeing the operation of the
Facility. Upon termination of this Agreement Buyer and Seller shall transfer
operation and maintenance responsibilities in a coordinated manner to minimize
any impact to the operation of the Facility.
Seller intends to subcontract the responsibilities for operation and
maintenance of the Facility at the Station. Upon Buyer's purchase of the
Facility, Buyer shall not be obligated to continue using the services provided
by Seller and/or Seller's subcontractor(s), or their employees, and Seller
and/or Seller's subcontractor(s) and their employees shall neither be obligated
nor entitled to continue providing such services to Buyer, unless otherwise
mutually agreed to under a separate written agreement between Buyer and Seller
and/or Seller's subcontractor(s). Seller shall be solely responsible for any
termination costs and other responsibilities and liabilities associated with
termination of any of Seller's agreements, contracts or subcontracts associated
with the Facility or cancellation or termination of this Agreement, and shall
indemnify Buyer from and against any
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<PAGE> 16
claims of Seller's subcontractor(s) or their employees arising from such
termination. Seller shall transfer the Facility to Buyer free and clear of any
liens, encumbrances or claims.
3.5 Buyer's Right to Operate Facility
(a) If, at any time during the term of this Agreement, for any reason
whether excused or unexcused, including but not limited to force majeure
suffered by Seller, Seller is unable to deliver coal to Buyer in the quantity
and quality ordered by Buyer under this Agreement, Buyer shall have the right
to order and receive, through the Facility, incoming deliveries of coal which
are produced from sources other than from Seller's Mine. In such event, Seller
and/or Seller's subcontractor(s) shall continue providing its services for
overseeing the operation of the Facility. Buyer's right to use the Facility
for such purposes is not conditioned upon Seller's breach of this Agreement or
other fault of Seller. Buyer's exercise of such right of entry and use of the
Facility shall be without obligation or liability to Seller, except as Buyer's
responsibility for expenses of operation and maintenance, and reimbursement for
damage to the Facility as expressly provided for herein. At any time that
Buyer operates the Facility under this Section 3.5, Buyer shall operate the
Facility in accordance with the O&M manuals referenced in Annex J.
(b) Coal Supply Problems from the Mine
(1) If there occurs a total reduction in Seller's deliveries to
the Station which is otherwise excused under the provisions of this Agreement,
and Buyer has exercised its rights under Section 3.5(a), Buyer shall reimburse
Seller for all properly documented direct costs incurred by Seller and/or
Seller's subcontractor(s) in operating and maintaining the Facility during such
period of time, which shall include, but not be limited to, reimbursement of
all direct and indirect labor costs, operating costs, maintenance costs and
sampling costs as documented by Seller.
(2) If there occurs a partial reduction in Seller's deliveries
to the Station which is otherwise excused under the provisions of this
Agreement, and Buyer has exercised its rights under
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<PAGE> 17
Section 3.5(a), Buyer shall reimburse to Seller only those proportionate
amounts of all documented direct and indirect costs identified under the
immediately preceding paragraph as they relate to the volume of coal dumped
into the Facility by third party(ies) delivering coal compared to the volume of
coal dumped into the Facility by Seller.
(3) If there occurs an unexcused total or partial reduction in
Seller's deliveries from the Mine to the Station, and Buyer has exercised its
rights under Section 3.5(a), all direct and indirect costs for operating the
Facility shall continue to be Seller's sole responsibility during the period in
which Buyer excerises its rights under Section 3.5(a).
(c) From time to time during the term of this Agreement, Buyer may
request Seller to allow deliveries of coal into Seller's Facility from sources
other than from Seller's Mine, even though Seller is delivering the full
quantity of coal ordered by Buyer hereunder. In such event, Seller shall exert
all reasonable efforts to comply with Buyer's request taking into account the
excess utilization capacity of the Facility, if any, as well as any adverse
conditions which may arise and interfere with Seller's ability to deliver and
Buyer's ability to receive the quantity and/or quality of coal ordered under
this Agreement. Seller shall take into account certain considerations
including but not limited to: interruption to transportation schedules,
transportation delays, contamination of sampling equipment with alternate
quality coals. If Seller, in its sole discretion, determines it can provide
Buyer with use of the Facility to receive coal(s) from sources other than from
Seller's Mine, and such use will not impact Seller's utilization of the
Facility or Buyer's and Seller's obligations under this Agreement, Buyer and
Seller shall then mutually agree to acceptable procedures and all allocations
of costs for the throughput of third party coal through the Facility.
(d) If Seller and/or Seller's subcontractor(s) fails to perform its
obligations in operating the Facility for receiving incoming deliveries of coal
hereunder, during such period Buyer shall have the right to temporarily, or
permanently if due to termination of the Lease, assume the responsibility
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<PAGE> 18
for operating the Facility, and Buyer shall be responsible for maintaining the
Facility to the standards as defined in Section 3.6, along with maintaining all
of Seller's maintenance records during such period. Seller shall reimburse
Buyer for all costs of operation of the Facility if Buyer exercises its rights
under this Section 3.5(d). Seller shall identify to Buyer corrective actions
that Seller, and/or Seller's subcontractor(s), shall undertake to remedy
Buyer's need to assume responsibility for operating the Facility. Buyer shall
review and approve, such approval not to be unreasonbly withheld, Seller's
corrective actions.
(e) If Buyer exercises its rights under any provisions of this
Section 3.5, Buyer shall reimburse Seller for all direct costs to repair damage
to the Facility, if still owned by Seller, caused by the negligence or
intentional acts or omission(s) of Buyer and/or Buyer's third party(ies)
delivering coal into the Facility.
(f) For purposes of this Section 3.5, both Buyer and Seller agree
that maintenance costs shall mean the actual maintenance cost per ton of coal
delivered hereunder for the maintenance of the Facility, determined by actual
operating experience. In the event that the Seller has not operated the
Facility for at least twelve calendar months prior to Buyer exercising its
rights under any of the provisions of this Section 3.5, the maintenance costs
shall be assumed to be $0.10 per ton.
3.6 Maintenance of Facility
Throughout the entire term of this Agreement Seller shall materially
maintain the Facility by prudent utility practices, which shall mean those
practices, designs, methods, means, techniques, equipment and acts then
generally accepted by the electric utility industry and commonly used
engineering and operations consistent with good business practices,
reliability, safety, efficiency and economy as they may apply to units of the
size and service of the Facility.
(a) Seller shall also maintain copies of all records of maintenance
and other work done on the Facility during the term of this Agreement. Buyer
shall have the right to inspect and audit such
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<PAGE> 19
records at Buyer's request. Seller shall provide Buyer with all of such
records upon transfer of ownership of the Facility to Buyer.
(b) If, at any time during the term of this Agreement, Buyer
determines that Seller is not materially maintaining the Facility as required
in subparagraph (a) above, Buyer may provide written notice citing areas of
Seller's nonperformance. If Seller fails to materially correct such
nonperformance within thirty (30) days of receipt of Buyer's written notice,
then Buyer may, in its sole discretion and at Seller's sole expense, perform
such maintenance or repairs to the Facility as Buyer may reasonably deem
advisable and, in such event, Buyer shall have the right to enter upon the
Facility at any time to perform such maintenance or repairs. Buyer may deduct
such costs and expenses so incurred by Buyer from amounts due Seller under this
Agreement.
(c) Except as expressly otherwise provided in this Agreement or the
Lease, Buyer shall not be obligated to perform any maintenance or make any
alterations, repairs or improvements to the Facility during the term of this
Agreement. Nothing herein shall be construed to require Buyer to maintain or
repair any of Seller's equipment at the Facility.
3.7 Compliance With Transportation Laws
Seller and/or its subcontractor(s) shall comply at all times with all
federal, state, local and municipal laws, rules, regulations and ordinances
applicable to the loading, transportation and unloading of truck deliveries of
coal made under this Agreement. Such compliance with the laws shall include,
and not be limited to, laws, rules, regulations and ordinances applicable to
vehicle weight, weight restrictions and size, vehicle and driver safety,
environmental matters, employer's liability, workmens' compensation and
workers' insurance, as such laws are then interpreted and enforced by
enforcement agencies.
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<PAGE> 20
3.8 Coal Weights
The weight of coal delivered to the Station shall be determined by
use of Seller's certified truck scales at the Mine. For each Shipment, Seller
shall provide to Buyer a daily weight which shall list the weight of each
individual truck load of coal which is weighed at the Mine and delivered to the
Station through the Facility. For each Shipment, Seller shall provide to Buyer
a daily weight via facsimile, next day express mail delivery, by hand delivery,
or such other means as agreed to by the parties to assure timely exchange of
information.
The daily weights described above shall be the basis for determining
invoice billings, daily, weekly and/or monthly weighted average quality
determinations, monthly tonnage shipments and used for all other purposes for
which shipping weights are required under this Agreement. If a party wishes to
dispute as to the accuracy of such daily weights, such party shall notify the
other of such dispute and the parties shall engage in good faith efforts to
resolve such dispute.
Seller shall have an independent third party inspect, test and
calibrate Seller's certified scales approximately once every three (3) calendar
months, and shall maintain such scale(s) in accord with the directives of the
State regulatory body having jurisdiction over weights and measures. Seller
shall conduct monthly material tests of such scale(s) by passing a quantity of
preweighed material over the scale(s) in a manner as similar as feasible to
actual loading conditions, to verify the accuracy of the individual weighing
devices against each other. Buyer may, at its expense, have a representative
present to observe such inspections, tests and calibrations. Documentation of
the inspection, testing and calibration shall be promptly provided by the
independent third party for the certified test and Seller or Seller's
subcontractor(s) for the material test to both Seller and Buyer. Any expenses
for such testing shall be for Seller's account.
The weight that is determined by Seller's certified scales shall be
binding on both parties hereto; except that in the event that such scales are
found to be more than one-half (1/2) percent in
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<PAGE> 21
error, an equitable adjustment in the quantity of coal received hereunder shall
be promptly made to Buyer or Seller, as appropriate, and, in the absence of
definite information as to when such error began, the adjustment shall be made
on the basis of such error having existed for one-half the time between the
discovery of the error and the most recent test indicating that the Seller's
certified scales were accurate. In the event of a known breakdown or
malfunction of Seller's certified scales, the parties agree to use per
truckload average weights as determined herein during the five days prior to
such time there has been a known breakdown or malfunction of the scales.
However, upon mutual agreement between the parties, an alternate method of
weight determination may be utilized.
3.9 Legal Haul Limits
Seller and /or its subcontractor(s) shall comply with legal haul
limits for coal delivered to the Station. Such compliance shall be in
accordance with the provisions of Section 3.7, Compliance With Transportation
Laws, and Seller shall indemnify Buyer in accordance with Section 12.11,
Indemnity, with regard to Seller's and/or its subcontractor's(s') performance
or failure to perform with regard to its obligations hereunder.
If during any Calendar Month Buyer determines that Seller and/or its
subcontractor(s) are not complying with the provisions herein, Buyer shall
notify Seller and request that Seller and/or its subcontractor(s) comply.
Should Seller and/or its subcontractor(s) fail to remedy the non-compliance
within one week of notification, Buyer may suspend ten percent of the tonnage
ordered for the current month and the following months until Seller implements
corrective action and provides written assurances to Buyer that the
requirements of this Section shall be met. At Buyer's sole option, the tonnage
suspended prior to corrective action taken by Seller will not be made up and
will be credited toward Buyer's obligation to satisfy any and all tonnage
obligations under this Agreement including Attachment 1, Guarantee Agreement.
If such suspended tonnage is made up, Buyer must elect to take such suspended
tonnage on a mutually agreed schedule within twelve (12)
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<PAGE> 22
months and the cost for such suspended tonnage shall be the Price in effect at
the time the tonnage was suspended.
Buyer's option to suspend tonnage from the following months' ordered
quantity is a right which Buyer may, in its sole discretion, choose to exercise
or not. Any exercise of, or failure to exercise such right by Buyer shall not
relieve Seller of any obligations or liabilities under this Agreement or the
Lease and shall not limit or negate any other right Buyer may have under this
Agreement or the Lease including but not limited to Buyer's rights to
indemnification by Seller as provided in this Agreement but shall not be a
cause for Buyer to terminate this Agreement.
Further, Buyer's observations or determinations of legal haul limit
violations and Buyer's exercise of, or failure to exercise any right under this
Section 3.9 shall not be construed as an assumption by Buyer of any
responsibility or liability for legal haul limit violations, including but not
limited to claims, damages, penalties and liabilities arising therefrom.
3.10 Trucking and/or Facility Operations Subcontractor(s) Insurance
In the event Seller elects to use a subcontractor(s) to provide the
trucking and/or operation and maintenance of the Facility, Seller shall ensure
that each such subcontractor(s) shall maintain and provide indemnity and
insurance equivalent to those required of the Seller hereunder, of which
written confirmation thereof, including insurance certificates, or proof of
self-insurance if self-insurance is acceptable to Buyer, Buyer' s acceptance
shall not be unreasonably withheld, shall be provided by Seller to Buyer upon
Buyer's request.
3.11 Buyer's Right of Rejection
Buyer may reject any Shipment of coal or any portion of a shipment
hereunder prior to or a reasonable time after its Receipt at the Station if
Buyer determines through a visual or other inspection that all or any portion
of such Shipment contains coal that fails to comply with the specifications set
forth in 4.1(b), 4.1(f) or 4.1(i). For truck/conveyor shipments, Buyer may
cancel
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<PAGE> 23
delivery of the remaining trucks scheduled for the same daily Shipment in which
the nonconforming coal was rejected.
3.12 Delay of Shipments
Buyer may, at its sole option and upon reasonable notice, delay
previously scheduled Shipments to initiate preventive maintenance outages or
equipment repair to coal handling equipment in order to insure efficient
operation of such equipment. Upon Seller's receipt of such notice, Seller shall
use its best efforts to meet Buyer's monthly purchase notice before and after
any request for Buyer's delay of Shipments. Notwithstanding the above, in the
event that: (a) Buyer cannot accept Seller's deliveries due to reaching Coal
Silo storage capacity at the Station, (b) Buyer fails to provide, maintain or
comply with necessary permits or statutory requirements required of Buyer
hereunder, (c) Buyer experiences other temporary Station operational
disruptions; or (d) Buyer fails to provide Seller with any necessary services
and/or utilities that are the sole responsibility of Buyer under this Agreement
or the Lease for Seller to operate and maintain the Facility, then such
occurrence shall be considered a request by Buyer for delay of Shipment. If
such occurrences are not corrected within thirty (30) days of Seller's written
notice to Buyer, then such occurrence shall be considered a breach of this
Agreement by Buyer unless Buyer resumes receiving deliveries hereunder within
such thirty (30) day period. Such Shipments will be made up on a mutually
agreed upon schedule within twelve (12) months and at the Price in effect for
the month for which such make up coal is delivered.
3.13 Title and Risk of Loss
Seller warrants that title to all coal received by Buyer hereunder
shall be good, and its transfer rightful, and that such coal shall be free of
any lien, claim, demand, security interest, or other encumbrance. Seller shall
indemnify and hold Buyer harmless from any and all expenses (including
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<PAGE> 24
reasonable attorneys' fees), losses, damages, and liabilities resulting from or
arising out of any breach of this warranty.
Title and risk of loss to the coal shall pass from Seller to Buyer
upon Receipt of coal by Buyer at the Station.
3.14 Reserves
Seller warrants that Seller now owns, leases, or controls, and has
dedicated to the Mine, a sufficient number of tons of recoverable coal
contiguous and accessible to the Mine (the "Reserves") to enable Seller to
supply coal in the total quantity and of the quality called for by this
Agreement. A description of such Reserves is set forth in Annex A, and a map
depicting such Reserves is attached. Seller warrants that these Reserves are
sufficient to fulfill the quantity requirements of this Agreement and that the
coal from these Reserves can and will meet the quality specifications herein.
Seller covenants that it will not sell, lease, contract to sell, or
otherwise transfer or agree to transfer to others coal, or any interest
therein, from such Reserves in such quantity as to jeopardize Seller's ability
to supply the total quantity and quality of coal called for by this Agreement
or as to interrupt monthly shipment schedules. Nothing in this Section 3.14
shall be construed as preventing Seller from (1) mining and selling coal from
such Reserves to others, provided Seller's ability to meet the requirements of
Section 3.1 has not been impaired and the foregoing covenants and warranties
with respect to such Reserves are complied with, or (2) selling an interest in
such Reserves provided Seller retains sufficient Reserves to enable Seller to
supply coal in the total quantity and of the quality called for by this
Agreement.
The parties further acknowledge that the provisions of this Section
3.14 shall not be construed as a limitation on Seller's obligations hereunder.
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<PAGE> 25
ARTICLE 4 - QUALITY
4.1 Specifications
Unless otherwise changed pursuant to Section 4.5, the coal supplied
under this Agreement shall meet the following guaranteed specifications, based
on As-Received analyses:
<TABLE>
<CAPTION>
For 1.5 lbs. For 1.9 lbs.
Type Specification Sulfur/mmBtu Sulfur/mmBtu
------------------ ------------ ------------
<S> <C> <C> <C>
(a) Ash 16.0% (Max.) 18.0% (Max.)
(b) Moisture 8.0% (Max.) 8.0% (Max.)
(c) Volatile Matter 28.0% (Max.) 28.0% (Max.)
Volatile Matter 15.0% (Min.) 15.0% (Min.)
(d) Heating Value in Btu
per lb. 12,000 (Min.) 11,700 (Min.)
(e) Ash Fusion Temperature 2,400 (Min.) 2,400 (Min.)
(Hemispherical temp. where height = 1/2 width under reducing atmospheric conditioning)
(f) Size Consist
Top Size (Round Screen) 2" (Max.) 2" (Max.)
Fines (28-mesh x 0-mesh) 30% (Max.) 30% (Max.)
(g) lbs. Sulfur/mmBtu 1.50 (Max.) 1.90 (Max.)
lbs. Sulfur/mmBtu 1.10 (Min.) 1.10 (Min.)
(h) Grindability (Typical) 95 (Min.) 95 (Min.)
(Hardgrove Grindability Index [HGI])
(i) General: No additives shall be used to change the natural heating value of the coal. The coal
shall be free of debris, wood, metal, plastic and other foreign material.
</TABLE>
SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE COAL SUPPLIED
HEREUNDER, OR AS TO THE RESULT FROM USE THEREOF. Notwithstanding the
disclaimer contained within the foregoing sentence, Seller shall not be
relieved of its obligation to deliver coal conforming to the specifications set
forth in this Section 4.1.
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<PAGE> 26
4.2 Sampling and Analysis
Seller and Buyer may perform concurrent analytical testing on coals
sampled via the mechanical sampling system of which sampling shall be taken at
the Station's receiving point for truck/conveyor delivery as specified in Annex
D, Attachment A.
The Mt. Storm Power Station's Laboratory or a qualified, competent
third party laboratory selected by Buyer which shall assume all of the duties
and responsibilities of the Mt. Storm Power Station's Laboratory, hereinafter
referred to individually or collectively as "Buyer's Laboratory", shall employ
as a minimum the standard operating procedures as outlined in Annex G when
performing all analytical testing of coals. All analytical testing performed
by Buyer's Laboratory shall be at Buyer's expense.
Seller shall select a qualified, competent third party laboratory to
serve as "Seller's Laboratory". Seller's Laboratory shall meet the Minimum
Qualification Performance Standards as specified in Annex D, Attachment B when
performing all analytical testing of coal samples. All analytical testing
performed by Seller's Laboratory shall be at Seller's expense.
Four separate 8-mesh sample splits of the daily sample lot shall be
prepared by the sample system operator, hereinafter referred to as "Operator",
properly sealed in airtight containers, and labeled with sample identification
data, tonnage data, and any other pertinent data required by either Buyer or
Seller. The Operator shall provide separate 8-mesh sample splits of each daily
sample to Buyer's Laboratory and Seller's Laboratory to be analyzed
concurrently for Moisture, Ash, Sulfur, Volatile Matter, and BTU as per the
ASTM testing methods referenced in Annex D, Attachment C. The remaining two
separate 8-mesh sample splits shall remain with the Operator of the sampling
system at the Station or other mutually agreed upon location for referee and
reproducability check purposes, as hereinafter defined, for a minimum period of
thirty (30) days after the last day of the calendar month which the sample lot
represented.
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<PAGE> 27
Buyer's Laboratory and Seller's Laboratory each shall provide the
analytical data derived from the daily sample splits to both Buyer and Seller
by facsimile or other mutually agreed to method within five business days from
the receipt of the sample split in their respective laboratories.
If Buyer's Laboratory results are received by the Seller within five
business days from receipt of the sample split in the Buyer's Laboratory,
Buyer's Laboratory results shall be binding on both parties with regard to coal
quality and rejection and suspension limits. However, in the event Buyer's
Laboratory results are received by the Seller (either by facsimile, or other
mutually agreed upon method) later than five business days from receipt of the
sample split at Buyers' laboratory, Seller's results shall be binding on both
parties. Notwithstanding the above, in the event both laboratories fail to
provide analytical results within the specified five business day time frame,
Buyer's laboratory results shall be binding if received by Seller within ten
(10) Business Days of receipt of the sample split at Buyer's Laboratory.
If analytical results are not received by either party within five
business days and not considered for binding analysis, but either Buyer or
Seller wish to have their individual sample analysis included for purposes of
determining monthly reproducibility comparisons, as defined below, the sample
analysis must be received by both parties within ten (10) business days from
the date the sample was taken.
Seller and/or Buyer shall assume the duties of tracking the proper
binding analysis on a daily basis as specified above. Tracking shall include
Seller's analysis results including date and time, Buyer's analysis results
including date and time, tonnage, binding analysis as specified above, and any
other pertinent data required by either Buyer or Seller in the administration
of this Agreement.
If any single binding analysis as provided by either the Buyer's
Laboratory or the Seller's Laboratory, which ever is applicable, causes Buyer
to adjust Sellers delivered price on a single
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<PAGE> 28
analysis basis, as defined in Article 4 of this Agreement, one of the two
remaining 8 mesh sample splits in the possession of the Operator shall be sent
to a mutually agreed upon, independent laboratory hereinafter referred to as
"Referee Laboratory" (listed in Annex I), - separate from Seller's Laboratory
or Buyer's Laboratory - which meets the minimum laboratory specifications
outlined in Annex D, Attachment B, within 5 working days of receipt of the
penalizing binding analysis as specified above. The Referee Laboratory shall
submit to both the Buyer and Seller the Referee analysis for all quality
parameters, within 5 working days of receipt in their Laboratory. The dry
basis result produced by the Referee Laboratory for the parameter(s) in
question converted to the as-received basis by using the average of the total
moisture analysis of Seller's and Buyer's analysis shall then be deemed to be
the binding referee analysis for the sample in question. The cost for the
Referee Laboratory analysis and inherent delivery costs shall be equally shared
by both the Buyer and Seller.
In addition to the procedures and practices outlined in Annex D,
Attachment B of this Agreement for Seller's Laboratory and procedures and
practices outlined in Annex G for Buyer's Laboratory, and in order to gauge
laboratory performance over time, a monthly comparison of the Seller's
Laboratory and Buyer's Laboratory between laboratory reproducibility compliance
shall be performed as follows:
Within fifteen (15) days after the end of each calendar month (to
allow receipt of referee analysis and analysis provided within ten (10)
Business Days from the date of sampling for the sole purpose of qualifying for
inclusion in determining reproducibility comparisons that are provided by
Buyer's, Seller's or Referee Laboratory), Seller's and/or Buyer's Laboratory
shall perform a statistical comparison of the prevailing daily binding
analysis compared to the corresponding daily non-binding analysis for all
qualifying timely received daily analyses analyzed in the preceding month for
Moisture and on a dry basis for Ash, Sulfur, and BTU. This statistical
comparison shall
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<PAGE> 29
be used for determining bias trends, reproducibility, and or other ASTM methods
competency and shall include common statistical methodologies as delineated in
ASTM Section 14, Volume 14.02, ASTM Section 05, Volume 05.05, part D4621, X4,
or other applicable and relevant publications. "Mean" and "Range" charts shall
be generated with "control" sample being defined as all 8 mesh splits generated
from one sample lot of coal.
The laboratory specific mean difference shall be calculated for
each qualifying available data set for each sample lot analyzed for the month.
Each mean difference shall be plotted as a point on a mean difference limit
chart pertaining to the individual parameter referenced. The laboratory(s)
shall be deemed in control if a data point does not orient itself above or
below the following upper and lower control limits as derived from the latest
revision to ASTM and/or the latest revision to the individual ASTM method
reproducibility limits.
Total Moisture + or - .38
Sulfur + or - .067
Btu + or - 47
Ash + or - .38
Within fifteen (15) working days of the end of the calendar month
a mathematical weighted average of all binding daily shipment analysis
determinations made that month by either Buyer's Laboratory, Seller's
Laboratory, or the Referee Laboratory (whichever is applicable), shall be
calculated by Seller and/or Buyer and confirmed by the other party to determine
the final binding quality analyses for all coal delivered during the month.
Within five (5) working days of the confirming party's receipt of the
final binding quality analyses for all coal delivered during the month, the
Buyer and/or Seller at their sole discretion may contest the final binding
quality analyses for all coal delivered during the month for one or more
individual quality parameters.
- 28 -
<PAGE> 30
If either the Buyer or Seller contest the final binding quality
analyses for all coal delivered during the month for one or more individual
quality parameter(s), then if the ASTM 8-mesh between laboratory
reproducibility limits on each individually contested quality parameter are not
exceeded in this monthly comparison as defined in the respective test methods
listed in Annex D, Attachment C, or as defined in ASTM section D.05.21.01,
8-mesh tolerance ballot of 1992, (or when separately published by ASTM section
D.05.21.01), which ever is more stringent, the binding analysis for the
individual analysis shall stand.
In the event one or more individual quality parameters exceed the
prescribed ASTM reproducibility limits, as defined in the respective test
methods listed in Annex D, Attachment C or as defined in ASTM section
D.05.21.01, 8-mesh tolerance ballot of 1992, (or when separately published by
ASTM section D.05.21.01.) which ever is more stringent, the Referee Laboratory
shall perform a reproducibility re-run analysis on the remaining third, or if
applicable, fourth sample split of the sample in question held by the Operator.
The dry basis result produced by the Referee Laboratory for the quality
parameter(s) in question converted to the as-received basis by averaging the
total moisture analysis for the Seller's and Buyer's moisture analysis for the
sample in question- shall then be deemed the final binding analysis for the
sample in question. The cost for the Referee Laboratory analysis and related
sample delivery costs shall be shared equally by Buyer and Seller. The results
of any reproducibility re-run analysis shall be provided to Buyer and Seller
within five (5) working days of receipt .
The above referenced statistical comparison shall be used for
determining bias trends. A bias (systematic error) is defined as an error that
is consistently negative or consistently positive, and the mean of errors
resulting from a series of observations which does not tend towards zero.
If at any time a series of five (5) or more mean differences in
either Ash, Btu or Sulfur that (on a dry basis) are oriented all above or all
below the zero line, a bias situation shall be suspected
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<PAGE> 31
to exist and each individual population of five (5) or more analysis for any of
these three parameters shall be deemed to be suspect, and the corresponding
remaining 8-mesh split in possession of the operator shall be submitted to the
Referee Laboratory for binding analysis on the parameters in question. The
cost for the Referee Laboratory analysis and inherent delivery costs shall be
equally shared by both the Buyer and Seller.
The parties recognize and agree that after identification and review
of the statistical comparison of quality parameters, no parameter that falls
outside of the applicable reproducability limits or series of five (5) or more
observations that gives rise to suspect a bias shall be contested as identified
herein, unless either party has a reasonable basis to believe that the results
of such contestment will result in a economic impact that is forthcoming from a
redetermination of the monthly weighted averages of the individual quality
parameter(s) for the coal delivered. It is further agreed, that if either
party requests a contestment, then all individual analyses that meet the
criteria to be contested on an individual basis, shall be contested, unless
both parties reach mutually agreement to submit a subset thereof.
The re-run analysis shall be binding for the sample(s) in question
and a mathematical weighted average of all binding daily shipment analysis
determinations made that month by either Buyer's Laboratory, Seller's
Laboratory, or the Referee Laboratory, whichever is applicable, shall be
calculated by Seller or Buyer and confirmed by the other party to determine the
final binding quality analyses for all coal delivered during the month.
Both the Buyer and Seller shall have the right to retain an
independent and specialized third party to act as their representative. Buyer,
Seller, or their representatives have the right to be present at any and all
times to observe the analytical procedures of the laboratories performing work
under this Agreement. Both Buyer and Seller and their representatives shall
also have the right to inspect and examine the performance of any equipment
employed in the sampling or analysis of coal
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<PAGE> 32
pursuant to this Agreement. In resolving disputes on Laboratory differences
the Buyer and Seller and their representatives shall have the right to request
sample splits or any remaining 8-mesh samples not utilized above or other
relevant or pertinent material(s) and/or information from the other party or
their third party laboratory(s) in reviewing analytical procedures and
compliance with provisions of this article. Such requests shall not be
unreasonably made by either party.
4.3 Adjustments for Quality Variation
The parties recognize that the failure of Seller to meet the heating
value, ash, and sulfur specifications set forth in Section 4.1 may cause Buyer
to be unable to operate the Station without violating certain federal, state,
or local environmental laws, rules, regulations, or ordinances, which violation
could result in Buyer being subject to civil and criminal penalties or enjoined
from operating the coal-fired units at the Station. The parties also recognize
that Seller must meet these specifications in order to ensure proper operation
of the Station's boilers and coal-handling equipment and to allow full power
generation at the Station. Seller shall therefore use all reasonable means to
ensure that the heating value, ash, and sulfur content of all coal shipped
hereunder meet the specifications set forth in Sections 4.1 (a), (d), and (g).
The Price for coal as determined under Article 7 shall be adjusted as follows
for variation in heating value, ash, and/or sulfur content. Such adjustments
shall be cumulative.
(a) The Price shall be adjusted in the manner set forth below to
compensate for any difference between the weighted average heating value of all
coal received for each Calendar Month under this Agreement and 12,000 Btu/pound
for 1.50 lb. sulfur/mmBtu coal, and 11,700 Btu/pound for 1.90 lb. sulfur/mmBtu
coal. Sample calculations for Btu adjustments are provided in Annex B.
(1) For coal received that contains, on a monthly weighted
average basis, a heating value of greater than or equal to 11,700 Btu/pound for
1.50 sulfur/mmBtu coal, and 11,400 Btu/pound for 1.90 lb. sulfur/mmBtu coal,
the Price will be adjusted as follows: The Delivered Cost
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<PAGE> 33
in effect on the last day of the month will be multiplied by a fraction, the
numerator of which shall be the As-Received monthly weighted average heating
value and the denominator of which is 12,000 and 11,700 for the 1.50 lb.
sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal, respectively. The
difference between the product thus determined and the Delivered Cost in effect
on the last day of the month shall be the premium or reduction applicable to
the Price of such coal.
(2) For coal received that contains, on a monthly weighted
average basis, a heating value less than 11,700 Btu/pound and 11,400 Btu/pound
for the 1.50 lb. sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal,
respectively, the Price adjustment shall be determined in accordance with the
method set out in Subparagraph (1) above and the Price shall be further reduced
by five percent of the Delivered Cost in effect on the last day of the month.
(b) For coal received that contains, on a monthly weighted
average basis, an ash content of greater than 17.0% for the 1.50 lb.
sulfur/mmBtu coal or an ash content greater than 19.0% for the 1.90 lb.
sulfur/mmBtu, the Price shall be adjusted as set forth below.
(1) For coal received that contains, on a monthly weighted
average basis, an ash content of greater than 17.0% and 19% for the 1.50 lb.
sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal, respectively, and a
heating value less than 12,000 Btu/pound and 11,700 Btu/pound for the 1.50 lb.
sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal, respectively, the Price
shall be reduced by five percent of the Delivered Cost in effect on the last
day of the month.
(2) For coal received that contains, on a monthly weighted
average basis, an ash content of greater than 17.0% and 19% for the 1.50 lb.
sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal, respectively, and a
heating value equal to or greater than 12,000 Btu/pound and 11,700 Btu/pound
for the 1.50 lb. sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal,
respectively, the Price shall be reduced by the indicated percentage of the
Delivered Cost in effect on the last day of the month as specified below.
- 32 -
<PAGE> 34
<TABLE>
<CAPTION>
% Ash Content for % Ash Content for % Reduction
1.50 lb. Sulfur Coal 1.90 lb. Sulfur Coal of Delivered Cost
-------------------- -------------------- -----------------
<S> <C> <C>
17.00 or less 19.00 or less 0.0
17.01 - 17.10 19.01 - 19.10 1.0
17.11 - 17.20 19.11 - 19.20 2.0
17.21 - 17.30 19.21 - 19.30 3.0
17.31 - 17.40 19.31 - 19.40 4.0
17.41 or greater 19.41 or greater 5.0
</TABLE>
(c) For coal received that contains a sulfur content exceeding
the limits specified in Subparagraphs (1), (2), or (3) below, the Price shall
be adjusted as set forth below.
(1) For coal received that contains, on a monthly weighted
average basis, greater than 1.50 lb. sulfur/mmBtu and 1.90 lb. sulfur/mmBtu
for the 1.50 lb. sulfur/mmBtu coal and the 1.90 lb. sulfur/mmBtu coal,
respectively, the Price shall be reduced by $0.10 per ton for each .01 lbs.
sulfur/mmBtu by which the monthly weighted average exceeds 1.50 lb.
sulfur/mmBtu and 1.90 lbs. sulfur/mmBtu for the 1.50 lb. sulfur/mmBtu coal and
the 1.90 lb. sulfur/mmBtu coal, respectively. To calculate the monthly
weighted average sulfur content in terms of lbs. sulfur/mmBtu, the following
formula shall be used. The product of the As-Received monthly weighted average
sulfur percentage (expressed to two significant digits) and 10,000 shall be
divided by the As-Received monthly weighted average heating value (expressed to
the nearest whole integer) to determine the sulfur content. The sulfur content
shall be expressed to two significant digits with 1) the third decimal rounded
up when it has a value equal to or greater than five, or 2) the third decimal
rounded to zero when it has a value less than five.
(2) For the 1.5 lb. sulfur/mmBtu coal ordered and received
that contains, on a single analysis basis from no less than 5,000 tons, greater
than 1.68 lbs. sulfur/mmBtu, the Price adjustment shall be determined in
accordance with the method set out in Subparagraph (1) above, if applicable,
and the Price for the coal represented by that sample shall be further reduced
by $0.50 per ton.
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<PAGE> 35
(3) For coal received that contains, on a monthly weighted
average less than 1.1 lbs. Sulfur/mmBtu for 1.50 lbs. Sulfur/mmBtu coal and/or
less than 1.1 lbs Sulfur/mmBtu for 1.90 lbs. Sulfur/mmBtu coal, the Price shall
be reduced by $.50 per ton.
(d) The adjustments provided for in Sections 4.3 (a), (b), and
(c) are intended to be adjustments to reflect the increase or decrease in the
value of coal supplied to Buyer according to the heating value, ash, and sulfur
content of that coal. They are not intended to be, nor shall they be construed
to be, either liquidated damages or penalties. Application of these
adjustments shall not be construed to allow a range of specifications different
from those specified in Section 4.1 and shall not prevent Buyer from exercising
any other rights or remedies as provided herein if Seller delivers coal that
does not meet the heating value, ash, or sulfur specifications set forth in
Section 4.1.
4.4 Suspension of Shipments and Cancellation
(a) Shipments of coal under this Agreement may be suspended
and/or canceled in accordance with Sections 4.4 (b), (c), and (d) if coal
received hereunder fails to comply with the following specifications based on
the As-Received analyses:
THIS SPACE LEFT INTENTIONALLY BLANK
- 34 -
<PAGE> 36
<TABLE>
<CAPTION>
For 1.50 lb. Sulfur Coal
------------------------
Three 2 Analyses Per
Consecutive 30 Consecutive Each
Months(1) Monthly(2) Day Period(3) Analysis (4)
------ ------- ---------- --------
<S> <C> <C> <C> <C>
Vol. Matter % -- 15-28 -- --
Moisture % -- 8.0 (max.) -- --
Ash % 16.0 (max.) 18.0 (max.) --
Sulfur -- 1.0 - 1.6 -- --
(lbs./mmBtu)
Grind (HGI) 65 (min.) -- -- --
Ash Fusion degreesF -- -- -- 2,400 (min.)
(Hemis.)
Heating
Value (Btu/lb.) 12,000 (min.) 11,700 (min.) 11,600 (min.) --
Size -- -- -- 2"x0" 30%
fines (max.)
(no debris,
etc.)
</TABLE>
NOTES
(1) The weighted average (weighted by the tons delivered for each month)
of the monthly prorated analyses of coal shipped during any three
consecutive Calendar Months shall not deviate from any of the limits
in this column.
(2) The monthly prorated analysis of coal shipped during any Calendar
Month shall not deviate from any of the limits in this column.
(3) No two Proximate Analyses of coal shipped during any 30 consecutive
day period shall deviate from any of the limits in this column.
(4) No one Proximate Analysis or size analysis of coal shipped during any
time period shall deviate from any of the limits in this column.
THIS SPACE LEFT INTENTIONALLY BLANK
- 35 -
<PAGE> 37
<TABLE>
<CAPTION>
For 1.90 lb Sulfur Coal
-----------------------
Three 2 Analyses Per
Consecutive 30 Consecutive Each
Months(1) Monthly(2) Day Period(3) Analysis(4)
------ ------- ---------- --------
<S> <C> <C> <C> <C>
Vol. Matter % -- 15 - 28 -- --
Moisture % -- 8.0 (max.) -- --
Ash % 19.0 (max.) 21.0 (max.) --
Sulfur -- 1.0 - 1.9 -- --
(lbs./mmBtu)
Grind (HGI) 65 (min.) -- -- --
Ash Fusion degrees F -- -- -- 2,400 (min.)
(Hemis.)
Heating 11,700 (min.) 11,400 (min.) 11,300 (min.) --
Value (Btu/lb.)
Size -- -- -- 2"x0" 30%
fines (max.)
(no debris, etc.)
</TABLE>
NOTES
(1) The weighted average (weighted by the tons delivered for each month)
of the monthly prorated analyses of coal shipped during any three
consecutive Calendar Months shall not deviate from any of the limits
in this column.
(2) The monthly prorated analysis of coal shipped during any Calendar
Month shall not deviate from any of the limits in this column.
(3) No two Proximate Analyses of coal shipped during any 30 consecutive
day period shall deviate from any of the limits in this column.
(4) No one Proximate Analysis or size analysis of coal shipped during any
time period shall deviate from any of the limits in this column.
Compliance with the above specifications, except size, shall be
determined by sampling and analysis in accordance with Section 4.2. Buyer
shall perform size analysis once a month or as deemed necessary by Buyer.
(b) If Seller ships coal that fails to comply with one or more
of the specifications set forth in Section 4.4(a), Buyer may provide Seller
notice of such noncompliance and request that Seller provide Buyer assurances
that future shipments will comply with such specifications. Pending
- 36 -
<PAGE> 38
receipt of such assurances, or in the event Seller provides assurances but any
subsequent Shipment fails to meet the specification in Section 4.4(a) that
resulted in the request for assurance, Buyer may direct Seller to suspend
further Shipments of coal. Before permitting Seller to resume regular
Shipments, Buyer may insist that Seller demonstrate its ability to perform in
the future by shipping three consecutive provisional Shipments (each of not
less than 2,500 tons) which meet all of the specifications set forth in Section
4.1. Shipments suspended pursuant to this Section 4.4 shall be made up at
Buyer's option and shall be at the same Price that was in effect at the time of
the suspension.
Sampling, analysis, and testing of the coal in the provisional
shipments shall be conducted prior to shipment by an independent firm
acceptable to Buyer and shall be in accordance with procedures acceptable to
Buyer. Seller shall bear the cost of such sampling, analysis, and testing as
well as any demurrage or other charges imposed by the carrier as a result of
delay pending receipt of the analysis and test conducted by the independent
firm. Seller shall promptly provide Buyer with written results of such
analysis and test. If the results of this analysis and test show that the coal
in any of the provisional shipments fails to comply with one or more of the
specifications in Section 4.1, Seller shall not ship to Buyer and Buyer shall
not be required to accept the coal in such shipment.
(c) For any suspension resulting from Seller's noncompliance
with a specification based on a three (3) consecutive month period as set forth
under Section 4.4(a), Buyer may cancel this Agreement if (1) Seller fails or
refuses to provide documentation and assurances requested pursuant to Section
4.4(b) within thirty (30) Calendar Days after receiving Buyer's notice and
request, or (2) subsequent to suspension and the resumption of regular
shipments under this Agreement, coal shipped during the next six (6) months
fails to meet the specification in Section
- 37 -
<PAGE> 39
4.4(a) based on a three (3) consecutive month period for the parameter which
resulted in the suspension.
For any other suspension resulting from Seller's noncompliance
with a specification as set forth under Section 4.4(a), Buyer may cancel this
Agreement if (1) Seller fails or refuses to provide assurances requested
pursuant to Section 4.4(b) within thirty (30) Calendar Days after receiving
Buyer's notice and request for such assurances, (2) Seller fails to correct the
problem giving rise to any noncompliance with the specifications set forth in
Paragraph 4.4(a) within sixty (60) calendar days after receiving notice of
noncompliance, or (3) during any one of three (3) consecutive months following
the month in which the problem giving rise to the noncompliance is corrected,
coal supplied hereunder fails to comply with the specifications giving rise to
such noncompliance in Section 4.4(a).
If Buyer exercises its right to cancel this Agreement, such
cancellation shall be effective upon Seller's receipt of Buyer's written notice
of cancellation. Such written notice must be given within ninety (90) Calendar
Days of the date on which Buyer first had the right to cancel.
(d) Nothing in this Section 4.4 shall be construed as providing
an exclusive remedy for Buyer and, after Buyer has exhausted the remedial steps
set forth in Sections 4.4(b) and (c), Buyer may, in lieu of cancellation (or
in addition to cancellation if other rights and remedies are also legally
available to Buyer) pursue any other rights and remedies available under this
Agreement or at law or in equity for Seller's failure to ship coal that meets
the quality specifications set forth in Section 4.1. For Seller's failure to
perform in accordance with terms and conditions of this Agreement other than
coal quality specifications, Buyer shall not be required to exhaust remedial
steps set forth in this Section 4.4 before pursuing any other rights and
remedies available under this Agreement, at law, or in equity.
- 38 -
<PAGE> 40
4.5 Quality Change
If Buyer determines it necessary to burn coal having specifications
different from or in addition to those set forth herein as a result of any law,
regulation, order, rule, or action of any governmental body or authority
including consent orders between Buyer and applicable governmental body or
authority (hereinafter referred to as "Regulatory Requirement"), or if it would
be necessary for Buyer to make modifications to the Station or the operations
of the Station in order to continue burning coal supplied hereunder to comply
with such Regulatory Requirement, Buyer shall so notify Seller and may request
Seller to commence shipping coal conforming to revised specifications within 60
Calendar Days after the date of Buyer's notice, under terms and conditions
(including pricing terms) to be mutually agreed upon. During the period of
negotiations for shipment of coal meeting the revised specifications, Buyer may
require Seller to ship for test burn purposes coal proposed to meet such
revised specifications up to an amount to be specified by Buyer. The Price for
such test coal shall be mutually agreed upon by Buyer and Seller. If Seller is
unable or refuses to ship coal conforming to the revised specifications, or if
the parties, negotiating in good faith, cannot reach agreement on applicable
terms and conditions (including pricing terms) within the 60 Calendar Day
period, Buyer may terminate this Agreement without further obligation to
Seller, except for those obligations with respect to performance required
hereunder prior to the effective date of such termination, those identified in
Section 12.4 ("Survival of Obligations"), any obligation to pay for coal
already delivered hereunder and for payment of the Facility, by providing
written notice of termination to Seller, such termination to be effective upon
Seller's receipt of Buyer's written notice of termination or as otherwise
provided in such written notice.
ARTICLE 5 - MEASUREMENT OF RAIL COAL RECEIVED
The provisions of this Article 5 and Annex E shall apply to shipments
by rail only.
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<PAGE> 41
Coal received hereunder that is shipped by rail shall be weighed on
Buyer's weighing devices at the Station in accordance with Station procedures.
Buyer shall maintain and certify these weighing devices in accordance with the
appropriate State requirements. Seller may, at its own expense, have a
representative present to observe such certifications.
If Buyer's weighing devices become inoperable, and Seller has
weighing devices that are maintained and certified in accordance with the
appropriate State requirements and that are acceptable both to Buyer and to the
appropriate rail carrier, then Seller's weighing devices shall be used. Buyer
and/or the appropriate rail carrier may, at their own expense, inspect Seller's
weighing devices and be present at such certifications.
If, for any reason, a shipment of coal or portion of a shipment of
coal is not weighed using weighing devices owned by Buyer, Seller, or the rail
carrier, then the weight of coal received will be determined as follows:
The net weight per car will be based on the average net weight for
all cars delivered by Seller to the Station for the previous two consecutive
months. In the event that no coal was received from Seller during either of
the previous two months, the net weight per car shall be calculated as 93% of
the stenciled net weight of each car in the shipment that was not weighted.
For rail shipments, weights determined in accordance with this
Article 5 shall be used for payment as well as for all other purposes under
this Agreement.
ARTICLE 6 - PAYMENT AND RECORDS
6.1 Payment
(a) Buyer shall, no less frequently than once per week, prepare a
Coal Receipt Advice for the coal received hereunder during a Calendar Week. No
more than ten (10) days shall pass between completion of the Calendar Week and
the preparation of the Coal Receipt Advice. Payment for the
- 40 -
<PAGE> 42
coal received hereunder during a Calendar Week shall be made within fifteen
(15) days of the preparation of each Coal Receipt Advice and shall be based on
the Price in effect under the provisions of Article 7, using the weights
determined in accordance with Article 3, or Article 5 for rail shipments, and
assuming that the specifications in Section 4.1 are met.
(b) Price adjustments for variations in quality shall be calculated
by Buyer in accordance with Section 4.3 and forwarded by Buyer to Seller by
written notice. Buyer will forward said written notice to Seller within sixty
(60) Calendar Days following the month in which coal was shipped unless delayed
due to sampling and analysis disputes and/or other related quality disputes
between the parties. Where payment is due Seller as a result of such
adjustment, payment shall first be applied to any outstanding amounts due
Buyer. Payment of the remainder, if any, shall accompany such written notice.
Where Buyer is due a refund as a result of any such adjustment, or where Buyer
is due reimbursement from Seller as the result of payment to an independent
laboratory for a quality analysis that has been settled in accordance with
Sections 4.2 or other documented costs reimbursable to Buyer, as allowed under
this Agreement Buyer shall have the option to deduct such refund or
reimbursement from a future invoice covering payment for coal or to require
cash payment from Seller within twenty (20) Calendar Days of Seller's receipt
of Buyer's written notice.
(c) Pattern of late payments under this Agreement by Buyer, shall be
cause for Buyer and Seller to discuss ways for Buyer to remedy such late
payments.
(d) For payment of all other amounts payable by Buyer to Seller
unless specifically addressed elsewhere in this Agreement representing payment
or reimbursement of other costs allowed under this Agreement, Seller shall
invoice Buyer with supporting documentation. Payment for such invoice shall be
initiated by Buyer within twenty (20) days following receipt of the invoice.
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<PAGE> 43
(e) Payment to Seller shall be made by check to the following
address:
MAPCO Coal Inc.
P. O. Box 70734
Chicago, IL 60673
The above address may be changed by Seller upon thirty (30) days
written notice to Buyer.
6.2 Records
Each party shall keep complete and accurate records and all other
data required by each of them for the purposes of proper administration of this
Agreement. All such records and data shall be maintained by Seller for three
years after the year of performance such records and data apply. All such
records and data shall be maintained by Buyer for one year after the
expiration, termination, or cancellation of this Agreement and for any
additional length of time required by regulatory agencies with jurisdiction
over the parties.
Either party shall have the right from time to time, upon written
notice to the other, to examine the records and data of the other relating to
this Agreement, including without limitation, the weights and analyses of the
coal supplied hereunder, anytime during the period the records are required to
be maintained.
ARTICLE 7 - PRICE
7.1 Base Price(s)
The January 1, 1997 Price(s) ("Base Price(s)") of coal delivered
hereunder by truck/conveyor method of delivery to the Station shall be:
(a) $24.82 (U.S. Dollars) per ton delivered to the Station for 1.50
lb./mmBtu sulfur coal; and/or,
(b) $22.32 (U.S. Dollars) per ton delivered to the Station for 1.90
lb./mmBtu sulfur coal.
The Base Price(s) shall be subject to adjustment only as specifically provided
in this Agreement.
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<PAGE> 44
7.2 Price
The Base Price specified in Section 7.1 shall be the respective Price
in effect through the end of the first calendar quarter of 1997. Prior to the
beginning of each subsequent calendar quarter, commencing with the second
calendar quarter of 1997, Seller shall calculate on the form in Annex C the
respective Price applicable to coal to be shipped, if applicable, for that
quarter based on percentage changes from the Base to Reference Indexes pursuant
to Section 7.4. Seller shall forward a complete and accurate Annex C to Buyer
so that Buyer will receive the Annex C at least ten (10) Business Days prior to
the beginning of the calendar quarter to which the Price so calculated shall
apply. Seller shall document the data used to derive the index figures
appearing on Annex C on the "Worksheet for Obtaining Quarterly Price," which
Seller shall submit to Buyer as part of such Annex.
7.3 Base Price Components
The Base Price is composed of four cost components: (1) Labor, (2)
Supplies (divided into subcomponents as indicated below), (3) Capital and Other
Direct Costs, and (4) Fixed Portion of Base Price. For the purposes of Price
determination, the percentage of the Base Price allocated to each component and
subcomponent and the index representing such component and subcomponent are as
follows:
THIS SPACE INTENTIONALLY LEFT BLANK
- 43 -
<PAGE> 45
<TABLE>
<CAPTION>
% of Base % of Base
Price for Price for
1.50 lb/mmBtu 1.90 lb./mmBtu
Component Sulfur Coal Sulfur Coal Index
- --------- ----------- ----------- -----
<S> <C> <C> <C>
Labor 17.9% 17.4% Average Hourly Earnings ---
Bituminous Coal & Lignite
Mining (1987 SIC Code 122)
Labor Benefits 5.3% 5.2% Employment Cost Index
(Benefits Only) Private
Industry Workers by
Occupation
Blue Collar Occupations
Table 10 B
Supplies: 2.3% 2.5% No. 2 Diesel Fuel, Direct
Sales to End Users
(PPI 2911-4132)
11.2% 10.9% Drills and Other Mining
Machinery
(PPI 1192-03)
12.1% 11.8% Mining Machinery Parts,
Excluding Drills
(PPI 1192-5301)
6.5% 7.2% Industrial Power,
Middle Atlantic
(PPI 4981-132)
Other Supplies: 6.6% 6.4% PPI - Industrial Commodities
Less Fuels and Related Products and Power
Capital & Other Implicit Price Deflator of
Direct Costs 27.0% 26.3% the Gross Domestic Product
Fixed Portion of
Base Price 11.1% 12.3% - - -
----- --------
TOTAL 100.0% 100.0%
</TABLE>
All percentage allocations of the Base Price components and
subcomponents shall remain fixed for the term of this Agreement.
- 44 -
<PAGE> 46
Should any of the indexes specified herein be discontinued, indexes
specified by the appropriate government agency as the replacement indexes, if
any, shall be used. If no replacement indexes are so specified, new indexes
that most accurately reflect changes in the applicable cost component or
subcomponent shall be substituted by mutual agreement of the parties. If the
basis of the calculation of the indexes specified herein is substantially
modified, the indexes as modified may continue to be used or proper indexes may
be substituted by mutual agreement of the parties. Changes in the base year(s)
reporting basis, minor changes in weighting, and minor changes in benchmarks
shall not be construed as substantial modification to the indexes and the
affected values shall be reestablished in accordance with the instructions
issued by the appropriate government agency.
7.4 Quarterly Price Adjustments
Commencing with the second calendar quarter of 1997, the Labor,
Supplies, and Capital and Other Direct Costs components of the Base Price shall
be subject to individual adjustment on a quarterly basis to reflect changes in
the indexes specified above. These adjustments shall be calculated based on
percentage change from the Base to Reference Indexes as follows:
(a) Base Indexes for Labor and Supplies shall be determined for each
appropriate cost component or subcomponent by averaging the first indexes
published applicable to each for the months comprising the third quarter of
1996 (the "Base Period"). The Base Index for Labor Benefits and Capital and
Other Direct Costs will be the index first published for the third quarter of
1996.
(b) Reference Indexes for Labor and Supplies shall be determined for
each appropriate cost component or subcomponent by averaging the first indexes
published applicable to each for the months comprising the second calendar
quarter immediately preceding the calendar quarter for which a Price
determination is being made. For example, the months of October, November and
December of 1996 would be used for determining the Reference Index for the
calendar quarter of April, May
- 45 -
<PAGE> 47
and June of 1997. The Reference Index for Labor Benefits and Capital and Other
Direct Costs shall be the index first published for the second calendar quarter
immediately preceding the calendar quarter for which a Price determination is
being made.
(c) Calculation of Quarterly Average Index Levels - In calculating
the quarterly average Base Index and Reference Index levels for all cost
components and subcomponents, the quarterly average index level for any index
in any quarter shall be calculated as the straight arithmetic average of the
monthly values published for that index. If such information is not published
for any one or two of the months comprising a quarter and the index has not
been discontinued, the average shall be calculated as a straight arithmetic
average of the months for which values were published. If such information is
not published for all the months comprising a quarter and the index has not
been discontinued, the average for the quarter in question shall be set equal
to the average calculated for the previous quarter. In the event there is a
UMWA sanctioned or unsanctioned strike on a national industry wide basis, or a
selective company basis ("UMWA strike"), that has the effect of causing an
increase or a decrease in a monthly SIC-122 hourly wage rate, then such monthly
hourly wage rate shall be excluded in the calculation of the quarterly average
SIC- 122 hourly wage rate. The parties shall jointly and simultaneously confer
with Bureau of Labor Statistics' economists within the division of Monthly
Industry Employment Statistics. The economists' assessment as to whether an
increase or a decrease occurred in a monthly SIC-122 hourly wage due to a UMWA
strike shall be binding and shall govern as to the use or exclusion of the
monthly SIC-122 hourly wage rate in question and shall govern as to when the
SIC-122 hourly wage rate will be used to again (i.e., after the strike) to
calculate the quarterly average index levels.
(d) Price Adjustment - The amount of the Base Price representing each
cost component or subcomponent, as indicated in Section 7.3, except the Fixed
Portion of the Base Price component, shall be adjusted for changes in the
indexes representing such component or subcomponent. The
- 46 -
<PAGE> 48
Reference Index for each component or subcomponent shall be compared with the
Base Index for such component or subcomponent and a percentage increase or
decrease shall be determined. The adjustment applicable to each component or
subcomponent shall be the product of such percentage increase or decrease and
the amount of the Base Price representing that component or subcomponent. The
Price calculation formula for calculating the Price for a given calendar
quarter, based on adjustments to cost components as set forth above, is
provided in Annex C.
(e) Fixed Portion of Base Price Component - The amount of the Base
Price representing the Fixed Portion of the Base Price is not subject to
quarterly cost adjustment.
7.5 Regulatory Changes
It is recognized that changes in Seller's actual per ton costs of
producing, and delivering and selling coal hereunder may occur after March 22,
1995 as a result of statutory or regulatory changes made by federal, state,
county or city governmental bodies. These changes that may affect the mining
industry and that affect the cost of producing, delivering and selling coal
hereunder, may not be reflected in or accommodated by the indexes specified in
Section 7.3 above. Provided that such a statutory or regulatory change made by
a federal, state, county or city governmental body (1) becomes effective on or
after March 22, 1995, (2) results in a change in Seller's actual cost of
producing, delivering and selling coal to be supplied under this Agreement, (3)
is written in a manner that it could impact other coal producers if they were
engaged in mining in the State of Maryland, and (4) is not reflected in or
accommodated by the indexes specified in Section 7.3 above, (such a change
meeting these requirements is hereinafter referred to as "Regulatory Change"),
the Price determined under Article 7 shall be adjusted as follows to include
such change in actual cost. Such adjustments to the Price shall not be subject
to quarterly adjustment as provided for in Sections 7.2, 7.3, and 7.4. For any
adjustment made under the provisions of this Section 7.5, the Price shall also
be adjusted to offset Seller's change in costs for royalty and severance tax,
if any, measured on a percentage of Price
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basis. Nothing in this Section 7.5 shall be deemed to include a pass through
of any income tax or other general business tax assessed or measured on the
profits of Seller.
(a) In the event a Regulatory Change(s) results in the addition or
removal of a charge on each ton of coal produced, delivered or sold by Seller
under this Agreement (or the addition or removal of a charge defined as a
percentage of selling Price), the Price per ton of coal shall be adjusted as
necessary to include or remove the charge. Any such adjustment shall not be
made until the beginning of the first Calendar Month following the date such
Regulatory Change(s) becomes effective and is published in an official
publication of the federal, state, county or city government. The entire
amount of the charge imposed or removed on each ton of coal supplied under this
Agreement shall be added to or subtracted from, as applicable, the Price
determined in accordance with Section 7.2.
(b) In the event a Regulatory Change(s) does not result in a charge
covered under Section (a) above, but cumulatively for one or more Regulatory
Changes results in an increase or decrease of 25 cents per ton or more in the
actual cost to Seller to produce, deliver or sell coal under this Agreement,
Seller shall notify Buyer of such Change(s) and request in writing a meeting
with Buyer to determine if a charge or credit should be imposed on each ton of
coal supplied under this Agreement; provided that (1) the Regulatory Change(s)
is published in an official publication of the federal, state , county or city
government and the Change(s) have accumulated to at least a 25 cents per ton
increase or decrease in the actual cost to Seller to produce, deliver or sell
coal under this Agreement, (2) Seller provides Buyer with documentation of the
resultant increase or decrease in production, delivery or selling costs that is
satisfactory to Buyer, and (3) Buyer or Buyer's auditor is given the
opportunity to examine Seller's records pertinent to such Change(s) in cost.
The parties shall have three months from Buyer's receipt of Seller's
notification of Change(s) to agree whether a charge or credit should be imposed
on each ton of delivered coal, and if so, the amount of the charge
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or credit. During this period of negotiation, the current Price provision as
well as all other provisions of this Agreement shall remain in effect. Upon
agreement by the parties that a charge or credit should be imposed on each ton
of coal and on the amount of the charge or credit, such charge or credit shall
be applied retroactively beginning with the first day of the Calendar Month
immediately following the date the Regulatory Change(s) becomes effective and
is published in an official publication of the federal, state, county or city
government. Any charge or credit agreed upon pursuant to this Section (b)
shall be applied to the Price determined in accordance with Section 7.2 on a
fixed basis, or an adjusted basis as determined by the quarterly Price changes,
as the parties may agree. If agreement on the amount of any charge or credit
cannot be reached within the three month period, then the matter will be
resolved by arbitration pursuant to Section 12.9.
(c) In the event Seller supplies Buyer with coal produced in
different states and one or more of said states effects a Regulatory Change(s)
that would result in the application of a charge or credit under Sections (a)
or (b) above, as appropriate, such charge or credit shall be applied to the
Price determined in accordance with Section 7.2 in the proportion that coal
supplied from that state(s) bears to the total amount of coal supplied
hereunder.
7.6 Affiliate Pricing Covenant
If any part of this Agreement, now or in the future, involves
cost-plus pricing, Seller warrants and agrees that: it has and will, during the
term of this Agreement, fully disclose to Buyer the names and addresses of all
of its affiliates from whom it has purchased services, materials or supplies in
connection with any cost-plus portion of this Agreement, or from whom it makes
any such purchases during the term of this Agreement; and will provide Buyer
with a schedule of such expected or planned purchasing transactions between
Seller and any of its affiliates relating to any cost-plus portion of this
Agreement. Seller further warrants that it shall pay for services, materials,
or supplies provided by its affiliates in connection with any cost-plus portion
of this Agreement at prices that are
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no higher than the market or general prices paid by the affiliate's direct
customers. As used in this Agreement, business concerns are "affiliates" when,
either directly or indirectly: one concern controls or has the power to control
the other; or, a third party controls or has the power to control both.
7.7 Price Reduction for the Calendar Years 2002 through 2006
From the Price calculated in accordance with Sections 7.2 and 7.5,
beginning with the first Price adjustment of year six (6) of this Agreement
(i.e., the first calender quarter of 2002) and adjusted thereafter for the
remaining term of this Agreement, there shall be a bottom-line price reduction
of $0.50/ton for 1.50 lbs. Sulfur/mmBtu coal and $0.43/ton for 1.90 lbs.
Sulfur/mmBtu coal. The Price so adjusted shall be the Price used for
determining quality adjustments and for all other purposes under this
Agreement. The Price reductions given in this Section 7.7 shall remain fixed
and shall not be subject to change for any reason.
ARTICLE 8 - RIGHT TO VISIT
Each party grants to the other (including its agents) the right to
visit its facilities at reasonable times, from time to time, upon reasonable
notice, and subject to the applicable rules and regulations of the facilities,
in order to witness and review operations related to this Agreement, including
the weighing, sampling and analysis of coal.
ARTICLE 9 - FORCE MAJEURE, SUSPENSION OF SHIPMENTS AND TERMINATION
9.1 Force Majeure
(a) Seller shall not be liable for any delay, reduction, or
suspension of shipments resulting from any event of force majeure, and Buyer
shall not be liable for failure, refusal, or inability to perform its
obligations under this Agreement resulting from any event of force majeure,
provided that Buyer or Seller, as the case may be, (1) promptly notifies the
other party of such event and its cause
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and confirms such in writing within 15 Calendar Days of its occurrence, (2)
promptly supplies such information about the event and its cause that may be
reasonably requested by the other party, and (3) exercises due diligence to
remove the cause of the event or to lessen its effect. Seller shall also
notify its truck transportation subcontractor(s), if any, of any event of force
majeure. Notwithstanding the foregoing, the settlement of labor disputes shall
be entirely at the discretion of the affected party.
(b) Events of force majeure shall be events beyond the control and
without the fault or negligence of the party claiming such event, including but
not limited to floods, fires, accidents, extreme geological conditions at the
Mine, strikes or other labor disputes, frozen coal, major restrictions on use
or breakdown of equipment (including equipment utilized for unloading coal
supplied pursuant to this Agreement at the Station), a reduction or
interruption of generation of electricity at the Station resulting from a total
or partial forced outage of a coal-fired unit at the Station, governmental
regulations or restrictions, unexpected loss of electric load, or any cause,
whether of the same or a different nature, existing or future, foreseen or
unforeseen.
(c) In no event shall this Section 9.1 be construed to relieve either
party of any obligations hereunder solely because of increased costs or other
adverse economic consequences that may be incurred through the performance of
such obligations of the parties.
(d) In the event that force majeure affects some but not all of the
production or the delivery of coal from Seller's Mine, Seller shall equitably
prorate deliveries of the available coal only among Buyer and any other of its
purchasers with contracts with Seller having terms greater than one year at the
time of force majeure. In the event that force majeure affects some but not
all of the use of coal at Buyer's Station, Buyer shall equitably prorate
shipments of coal only among Seller and Buyer's other suppliers with existing
contracts with Buyer having terms greater than one year at the time for force
majeure. In either case above, the percentage of prorated deliveries shall be
equal to the percentage of tons sold or purchased, as applicable, prior to the
force majeure event nonprorated
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deliveries (e.g., 80% of Seller's production goes to Buyer before and after
Seller's force majeure event). Buyer and Seller will pay for the operation and
maintenance of the Facility as stated in Section 3.5 during the force majeure
event. Seller will assist in scheduling and operation of the Facility during
the force majeure event.
(e) No event of force majeure shall invalidate this Agreement and, on
termination of the event of force majeure, shipments of coal shall resume
pursuant to the terms and conditions of this Agreement. Shipments not made or
not accepted due to an event of force majeure shall be made up in whole or in
part at the option of the party not declaring the event provided that notice of
such decision to make up force majeure tonnage is provided within 30 Calendar
Days from the date the event of force majeure was terminated. All such make up
tonnage will be rescheduled to be delivered on a mutually agreed upon schedule.
The Price to be paid for any such make up coal shall be the Price in effect for
the month for which the make up coal is delivered.
9.2 Termination for Continued Force Majeure
If either Buyer or Seller suffers an event of force majeure that
prevents its performance hereunder, in whole or in substantial part, and
continues uninterrupted for a period of 180 days or more, the other party shall
have the right to terminate this Agreement without further liability or
obligation to either party, except for those liabilities or obligations with
respect to performance required hereunder prior to the effective date of such
termination, those identified in Section 12.4 ("Survival of Obligations"), any
obligation to pay for coal already delivered hereunder and for payment of the
Facility, by providing written notice of termination to the nonterminating
party, such termination to be effective upon receipt of such notice.
9.3 Gross Inequity
Buyer and Seller recognize that the volume of coal to be supplied
under this Agreement represents a significant portion of the Station's fuel
requirements based on base load operation of the
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Station as well as a significant portion of Seller's Mine production. Further,
the parties recognize that the term, volume and pricing of this Agreement is
intended to support Buyer's ability to continue to economically base load the
Station which in turn will result in volume sales by Seller to support Seller's
profitable Mine operation.
If, during the last five years of this Agreement (January 1, 2002
through December 31, 2006), Buyer is prevented from economically dispatching
the Station and maintaining base load operations determined in accordance with
then existing generally accepted accounting principles for the utility industry
for any rolling six month period in either a regulated or competitive electric
utility industry due to either (a) the price of coal under this Agreement or
(b) statutory or regulatory changes made by governmental authority imposed on
Buyer after the effective date of this Agreement, the parties agree that
continued performance of this Agreement may cause a "gross inequity" for Buyer.
In addition, if during the last five years of this Agreement Seller's Mine
operation is unprofitable whereby due to non-temporary conditions Seller's
actual total cost per ton sold from the Mine operation, excluding profits but
including indirect and overhead costs, for its total Mine operation in any six
rolling month period is in excess of the Price of the coal sold under this
Agreement, determined pursuant to Seller's profit and loss statements in
accordance with then existing generally accepted accounting principles for the
mining industry, the parties agree that continued performance of this Agreement
may cause a "gross inequity" for Seller.
In either event, the affected party will notify the non-affected
party of such gross inequity in writing and request that the parties negotiate
an equitable solution. Upon delivery and receipt of such notice, Seller and
Buyer shall negotiate in good faith to eliminate the gross inequity. The
affected party has the responsibility to provide the non-affected party all
reasonable documentation and evidence to substantiate the claim of gross
inequity. Such negotiations may include but are not limited to changes in
pricing of coal to be delivered under this Agreement. Both parties shall
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continue to perform under the Agreement during the negotiations. If, after six
months following delivery and receipt of notice of gross inequity, the parties
are unable to agree in writing upon a mutually acceptable solution, the party
experiencing the gross inequity may, at its sole option, provide written notice
of termination of this Agreement. Such termination shall be effective three
(3) months after receipt of such notice of termination, without penalty and
without further obligation upon the terminating party except for those
liabilities or obligations with respect to performance required hereunder prior
to the effective date of such termination, those identified in Section 12.4
("Survival of Obligations"), any obligation to pay for coal already delivered
hereunder and for payment of the Facility, provided that termination shall be
effective only if the affected party shall have provided the other party
updated statements (profit and loss statements, income statements, etc.)
generated in accordance with then existing generally acceptable accounting
practices, consistent with the requirements herein, that substantiate the
condition of gross inequity continues to exist from the initial receipt of
notice of gross inequity up through the effective date of termination, and
provided further that the affected party can show proof that such condition of
gross inequity is expected to persistently continue. In no event shall either
party deviate from their currently used accounting methods with respect to then
existing generally accepted accounting principles which would have the effect
of overstating expenses and/or understating profits and thereby invoke the
provisions of this Section 9.3.
ARTICLE 10 - REMEDIES, LIMITATION OF LIABILITY AND WAIVER
10.1 Remedies
In the event either party fails to perform its obligations hereunder
in accordance with the terms and conditions of this Agreement, the other party
may exercise all remedies available to it at law or in equity, in addition to
any other remedies provided herein.
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10.2 Limitation of Liability
Neither party shall be liable to the other for indirect, special or
consequential damages. However, in no event shall the following costs, losses
or damages incurred by Buyer be considered indirect, special or consequential
damages: transportation costs of delivering or receiving coal, or incremental
or increased costs of receiving and handling coal (including increased costs of
labor and maintenance of necessary Station facilities). Nothing in this
Section 10.2 shall limit or negate any right or remedy (including but not
limited to indemnity) expressly provided elsewhere in this Agreement.
10.3 Waiver
Waiver by either party of any breach or failure to require strict
performance of the terms and conditions of this Agreement at any time shall in
no way affect, limit, or waive such party's right thereafter to enforce and
compel strict compliance with this Agreement and shall in no way be construed
as a consent to any continuing or subsequent breach or failure to perform in
strict compliance with this Agreement.
ARTICLE 11 - GOVERNMENTAL AUTHORITY
11.1 Compliance with Laws and Regulations
In the performance of this Agreement Buyer, Seller, and Seller's
subcontractor(s) shall comply with all applicable laws, rules, regulations, and
ordinances of any governmental body or authority having jurisdiction as they
are interpreted and enforced by an enforcement agency. Seller shall ensure
that its subcontractor(s) complies with this Article 11.
Buyer shall comply at all times with all federal, state, local and
municipal laws, rules, regulations, and ordinances as they are interpreted and
enforced by an enforcement agency, including but not limited to, Buyer's
requirement to obtain and comply with site construction permits, air
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quality permits, water discharge permits and/or any other requirements for
Buyer to receive coal at the Station by the truck/conveyor method of delivery
required specifically under this Agreement.
11.2 Equal Employment Opportunity
Seller agrees to comply with all applicable provisions and successor
provisions thereto, of Executive Order 11246, as amended; Section 503 of the
Rehabilitation Act of 1973, as amended; Section 402 of the Vietnam Era
Veterans Readjustment Assistance Act of 1974, as amended; and implementing
regulations set forth in 41 C.F.R. Sections 60-1, 60-250 and 60-741; and the
applicable provisions relating to the utilization of small and minority
business concerns as set forth in 15 U.S.C. Section 637, as amended. Seller
agrees that the equal opportunity clause set forth in 41 C.F.R. Section
60-1.4, the affirmative action clauses set forth in 41 C.F.R. Sections
60-250.4 and 60-741.4, and the clauses relating to the utilization of small and
minority business concerns set forth in 15 U.S.C. Section 637(d)(3) and 48
C.F.R. Section 52-219.9 are hereby incorporated by reference and made part of
this Agreement. If this Agreement has a value of more than $500,000, Seller
shall adopt and comply with a small business and Small Disadvantaged Business
Subcontracting Plan that shall conform to the requirements set forth in 15
U.S.C. Section 637(d)(6). The provisions of this Section 11.2 shall apply to
Seller only to the extent that (a) such provisions are required of Seller under
existing law, (b) Seller is not otherwise exempt from said provisions, and (c)
compliance with said provisions is consistent with and not violative of 42
U.S.C. Section 2000e, et seq., 42 U.S.C. Section 1981, et seq., or other acts
of Congress.
11.3 Permits and Licenses
Seller and Buyer each warrants to the other that it has or will
obtain any licenses and permits that, under the laws, rules, regulations, or
ordinances of any federal, state, or local government, it may be required to
hold in order to perform its obligations hereunder. Seller and Buyer shall
hold and maintain such licenses and permits for so long as this Agreement shall
remain in effect.
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11.4 Fines
Any fines or other penalties incurred by a party or its agents,
employees or subcontractor(s) for noncompliance with laws, rules, regulations
or ordinances with which compliance is required shall not be reimbursed by the
other party but shall be the sole responsibility of the noncomplying party.
If fines, penalties or legal costs are assessed against a party by
any government agency or court due to noncompliance by the other party with any
of the laws, rules, regulations or ordinances with which compliance is required
under this Agreement, or if performance of a party or any part thereof is
delayed or stopped by order of any government agency or court due to the other
party's noncompliance therewith, the noncomplying party shall indemnify and
hold harmless the other party against any and all losses, liabilities, damages,
claims and costs suffered or incurred because of the failure of the
noncomplying party to comply therewith. The noncomplying party shall reimburse
the other party for any and all legal or other expenses (including attorney's
fees) reasonably incurred by the other party in connection with such losses,
liabilities, damages or claims.
ARTICLE 12 - MISCELLANEOUS
12.1 Assignment
(a) Subject to the conditions hereinafter set forth in this Section
12.1, neither this Agreement nor any of the obligations created herein or by
law may be assigned by Buyer or Seller without the prior written consent of the
other party, which consent shall not be unreasonably withheld. In considering
approval of an assignment, the non-assigning party agrees that it will not
seek to alter the terms of this Agreement, except as to matter of form for
assignment, or require any changes which would diminish the value of this
Agreement.
(b) Notwithstanding the above, either Buyer or Seller shall have the
right, without obtaining the other party's prior consent, to assign this
Agreement to a parent, subsidiary, or affiliated company,
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provided that such assignment does not cause or result in the following: (1)
diminishing or in any way altering the ability of Buyer or Seller to perform
their respective obligations required herein, (2) assignment by Seller having
the effect of materially diminishing or lessening competition for the supply of
coal to the Station, or (3) an assignment by Buyer having the effect of
materially diminishing or lessening the available market demand for the sale of
coal from Seller's Mine. The assigning party shall provide notice to the
non-assigning party of an assignment, provided, that on request, the
non-assigning party shall hold the information provided in such notice in
strict confidentiality and shall not disseminate such information without prior
approval of the assigning party to any entities other than the non- assigning
party's employees who have a business need to know the information, or pursuant
to order of court, government agency or proper discovery request.
(c) Except as provided herein, any assignment made without the prior
written consent of the other party shall be null and void. Additionally, any
assignment that causes any of the results identified in subsection 12.1(b)
shall be null and void. Any assignment made as provided herein shall not
relieve either party of any responsibility for the due and faithful performance
hereof. The assigning party shall be liable for all acts and omissions of its
assignees.
12.2 Independent Contractor
Seller shall at all times act as and be deemed to be an independent
contractor for all purposes of this Agreement and shall not act as nor be
deemed to be an employee or agent of Buyer.
12.3 Succession
Except as provided in Section 12.1, this Agreement and the
obligations created herein shall inure to the benefit of and be binding in all
respects on the successors and assigns of each of the parties.
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12.4 Survival of Obligations
All remedial, indemnification, and confidentiality rights and
obligations provided in this Agreement shall survive the termination,
cancellation, or expiration of this Agreement.
12.5 Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with, and its validity determined under the laws of the Commonwealth
of Virginia, including the Uniform Commercial Code as adopted in Virginia. It
is agreed that this Agreement shall be deemed executed in the Commonwealth of
Virginia regardless of the actual place of signature or performance.
12.6 Severability
If any term or provision of this Agreement or the application thereof
to the Buyer, Seller, or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to the Buyer, Seller or circumstances other than as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
12.7 Confidentiality
Seller and Buyer agree to retain in confidence this Agreement and any
information obtained as a result of negotiation and performance of this
Agreement that either party identifies to the other as being proprietary in
nature. It is agreed, however, that such information may be disclosed when
requested by a court or government agency or proper discovery request, and that
certain cost and physical property information related to fuel purchases are
routinely reported to state regulatory agencies and the Federal Energy
Regulatory Commission. It is further agreed that Buyer's consultants can use
such information to make economic forecasts and that Buyer can disclose such
information when and to the extent Buyer determines it necessary (1) in support
of arbitration, (2) when related to negotiations, the failure of which may
result in arbitration, to which Buyer is or may be a party,
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or (3) for the purpose of supporting price adjustment provisions contained in
other agreement(s) for the supply of coal between Buyer and other coal
supplier(s) or broker(s). As a condition precedent to the disclosure of such
information for the purposes of (1), (2) or (3) above, the use by such other
party of any information so disclosed shall be limited to use in negotiations,
arbitration or price adjustment. Any such disclosure to such other party for
the purpose of (1), (2), or (3) above will be pursuant to a written
confidentiality agreement which will be subject to Seller's review and
reasonable comment.
12.8 Headings
Article and section headings set forth in this Agreement are inserted
for convenience only and shall have no effect whatsoever on the interpretation
or construction of this Agreement.
12.9 Arbitration
Any dispute arising under Section 7.5(b) of this Agreement shall be
resolved in accordance with the Commercial Arbitration Rules (the "Rules") of
the American Arbitration Association ("AAA") and under the auspices of the AAA.
The arbitration shall take place in Richmond, Virginia, unless otherwise
mutually agreed. The method of selecting arbitrators shall be as follows:
(a) The parties shall agree on a panel of three arbitrators
chosen pursuant to the Rules, or if the parties cannot agree
on such a panel;
(b) Each party shall designate one arbitrator and the
arbitrators shall jointly select a third arbitrator, or if
this arbitrator selection process fails;
(c) Either party may request the AAA to appoint the arbitrators.
The panel of three arbitrators shall decide the dispute by at least a
majority vote. The arbitrators shall endeavor to reach their decision within
60 days after selection of the third arbitrator. In making any award, the
arbitrators shall be bound by the applicable terms of this Agreement, applying
Virginia law as necessary. Neither party shall interrupt its performance under
this Agreement pending the outcome of the written award of the arbitrators.
The award of the arbitrators shall determine the amount of the charge or credit
to be applied to the Price and whether such charge
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or credit shall be applied to the Price on a fixed basis or on an adjusted
basis as determined by the quarterly Price adjustments. The amount of such
charge or credit awarded by the arbitrators shall not exceed the original
charge or credit proposed by Seller in writing to Buyer under Section 7.5(b).
The award of the arbitrators shall be final and binding. Judgment upon the
award rendered by the arbitrators may be entered in any court of law having
jurisdiction. This agreement to arbitrate is specifically enforceable.
Notwithstanding any award of the arbitrators, any joint expenses of the
arbitration hearing, including but not limited to arbitrator's expenses and
fees, shall be shared equally by the parties. Notwithstanding any award by the
arbitrators, each party shall bear its own cost and expense of arbitration,
including but not limited to its counsel fees.
12.10 Insurance
(a) Policies and Coverages
Prior to the arrival of Seller's personnel on the Station, Seller
shall obtain and maintain, and require its subcontractor(s) to obtain and
maintain, the following policies of insurance during the term of this
Agreement:
(1) Workers' compensation insurance for all employees in all
states where work is performed and any other states where
the employees performing the work or any portion thereof are
normally employed and applicable employers' liability
insurance.
(2) Commercial general liability insurance with bodily injury
and property damage combined single limits of at least
$1,000,000 per occurrence. Such insurance shall include,
but not be limited to, specific coverage for contractual
liability encompassing the indemnity provisions in Section
12.11 -Indemnity, personal injury liability,
products/completed operations liability, and, where
applicable, explosion, collapse, underground hazards
coverage and watercraft (protection and indemnity)
liability.
(3) Automobile liability insurance with bodily injury and
property damage combined single limits of at least
$1,000,000 per occurrence covering vehicles owned, hired or
non-owned.
(4) Umbrella or excess liability insurance with a single limit
of $1,000,000 per occurrence in excess of the employer's
liability, commercial general liability and automobile
liability policies.
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The amounts of insurance required above may be satisfied by Seller's
purchasing primary coverage in the amounts specified or by Seller's buying a
separate excess umbrella liability policy together with lower limit primary
underlying coverage. The structure of the coverage is at Seller's option, so
long as the total amount of insurance meets Buyer's requirements.
The coverages required in paragraphs 12.10.a.2, 12.10.a.3 and
12.10.a.4. above should be "occurrence" form policies. If said coverages are
written on a "claims-made" form instead of an occurrence form, Seller shall
arrange for adequate time for reporting losses. Failure to do so shall be at
Seller's sole risk.
The coverages required in paragraphs 12.10.a.2., 12.10.a.3. and
12.10.a.4. above shall provide for claims by one insured against another such
that, except for the limits of insurance, the insurance shall apply separately
to each insured against whom a claim is made or suit is brought.
(b) Endorsements
Seller and its authorized subcontractor(s) and assignees shall cause
their insurers to amend their commercial general liability and, if applicable,
umbrella or excess liability policies with the following endorsements 1, 2, and
3. Worker's compensation and automobile liability policies shall be amended
with endorsement 3:
(1) "Virginia Electric and Power Company, its directors,
officers and employees are additional insureds under this
policy", as related to paragraphs 12.10.a.1, 12.10.a.2.,
12.10.a.3. and 12.10.a.4; and
(2) "This insurance is primary with respect to the interest of
Virginia Electric and Power Company, its directors, officers
and employees, and any other insurance maintained by them is
excess and not contributory with this insurance"; and
(3) "Notwithstanding any provision of the policy to the
contrary, this policy may not be canceled, non- renewed or
materially changed by the insurer without giving thirty (30)
days prior written notice to Virginia Electric and Power
Company. All other terms and conditions of the policy
remain unchanged."
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(c) Insurance Certificates
Before starting work at the Station, Seller shall cause its insurers
or agents to complete, sign and forward to Buyer a certificate of insurance
evidencing the coverages and limits required by this Article. Failure of Buyer
to receive certificates of insurance does not, however, relieve Seller of the
requirements of this Article. Failure to obtain the insurance coverage
required by this Article shall in no way relieve or limit Seller's obligations
and liabilities under any other provisions of this Agreement.
12.11 Indemnity
Except as other indemnity standards are expressly provided herein,
Seller agrees to indemnify, save harmless and, at Buyer's sole option, defend
Buyer and Buyer's directors, officers and employees from and against all
claims, demands, damages, costs, losses, liabilities, expenses, attorneys' fees
including attorneys' fees and costs relating to appellate level, in any manner
arising out of, resulting from, caused by or in connection with any of Seller's
performance hereunder or the performance of Seller's subcontractor(s) and
supplier(s) of any tier, including but not limited to personal injury or death
to persons and damage to Buyer's or Seller's property or facilities, or the
property of any other person including Buyer's or Seller's employees, to the
extent such injuries, deaths or damages arise from the negligence or willful
misconduct of Seller, its subcontractor(s) and supplier(s).
Notwithstanding the foregoing, Seller shall indemnify, save harmless
and, at Buyer's sole option, defend Buyer and Buyer's directors, officers and
employees from and against all claims, demands, damages, costs, losses,
liabilities, expenses, attorneys' fees including attorneys' fees through the
appellate level, in any manner arising out of, resulting from, caused by or in
connection with (1) legal haul limit violations, and (2) any and all loss,
damage and liability from contaminants, pollutants, hazardous substances or
hazardous wastes which may result from Seller's operations
- 63 -
<PAGE> 65
hereunder. But nothing herein shall be construed as making Seller liable for
any injuries, deaths or damage caused by the sole negligence of Buyer.
Buyer agrees to indemnify, save harmless and, at Seller's sole
option, defend Seller and Seller's directors, officers and employees from and
against all claims, demands, damages, costs, losses, liabilities, expenses,
attorneys' fees including attorneys' fees through the appellate level, in any
manner arising out of, resulting from, caused by or in connection with any of
Buyer's performance hereunder or the performance of Buyer's subcontractor(s)
and supplier(s) of any tier, including, but not limited to personal injury or
death to persons and damage to Seller's or Buyer's property or facilities, or
the property of any other person including Seller's or Buyer's employees, to
the extent such injuries, death or damages arise from the negligence or willful
misconduct of Buyer, its subcontractor(s) and supplier(s). Notwithstanding the
foregoing, in no event shall Buyer be required to indemnify Seller for any
liabilities arising from legal haul limit violations or for losses, damages and
liabilities from contaminants, pollutants, hazardous substances or hazardous
wastes which may result from Seller's operations hereunder.
ARTICLE 13 - NOTICES
Any notice or communication required to be in writing hereunder shall
be given by registered, certified, or first class mail, telecopy (facsimile),
or telegram, addressed to the respective parties at the addresses listed below.
Except as expressly provided herein, any notice shall be deemed to have been
given when sent. Any notice given by first class mail shall be considered sent
at the time of posting. Communications by telecopy, or telegram shall be
confirmed by depositing a copy of the same in the post office for transmission
by registered, certified, or first class mail in an envelope properly addressed
as follows:
- 64 -
<PAGE> 66
In the case of Seller to:
MAPCO Coal Inc.
P. O. Box 21628
Tulsa, OK 74121-1628
Attention: Vice President Marketing
Telecopy No.: (918) 582-8421
[S]
In the case of Buyer to:
Virginia Electric & Power Company
Innsbrook Technical Center
5000 Dominion Boulevard
Glen Allen, Virginia 23060-6711
Attention: Supervisor - Contracts & Administration
F&H Fuel Procurement and Transportation
IN-3SE
Telecopy No.: (804) 273-4140
In addition, Seller shall send a duplicate copy of every such notice and
communication to Buyer's contract administrator as designated by Buyer from
time to time and Buyer shall send a duplicate copy of every such notice and
communication to Seller's General Manager of Operations at the Mine as
designated by Seller from time to time. Either party may, by written notice to
the other, change the representative for oral or written notices or the address
to which written notices and communications hereunder are to be sent.
ARTICLE 14 - NON-COLLUSION
Seller hereby affirms that neither it nor any person or entity acting
or purporting to act on its behalf has entered into any combination,
conspiracy, agreement, or other form of collusive arrangement with any person,
corporation, partnership, or other entity that directly or indirectly has to
any extent lessened competition between Seller and any other person or entity
for the supply of coal being made pursuant to this Agreement.
- 65 -
<PAGE> 67
ARTICLE 15 - AMENDMENTS
This Agreement may be modified or amended at any time by mutual
agreement of the parties, provided that such modification or amendment shall be
in writing and executed by the duly authorized representatives of the parties.
ARTICLE 16 - ORDER OF PRECEDENCE
In the event of a conflict between the terms and conditions of this
Agreement, the provisions of any Annex hereto and the Lease; the terms and
conditions of this Agreement shall have precedence over the conflicting
provisions of the Annex and the Lease; and, the terms and conditions of the
Annex of this Agreement shall have precedence over the conflicting provisions
of the Lease.
ARTICLE 17 - ENTIRE AGREEMENT
This Agreement, Annexes A through J, and Attachment 1 and 2 attached
hereto, that are hereby incorporated by reference, embody the entire agreement
and understanding between the parties with respect to the subject matter
contained herein, supersede any prior or contemporaneous agreements or
understandings between the parties, and may not be amended or changed except as
provided herein. IN WITNESS WHEREOF, the parties have caused their duly
authorized representatives to execute this Agreement.
Buyer: VIRGINIA ELECTRIC AND POWER COMPANY
By /s/William R. Cartwright (SEAL)
----------------------------------------
Title Senior Vice President - Fossil & Hydro
----------------------------------------
Date December 22, 1995
----------------------------------------
Seller: METTIKI COAL CORPORATION
By /s/Gary J. Rathburn (SEAL)
----------------------------------------
Title Vice President-Marketing
----------------------------------------
Date January 4, 1996
----------------------------------------
- 66 -
<PAGE> 68
ANNEX A
DESCRIPTION OF DEDICATED RESERVES
The reserves of the Mine are delineated on the attached map with the next ten
years of mining shown. The Mine's reserves lie in the Potomac Synclinal Basin
with the borders being the North Branch of the Potomac River to the Southeast
and the outcrop of the Upper Freeport to the Northwest. The Mine's reserves of
saleable coal are tabulated yearly based on historical seam and run of mine
recoveries and reported to the Securities and Exchange Commission (SEC) in the
form 10-K and are as follows for the period ending 1994:
METTIKI COAL - RESERVES OF SALEABLE COAL
TONS IN THOUSANDS
<TABLE>
<CAPTION>
Measured Indicated Inferred Total
-------- --------- -------- -----
<S> <C> <C> <C> <C>
Saleable coal -
U. Freeport 20,530 16,719 6,203 43,452
Bakerstown 8,435 2,418 11,565 22,418
</TABLE>
The above reserve total has not been updated to reflect the results of
Mettiki's ongoing drill exploration program for 1995. The 1995 form 10-K
report will reflect tonnage movement from the indicated and inferred categories
to the measured category based on seven drill holes completed in September. It
will also reflect increases due to additional leases added in 1995.
<PAGE> 69
ANNEX B
SAMPLE CALCULATIONS FOR BTU ADJUSTMENTS
Payments for coal shipped each Calendar Month in accordance with
Section 3.1 will be adjusted in accordance with Section 4.3, based on the
monthly weighted average heating value of the coal. For the purposes of this
example, assume that Seller's applicable Delivered Cost of coal, as defined in
Section 1.1.i and as qualified in Section 2.2.b.(1) and (2), effective on the
last day of the month is $27.00 per ton, the heating value specified in Section
4.1 is 12,000 Btu per pound. Also assume that no price adjustments for sulfur
or ash are to be made pursuant to Section 4.3. Payments for the month will be
adjusted based on the monthly weighted average Btu content per Section 4.3:
<TABLE>
<CAPTION>
Delivered Adjusted
Cost Delivered
per ton to Cost per ton
Avg.Btu/lb Derivation Seller To Seller(1)
- ---------- ---------- -------- ---------
<S> <C> <C> <C>
12,700 12,700 / 12,000 = 105.83% $27.00 $28.57
12,400 12,400 / 12,000 = 103.33% $27.00 $27.90
12,100 12,100 / 12,000 = 100.83% $27.00 $27.22
12,000 12,000 / 12,000 = 100.00% $27.00 $27.00
11,900 11,900 / 12,000 = 99.17% $27.00 $26.78
11,750 11,750 / 12,000 = 97.92% $27.00 $26.44
11,600 11,600 / 12,000 = 96.67% $27.00 $24.75
-5%(2)
</TABLE>
(1) Adjusted Delivered Cost for Btu is equal to the product of the
Derivation and the applicable Delivered Cost. For shipments by
Rail made in accordance with Section 2.2.b.(2) the Adjusted
Delivered Cost per ton to Seller shall be reduced by the per ton
rail rate payable by Buyer.
(2) The Price of coal with a heating value equal to or less than the
Btu values per pound given in paragraph 4.3.a.(2) will be further
reduced by five percent of Delivered Cost.
<PAGE> 70
ANNEX C
DETERMINATION OF QUARTERLY PRICE
RE: QUARTERLY PRICE PURSUANT TO AGREEMENT EFFECTIVE JANUARY 15, 1997.
Pursuant to Article 7 of this Agreement, Seller has determined and hereby
certifies the following Price for the period ___________________________ to
_______________________ inclusive.
<TABLE>
<S> <C> <C> <C> <C> <C>
(LR1)* (LR2)* (SR1)* (SR2)* (SR3)*
PRICE = BASE PRICE [. (LB2) + . (LB2) + . (SB1) + . (SB2) + . (SB3)
(SR4)* (SR5)* (CR)* Regulatory* Applicable Adjustment
+ . (SB4) + . (SB5) + . (CB) + . ] + Changes - pursuant to Section 7.7
</TABLE>
* As determined on attached Worksheet For Obtaining Quarterly Price
All computations of ratios made pursuant to this Annex C shall be
calculated to the fifth decimal place. The final price per ton (excluding any
Regulatory adjustments) shall be calculated to the nearest cent by applying the
rounding method on page C-2, Worksheet For Obtaining Quarterly Price. Any
Regulatory adjustments added to or subtracted from the Price shall be rounded
to the nearest cent, applying the same rounding method.
Seller
-----------------------------
Approved
---------------------------
Title
------------------------------
Date
-------------------------------
<PAGE> 71
WORKSHEET FOR OBTAINING QUARTERLY PRICE (Period: _______________ to
_______________, inclusive)
Decimal Places - All computations of the averages of the monthly index
figures that comprise a calendar quarter pursuant to this Annex C shall be
calculated to the second decimal place then rounded to the first decimal place.
The following rounding method shall be used: when the number in the second
decimal place is equal to or greater than five, the first number after the
decimal place shall be raised to the next higher number. Otherwise, the number
in the first decimal place shall not change.
A. BASE AND REFERENCE PRICE INDEXES
LABOR:
1) SIC Code 122 (Source: Average Hourly Earnings - Bituminous Coal and
Lignite Mining (1987 SIC Code 122) as first published in
Employment and Earnings by U.S. Department of Labor,
Bureau of Labor Statistics)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (LB1) AVG. (LR1)
=================== ===============
2) Benefits (Source: Employment Cost Index (Benefits Only) Private
Industry Workers by Occupation Blue Collar Occupations, as
first published, Table 10 B)
Year Quarter Base Index Year Quarter Reference Index
- ---- ------- ---------- ---- ------- ---------------
1996 Third (LB2) (LR2)
================= ---- ------- ===============
SUPPLIES:
(Source: Specific Producer Prices and Price Indexes for
Commodity Groupings and Individual Items, as set forth below,
not seasonally adjusted, as first published by U.S.
Department of Labor, Bureau of Labor Statistics)
1) NO. 2 DIESEL FUEL, DIRECT SALES TO END USERS (PPI 2911-4132)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (SB1) AVG. (SR1)
=================== ===============
- C2 -
<PAGE> 72
2) DRILLS AND OTHER MINING MACHINERY (PPI 1192-03)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (SB2) AVG. (SR2)
=================== ===============
3) MINING MACHINERY PARTS, EXCLUDING DRILLS (PPI 1192-5301)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (SB3) AVG. (SR3)
=================== ===============
4) INDUSTRIAL POWER, MIDDLE ATLANTIC (PPI 4981-132)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (SB4) AVG. (SR4)
=================== ===============
5) OTHER SUPPLIES (PPI - INDUSTRIAL COMMODITIES LESS FUELS AND RELATED
PRODUCTS AND POWER)
Year Month Base Index Year Month Reference Index
- ---- ----- ---------- ---- ----- ---------------
1996 July
------------------- ---- ------- ---------------
August
------------------- ------- ---------------
September
------------------- ------- ---------------
AVG. (SB5) AVG. (SR5)
=================== ===============
CAPITAL AND OTHER (Source: Implicit Price Deflator of the Gross Domestic
DIRECT COSTS: Product as first published in the Survey of Current
Business by U.S. Department of Commerce, Bureau of
Economic Analysis)
Year Quarter Base Index Year Quarter Reference Index
- ---- ------- ---------- ---- ------- ---------------
1996 Third (CB) (CR)
------------- ---- ------- ------------
- C3 -
<PAGE> 73
B. CALCULATION OF THE EFFECT OF REGULATORY CHANGES
<TABLE>
<CAPTION>
*Change #1 *Change #2 *Change #3
Amount of Amount of Amount of Total
Imposition Imposition Imposition Imposition
or or or or
(Reduction) (Reduction) (Reduction) (Reduction)
$/Ton $/Ton $/Ton $/Ton
<S> <C> <C> <C> <C>
Quarter
-------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
Quarter, 199
- --- -- ----------- ----------- ----------- ------
</TABLE>
* Explanation of Regulatory Change, date of enactment, and date and name of
publication
(1)
(2)
(3)
- C4 -
<PAGE> 74
ANNEX D
Sampling and Analysis Procedures and Requirements
Attachment A
SAMPLING
(a) Seller, at its own expense, shall provide a mechanical sampling system
at the truck dump receiving facility at the Station, which shall be used to
collect representative samples meeting requirements of the most current
published revisions of ASTM #D-2234 as they are issued. For purposes of
D-2234, Seller's coal shall be deemed to be "two different portions of one
seam".
Within 3 months of startup and acceptance of the Facility by the
Buyer, or on or before April 1, 1997, which ever is later, and no less than
once every three calendar years during the term of this Agreement, Seller, at
its cost, shall have a mutually agreed upon independent specialized third party
conduct a bias test of the mechanical sample system utilized for sampling the
coals delivered under this Agreement. Buyer, Seller and the agreed upon third
party shall mutually agree upon the method to perform the bias test employing
current industry standards. Seller shall further maintain said sampling device
within ASTM specified or industry acceptable (which ever is more stringent)
statistical parameters for acceptable sample bias during the term of this
Agreement and shall implement any recommended modifications or corrections as a
result of said bias test. To further assure a non-biased system, Seller, at
its own expense, shall cause periodic dynamic bias tests to be performed at
least once between each bias test of the mechanical sample system utilized for
sampling the coals delivered under this Agreement. For each bias test
conducted, Seller shall furnish Buyer a copy of the preliminary inspection
report and also the final bias test data and report within 15 business days of
its receipt by Seller.
<PAGE> 75
(b) Seller, at its own expense, shall retain a qualified, competent
organization to serve as the "Operator" of the sample system. The Operator
shall operate and be present during sampling to perform sample system
observations, attest to proper system performance, maintain sample system
settings, and to properly collect , seal and assist in seeing that system
samples are sent to Buyer's Laboratory and Seller's Laboratory for analysis.
If, at any time during the term of this Agreement, either Buyer or Seller
becomes dissatisfied with the then incumbent Operator for failure to perform
duties as defined in this Attachment, the dissatisfaction shall be brought to
the attention of the other party and Buyer, Seller and the Operator shall meet
to determine mutually agreeable remedies to the issues causing dissatisfaction
to Buyer and or Seller. If the Buyer, Seller and Operator fail to reach mutual
agreement or settlement of any pertinent issues, the Operator shall be
discharged and the parties shall, by mutual agreement, promptly select a
qualified successor Operator; provided however that the discharged Operator
shall continue to perform the functions of Operator under this Agreement until
the parties' selection of a qualified successor Operator is in place.
If the Operator (as a result of being discharged or otherwise) ceases
to perform the functions of the Operator before the parties have selected a
successor Operator, the parties shall mutually agree to substitute procedures
for the sampling of coal. If the parties are unable to agree to such
substitute procedures, Seller, at its own expense, shall immediately assume the
responsibilities for sampling each shipment of coal at its loadout facilities
at the Mine.
(c) The Operator shall monitor the performance of the mechanical sampling
system and attest to the validity of the sample taken. Based upon such
samples, the Operator shall, as soon as practicable after the taking of such
samples, provide the sample to both Buyer's and Seller's
- D2 -
<PAGE> 76
Laboratories. A sample lot shall not exceed 10,000 tons unless mutually agreed
upon by both Buyer and Seller prior to sampling. The Buyer, at its own
expense, may have size analysis, grindability, and/or other tests performed
that it deems necessary.
(d) The Operator shall be required to verify that only Buyers' coal is
present to be sampled through the sample system. Any contamination of coal
supplied to Buyer by third party suppliers will invalidate that sample portion.
(e) In the event that less than 85% of the coal delivered by the Seller
during the month is sampled, the monthly weighted average quality analysis of
the coal delivered for that month will be determined by calculating the
weighted average of (1) the weighted average quality analysis for the coal
sampled for the month and (2) the most recent three month historical weighted
average quality analysis of coal delivered under this Agreement for the coal
that is not sampled. If 85% or more of the coal is sampled in a given month,
the weighted average of the analysis for this sampled coal shall apply to all
tons delivered in that month.
In the event the mechanical sampling system should fail to operate
properly or be unavailable for proper sampling, the Operator shall notify
Seller and Buyer immediately upon discovery. Mutually agreed upon procedures
shall then be decided upon and instituted as soon as practicable for alternate
sampling methods if the sample system is projected to be inoperable or
inaccurate for a period of five (5) consecutive days or more.
(f) Except as otherwise provided herein, the certified reports of sampling
made by the
- D3 -
<PAGE> 77
"Operator" shall be binding on the parties for all purposes under this
Agreement and the performance of the parties under this Agreement shall be
based on such reports.
(g) Each representative shipment sample collected for analysis by the
Operator shall be divided into 4 (four) separate 8 mesh sample split portions
as per ASTM #D-2013 by the Operator. Two 8 mesh samples splits shall remain in
possession of the Operator of the sample system at the Station or other
mutually agreed upon location for referee purposes. Both the Buyer's
Laboratory and the Seller's Laboratory shall each receive one of the two
remaining 8 mesh sample splits for analysis as per Article 4.2.
(h) Buyer and Seller shall have the right to have a representative present
at any and all times to observe the sampling and analysis procedures. Buyer
and Seller and their representatives shall also have the right to inspect and
examine the performance of any equipment employed in the sampling or analysis
of coal pursuant to this Agreement.
(i) All sampling of shipments performed by the Operator shall be in strict
accordance with the most current published standards, methods, and procedures
approved by either ASTM or ISO or as otherwise mutually agreed upon in writing
by Buyer and Seller.
- D4 -
<PAGE> 78
ANNEX D
Sampling and Analysis Procedures and Requirements
Attachment B
LABORATORY MINIMUM QUALIFICATION PERFORMANCE STANDARDS:
1. Have in place a written Total Quality Management system describing
purpose, policies, procedures, instructions, and hierarchy of all elements of
the Quality System. System shall be designed to conform with ISO 9000
(ANSI/ASQC Q 90) series of Quality Management System Standards (or equivalent)
as they apply to the services and products provided by the laboratory. The TQM
system shall be the means by which TQM is integrated into laboratory services.
2. TQM system shall allow for positive proof to Buyer and Seller that the
system is documented (through procedures and work instructions), implemented
(through training records), and working effectively (through work records).
3. TQM system shall have a documented procedure for delineating
statistical nonconforming quality data and services and a system for
controlling - and an action plan to eliminate and to minimize recurrence -
specific cases of nonconformance.
4. TQM system shall document when to initiate preventive actions
commensurate with the
- D5 -
<PAGE> 79
magnitude of the problem and be supported with written action plans which
define responsibilities, activities, and time limits.
5. All laboratory data and services shall be controlled by various
verifications before, during, and after completion, to insure that the results
are accurate or within expected guidelines. Specific criteria shall be
dependent upon the service or analysis provided, but the following shall be
routinely used:
- ASTM requirements
- NIST traceable calibrations and verification materials
- Batch quality control samples
- Reserve split comparisons
- Secondary reference
- Duplicate analysis
- Inter-laboratory sample exchanges (round robins)
6. Process control shall include following routine maintenance and
calibration schedules for measuring, inspection, and testing equipment.
Appropriate verification of the inspection process, personnel, and equipment
shall be recorded and kept in the job files.
As relates individual analysis, the following shall be considered MINIMAL
ACCEPTABLE
COMPLIANCE CRITERIA:
SAMPLING
1. Strict ASTM D-2234 adherence. Random sampling inspections shall be
conducted once per week to gauge compliance of individuals.
- D6 -
<PAGE> 80
PREPARATION
1. Strict ASTM D-2013 adherence. Precision mechanical sampling system or
similar device -may be used to subdivide 8-mesh sample. Two samples selected
daily to prepare in duplicate to check system integrity. In one set, the total
8- mesh rejects shall be analyzed and compared to original split. Moisture,
Ash, Sulfur, and BTU are analyzed daily and bias trends are run monthly. Daily
repeatability maximums are as follows:
Total Moisture 0.30%
Ash 0.50%
Volatile 0.75%
Sulfur 0.06% + .05 x (avg.%)
BTU 100 BTUs'
8-mesh crusher product sizing checked daily so as not to exceed 5%.
60 mesh pulverizer feed is maintained at 1000 - 1300 grams and checked
continually.
60 mesh pulverizer screens checked daily and integrity checked every
50 samples by 60 mesh screen tests. If +60 mesh material is more than
1% of total product, screen is replaced.
One 60 mesh sample is analyzed daily in duplicate for Moisture, Ash,
Sulfur, and BTU to check pulverization quality.
Quarterly 8-mesh round robin sample is analyzed for Total Moisture,
Residual Moisture, Ash, Sulfur, Volatile Matter, and BTU content.
Quarterly, the Variance of Division and Analysis (ASTM D-2013, A2) is
conducted for five sets of four subsamples each. The ratio of the
largest to the smallest estimate of Sda2nd power is determined. This
ratio must not exceed 2.99 in order to be acceptable.
TOTAL MOISTURE
Balance checked daily against reference weights.
Oven temperature checked daily.
8-mesh duplicates checked daily, standard deviations checked monthly.
- D7 -
<PAGE> 81
ANALYTICAL TESTING ASTM D-4621, ASTM E 882 govern.
Three 60 mesh samples analyzed in duplicate daily for Moisture, Ash,
Sulfur, Volatile matter, and BTU. Repeatability limits shall be as
follows:
<TABLE>
<CAPTION>
DAILY WEEKLY
------ ------
<S> <C> <C>
Total Moisture 0.20% 0.25 %
Ash 0.50% 0.25 %
Volatile 0.50% 0.45 %
Sulfur 0.03% + 0.04 x (Avg. %) 0.12%
BTU 50 BTU's 60 BTU's
</TABLE>
NIST certified coal samples analyzed weekly for Moisture, Ash,
Sulfur, and BTU's.
THE RESULTS ARE COMPILED AND MAINTAINED ON RECORD.
Monthly 60 mesh round robin samples for the above parameters.
Quarterly, 8-mesh round robin samples analyzed for Moisture, Ash,
Volatile, Sulfur, and BTU's.
Bi-monthly 8-mesh round robin samples analyzed for Air dry loss,
Residual moisture, Ash, Volatile, Sulfur, and BTU.
Bi-Monthly 60 mesh round robin samples analyzed for Residual
moisture, Ash, Volatile matter, Sulfur, BTU, and 8 point fusion .
Trends for the above program compiled to alert to a bias development
within the testing regimes.
Mixing wheels used to thoroughly mix all 60 mesh samples prior to
analysis.
SULFUR
NIST calibrations standards used to establish internal daily
calibration standards. Calibration checks run every 12
determinations. If two sample checks are out of repeatability limits,
the channel is recalibrated and prior samples re-run.
Weekly statistical evaluations run on the daily 60 mesh duplicates to
check for bias development.
BTU
Parr 1730 controller used to control instruments. Benzoic checks
made with every oxygen bottle change, equipment repair, and at least
every 50 firings of each bomb used.
Energy equivalents checked once per month with NIST certified benzoic
acid.
- D8 -
<PAGE> 82
Bomb head thickness micrometered weekly to test integrity.
3(three) 60 mesh duplicates analyzed daily for repeatability and
compared weekly for Bias trends.
ASH
Temperatures and air flow checked daily.
3(three) 60 mesh duplicates analyzed daily for repeatability and
compared weekly for Bias trends.
FUSION
Nickel and Iron wire run with each determination.
- D9 -
<PAGE> 83
ANNEX D
Sampling and Analysis Procedures and Requirements
Attachment C
LABORATORY ASTM STANDARDS
The ASTM methods to be used by Buyer's Laboratory, Seller's Laboratory and any
Referee Laboratory performing analytical testing on behalf of Buyer or Seller
for determining the coal specification analysis, are as follows:
Moisture (total) D-2961
Moisture (analysis sample) D-3173 or D-5142* (See Note 1. Below)
Ash D-3174 or D-5142* (See Note 1. Below)
Sulfur D-4239
Btu D-1989
Volatile Matter D-3175 or D-5142* (See Note 1. Below)
*Note 1. - Results obtained through the use of the instrumental tests have been
shown to differ from those obtained with Test Methods D-3173, D-3174, and
D-3175 on some coals. Where a relative bias between the instrumental methods
and Test Methods D-3173, D-3174, and D-3175 for proximate analysis of coal are
shown to exist, the instrumental results shall be corrected or the instrument
calibrated using samples of known proximate analysis (NIST or equivalent).
- D10 -
<PAGE> 84
ANNEX E
MOUNT STORM RAILROAD PROVISIONS
I. ORDERING RAILROAD CARS
A. Seller shall ship coal ordered by Buyer pursuant to this Agreement
in minimum trainload lots of 6000 tons from one origin in a 24
hour period ("trainload shipment").
B. Seller shall coordinate placement of cars at the Shipping Point
with Carrier. Seller shall be responsible for making timely
requests for suitable and fit railcars in sufficient numbers to
accommodate trainload shipments pursuant to this Agreement. For
trainload shipments ordered by Buyer, cars shall be loaded with a
single switch (Carrier places cars once and picks up cars once)
and tendered to Carrier within 24 hours after Carrier has placed
cars for loading. Any detention charges assessed by Carrier at
Seller's mine or Shipping Point shall be paid by Seller directly
to Carrier in accordance with applicable tariffs.
C. Seller shall reimburse Buyer for any demurrage or related or
similar charges assessed against Buyer as a result of Seller's
failure to ship coal in accordance with the terms of this
Agreement.
II. LOADING CARS
A. Each car must be loaded to at least 93% of the stenciled net
weight of that car.
B. No car shall contain more than the stenciled net weight of the car
nor less than the minimum lading specified by Carrier unless
Carrier advised that lesser tonnage be loaded. Cars that contain
more than the stenciled net weight may interfere with
<PAGE> 85
unloading equipment at the destination designated by Buyer. Buyer
may reject any cars that are loaded in a manner that interferes
with unloading equipment.
C. Seller shall pay $100.00 per car for each car found to be loaded
in excess of Carrier's track limitation.
D. Seller shall be responsible for any additional charges assessed by
Carrier for cars loaded less than 93% of the stenciled net weight
in accordance with applicable tariffs.
III. BILL OF LADING NOTATIONS
Seller shall indicate the following on CSXT's Bill of Lading:
A. "PURCHASE NOTICE NO. ______ "
(enter P.N. number under which coal is being shipped)
B. SHIPPING DATE
C. "CARS HAVE BEEN LOADED TO AT LEAST 93% OF STENCILED NET WEIGHT"
(unless Carrier advises that lesser tonnage be loaded, in which
case this lesser tonnage should be stated)
D. "FREIGHT COLLECT" (unless otherwise specified by Buyer)
E. CAR INITIALS AND NUMBERS
F. TONS SHIPPED
G. CARRIER DESIGNATED SHIPPING POINT AND STATION NUMBER
H. NAME OF SELLER'S MINE AS SPECIFIED ON THE FACE OF THE PURCHASE
NOTICE
I. CONTRACT NO: _________________________
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<PAGE> 86
J. "DESTINATION WEIGHTS APPLY" (unless otherwise specified by Buyer)
K. FREEZE CONDITIONING
If the coal has been treated with a freeze conditioning agent
(FCA) as directed by Buyer, the Bill of Lading shall also include:
1. name and amount (pints/ton) of approved FCA applied;
2. notation designating which cars have been TREATED or NOT
TREATED.
IV. CARRIER EQUIPMENT SHORTAGE
A. If Seller is unable to load a trainload shipment due to Carrier
caused shortage of cars and Carrier determines to operate the
train, Seller shall indicate the following on the Bill of Lading:
"SHIPMENT IS TO BE BILLED ON ACTUAL TONNAGE AT THE TRAINLOAD
RATE." Such notice shall also describe the particular
circumstances causing the loading of less than the number of cars
specified herein as a trainload shipment.
B. Such notice and copies shall be mailed within 24 hours after
release of the shipment to:
1. Director-Contract Administration
CSXT Transportation (J-860)
500 Water Street
Jacksonville, FL 32202
2. Local Agent of Carrier
3. via FACSIMILE (804) 273-4138 to:
Fuel Transportation Specialist
Ben Baughan
Virginia Power
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<PAGE> 87
V. BILL OF LADING
Seller shall provide written confirmation of shipment, at the time of
shipment, by delivering a copy of the Bill of Lading to Buyer as
specified below:
via FACSIMILE (804) 273-4140 to:
Ms. Sallie B. Wilkerson
Virginia Power
Seller shall, at the time of shipment, electronically transmit a copy of
the Bill of Lading to CSX Transportation, in addition to tendering the
Bill of Lading to the Carrier with the shipment.
VI. GOVERNING TARIFFS - Except as set forth above and in this Agreement,
shipments of coal pursuant to this Agreement shall be in accordance with
published tariff(s) applicable to movements by Carrier with Seller as
Consignor. In the event of a conflict between published tariff(s) and
the applicable provisions specified herein and in this Agreement, the
provisions specified herein and in this Agreement shall control.
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<PAGE> 88
ANNEX F
TRUCK DUMP FACILITY DEPRECIATION/BUY OUT SCHEDULE
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
$1,938,000 $1,810,000 $1,680,000 $1,551,000 $1,422,000 $1,293,000
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008
$1,163,000 $1,034,000 $905,000 $776,000 $646,000 $517,000
- --------------------------------------------------------------------------------------
--------------------------------------------------------
2009 2010 2011 2012
$388,000 $259,000 $129,000 $0
--------------------------------------------------------
</TABLE>
The buy out purchase prices shown for each individual Calendar Year are based
upon a January 1 buy out. If a buy out occurs after January 1 of any Calendar
Year, the buy out amount shall be pro rata adjusted based upon the number of
months remaining between the date of the buy out and the month of December
2011, compared to the number of months between the month of January of the
scheduled year of the buy out through the month of December 2011. The
following example is for a buy out on July 1, 2006:
66 months
$776,000 x ----------- = $711,333
72 months
Notes
66 months is from July 1, 2006 through December 31, 2011.
72 months is from January 1, 2006 through December 31, 2011.
<PAGE> 89
ANNEX G
SYNOPSIS OF BUYER'S SAMPLING AND ANALYSIS PROCEDURES
Buyer uses procedures found in Buyer's most current Fossil Fuel Sampling and
Analysis Manual utilizing the most current ASTM Book of Standards Section 5 as
a guideline. Laboratory Standard Operating Procedures are maintained at the
station laboratory. The following is a synopsis of the current procedures used
to sample, to prepare the sample, and to analytically evaluate all coal
received at the Station.
COLLECTION OF A GROSS SAMPLE
Buyer uses ASTM Standard D2234 as a guideline to collect a sample from coal
received. Buyer uses Type I, Condition B, Spacing 1 (I-B-1) sampling
requirements. This I-B-1 sampling condition is accomplished by using
mechanical samplers which are capable of sampling, under ideal conditions, 100%
of all coal received at the Station. Sampling personnel are assigned to
operate and help maintain the sampling system at the Station. A minimum of
five rail cars or twenty trucks and a maximum of 10,000 tons can constitute a
composite sample.
PREPARATION OF GROSS SAMPLES
Buyer uses ASTM Standard D2013 as a guideline to prepare the gross sample for
analysis. The final 8 mesh sample collected by the mechanical sampler is
riffled to a 1000 gram sample of which 500 grams are used for the proximate
analysis and between 300 and 500 grams are used for the total moisture
determination. After the 500 gram sample is air-dried, it is pulverized to 60
mesh sample
<PAGE> 90
for analysis by the laboratory.
TOTAL (AS-RECEIVED) MOISTURE
Buyer deviates slightly from ASTM Standard D2961 in determining the total
moisture of the coal when it is received. Approximately 300 grams of the 8 mesh
sample is placed in a drying oven for four hours at 107 + or - 3 degree C to
determine weight loss which is converted into the percentage of total moisture
in the coal. This moisture percentage is used to determine the as-received
constituents of the coal, i.e. ash, BTU, volatile matter, and sulfur.
PROXIMATE ANALYZER
A proximate analyzer (Leco TGA) is used at the Station to determine analysis
moisture, ash, and volatile matter on a dry basis. ASTM Standard D5142 is used
as a guideline utilizing the formulas to determine repeatability and
reproducibility results as written in the Standard. Leco proximate standards
are run with each analyzer run. Data is validated by a quarterly round-robin
quality control check using DOE or in-house prepared coal samples.
TOTAL SULFUR IN COAL
Buyer uses ASTM Standard D4239 as a guideline to determine the total sulfur
content in the analysis sample. Buyer uses a high temperature combustion
furnace with infrared absorption detection capability to burn an approximately
one gram sample of coal which gives the total sulfur content of the coal. The
Station laboratory uses a Leco analyzer. With each batch analyzed, the
analyzer is calibrated with a NIST traceable standard and checked for linearity
over the range.
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<PAGE> 91
GROSS CALORIFIC VALUE OF COAL
Buyer uses ASTM Standard D1989 as a guideline to determine the gross calorific
(BTU) value of the analysis sample. Buyer burns a one gram sample in an
isoperibal bomb calorimeter that is equipped with a microprocessor that
controls the ignition and the water and the water temperatures and calculates
the BTU value of the coal sample. It also provides a printout of the BTU
content for future reference. The calorimeter is standardized with a benzoic
acid standard from or traceable to the National Institute of Standards and
Technology (NIST) to determine the water equivalent to be used in calculation
of the calorific value. The calibration is checked on a periodic basis and
also any time the equipment is repaired or moved from its normal location or if
necessary as a result of quarterly round-robin quality control checks.
HARDGROVE GRINDABILITY INDEX OF COAL
Buyer uses ASTM Standard D409 as a guideline to determine the Hardgrove
Grindability Index (HGI) of the coal sample. Buyer starts with the 8 mesh
product collected by the mechanical sampler to produce the 16 X 30 mesh
analysis sample used to determine the HGI of the coal. Each grindability
machine is calibrated by using four grindability standards to develop a
grindability index curve. Calibration is checked semiannually by using an
in-house round-robin standard (may include a known DOE standard).
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<PAGE> 92
FUSIBILITY OF COAL ASH
Buyer uses ASTM Standard D1857 as a guideline to determine the fusion-fluid
temperature of the coal-ash sample. The Station uses an electric furnace to
determine the fusion-fluid temperature. Buyer reports the hemispherical
temperature (HT) as the fusion temperature and the fluid temperature (FT) as
determined. The HT is the temperature at which the ash cone has fused to a
hemispherical lump in which the height is one-half of the base. The FT is the
temperature at which the fused mass has spread out in a nearly flat layer with
a maximum height of 1/16 inch.
QUALITY CONTROL
A DOE or in-house prepared coal sample is distributed quarterly to the Station
and to select independent laboratories for the determination of ash, volatile
matter, sulfur, and BTU value. These results are reviewed by the System
Chemist to evaluate the validity of the analyses. If any discrepancies exist,
recommendations are made for the needed corrective action.
Buyer's lab uses ASTM Guide D4621 as a reference for quality control in the
laboratory. Additionally the laboratory analytical balances are checked for
accuracy and level daily. Twice annually, the balances are checked and
calibrated, if required, by an authorized factory representative.
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<PAGE> 93
ANNEX H
WEST VIRGINIA COAL CERTIFICATION
The records of Virginia Electric and Power Company (Buyer) indicate
that we purchased a total of * tons of coal from your * Mine at our Mt. Storm
Power Station during the Calendar Year *.
** (Seller) certifies that ** tons of coal were produced from
eligible mines as defined in Subsection 11-13H-2 of the West Virginia Tax Code,
Article 13H - Business and Occupation Tax Credit, for the Calendar Year *.
Seller agrees to indemnify and hold harmless Buyer and Buyer's employees,
agents, officers, and directors against any and all losses (including reasonable
attorneys fees and tax losses) arising from or connected with, or liability
caused by or resulting from Seller's and/or Producer's failure to provide or
obtain approval of the required certification (including penalties imposed by
the State of West Virginia).
Seller:
By:
--------------------------------
Title:
--------------------------------
Date:
--------------------------------
Return to: Virginia Electric and Power Company
Innsbrook Technical Center
5000 Dominion Boulevard
Glen Allen, Virginia 23060-6711
Attention: Supervisor - Contracts & Administration
F&H Fuel Procurement and Transportation
IN-3SE
__________________________________
* To be completed by Buyer.
** To be completed by Seller and/or Producer.
<PAGE> 94
ANNEX I
REFEREE LABORATORIES
After execution of the Agreement but prior to delivery of coal under
the Agreement, Buyer and Seller shall meet to discuss and mutually agree to the
Laboratory(s) that shall be used under the Agreement as Referee Laboratory(s),
which shall meet the minimum laboratory specifications outlined in Annex D,
Attachment B.
Both the Buyer and Seller shall, from time to time during the term of this
Agreement, (1) by mutual agreement, (2) in the event of noncompliance of
approved Referee Laboratory(s) with the minimum laboratory specifications
outlined in Annex D, Attachment B, mutually agree to the Laboratory(s) that
shall be used under the Agreement as Referee Laboratory(s).
<PAGE> 95
ANNEX J
PERFORMANCE CRITERIA FOR THE MOUNT STORM TRUCK DUMP FACILITY
This Annex J describes Facility performance criteria and Buyer's and
Seller's responsibility for the Facility referred to in Article 2 of the
Agreement.
1.0 LOCATION
Mount Storm Power Station
The Facility is to be constructed, operated and maintained at the
Station located on Route 93, two miles west of Bismarck, West
Virginia.
2.0 DESCRIPTION OF THE WORK
2.1 General
Seller shall design and construct the Facility on Station
property ("Premises") described in the Lease. The performance
criteria for the Facility design shall be as defined as
provided in Section 2.1 of the Agreement. Seller's
performance criteria and Buyer's responsibilities for
construction of the Facility are defined in this Annex J.
Other than as required by law or regulatory requirements, for
all work completed by Seller and/or Seller's subcontractor(s)
Buyer shall make no requirement on wage scale.
2.2 Design Performance Criteria
The Facility shall be designed and constructed in accordance
with the list of standards in Section 7 of this Annex J. The
applicable provisions of those standards shall be the latest
edition, revision and/or supplement in effect as of the date
of construction.
The Facility shall be designed, constructed, tested and
started up in accordance with the performance schedule
("Performance Schedule") in Section 8.0 of this Annex J.
2.3 Equipment Mark Numbers
Seller shall identify equipment to current standards employed
by the Station on all drawings and label all equipment in the
field using Buyer's equipment identification and marking
system. Buyer shall assist Seller in determining the specific
mark number for each piece of equipment.
2.4 Design Review
Both parties acknowledge that equipment and facilities being
provided for the Facility are to be integrated into the
existing coal handling facilities at the Station. To
facilitate the integration of Seller's Facility design to the
existing coal yard, Buyer's internal general, civil,
mechanical and electrical design standards are available for
Seller's review at the Station. Buyer also reserves the right
to establish the following design review hold points for
review and comment.
2.4.1 Hold Points
Conceptual Design - General arrangement has been
established and physical
layout is complete. Site
impacts can be studied. The
general arrangement drawings,
given in
<PAGE> 96
Attachment 1 and incorporated
into the Agreement by reference,
will give the physical location of
the Facility and Premises at
the Station.
30% Design - Equipment placement has been
identified. Mechanical and
electrical systems routings
are shown. Operation and
maintenance practices can be
identified.
95% Design - Physical design complete.
Electrical and mechanical
details near complete. Final
minor modifications only can
be considered.
2.4.2 Equipment Review
Seller shall furnish Buyer a list of all major
components being supplied. The list shall state
vendor name and model and shall be included with the
95% Design package.
2.4.3 Review Cycle
Buyer shall review design and equipment and meet with
Seller to provide comments in writing within fourteen
(14) Calendar Days after receipt from Seller, such
approval shall not be unreasonably withheld.
2.5 Construction
All work shall be completed per the approved drawings from
Section 2.4.1 above, and in accordance with the design
standards in Section 7.
2.5.1 Acceptance of the Work
Buyer reserves the right to visit the Facility work
site and monitor the work in progress. Seller will
advise Buyer of any tests Seller will conduct in
construction of the Facility so that Buyer may also
witness those tests. Buyer will advise Seller of any
deficiencies in either the work in progress or from
the resulting tests. Seller shall, at Seller's
expense promptly take down, remove, replace, or
repair as reasonably determined by Buyer all portions
of the work that fail to conform to the approved
drawings from Section 2.4.1 and/or the design
criteria of Section 7. The above acceptance shall
apply to all repair or replacement work performed by
Seller. The expense of all work incidental to such
repair and/or replacement shall be to the Seller's
account.
2.5.2 Test and Startup
Buyer reserves the right to witness Seller's test and
startup activities. Seller shall furnish Buyer with
a schedule of test and startup activities. Notice
shall be given to Buyer twenty- four (24) hours in
advance of when each activity is to begin. Testing
methods shall be as per the applicable codes,
standards and/or vendor recommendations.
2.5.3 Lead Paint
Seller shall assume all existing structural steel in
the coal yard is coated with lead base paint. Seller
shall perform all work required by OSHA to properly
remove such products before welding to steel. All
waste from lead paint removal shall be placed in
hazardous waste drums supplied by Buyer. Buyer
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<PAGE> 97
shall dispose of said drums.
3.0 RESPONSIBILITIES OF SELLER
3.1 Materials
Seller shall furnish all permanent, temporary and consumable
materials required to construct the Facility. All materials
furnished by Seller shall be new and as specified in the
approved drawings given from Section 2.4.1 and/or the design
criteria of Section 7. All lumber, including plywood, used
inside structures at the Station shall be fire retardant
treated to the standards in Section 7.
3.2 Equipment and Tools
Seller shall furnish and maintain all necessary equipment and
tools required to construct the Facility. Seller shall
provide fuel, oil, and repair services for all of its
equipment. Equipment shall be maintained in safe operating
order, and all cranes will bear current inspection
certifications. Any equipment failing to meet required safety
standards will not be used and shall be removed from the
Station if requested by Buyer. Seller shall provide Buyer's
site representative ("Site Representative") a copy of the
current inspection certification for each crane brought on the
site.
Seller shall also provide all necessary state-of-the-art test
equipment, instruments, and devices as required to construct
the Facility as shown on drawings, specifications,
manufacturer's instructions and/or as described in this Annex
J. Cameras of any type will not be allowed on Station
property unless approved by the Station Manager.
3.3 Support Facilities
3.3.1 General
Seller shall provide and maintain all necessary
facilities including, but not limited to, offices
(including necessary furniture, supplies and
equipment), change trailers, tool rooms and shops
necessary to accommodate its personnel and equipment.
Seller shall supply telephone and sanitary systems
for these structures as required. Such facilities
shall meet all federal, state and local requirements.
Seller shall obtain any necessary permits for these
facilities. Buyer shall have right of access to
these facilities. The size, quantity, appearance and
location of support facilities shall be approved by
Buyer before such facilities may be brought on site
or erected, such approval shall not be unreasonably
withheld. Upon completion of the Facility
construction, Seller shall promptly remove all
Seller's support facilities from Station property and
the Premises.
3.3.2 Temporary Power
Seller shall be responsible for distribution and
maintenance of all temporary power required for the
construction, testing and startup of the Facility.
There is no Buyer supplied construction power source
to the work area. Required maintenance of the
electrical system shall be performed by qualified
electricians furnished by Seller.
3.4 Other Seller Responsibilities
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<PAGE> 98
Seller shall furnish qualified supervision and labor,
administrative and technical support necessary to construct,
test and startup the Facility. Based upon reasonable cause,
Buyer reserves the right to request removal of any employee
for safety and/or drug/alcohol violations, whose presence is
deemed detrimental to Buyer, or to the construction, testing
and startup of the Facility.
3.4.1 Supervision
Seller shall furnish qualified supervision, labor,
administrative and technical support, as necessary to
construct, test and startup the Facility as required
in the Performance Schedule and in a high quality
manner.
Seller shall have at the project site, at all times
work is being performed under the Agreement, an
approved, competent, full time person ("Project
Manager") and any necessary assistants. The Project
Manager shall represent Seller. All identification
of deficiencies shall by given to the Project Manager
by Buyer.
Fourteen (14) days prior to beginning construction of
the Facility, Seller shall submit to Buyer the name,
job history and qualifications (i.e., a resume) of
the proposed Project Manager. Seller shall also
submit the names of its key employees who will be
directly connected with the project and outline the
duties and authority of each.
If the Project Manager ceases to be in Seller's
employ, Seller shall immediately replace that
position.
Seller shall at all times enforce strict discipline
and good order among its employees, its contractors
and subcontractors and shall not employ: any unfit
person; anyone not skilled in the work assigned to
him; and, anyone who is not satisfactory to Buyer as
given in this Section 3.4.
3.4.2 Quality Control Coordinator
Seller shall ensure the quality of the Facility as
required in this Agreement. To assist in this
effort, Seller shall designate a competent individual
(also defined as the Project Manager, above) who
shall be adequately versed in the acceptance criteria
of the applicable construction codes and standards
associated with this Agreement. The Project Manager
shall work closely with the Site Representative to
verify that the specified quality is maintained, and
shall, as a minimum, be responsible for: ensuring
that all inspections and tests required by the
specifications, codes and standards are performed in
accordance with such requirements; and, are performed
by qualified personnel. The Project Manager shall
also maintain such records of all inspections and
tests, individual qualification records (e.g. welder
qualification, NDE personnel qualification, etc.) and
written procedures as are required by the
specifications.
3.4.3 Permits
Except for Seller's responsibilities as required
under Section 3.3.1 and Section 20 of the Lease, no
permits are furnished by Seller.
3.4.4 Project Record Documents
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<PAGE> 99
Seller shall maintain at the Facility job site copies
of all drawings, specifications, addenda, shop
drawings, change orders, amendments, contract
releases, changes, and other documents completed in
compliance with this Agreement.
Seller shall clearly mark each of the project record
documents "Project Record Copy" and maintain them
throughout performance of this Agreement. Seller
shall markup these documents to record all changes
during the construction process and any details if
not shown on the original drawings ("Project Record
Documents"). Seller shall keep these Project Record
Documents current and shall make them available for
inspection by Buyer during normal working hours. No
work shall be permanently concealed until the
required information has been recorded. Where work
is to be concealed, it shall be referenced on the
Project Record Documents to visible and accessible
identifying features of the building on site.
At the completion of testing and startup of the
Facility, Seller shall furnish Buyer three (3)
complete sets of final drawings revised to reflect
the "as-built" conditions of the Facility.
Additionally, as Seller updates or modifies the
Facility, Seller will transmit to Buyer three (3)
copies of the updated or modified "as-built"
conditions of the Facility.
3.4.5. Surveying
Seller shall provide all survey and layout work
required to design and construct the Facility.
3.4.6. Severe Weather
During periods of anticipated severe weather such as
hurricanes, high winds, or frigid temperatures,
Seller shall exercise all reasonable precautions to
protect its work, the work of others (i.e.,
non-Seller work), existing site facilities and
personnel from the potential damaging effect of such
weather.
3.4.7 Clean-Up
Seller shall provide and maintain dumpsters for
general construction debris and trash barrels for
paper. Seller shall keep its work areas, both inside
and outside the Premises, in a neat and orderly
fashion. Seller shall, on a daily basis provide, for
all clean up of its work areas outside the Premises
and dispose of all trash and debris. Under no
circumstances shall Seller use Buyer's trash
containers.
Seller shall provide whatever manpower and equipment
necessary to clean adequately and remove from the
above work areas all trash, dirt and debris that
results from the operations of Seller, its
contractors and subsuppliers.
Seller shall maintain its material and equipment
laydown areas outside the Premises in a neat and
orderly fashion. All laydown areas shall be
specifically designated by the Site Representative
and as close to the construction site as practical.
3.4.8 Clean-Up Backcharge
Seller's clean-up effort shall be monitored by Buyer
on a daily basis. Clean-
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<PAGE> 100
up deficiencies shall be noted by Buyer and the Site
Representative shall notify the Project Manager of
the deficiencies. Seller shall remedy the
deficiencies no later than 5:00 p.m. of the following
Business Day. Should Seller fail to remedy the
deficiencies to Buyer's satisfaction within this time
frame, Buyer shall perform the required clean-up.
Clean-up costs incurred by Buyer as a result of
Seller's non-performance shall be charged to Seller.
3.4.9 Assurance of Equipment/Facilities Condition
Buyer may, but is not required to, make certain
pieces of construction equipment and/or facilities
available for Seller's use in constructing the
Facility. In using Buyer's equipment and facilities,
Seller shall assure itself before any use of Buyer's
equipment and facilities that they are safe and
Seller shall assume all risk and responsibility in
their use. Notwithstanding any other provision in
the Agreement, Seller shall indemnify and hold Buyer
harmless against any damages and/or claims that may
arise from such use. It is the responsibility of
Seller to document in writing, before returning
equipment to Buyer, that no part of the equipment
loaned to Seller has been over-stressed or damaged in
any way as the result of its use. Seller will be
required to sign a waiver to this effect to use any
of Buyer's equipment.
3.4.10 Welding Procedures
All welding shall be in accordance with the codes
and standards in Section 7 of this Annex J.
3.4.11 Reference Standards
In all instances, the reference standard shall mean
the latest edition, including amendment or revision,
as of the date of construction unless specifically
stated otherwise.
If referenced specifications or standards contain
requirements at variance with each other or the
individual sections of this Annex J, the more
stringent provision shall govern unless otherwise
approved in writing by Buyer.
Seller shall, upon written request by Buyer, or as
required by the Agreement, deliver to Buyer evidence
that the materials and/or workmanship meet or exceed
the requirements of the specifically named code or
standard, such request shall not be unreasonably
made.
3.4.12 Project Meetings
As soon as possible after execution of the Agreement
and as mutually scheduled thereafter, Seller shall
arrange and attend meetings to discuss the Facility
construction project in-depth. The first meeting
shall be an overall project review meeting. Each
meeting thereafter Buyer shall review the progress of
the work relative to the Performance Schedule. The
meetings shall occur no less than monthly. If Seller
fails either to attend these meetings or does not
respond promptly to recover the Performance Schedule,
Buyer may institute those remedies given in the
Agreement, in law or in equity.
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<PAGE> 101
4.0 RESPONSIBILITIES OF BUYER
4.1 Materials
None furnished.
4.2 Other Buyer Responsibilities
Buyer shall furnish the following (if required to construct,
test, startup and/or operate the Facility):
A) Detailed investigation of site drainage.
B) Power line relocation (excluding 500KV lines).
C) Required relocation of underground equipment or
installations.
D) Required roadway relocation.
E) Required roadway paving.
F) Limited (20 gallons/minute) construction/non-potable
water, or other amounts of water as required for
future operation of the Facility as mutually agreed
to by the parties.
G) Reliable permanent power sufficient to operate the
Facility (minimum 1,000 kva- 480vac 3 phase)
H) Removal and disposal of any asbestos siding.
4.2.1 Coordination
Seller shall work with Buyer to coordinate the
construction, testing and startup of the Facility to
minimize the impact on other projects at the Station.
Seller shall immediately notify Buyer of any
conflicts or ambiguities with the construction,
testing and startup of the Facility, or as the
construction, testing and startup of the Facility
interrelates with the work of others. Such immediate
notice shall be followed within two (2) Business Days
by written notice. Failure of Seller to comply
strictly with these notice provisions shall result in
the Seller's forfeiture of any claims for delay
caused by Buyer as given in Section 2.2 of the
Agreement.
4.2.2 Inspection and Testing
Buyer reserves the right to observe any surveillance,
inspection and test necessary to verify the quality
of the Facility. Seller will promptly notify Buyer
of any such surveillance, inspection and/or test.
Seller shall provide safe and proper facilities at
all times for the observation of any surveillance,
inspection and/or test of the Facility.
4.2.3 Facilities
Buyer will provide areas for material storage and
fabrication. Security enclosures and utilities for
said areas shall be provided and maintained by
Seller.
4.2.4 Permits
All permits including, but not limited to:
Construction, Air, Storm water runoff, Site drainage
permits required for construction and operation of
the Facility; and, Sanitary facilities permits
required for operation of the Facility.
5.0 SAFETY
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<PAGE> 102
5.1 Safety Requirements
Seller shall perform all work under this Agreement in a safe
manner consistent with regulatory requirements and industry
practices. For Seller's information, Buyer has attached
Buyer's latest edition of Buyer's safety procedure labeled
"Safety"(Attachment 2).
6.0 REPORTS AND SUBMITTALS
6.1 Schedule
Seller shall perform and complete the construction, testing
and startup of the Facility in accordance with the Performance
Schedule. Seller shall, within fourteen (14) Calendar Days
after written notification from Buyer of Buyer's receipt of
the construction permit(s), furnish a construction schedule,
in the format of a time phased bar chart, to Buyer. Buyer
shall review and comment on Seller's construction schedule
within fourteen (14) days of receipt from Seller. Seller
shall incorporate Buyer's comments in the construction
schedule.
Unless specified otherwise by the Site Representative, the
following holidays are observed by Buyer: New Year's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Veterans Day,
Thanksgiving Day, Day after Thanksgiving, Christmas Eve, and
Christmas Day.
As a matter of policy, representatives of the Station must be
on site while Seller is performing work at the Station and
Seller shall schedule its work accordingly. Any work to be
performed out-of-shift, on holidays, Saturday or Sunday must
be scheduled in advance.
Seller shall not allow reasonably foreseeable weather
conditions to impede progress of the work and shall provide
and maintain all services necessary to maintain progress of
the work including the following: temporary weather
protection; dewatering facilities; and snow, ice, mud or water
removal.
The Performance Schedule shall be based upon seasonal weather
conditions. Buyer shall reasonably consider and incorporate
Seller delays caused by adverse weather conditions into any
modification of the Performance Schedule.
6.2 Technical Submittals
6.2.1. Shop Drawings
Seller shall prepare all drawings accurately to scale
and sufficiently large to show pertinent aspects of
the item and its method of connection to the work.
Seller shall submit one reproducible sepia of all
drawings.
6.2.2 Handling of Submittals
All submittals shall be accompanied by a letter of
transmittal. The letter of transmittal shall list
specifically each submittal item enclosed and the
submittal itself shall be identified with a submittal
number. Buyer shall not be responsible for any
submittals not listed on a letter of transmittal or
for any submittals not having a submittal number.
Seller shall maintain an accurate submittal log for
the duration of the Agreement. This log shall show
the current status of all submittals at all
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times. Seller shall make this log available to Buyer
for review upon request.
6.2.3 Buyer's Review
Buyer's review of technical submittals shall not be
construed as a complete check but only to check that
the general method of design, construction and
detailing is satisfactory. Review by Buyer shall not
relieve Seller of its responsibility to perform the
design and construction of the Facility as required
in this Agreement. Buyer shall review design and
equipment and meet with Seller to provide comments in
writing within fourteen (14) Calendar Days after
receipt from Seller. Release of hold points will be
provided in writing to Seller upon satisfactory
resolution of comments, such approval shall not be
unreasonably withheld.
Seller shall not proceed with purchase or fabrication
until Buyer has reviewed or conditionally reviewed
the required submittals. If Seller does so proceed,
it shall be at Seller's own risk unless approved in
writing by Buyer.
Seller shall make all revisions to technical
submittals that are required by Buyer. Each revision
shall be identified by number, date and subject in a
revision block on the face of the submittal.
6.3 Operation and Maintenance Manuals
6.3.1 Seller shall submit to Buyer the final operation and
maintenance ("O&M") manuals for the Facility and all
products and equipment in the Facility that are
provided under this Agreement by December 1, 1996
unless extended due to a change in the Performance
Schedule. Information provided shall be sufficient
to allow proper operation and care of the Facility.
Seller shall submit draft O&M manuals prior to
December 1, 1996 unless extended due to a change in
the Performance Schedule. Seller shall also provide
updated O&M manuals at time of Buyer's purchase of
the Facility.
6.3.2 Seller shall submit three copies of the final O&M
manuals to Buyer. These manuals shall be 8 1/2" x
11" in size and shall be neatly typewritten on white
bond paper at least 20 pounds in weight. Drawings,
preferably 11" in height, shall be bound in with the
text. Foldouts are acceptable. Larger drawings are
acceptable, but Seller shall fold them to fit within
the manual and shall either bind them in with the
text or place them in a drawing pocket on the inside
of the rear cover. Each section of each manual shall
be separated by neatly prepared fly-sheets briefly
describing the contents of the following section.
Front and back covers shall be of heavy duty plastic
or cardboard, and the binding mechanism shall be
concealed inside the manual (3 ring binders are
acceptable). All measurements shall be shown in the
American (i.e., non-metric) systems.
6.3.3 The cover of each manual shall show at least the name
and location of the project, Seller's name and the
general subject matter of the manual under the
overall title "Operating and Maintenance
Instructions." Each manual shall include at least
the following:
o Vendor's name, address (mailing and street,
if different), telephone
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number and the name of a contact for warranty
inquiries.
o Neatly typewritten table of contents near the
front.
o Complete instructions regarding operation and
maintenance of all equipment provided,
including lubrication, disassembly and
reassembly.
o Complete nomenclature of all equipment parts.
o Complete nomenclature and part numbers for
all replaceable parts, firm name, address and
telephone number and contact person of
nearest parts vendor and all other pertinent
data relating to procurement of spare parts.
o Copies of all guarantees and warranties
issued.
o Manufacturer's bulletins, catalog cuts and
descriptive data clearly indicating the
precise items included in the installation
and deleting, or otherwise clearly
indicating, any manufacturers' data that is
not relevant to the installed items.
6.4 Progress Reports
During the design, construction, testing and start up of the
Facility Seller shall furnish the Site Representative with a
written progress report on a WEEKLY BASIS DUE EACH MONDAY BY
9:00 A.M. The progress report shall list all major
accomplishments for the previous week. Abnormal weather or
differing site conditions that effect the execution of the
work shall also be listed.
Seller shall notify Buyer in writing any time Seller
experiences delays caused by the Buyer's actions or inactions
that impact or delay the project. The notification must be
delivered within ten (10) days of the occurrence. Immediate
verbal notification is requested so Buyer may act to correct
the situation.
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<PAGE> 105
SECTION 7.0 CODES AND STANDARDS
REFERENCE DOCUMENTS, CODES, AND STANDARDS
Unless otherwise specified, the equipment shall be designed and constructed in
accordance with the applicable provisions of the following standards whose
latest edition, revision and/or supplement is in effect on the date of issuance
of this Annex J:
American Concrete Institute (ACI)
American Gear Manufacturers Association (AGMA)
American Institute of Steel Construction (AISC)
American Iron and Steel Institute (AISI)
American National Standards Institute (ANSI)
American Petroleum Institute (API)
American Society of Civil Engineers (ASCE)
American Society of Mechanical Engineers (ASME)
American Society of Testing and Materials (ASTM)
American Welding Society (AWS)
Anti-Friction Bearing Manufacturers Association (AFBMA)
Building Officials of Code Administrators
International, Inc. (BOCA)
Environmental Protection Agency (EPA)
Federal Specifications (FS)
National Association of Architectural Metal Manufacturers (NAAMM)
National Electric Code (NEC)
National Fire Protection Association (NFPA)
Occupational Safety and Health Act (OSHA)
Sheet Metal and Air Conditioning Contractors
National Association (SMACNA)
Steel Structures Painting Council (SSPC)
Underwriters Laboratory (UL)
Conveyor Equipment Manufacturers Association (CEMA)
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<PAGE> 106
SECTION 8 - PERFORMANCE SCHEDULE
Seller shall employ and assign to the design, construction, testing and start
up of the Facility such qualified personnel, working such hours and such shifts
as shall be necessary to complete all work required by this Annex J, in
accordance with the following Performance Schedule.
ACTIVITY DATE
- -------- ----
Submit Conceptual Design Package for Review Completed
Submit Preliminary (30%) Design Package for Review January 3, 1996
Submit Final (95%) Design Package for Review February 19, 1996
Mobilize On-site April 1, 1996
Start Construction Activities April 8, 1996
Complete major Construction Activities August 30, 1996
Complete Test and Start-up Activities November 29, 1996
Completion of all construction activities
Demobilize Off-site December 13, 1996
Place in Commercial Operation January 1, 1997
If Buyer has not obtained all Construction Permits on or before May
15, 1996, then Buyer and Seller shall meet to discuss and mutually agree to
applicable methods to recover the Performance Schedule consistent with the
terms and conditions of this Annex specifically to include Section 6. If
mutual agreement can not be reached to recover the Performance Schedule all
completion dates and the commercial operation date set forth in the above
Performance Schedule shall be extended for a period equivalent to the number of
days between May 15, 1996 and the date on which such permits are received by
Buyer.
All other permits other than Construction Permits (the "Other
Permits"), will be obtained by Buyer at such times as reasonably necessary for
Seller to comply with dates set forth above in the Performance Schedule.
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<PAGE> 107
ATTACHMENT 1 - GENERAL ARRANGEMENT DRAWINGS
<TABLE>
<CAPTION>
Description Drawing Number Dated Submittal Number
----------- -------------- ----- ----------------
<S> <C> <C> <C>
3D General Arrangement at Vepco Sight 9490-GA3D 11-08-95 0100
3D General Arrangement at Vepco Sight 9490-GA3D1 11-08-95 0101
3D General Arrangement at Vepco Sight 9490-GA3D2 11-08-95 0102
3D General Arrangement at Vepco Sight 9490-GA3D3 11-08-95 0103
3D General Arrangement at Vepco Sight - 9490-CLRNC1 11-15-95 0104
Power Line Clearance
3D General Arrangement at Vepco Sight - 9490-CLRNC2 11-15-95 0105
Power Line Clearance
3D General Arrangement at Vepco Sight - 9490-CLRNC3 11-15-95 0106
Power Line Clearance
9490-ROADG 12-07-95 0107
General Arrangement/Topo at Vepco
9490-ROADG1 11-13-95 0108
General Arrangement/Topo at Vepco
9490-CUT-FILL 11-14-95 0109
Project Road Way Cut and Fill
9490-GA03B 11-07-95 0110
General Arrangement Drawings at the Vepco
Sight
9490-GA03B1 11-08-95 0111
General Arrangement/Elevation Drawings at
Vepco Sight
9490-TOPO 10-31-95 0112
Topo at the Vepco Site
9490-E100 12-07-95 0113
Proposed 480 Volt Service
9490-SPEC 10-31-95 0114
Project General Specifications
9490-PROPDESC 12-07-95 0115
Property Description
</TABLE>
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<PAGE> 108
ATTACHMENT 2 - SAFETY
(For Informational Purposes Only)
1. General
During performance of the Work, Supplier shall comply, and require its
employees, subcontractors and agents to comply, with all safety
requirements of Federal, state and local laws, rules, regulations and
ordinances, along with accepted industry safety practices and
applicable safety requirements and rules of Company. Company's safety
requirements and rules applicable to the property or facility where
the Work is being performed are available upon request. Company's
Safety Coordinator shall have full access to Supplier's facilities and
operations at the site to inspect and monitor safety conditions and
practices. Such inspections shall not constitute an acceptance by
Company of Supplier's safety policies, procedures or practices, nor
shall they relieve Supplier of its responsibility for the safety and
health of its employees.
Unsatisfactory safety and health conditions discovered by Company may
result in suspension of Supplier's work until the conditions or
practices are corrected by Supplier, and Supplier shall not be entitled
to any additional payment or extension of time for performance
hereunder for the period of such suspension. Supplier's failure to
correct any unsatisfactory health and safety condition, practice,
policy or procedure may be cause for cancellation of the Order by
Company.
Supplier shall notify Company's Representative immediately of any
safety, environmental or health hazards discovered by Supplier's
personnel prior to or during progress of the Work.
If Supplier's personnel are to be exposed to potential site hazards,
such as fumes, asbestos, inorganic arsenic, lead, chemicals or overhead
activities, Supplier shall provide its employees all necessary safety
protection. Safety equipment such as personal protective devices,
respirators, personnel nets, hardhats, coveralls, work tents, work
procedures and safety instructions shall be in accordance with all
applicable laws, rules, regulations and ordinances, accepted industry
standards, and Company's safety requirements and rules.
Supplier shall take all necessary precautions for safety and
protection to prevent damage, injury or loss to all employees on the
project and other persons who may be affected; all work, equipment and
materials, on or off site; and other property including existing power
station and facilities. Any damage to equipment, material, or site
facilities shall be reported to Company's Representative.
Supplier shall insure that his employees report to Company's
Representative before the end of the shift, all injuries that require
treatment by a physician. Any injuries resulting in lost time,
hospitalization or fatality shall be reported to Company's
Representative immediately. All injuries to Supplier's employees
while performing work for Company shall be reported
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<PAGE> 109
by Supplier submitting to Company's Representative a Virginia Power
Accident/Incident Report. Supplier shall report to Company's
Representative on a monthly basis the number of employees working at a
power station or on other property of Company and the number of hours
each employee worked under the Order.
Company prohibits the unauthorized or illegal possession, use or sale
of alcoholic beverages, drugs, or other intoxicants ("Banned
Substances") on Company property or job assignment. No employee of
Supplier or any of its subcontractors shall be permitted to bring
Banned Substances onto any location where work is being performed for
Company; nor shall any such employee be allowed to perform work under
the Order while under the influence of Banned Substances. Company
reserves the right to prohibit any person violating this policy from
performing work under the Order and to exclude any such person from
property owned or controlled by Company by denial of access,
suspension or revocation of access authorization, peremptory
expulsion, or by other means; and Company may notify law enforcement
authorities of any suspected criminal violation concerning possession
and use of Banned Substances. Supplier shall require its employees,
subcontractors, and subcontractors' employees performing work under
the Order to comply with the foregoing policy.
Company has established a Construction Safety Incident Rate goal of
4.0 for all projects. Reportable injuries and manhours worked will be
utilized to determine Incident Rate.
Upon finding an individual violating safety rules, the following will
apply:
A. First offense - a written warning will be issued to Supplier.
B. Second offense - the individual will be suspended from the
site for not fewer than three (3) working days.
C. Third offense - the individual will be barred from Company's
property.
D. Any serious violation of safety rules or policies may result
in individual being barred from Company's property on first
offense.
This provision shall in no way relieve Supplier of its responsibility
to comply with all statutory and regulatory requirements applicable to
health and safety, nor shall it operate to transfer any such
responsibility to Company.
2. Procedures/Documents
Supplier and its subcontractors shall comply with the following
Company's procedures. Failure to comply may result in removal of
Supplier's personnel and its subcontractors personnel from Company's
site. The following documents are available on the Station
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<PAGE> 110
premises for Supplier's review:
Station Safety and Fire Protection Administrative Procedures.
Contractor Safety Manual
Hazard Communication Manual
Loss Prevention Standards Manual
Accident Prevention Manual
Inorganic Arsenic Procedure
Lead Paint Removal Guidelines
Environmental Protection Manual
3. Orientation Program
Company shall provide Supplier's employees with safety orientation
prior to the start of the Work. The orientation shall include, but not
be limited to, emergency procedures, and any site-specific
policies/procedures.
4. Job Briefing
The supplier and its subcontractors shall ensure that the employee in
charge conducts a job briefing with employees involved before they
start each job. The briefing shall cover at least the procedures
involved, special precautions, energy source controls, and personal
protective equipment required.
If the work or operations to be performed during the work day or shift
are repetitive and similar, at least one job briefing shall be
conducted before the start of the first job of each day or shift.
Additional job briefings shall be held if significant changes which
might affect the safety of the employees occur during the course of
the work.
5. Safety Meetings
A project safety meeting shall be conducted weekly by the Supplier's
Site Manager or Project Safety Engineer with Company's Representative
to coordinate related activities among each craft and to facilitate
site safety training.
6. Tool Box Safety Meeting
A safety meeting shall be conducted weekly by each foreman with their
respective crew, using prepared safety discussion topics or other
related items applicable to current job
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<PAGE> 111
conditions.
7. Employee Safety Meeting
A safety meeting shall be conducted monthly by Supplier's Site Manager
and Project Safety Engineer with a representative from each craft
working on the project and Company's Safety Coordinator. Employee
safety concerns shall be reviewed during this meeting.
8. Meeting Minutes
Documentation showing the specifics of safety meetings conducted and a
list of attendees (employees signatures) shall be maintained by
Supplier and kept on file at the site.
9. Safety Inspections
In addition to daily walk-through, Supplier's Project Safety Engineer
or designee shall conduct a weekly inspection of all Supplier
controlled work areas. The weekly inspection shall be documented with
corrective actions and maintained on file at the site. In the event
no discrepancies are found, documentation showing that an inspection
was conducted shall be made. Periodically, Company's Safety
Coordinator shall conduct a safety inspection of Supplier-controlled
areas to include, but not be limited to, laydown areas, fabrication
shops, and relevant paperwork. Any discrepancies shall be documented
denoting corrective action to be taken.
10. Medical/First Aid
Upon mobilization, Supplier shall ensure qualified first aid/medical
care is available to anyone who may be injured in connection with the
Work. An adequate supply of first-aid materials shall be maintained
at all times. Additionally, a first-aid log shall be kept by
Supplier. Supplier shall also ensure that each employee who performs
work on or is associated with exposed lines or exposed energized
equipment at 50 volts or more can be reached within 4 minutes by a
person trained in CPR and first aid.
11. Rescue Contingency Plans
Supplier and its subcontractors shall develop written rescue
contingency plans for high risk tasks including but not limited to,
permit-required confined spaces, working on or in stacks, and work
involving trenching and shoring. Rescue contingency plans shall be
discussed with the appropriate company representative(s) prior to
performing the task.
12. Safety Glasses
Supplier and its subcontractor(s) shall have a 100 percent eye
protection program (ANSI Z.87 approved) for all personnel, including
visitors, while on Company's premises. Commercially procured
sunglasses are not approved eye protection and shall not be worn. All
eye protection specifically designed to be worn over personal glasses
is acceptable on a temporary basis only. Personnel who require
prescription glasses while on site more than five (5) days shall have
ANSI Z.87 approved safety glasses. Approved goggles or face shields
as appropriate shall be used to afford adequate protection when
performing any
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<PAGE> 112
operation where known hazards of flying particles exist.
13. Hard Hats
Supplier and its subcontractor's personnel shall wear hard hats with
applicable logo at all times and in all areas of Company's power
stations (visitors included). All hard hats shall meet the
requirements as stated in ANSI Z89.2. Only welding shields designed
to be attached to the hard hat shall be used. Adjustable-type head
band welding shield is not approved for use. Hard hats shall not be
reversed with the exception of welders who may reverse their hats
during welding operations only.
14. Protective Clothing
Supplier and its subcontractors who perform work on or are associated
with exposed electrical lines or exposed electrical equipment
energized at greater than 50 volts shall wear clothing made of 100%
natural fibers or flame resistant or flame retardant clothing. (This
standard includes under garments.)
15. Foot Protection
Supplier and its subcontractor personnel shall wear appropriate foot
protection in all areas of Company's property where head and/or eye
protection is required. Foot protection shall meet the requirements
as stated in ANSI Z-41.
16. Boatswain's Chair
Supplier may use a boatswain's chair only when other means of access
have been determined to be more hazardous or impractical. Any
boatswain's chair so used shall be made by a reputable manufacturer.
The top and bottom blocks used for raising and lowering the
boatswain's chair shall be metal and shall be equipped with eyes not
hooks.
The boatswain's chair shall be secured to the block eye by a carabiner
or equivalent locking device.
The worker shall be protected by a safety harness attached to a
lifeline.
17. Supplier's Equipment Inspection
Supplier and its subcontractor(s) shall comply with the required
inspections of all web or wire slings, welding leads, ladders,
electrical tools/cords, safety belts/lanyards, hoists and jacks. Such
equipment shall be removed from service if found non-inspected or in
disrepair until it is inspected, repaired, or replaced. This
inspection shall be documented quarterly and made available for review
by Company's Safety Coordinator.
18. Supplier Safety Requirements
Supplier shall furnish any signs and other safety-related materials
necessary to abide by all
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<PAGE> 113
applicable regulations and to maintain safe construction practices.
19. Fire Protection
Supplier shall provide and maintain all fire suppression equipment
required for the protection of its equipment and materials.
Supplier shall establish fire protection procedures which shall be
followed throughout all phases of the work, including inspecting and
maintaining proper fire fighting equipment that shall be readily
accessible for use by its employees.
Supplier shall also ensure that all its employees and subcontractors
are familiar with Company fire alarms, location and use of fire
suppression equipment, Gaitronics system, and procedures for reporting
fires and other emergencies.
No work activity requiring a shutdown or partial disablement of
Company's fire protection system may be performed without obtaining
Company's approval at least twenty-four (24) hours in advance.
20. Hearing Protection
Supplier shall monitor noise levels in its work area, post signs, and
issue hearing protection to employees as required.
21. Safety Signs
Supplier shall be responsible for posting any signs or providing other
notification requirements that will advise employees of unsafe areas,
conditions, or problems.
22. Contaminant Control
Supplier shall monitor work areas subject to air, ground, and water
contamination to maintain safe working conditions.
23. Barricades
Supplier shall be responsible for erecting and maintaining any and all
barricades that may be needed to protect its employees and/or work
areas.
24. Scaffolds
A. General - Scaffolding shall be erected in accordance with the
requirements found in OSHA 29 CFR 1910.28 and 1926 subpart 1.
B. Boiler scaffolding shall be designed and erected in accordance
with OSHA Standards, Company's Safety Standards, and the
following: The walking surface shall have handrails installed
when the opening between the furnace wall and the walking
working surface exceeds twelve (12) inches. The walking
surface shall be a minimum width of thirty-six (36) inches and
shall be tight with no spaces through
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which tools or fragments of material can fall [No opening
shall exceed one (1) inch in the walking working surface].
25. Floor/Roof Openings
Supplier shall have a procedure for securing and marking floor/roof
openings to protect its employees from falls.
26. Safety Belts and Lanyards
Supplier shall require the use of the appropriate class safety belt
and lanyard where more appropriate fall protection may be required but
cannot be used. Where lanyard securing points are not available,
approved safety lines shall be used. 100% fall protection shall be
implemented when potential fall is greater than 6 feet.
27. Tagging and Lockout
All mechanical and electrical systems shall be tagged in accordance
with Company procedures. Supplier shall have a procedure to safeguard
its employees. All Supplier procedures applying to tagging and
lockout shall be coordinated with Company.
Supplier shall not remove tags placed by company or operate any
circuits or equipment unless coordinated with Company.
28. Motorized Equipment Operator's Qualification
Supplier shall evaluate its employees to ensure that they have the
experience, ability, and training to properly operate assigned
motorized equipment. Qualifications shall be determined by documented
proof of experience and an observation period performed by the
responsible Supplier supervisor. Additionally, all forklift operators
shall have participated in a formal training program, acceptable to
Company, designed specifically for forklift operators. All training
shall be documented by Supplier.
29. Motorized Equipment Inspection
Supplier shall inspect all cranes and vehicles at the beginning of
each shift to assure that all parts, equipment, and accessories that
affect safe operation are in proper operating condition. Any defects
shall be corrected before the vehicle is placed into service.
Crane inspections shall be performed in accordance with manufacturer's
recommendations. Documentation of annual and monthly crane
inspections shall be maintained and made available upon request.
30. Ground Fault Protection
Supplier shall provide Ground Fault Circuit Interrupter (GFCI)
protection or an Assured Equipment Grounding Conductor Program in
accordance with 29 CFR 1926.404.(b)(i).
31. Excavations and Trenching
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Supplier shall have a procedure to safeguard its employees while
working in and around excavations and trenches.
32. Inorganic Arsenic
When work must be performed inside a boiler, or on equipment or
components that contain fly ash, there is a possibility of an
overexposure to inorganic arsenic. Personal exposure monitoring
results require that inorganic arsenic regulated areas be established
for some jobs. The provisions of 29 CFR 1910.1018 and Company's
Inorganic Arsenic Procedure shall be followed for those jobs.
33. Working On Stacks
When work must be performed on stacks, Supplier shall provide and
require its employees to use, as a minimum, but not limited to, the
following equipment: (a) appropriate respiratory protection, (b)
two-way radios, (c) Safety-Climb units, (d) full body harness and
lanyards. At least one employee shall remain on the ground to
maintain radio communication and contact emergency assistance.
34. Lead Based Paint
If Supplier is performing work on coated (painted) surfaces, on which
the coating has not been tested and documented as lead free (less than
0.06% lead in the dried film), Supplier shall comply with the
provisions of 29CFR 1926.62 in performing the work.
35. Housekeeping
Supplier shall maintain its work areas and walkways clear of
obstructions, accumulation of tripping hazards, combustible debris and
open or unsecured chemical containers on a daily basis.
36. Permits
A. Digging, Concrete Breaking, Cutting and Drilling Permit
Supplier shall obtain a permit from the responsible Company's
Representative prior to digging, concrete breaking, cutting,
or drilling.
B. Hot Work Operations
Supplier shall obtain a Company furnished Welding and Flame
Permit prior to welding, cutting and burning operations.
C. Confined Entry
Supplier shall have a Confined Space Entry Permit procedure to
safeguard its employees while working in confined spaces.
Supplier shall also have approved monitoring devices, the
calibration of which shall be current and re-calibrated
monthly.
37. Fitness For Duty
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<PAGE> 116
A. General
Company has implemented a Fitness for Duty Program for its
employees and suppliers. The goal of the program is to
achieve a drug-free work place. Company may require chemical
testing of the blood, breath or urine of Supplier personnel
providing services at Company sites under the following
conditions:
1. After observed behavioral impairment.
2. After on-site accidents involving a failure in
individual performance resulting in:
a. a fatality
b. personal injury when off-site medical
treatment is received
c. property damage
d. actual or potential degradation of safety
3. After a driver controllable vehicle accident on
Company's property or involving a Company - owned or
- leased vehicle.
4. After receipt of credible information.
B. Drug and Alcohol Tests
Upon occurrence of any of the above conditions, Supplier shall
cooperate fully and ensure that its supervisors and employees
cooperate fully in having the involved personnel chemically
tested using Company's Fitness for Duty Drug and Alcohol Kit
at Company approved and designated testing locations.
Testing for drugs other than alcohol shall be by urinalysis,
using established standards. Laboratories used shall be
certified by the U.S. Department of Health and Human Services.
All tests shall be confirmed according to established
standards. Testing for alcohol shall be by breath or blood
analysis.
Any Supplier employee refusing to provide a specimen for
chemical testing or refusing in any way to cooperate in the
chemical testing program shall be denied access to Company's
property.
38. Supplier Safety Personnel Requirements
A. General
When total manning of Supplier's personnel (including
Supplier's subcontractors' personnel) on site equals or
exceeds seventy-five (75), Supplier shall provide on site, a
competent, full time safety engineer and necessary assistants,
all satisfactory to Company, who shall be responsible for the
administration, management and
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<PAGE> 117
performance of Supplier's Safety Program. If Supplier's work
requires multiple shifts and manning equals or exceeds
seventy-five (75) per shift, a competent full-time safety
engineer will be required for each shift. A competent safety
engineer is defined as "One with a college level degree in
safety or related technical field or equivalent experience
plus a minimum of three (3) years experience in construction
safety."
When total manning of Supplier's personnel (including
Supplier's subcontractors' personnel) on site is less than
seventy-five (75), Supplier shall designate an appropriate
Project Supervisor, satisfactory to Company, who shall be an
employee of Supplier, as Supplier's Safety Coordinator. If
Supplier's work requires multiple shifts and manning is less
than seventy-five (75) per shift, Supplier shall designate a
safety coordinator, satisfactory to Company, for each shift.
The Project Supervisor's regular assignment as the designated
Safety Coordinator shall include the duties of Safety Engineer
as follows:
1. Apply policies, practices and standards to promote an
appropriate safety program and administer assigned
functions to aid in this overall responsibility.
2. Administer and coordinate medical and first aid
services and programs.
3. Apply safety and health standards, codes and
regulations to the work underway as they apply to
personnel, structural and equipment operating
standards.
4. Conduct required environmental tests in accordance
with industry practices in order to eliminate or
control hazards which could contribute to or result
in an occupational illness.
5. Inspect equipment, structures and work in progress to
ensure that safety and health standards of Company
and all applicable codes are followed and determine
corrective action to be taken, if required.
6. Investigate injuries, conditions, and incidents that
do, or could involve actual or potential liability.
7. Plan and utilize promotional material to further
safety and health education among job craft and
supervisory personnel; conduct safety meetings.
B. Safety Certification
Supplier's Safety Engineer/Safety Coordinator shall be Red
Cross or equivalent certified and report directly to
Supplier's Project Manager.
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39. Hazardous Chemicals
COMPANY'S WORKSITE MAY CONTAIN HAZARDOUS CHEMICALS IN USE OR STORAGE
WHICH ARE SUBJECT TO THE REQUIREMENTS OF 29 C.F.R. Section 1910.1200
or 29 CFR 1926.59, OSHA's HAZARD COMMUNICATION STANDARD ("THE
STANDARD").
Prior to commencing work, Supplier shall contact Company's Site
Chemical Management Coordinator to arrange for information exchange
under the requirements of paragraph "e" of the Standard. Also prior
to commencing work, Supplier shall certify that each of Supplier's
employees (including subcontractors) have been trained according to
the requirements of paragraph "h" of the Standard by completing the
Certificate of Hazard Communication Training form (Exhibit 1) and
submitting it to Company's Site Chemical Management Coordinator.
If the work pursuant to the Order is to be performed utilizing
materials furnished by Supplier, Supplier shall provide a list of all
chemical products to be used on Company's property to Company's site
Chemical Management Coordinator. The list shall include the product
name, the manufacturer's name, and the approximate quantity to be
used. All documentation required by the Standard, such as the written
hazard communication program, training records, etc., shall be
maintained on site and be available for Company's inspection.
40. Hazardous Waste
In the event that performance of the Work pursuant to the Order
generates hazardous waste as provided in 40 C.F.R. Section 261,
Supplier shall certify that Supplier's employees are properly trained
to handle or otherwise manage hazardous wastes in compliance with 40
C.F.R. Section 265.16. Supplier shall provide Company site
Environmental Compliance Coordinator with a written hazardous waste
management plan which at a minimum shall include 1) a description of
the hazardous waste, 2) the amount of hazardous waste, 3) on-site
handling plan, 4) off-site transportation and disposal plan, 5)
emergency plan, 6) identification of all subcontracting transporters
and treatment, storage, and disposal facilities, and 7) description of
effort to minimize the generation of hazardous waste. Supplier shall
provide Company's site Environmental Compliance Coordinator with
copies of all analytical data, manifests, and documents related to the
management and disposal of hazardous wastes. Supplier's hazardous
waste management plan shall also include provisions that describe
Supplier's or Company's ownership including financial and legal
responsibility for all hazardous wastes generated during the
performance of the Work on Company's facilities.
Company, at its option, shall have the right to approve or disapprove
of Supplier's hazardous waste management plan. If Company disapproves
of Supplier's plan as submitted, Supplier shall revise its plan to
Company's satisfaction, or shall subcontract for the management of
hazardous waste with a hazardous waste contractor satisfactory to
Company. Neither approval of Supplier's plan by Company nor such
sub-contracting shall relieve Supplier of its responsibilities under
the Order to safely and properly manage and dispose of hazardous
wastes
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in full compliance with all federal, state and local laws, rules,
regulations and ordinances applicable to the handling, storage and
disposal of such wastes.
All unused chemicals brought on Company's property by Supplier shall
be removed by Supplier upon completion of the Work.
41. Respiratory Protection Requirements
Supplier shall comply with all federal, state, and local laws,
rules, regulations and ordinances relating to respiratory protection
during the performance of the Work.
Supplier shall supply and maintain such respiratory protection and
testing equipment necessary to support the Work. Supplier shall be
responsible for determining those areas requiring respiratory
protection. However, some areas of Company's property or facilities
may be designated by Company as requiring respiratory protection, and
Supplier shall take such precautions as are required. Company may at
its option, conduct periodic audits of Supplier's respiratory
protection program. Such audits, if conducted, will be made by
Company's Safety/Loss Prevention personnel to ensure compliance by
Supplier with this provision.
42. Asbestos
A. Supplier may be performing work in areas where asbestos is
present. Supplier shall comply with all applicable federal,
state and local laws, regulations, ordinances or standards
relating to asbestos whether or not such laws, regulations,
ordinances or standards are specifically referred to in the
Order.
B. If the Work involves the inspection for, removal,
encapsulation, disposal or installation of asbestos or
asbestos-containing materials, Supplier:
1. Shall comply with all applicable requirements of the
Clean Air Act, 42 U.S.C. Section 7401, et seq., as
amended, all applicable requirements, procedures and
standards of the United States Environmental
Protection Agency as set forth at 40 C.F.R. Part 61,
Subpart M, and of the United States Occupational
Safety and Health Administration as set forth at 29
C.F.R. Part 1926.58, or their successor provisions.
a. For work performed in Virginia, Supplier
shall also comply with all applicable
provisions of Virginia Code Sections
54.1-500 through 54.1-517; and all applicable
requirements, procedures and standards of the
Virginia Department of Labor and Industry,
and the Virginia Department of Environmental
Quality.
b. For work performed in West Virginia, Supplier
shall also comply with all applicable
provisions of West Virginia Code Sections
16-32-2
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<PAGE> 120
through 16-32-16; and all applicable
requirements, procedures and standards of the
West Virginia Department of Health and Human
Resources, the West Virginia Department of
Natural Resources, the West Virginia
Department of Labor, and the West Virginia
Air Pollution Control Commission.
c. For work performed in North Carolina,
Supplier shall also comply with Sections
130A-444 through 130A-451 of the General
Statutes of North Carolina as well as all
applicable requirements, procedures and
standards of the North Carolina Department
of Environment, Health and Natural
Resources.
2. Shall, prior to commencement of the Work, comply with
all notification requirements including, but not
limited to those set forth in 40 C.F.R. 61.145(b);
and Virginia Code Section 40.1-51.20(A), West
Virginia Code Section 16-32-11, or Sections 130A-449
of the General Statutes of North Carolina as
appropriate. Supplier further agrees to comply with
the record keeping and record retention provisions
set forth in Virginia Code Section 40.1-51.20(C) or
West Virginia Code Section 16-32-6(d)(3), as
appropriate. Supplier shall provide Company's
Corporate Services, Air Quality Department with
copies of all required notifications.
3. Represents and warrants that it is a licensed
asbestos and/or RFS Supplier pursuant to Virginia
Code Section 54.1-503 or West Virginia Code Section
16-32-6 or Section 130A-447 of the General Statutes
of North Carolina, as appropriate, and that each of
its employees or agents who will come into contact
with asbestos or who will have supervisory
responsibility for the Work is licensed as an
asbestos worker or supervisor.
C. If the Work does not involve asbestos or asbestos-containing
materials and Supplier, in performing such Work, discovers or
suspects the presence of asbestos or asbestos-containing
materials, Supplier shall immediately cease operations in the
affected area and provide oral notification to Company of the
discovery. Such oral notification shall be confirmed in
writing within twenty-four (24) hours. Supplier shall take
all reasonable steps to isolate such areas and prevent the
intrusion thereafter of any personnel not authorized by
Company. Supplier shall cooperate fully with Company in
securing the affected area(s).
D. Supplier shall not be entitled to extra compensation or
extension of time for any period it or its employees, agents
or subcontractors may be delayed due to Supplier's failure to
comply with any of the laws, regulations, ordinances,
requirements, procedures, or standards set forth herein.
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43. Incentive Program
Virginia Power has established a Supplier Safety Incentive Program to
recognize suppliers for outstanding safety performance in each
calendar year. Supplier's overall safety performance will be
evaluated by Virginia Power at the conclusion of the Work and collated
on an annual basis. Criteria to be considered can be obtained from
Company's Safety Coordinator.
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EXHIBIT 1 - CERTIFICATION OF HAZARD COMMUNICATION TRAINING
(For Informational Purposes Only)
With reference to Annex J - Performance Criteria for the Mount Storm Truck Dump
Facility, Seller and Sellers subcontractor(s) hereby certifies that all
personnel it utilizes under the performance of work under this Annex J have
received hazard communication training as specified in 29 C.F.R. 1910.1200.
This Training includes as a minimum the following:
I. Methods and observations that may be used to detect the
presence or release of a hazardous chemical in the work area.
II. The physical and health hazards of the chemical in the work
area.
III. The measures employees can take to protect themselves from
these hazards, such as appropriate work practices, emergency
procedures, and personal protection equipment to be used.
IV. The details of the hazard communication program to be used at
the Work Site, including an explanation of the labeling system
and the material safety data sheet(s), and how employees can
obtain and use the appropriate hazard information.
Executed this day of , 19 .
-------- --------------------- -----
----------------------------
(Contractor)
By:
----------------------------
Title:
----------------------------
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<PAGE> 123
ATTACHMENT 2
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), effective the 15th day of January,
1996, by and between VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia public
service corporation, doing business in Virginia as Virginia Power and North
Carolina as North Carolina Power with its principal office in Richmond,
Virginia ("LANDLORD") and METTIKI COAL CORPORATION, a Delaware corporation with
its principal office in Tulsa, Oklahoma ("TENANT"). Both LANDLORD and TENANT
are herein individually referred to as "party" and collectively referred to as
"parties."
RECITALS
WHEREAS, LANDLORD is the sole owner of real estate located at Mt.
Storm Power Station ("Station") in Grant County, West Virginia; and,
WHEREAS, TENANT desires to lease a certain parcel of said land on the
Station property from LANDLORD for the purpose of constructing, operating,
using, maintaining, renewing, replacing and repairing a primary truck dump coal
handling facility and conveyor system for the purpose of supplying coal to
LANDLORD at the Station; and,
WHEREAS, LANDLORD is willing to lease said parcel of land to TENANT
pursuant to the terms and conditions of this Lease.
NOW, THEREFORE, in consideration of the above Recitals, which are
incorporated herein, and for and in consideration of the mutual covenants and
agreements set forth below, the parties agree as follows:
1. LEASE OF PREMISES.
a. LANDLORD's obligations under this Lease are expressly
contingent on the LANDLORD and TENANT having executed, on or
before January 15, 1996, unless such date is mutually extended
by the parties, an Agreement for the Supply of Coal to Mt.
Storm Power Station having a term of ten years, eleven months
and sixteen days commencing at one minute past midnight on
January 15, 1996 and ending one minute before midnight on
January 1, 2007 ("Agreement"), unless otherwise sooner
terminated in accordance with the provisions of this Lease,
and requiring, as part of TENANT's obligations pursuant to
such Agreement, that TENANT construct and operate a primary
truck dump coal handling facility and conveyor system for
purposes of supplying coal to the Station pursuant to the
Agreement ("Facility").
b. LANDLORD hereby rents and leases to TENANT and TENANT hereby
rents and leases from LANDLORD, upon the conditions
hereinafter set forth, that certain parcel of land and access
thereto, herein referred to as "Premises," described in the
drawings included in Annex J of the Agreement, such drawings
are incorporated into this Lease.
c. TENANT leases the Premises "as is" and LANDLORD shall not be
obligated to make any alterations or improvements thereto
prior to or after commencement of this Lease, except as
expressly provided in Section 4 of Annex J of the Agreement,
or as otherwise required during the term of this Lease by
applicable law or regulation.
<PAGE> 124
d. Unless required by the terms and conditions of the Agreement
or any attachments thereto, nothing in this Lease shall be
interpreted as granting TENANT access to any part of the
Station other than the Premises and access thereto as
described above.
e. The parties acknowledge the content of the December 1995 GAI
Report Project No. 92-417-85 regarding the condition of the
Premises. Nothing herein shall require the TENANT to perform
or bear the expense of remediation of environmental impacts
existing prior to the effective date of this Lease.
2. TERM OF LEASE.
The term of this Lease shall be ten years, eleven months and 16 days
commencing at one minute past midnight on the 15th day of January,
1996 and ending at one minute before midnight on the 1st day of
January, 2007 unless otherwise sooner terminated in accordance with
the provisions of this Lease.
3. TERMINATION.
This Lease shall automatically terminate upon the earlier of
expiration, cancellation, or termination of the Agreement.
4. RENT.
The rental fee for the term of this Lease shall be One Dollar ($1.00),
receipt of which LANDLORD hereby acknowledges.
5. USE OF DEMISED PREMISES.
a. TENANT shall be entitled to use the Premises only for the
purposes of constructing, operating, using, maintaining,
renewing, replacing and repairing the Facility, as such
Facility is described in the Agreement, for purposes of
supplying coal to LANDLORD's Station pursuant to the
Agreement, and no other purpose unless written permission is
first obtained from LANDLORD for another use. TENANT may NOT
use the Premises to provide goods or services to parties other
than LANDLORD, unless otherwise authorized in writing by the
LANDLORD.
b. TENANT's right to use the Premises as permitted herein may
only be exercised by (i) TENANT and its employees, and (ii)
TENANT's agents, contractors, and subcontractors who have been
approved in writing by LANDLORD, such approval shall not be
unreasonably withheld. LANDLORD shall have the right, in its
sole discretion, to revoke such authorization in the event of
violation of applicable laws and regulations, on-site safety
and/or drug/alcohol violations, or threatened interference
which are detrimental to the operation of the Station and/or
the Facility. Removal from the Station and/or the Facility
shall be immediate if required by LANDLORD, otherwise loss of
authorization shall be effective thirty (30) days after
TENANT's receipt of written notice stating the reason
therefore.
c. TENANT shall have access to the Premises along a roadway
owned, used and controlled by LANDLORD. LANDLORD shall
reasonably maintain the roadway used for such access but not
leased hereunder so as not to unreasonably impair TENANT's
performance under the Agreement. Provided, however, TENANT
shall be responsible for the restoration of said roadway to
its immediately prior condition for any damage to the
condition of the roadway: (i) caused by TENANT, its employees
or subcontractor(s), and (ii) beyond reasonable wear and tear
considering the intended use of the roadway by TENANT,
LANDLORD and LANDLORD's other subcontractors and suppliers.
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<PAGE> 125
d. (i) TENANT shall have the right to construct, use,
operate, maintain and repair the Facility provided that all
such work shall be done in a good and workmanlike manner in
compliance with all applicable building codes, laws and
regulations and as provided in the Agreement; and further
provided that no liens shall attach to the demised Premises by
reason thereof.
(ii) After completion of construction of the Facility,
notice of any proposed major alterations, additions or
improvements to the Premises or the Facility shall be
submitted in writing to LANDLORD for LANDLORD'S approval, such
approval shall not be unreasonably withheld. After completion
of construction of the Facility, TENANT may make minor
alterations, additions or improvements to the Premises or the
Facility without LANDLORD'S approval. TENANT shall before
beginning any alterations, additions or improvements,
indemnify LANDLORD against liens, costs and damages arising
out of the alterations, modifications or improvements as
LANDLORD may reasonably require. All such alterations,
additions, or improvements shall be done in a good and
workmanlike manner in compliance with all applicable building
codes and regulations, and no liens shall attach to the
Premises by reason thereof. All such alterations, additions,
or improvements shall become and be deemed to be a permanent
part of the Premises and shall not be removed by TENANT upon
expiration or termination of this Lease. TENANT shall also
provide LANDLORD with updated "as-built" drawings of the
Facility showing the impact of all alterations, additions or
improvements to the Premises or the Facility.
e. During the term of this Lease, the Facility shall remain the
property of the TENANT, subject to any valid lien of the
LANDLORD. Upon expiration or termination of this Lease, the
Facility shall become the property of the LANDLORD in
accordance with paragraph 8.
f. (i) LANDLORD shall have no obligation to reimburse TENANT
for the cost of construction, operation, use, maintenance, or
repair of the Facility except for: the costs specifically
provided in the Agreement (e.g., Section 3.5 and Annex J of
the Agreement), or any alterations, additions or improvements
thereto as described above in paragraph 5.d.(ii).
(ii) LANDLORD shall reimburse TENANT for any alterations,
additions or improvements to the Premises or Facility as
requested by LANDLORD and not otherwise required of TENANT
under the Agreement.
(iii) LANDLORD shall reimburse TENANT for any alterations,
additions or improvements to the Premises or Facility made by
TENANT as required by law or applicable regulation.
g. (i) TENANT shall have the right to place on the demised
Premises such non-permanent machines, tools or other equipment
and items as it shall consider necessary or desirable for the
purpose for which this Lease is made (collectively,
"Equipment"). Such Equipment shall at all times remain the
personal property of TENANT and may be removed by TENANT at
any time, whether at the termination of this Lease, or prior
thereto. TENANT shall be responsible for property taxes on
the Equipment.
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<PAGE> 126
(ii) Any machines, tools, equipment or other items which
TENANT permanently affixes to the Facility or the Premises
during the term of this Lease shall be deemed to be a part of
the Facility.
h. (i) TENANT shall not, at any time, use, store, or permit
the use or storage of, on the Premises, any material
designated as hazardous or toxic (either in its original form
or as waste upon disposal) unless reasonably required by
TENANT or TENANT's subcontractor(s) for the construction,
testing, startup, operation and maintenance of the Facility
and such use or storage is conducted pursuant to applicable
laws, rules, regulations or ordinances. TENANT agrees not to
commit or permit any waste or nuisance on or about the
Premises nor do or permit any act that poses a threat of
environmental harm or damage. Without limitation of the
foregoing, TENANT shall not dispose of any hazardous or toxic
material or petroleum product in, or cause or permit release
of any such material or product into, land, water, storm
drains or sewers on or near the Premises.
(ii) LANDLORD shall provide TENANT written notice of
violation of the provisions of paragraph 5.h.(i). If TENANT,
in accordance with the applicable laws, fails to initiate
correction of such violation and does not identify a cure
reasonably acceptable to LANDLORD with a specified course of
action within thirty (30) days of receipt of LANDLORD's
written notice, TENANT will be in material default under this
Lease and LANDLORD may terminate this Lease, take possession
of the Premises and operate the Facility as provided in
Section 3.5.d of the Agreement. In addition, in the event
TENANT fails to comply with paragraph 5.h.(i) above, and fails
or refuses to remedy such noncompliance within thirty (30)
days of receipt of written notice from LANDLORD, the LANDLORD
may immediately take remedial action to prevent further
noncompliance and contain and clean up releases of such
materials or products, and TENANT shall indemnify LANDLORD for
any reasonable costs and expenses LANDLORD so incurs.
LANDLORD may deduct such costs and expenses from amounts due
TENANT under the Agreement. Any such action by LANDLORD shall
not constitute a waiver of other rights available to LANDLORD
under this Lease, including but not limited to termination
rights. Nothing in this paragraph 5.h. shall relieve TENANT
of any of its obligations or liabilities under this Lease or
the Agreement.
i. TENANT shall not place underground or aboveground storage
tanks, other than those required for the operation of the
Facility and shown in the "as-built" drawings provided to
Buyer by Seller as required under Section 3.4.4 of Annex J, on
the Premises without LANDLORD's prior written consent.
6. DEFAULT.
Except as otherwise provided herein, if TENANT materially fails to
comply with any of the provisions of this Lease, and shall fail within
thirty (30) days after written notice from LANDLORD to correct such
noncompliance, LANDLORD may terminate this Lease by giving written
notice to TENANT. Such termination shall be effective as specified in
the notice but not earlier than one (1) day following TENANT's receipt
of such notice. If LANDLORD terminates this Lease for TENANT's
default pursuant to this paragraph or for default of TENANT as
provided in paragraph 5.h., TENANT shall be in material breach of the
Agreement as of the date of such termination of this Lease and
LANDLORD may with respect to the Agreement exercise all remedies
available to it at law, in equity or under the Agreement, including
LANDLORD's operation of the Facility as given in Section 3.5.d of
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<PAGE> 127
the Agreement. Termination pursuant to the provisions of this
paragraph shall not constitute a waiver of any other right or remedy
LANDLORD may have under this Lease.
7. TENANT'S ADDITIONAL OBLIGATIONS.
In addition to any obligation imposed by the laws of the State of West
Virginia or any other provision of this Lease that is not in conflict
with the Agreement, TENANT shall:
a. Comply with all applicable state and federal spill reporting
requirements and shall provide immediate notice to LANDLORD of
all known events and occurrences which are regulated by the
spill reporting laws.
b. Be liable for, as required by applicable laws and regulations,
the removal of, and performance of any remedial work required
in connection with, any hazardous or toxic substance or
petroleum product located, discharged, leaked or emitted on,
in, above or under the Premises by TENANT or it's
subcontractor(s) subsequent to the effective date of this
Lease; and, be liable for the cost of LANDLORD's removal of,
and performance of any remedial work required in connection
with, any hazardous or toxic substance or petroleum product
discharged, leaked or emitted off the Premises by TENANT or
it's subcontractor(s) subsequent to the effective date of this
Lease. TENANT and/or LANDLORD shall use best efforts to
contain such regulated releases to minimize adverse impact on
the environment.
c. Maintain the Premises and Facility in good order, condition
and repair and in a safe and hazard-free condition, all at
TENANT's expense, except as expressly provided in paragraph
5.c.
d. Post appropriate and customary warning signs concerning any
hazards on the Premises or which might arise from the use of
the Premises.
e. Maintain any security fences surrounding the Premises. All
costs for construction, repair and maintenance of the security
fences shall be paid by the LANDLORD, except where damage to
the security fences is caused by TENANT or its
subcontractor(s), in which case TENANT shall bear the cost of
repair.
f. Be responsible for maintaining security and safety of the
Premises and the Facility.
g. At no cost to LANDLORD, provide LANDLORD with a copy of any
environmental assessment TENANT performs or causes to be
performed on the Premises except for such environmental
assessments conducted at the request of counsel prepared in
anticipation of litigation.
8. VACATION OF PREMISES; PURCHASE OF FACILITY.
a. Upon termination or expiration of this Lease, ownership of the
Facility shall transfer to the LANDLORD pursuant to the terms
of the Agreement. Transfer of ownership of the Facility shall
be effective concurrently with expiration or termination of
this Lease. The purchase price to be paid by LANDLORD for the
Facility shall be the value set forth in the Agreement. The
sale of the Facility shall be evidenced by a Bill of Sale.
b. Notwithstanding anything to the contrary in the terms and
conditions of the Agreement or this Lease, TENANT shall
transfer the Facility to LANDLORD free and clear of any liens,
encumbrances, claims, or other obligations or liabilities,
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<PAGE> 128
including but not limited to obligations pursuant or
incidental to contracts of employment or service or supply
contracts or subcontracts related to the Facility.
c. Upon transfer of the Facility, TENANT shall remove all of its
Equipment from the Premises. If TENANT's Equipment is not so
removed within 30 days following termination or expiration of
this Lease, LANDLORD shall have the right to remove it at
TENANT's expense and without obligation to account to TENANT
for any Equipment so removed.
9. LANDLORD'S AGENT.
By written notice to TENANT, LANDLORD may designate an agent for the
purposes of administering this Lease on its behalf.
10. RIGHT OF ENTRY.
a. Except as described in paragraph 10.b below, in addition to
other rights reserved to LANDLORD herein, LANDLORD reserves
the right for itself, its agents, employees and assigns, to
enter upon the Premises at any time for any lawful purpose,
including but not limited to LANDLORD's rights of entry and
use of the Facility specified in the Agreement. Such purposes
include but are not limited to LANDLORD's audit and inspection
of TENANT's activities (including but not limited to TENANT's
maintenance of the Facility) on the Premises at any time.
Except for LANDLORD's agents, employees and assigns that are
familiar with the operation and safety provisions of the
Facility and the Station, LANDLORD, it's agents, employees and
assigns must be escorted by TENANT or its subcontractor(s).
TENANT shall have the right, in its sole discretion, to revoke
such authorization in the event of violation of applicable
laws and regulations, on-site safety and/or drug/alcohol
violations, or threatened interference which are detrimental
to the operation of the Facility. Removal from the Facility
shall be immediate if required by TENANT, otherwise loss of
authorization shall be effective thirty (30) days after
LANDLORD's receipt of written notice stating the reason
therefore.
b. Consistent with the provisions of Article 3 of the Agreement
LANDLORD and its contractors and suppliers may enter upon the
Premises and use the Facility for purposes of supplying coal
to the Station. LANDLORD's exercise of such right of entry
and use of the Facility shall be without obligation or
liability to TENANT, except as LANDLORD's responsibility for
expenses of operation and reimbursement for damage to the
Facility or for injury to TENANT or TENANT's subcontractor(s),
property or personnel as is expressly provided for in the
Agreement. LANDLORD's right of entry and use pursuant to this
paragraph is a right which LANDLORD may, in its sole
discretion, choose to exercise or not. Any exercise or
failure to exercise such right by LANDLORD shall not relieve
TENANT of any obligations or liabilities under this Lease or
the Agreement and shall not limit or negate any other right
LANDLORD may have under such agreements, including but not
limited to termination rights.
c. Responsibility for expenses incurred in operating and
maintaining the Facility during such times as LANDLORD uses
the Facility as permitted in this Lease or in the Agreement
shall be as specified in the Agreement.
11. TAXES.
Except as otherwise provided in this Lease, during the term of this
Lease, LANDLORD shall pay all taxes and assessments imposed on real
estate constituting the Premises by the state,
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county or other taxing authority. TENANT shall be responsible for all
taxes and assessments imposed on the Facility and TENANT's Equipment
by any state, county or other taxing authority, including but not
limited to any increase in LANDLORD's tax liability on the Premises on
account of the Facility and Equipment.
12. UTILITIES AND OTHER SERVICES.
During the term of this Lease, LANDLORD agrees to provide TENANT, at
LANDLORD's expense, electricity and water required for reasonable
operation of the Facility. TENANT shall use electricity and water
provided by LANDLORD only for purposes of operation of the Facility as
permitted in this Lease. For purposes of supplying such electricity
to the Facility, LANDLORD will construct and maintain a power line and
controls to as set forth in Annex J. The power line and controls
shall remain the property of the LANDLORD. For purposes of supplying
such water to the Facility, TENANT will construct and maintain a water
line and controls to the Premises which shall become a permanent part
of the Facility. LANDLORD shall not be obligated to furnish TENANT
any other utilities, equipment, or services necessary for the purposes
for which the Premises may be used as given in Annex J of the
Agreement.
13. INSURANCE
Prior to the arrival of TENANT's personnel on the Premises, TENANT
shall obtain and maintain, and require its contractors and
subcontractors to obtain and maintain, all policies and coverages of
insurance as required under Section 12.10 of the Agreement during the
term of this Lease.
14. MAINTENANCE AND REPAIRS.
Throughout the entire term of this Lease TENANT shall maintain the
Facility as set forth in Article 3 and Annex J of the Agreement.
15. DAMAGE OR DESTRUCTION BY CASUALTY.
During the term of this Lease, TENANT shall maintain adequate "all
risk" property insurance covering the Facility on a replacement cost
basis in order to repair or replace the Facility in the event of
damage or destruction. If, during the term of this Lease, the
Facility is damaged or destroyed by fire, flood, windstorm, natural
causes, strikes, riots, acts of public enemy, acts of God, or other
casualty, TENANT shall with due diligence repair or replace the
Facility regardless of insurance proceeds.
16. INDEMNITY.
a. TENANT agrees to indemnify LANDLORD as set forth in Section
12.11 of the Agreement, the terms of which are hereby
incorporated into this Lease.
b. LANDLORD agrees to indemnify TENANT as set forth in Section
12.11 of the Agreement, the terms of which are hereby
incorporated into this Lease.
17. WAIVER OF LIENS.
a. TENANT waives, and shall require its contractors,
subcontractors and suppliers of any tier to waive, any and all
liens and claims, and the right to file and enforce or
otherwise assert any such liens and claims, against LANDLORD
or LANDLORD's property or facilities for work done, services
performed or materials or equipment furnished in connection
with any work on the Premises for or on behalf of TENANT.
b. If any liens or claims are filed or asserted against LANDLORD
or LANDLORD's property or facilities for services performed or
material or equipment furnished by
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<PAGE> 130
TENANT's contractors, subcontractors or suppliers of any tier
in connection with work performed on the Premises, TENANT
shall promptly discharge or remove any such lien or claim by
bonding, payment or otherwise and shall notify LANDLORD
promptly when it has done so. TENANT assumes all liability
for, and will indemnify, protect, save and hold harmless
LANDLORD and LANDLORD's directors, officers and employees from
and against all such liens and claims.
18. LIMITATION OF LIABILITY.
Section 10.2 of the Agreement is hereby incorporated into this Lease.
The reference to "this Article 10" in such section shall mean "this
Article 18" for purposes of this Lease. In addition, except as
expressly otherwise provided in this Lease or the Agreement, LANDLORD
shall not be liable to TENANT for injury or death of persons or damage
to property arising on account of any latent or patent defects in the
Premises. LANDLORD shall be liable for any losses, claims or
liabilities for loss of or damage to the Facility as the result of the
negligence or willful misconduct of the LANDLORD, its agents,
contractors, or subcontractors.
19. COMPLIANCE WITH LAWS.
TENANT and LANDLORD shall comply with all federal, state and local
laws, rules, regulations, orders and ordinances applicable to its
performance hereunder and its use of the Premises. If fines,
penalties or legal costs are assessed against a party by any
government agency or court due to the other party's noncompliance with
such laws, rules, regulations or ordinances, the non-complying party
shall indemnify and hold harmless the other party against any and all
losses, liabilities, damages, claims and costs suffered or incurred
because of the failure of the non-complying party to comply therewith.
The non-complying party shall reimburse the other party for any and
all legal or other expenses, including attorneys' fees through the
appellate level, reasonably incurred by the party in connection with
such losses, liabilities, damages or claims.
20. PERMITS AND LICENSES.
a. Subparagraphs 3.3.1, 3.4.3 and 4.2.4 of Annex J of the
Agreement sets forth the permitting obligations of both the
TENANT and LANDLORD and is hereby incorporated into this
Lease. Other than those permits that LANDLORD shall provide
as required under this Lease or the Agreement, TENANT warrants
that it has or will obtain and maintain at all times during
the term of this Lease, all licenses, permits, rights,
variances, or other approvals which, under the laws, rules,
regulations or ordinances of any federal, state or local
government, TENANT may be required to hold in order to use the
Premises for the purposes permitted herein. At TENANT's
request and at TENANT's expense, LANDLORD shall provide TENANT
with reasonable assistance in obtaining such licenses,
permits, rights, variances or approvals.
b. In the event LANDLORD, because of TENANT's unapproved
alterations, additions or improvements to the Premises or the
presence of non-essential Equipment on the Premises that is
not required for TENANT's performance under this Lease or the
Agreement, is required to obtain or maintain any license,
permit, right, variance or other approval, TENANT shall
reimburse LANDLORD for all of LANDLORD's costs and expenses
associated therewith.
21. ASSIGNMENT AND SUBLETTING.
a. The provisions of Section 12.1 of the Agreement shall apply to
this Lease with regard to assignment and the parties recognize
that such assignment shall not alter the rights
- 8 -
<PAGE> 131
and obligations of the assigned party with respect to this
Lease and the Agreement. TENANT shall not sublease this Lease
without LANDLORD's prior written consent. Any sublease
without LANDLORD's prior written consent shall be void.
b. Nothing herein shall be construed to restrict the right of
LANDLORD freely to convey, assign, or otherwise dispose of or
encumber its title, rights, and interests in the Premises.
Any assignment made as provided herein shall not relieve
LANDLORD of any responsibility for the due and faithful
performance hereof. LANDLORD shall be liable for all acts and
omissions of its assignee.
22. SUBORDINATION OF LEASE.
This Lease and TENANT's leasehold interest hereunder are and shall be
subject, subordinate to, and inferior to any lien or encumbrance now
or hereafter placed on the Premises by the LANDLORD, all advances made
under any such lien or encumbrance, the interest payable on any such
lien or encumbrance, and any and all renewals or extensions of such
liens or encumbrances.
23. NOTICES.
Any notice required or permitted to be given in writing hereunder
shall be executed in the manner set forth under Article 13 of the
Agreement.
24. REGULATORY CHANGES.
In the event that a governmental agency has authority to regulate the
charges for, and conditions of, facility leasing such as that
described in this Lease, or acquires such authority subsequent to the
effective date of this Lease, then this Lease shall be subject to
regulation by such governmental agency ("Regulatory Change"). In such
event, this Lease shall be modified but only to the extent necessary
to comply with such regulations. Any provisions of this Lease not
subject to regulation shall remain in full force and effect.
25. REGULATORY PROHIBITION.
Both parties recognize that governmental or regulatory authorities
having jurisdiction over LANDLORD or the activities contemplated by
this Lease, including but not limited to the Virginia State
Corporation Commission, may take action which prevents LANDLORD from
performing its obligations under this Lease. If any court,
governmental or regulatory authority for any reason substantially
prevents LANDLORD from performing its obligations under this Lease,
LANDLORD may, by written notice to TENANT, immediately terminate this
Lease without obligation or liability to TENANT, except for
obligations and liabilities arising from any prior performance or
breach of this Lease. Such termination shall be effective upon the
date specified in LANDLORD's notice, but in no event earlier than
TENANT's receipt of LANDLORD's notice or if permitted by said court,
governmental or regulatory authority thirty (30) days after TENANT's
receipt of LANDLORD's notice.
Termination of this Lease due to "Regulatory Prohibition" as described
above, shall not be cause for termination of the Agreement by either
party. LANDLORD agrees to operate the Facility in a manner that is
consistent with the terms and conditions set forth in the Agreement
and shall operate the Facility as contemplated by the parties prior to
the imposition of the "Regulatory Prohibition" (i.e., as described in
Section 3.1.d of the Agreement). Upon termination of this Lease due
to Regulatory Prohibition, LANDLORD will operate the Facility.
LANDLORD and TENANT will meet to mutually agree to adjustments, at a
minimum, to Price under the Agreement. Until the parties reach such
mutual agreement, responsibility for all costs of operation for the
Facility shall be determined as given in Section 3.5.d of the
Agreement except that TENANT's costs will be the prorated
- 9 -
<PAGE> 132
by the total tons of coal received into the Facility by LANDLORD.
Payment for the above costs shall be completed as given in the
Agreement.
26. MISCELLANEOUS.
a. Governing Law
This Lease and the rights of the parties hereunder shall be
governed by, construed and enforced in accordance with the
laws of the State of West Virginia. This Lease shall be
deemed to have been executed in West Virginia regardless of
the actual place of signing or the actual place of
performance.
b. Non-Waiver of Rights
The failure of LANDLORD to demand strict performance of the
terms of, or to exercise any right conferred in, this Lease
shall not be construed as a waiver or relinquishment of its
right to assert or rely upon any such term or right in the
future, or a consent to any continuing or subsequent failure
or breach.
c. Severability
Section 12.6 of the Agreement is hereby incorporated into this
Lease.
d. Survival
Section 12.4 of the Agreement is hereby incorporated into this
Lease.
e. Relationship of the Parties
This Lease does not and shall not be construed to establish a
partnership, joint venture or other form of business
association between LANDLORD and TENANT, and neither party
shall have the authority to obligate the other without the
other's prior written consent. LANDLORD shall not be
considered an employer, either individually or jointly with
TENANT, of any of TENANT's personnel or the personnel of
TENANT's contractors, subcontractors or suppliers.
f. Headings
Article and paragraph headings contained herein are inserted
for convenience and shall have no effect on interpretation or
construction of this Lease.
g. Publicity
No information relative to this Lease shall be released by
TENANT for publication, advertising or for any other purpose
without the prior written approval of LANDLORD.
h. Successors and Assigns
Section 12.3 of the Agreement is hereby incorporated into this
Lease.
i. Confidentiality
Section 12.7 of the Agreement is hereby incorporated into this
Lease.
- 10 -
<PAGE> 133
j. Quiet Enjoyment
LANDLORD covenants that TENANT, upon performing the covenants
and conditions contained in this Lease, shall and may
peaceably and quietly have, hold and enjoy the leased
Premises.
k. Authority
Each of the parties executing this Lease warrants and
represents that they have been duly and properly authorized to
execute this Lease on behalf of their principal.
l. Provisions Incorporated by Reference
Where provisions of the Agreement are expressly incorporated
into this Lease, the term "Agreement" used in such provisions
shall mean "Lease" for this Lease.
27. MODIFICATION.
No amendment or modification of this Lease shall be valid unless in
writing and executed by the duly authorized representatives of both
parties.
28. ENTIRETY.
This Lease and the provisions of the Agreement that are incorporated
herein by reference embodies the entire agreement between LANDLORD and
TENANT with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreement or understanding between the
parties. The parties shall not be bound by or be liable for any
statement, representation, promise, inducement or understanding of any
kind or nature not set forth or provided for herein. No prior course
of dealing, usage of trade or course of performance shall be used to
supplement or explain any term, condition or instruction used in this
Lease, nor be deemed to effect any amendment.
29. ORDER OF PRECEDENCE
In the event of a conflict between the terms and conditions of this
Lease, the Agreement and the provisions of any Annex to the Agreement;
the terms and conditions of the Agreement shall have precedence over
the conflicting provisions of the Annex and this Lease; and, the terms
and conditions of the Annex of the Agreement shall have precedence
over the conflicting provisions of this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by their respective officers thereunto duly authorized, in duplicate
originals, as of the date and year first above written.
VIRGINIA ELECTRIC AND POWER COMPANY
By /s/William R. Cartwright
---------------------------------------
Title Senior Vice President - Fossil & Hydro
---------------------------------------
Date December 22, 1995
---------------------------------------
METTIKI COAL CORPORATION
By /s/Gary J. Rathburn
---------------------------------------
Title Vice President-Marketing
---------------------------------------
Date January 4, 1996
---------------------------------------
- 11 -
<PAGE> 134
ATTACHMENT 1
GUARANTEE AGREEMENT
In consideration of the award by Virginia Electric and Power Company
("Virginia Power") to Mettiki Coal Corporation ("Mettiki"), a wholly owned
subsidiary of MAPCO Coal Inc. ("MAPCO"), of an agreement for the supply of coal
to Virginia Power's Mt. Storm Power Station (the "Station") effective January
15, 1996 (the "Agreement"), MAPCO hereby agrees as follows:
1. MAPCO guarantees the full and faithful performance by Mettiki of
all of the covenants and obligations to be performed by Mettiki under the
Agreement, subject to the following conditions:
(a) Except for the effects of force majeure events claimed
by Virginia Power as set forth in Article 9 of the Agreement, and except for
Seller's failure to deliver the annual quantity of coal for any reason
including force majeure which is firmly ordered by Buyer as provided in Section
3.1(d) of the Agreement, Virginia Power must, for the full term of the
Agreement, purchase an annual average quantity of not less than 2,025,000 tons
of 1.5 lb sulfur/mmBtu coal per year (2,250,000 ton nominal annual tonnage
minus 10%). If the tonnage purchased combined with a projected minimum monthly
tonnage of 187,500 tons for the remaining months of the year which have not yet
been firmly ordered by Virginia Power as set forth in Section 3.1(d) of the
Agreement, results in an annual quantity below 2,025,000 tons per year, this
Guarantee Agreement by MAPCO is null and void. Virginia Power's minimum annual
tonnage requirement as set forth in this Section 1(a) shall in no way reduce
Virginia Power's obligation to purchase 11,250,000 tons +- 5% during the first
five-year period, and 11,250,000 tons +- 8% during the second five-year period
of the Agreement as set forth in Section 3.1(b) of the Agreement.
(b) Notwithstanding the provisions of Section 1(a) above,
if, based upon the projected calendar year tonnage as set forth in Section 1(a)
above, Virginia Power's annual purchase is projected to be below 1,750,000 tons
for any reason, including but not limited to force majeure events claimed by
Virginia Power (but excluding force majeure events claimed by
<PAGE> 135
Mettiki or Mettiki's failure to deliver coal which is firmly ordered by
Virginia Power), this Guarantee Agreement by MAPCO shall be null and void.
(c) All annual tonnage levels referenced in Sections 1(a)
and 1(b) above are based upon 1.5 lb. sulfur/mmBtu coal and shall be increased
by the appropriate conversion factor for adjustment to a 1.9 lb. sulfur/mmBtu
coal if Virginia Power elects to purchase 1.9 lb sulfur/mmBtu coal for such
calendar year as set forth in Section 3.1(f) of the Agreement.
(d) For purposes of determining whether Virginia Power has
met the annual tonnage conditions under Sections 1(a) and 1(b) above, tonnage
suspended under Sections 3.9 and 4.4 of the Agreement, and tonnage canceled
under Section 4.4 of the Agreement shall be credited toward Virginia Power's
satisfaction of such annual tonnage conditions.
(e) Notwithstanding the provisions of Sections 1(a) and/or
1(b) above:
(i) In the event there is a good faith claim of gross
inequity made by either party as set forth in Section 9.3 of the Agreement, and
if, after six (6) months following receipt of notice of the gross inequity
claim, the parties have not agreed in writing upon a mutually acceptable
solution to the gross inequity, this Guarantee Agreement by MAPCO shall be
null and void.
(ii) In the event Mettiki asserts a good faith claim
that Virginia Power has materially breached the Agreement, and Virginia Power
has failed or refused to cure the breach within thirty (30) days after
receiving written notice and appropriate documentation of such breach from
Mettiki, this Guarantee Agreement shall be null and void.
2. Subject to the conditions of Section 1 above, whenever Mettiki
shall breach any covenant or obligation under the Agreement and has failed or
refused to cure such breach within thirty (30) days after Virginia Power has
provided Mettiki with notice and appropriate documentation of such breach,
Virginia Power shall have the right to notify MAPCO of such breach. Subject to
MAPCO's rights in the second sentence of Section 3 of this Guarantee Agreement,
within a reasonable time after receipt of such notice from Virginia Power
(subject to the time limits set forth below) , MAPCO shall forthwith, at
MAPCO's option, either take all
2
<PAGE> 136
such action necessary to cure the breach or indemnify Virginia Power for any
damages, costs, expenses, and/or losses (as limited by Section 10.2 of the
Agreement) that are recoverable by Virginia Power from Mettiki in connection
with the performance or nonperformance of the Agreement. MAPCO shall notify
Virginia Power of its election to indemnify or cure the breach within seven (7)
days following receipt of notice from Virginia Power. If MAPCO elects to cure
such breach, in no event shall the period of time for initiation of the cure
(e.g., delivering a substantial amount of impacted coal) exceed forty five
(45) days after Virginia Power's notice of breach to Mettiki provided under
Section 2 of this Guarantee Agreement, and such cure shall include but not be
limited to reimbursement for excess costs (as described in the second preceding
sentence) incurred by Virginia Power as a result of the breach while awaiting
cure. If MAPCO elects to indemnify Virginia Power, MAPCO shall provide such
remedy on a schedule reasonably established by Virginia Power in good faith
after substantive discussions with MAPCO and considering MAPCO's input. In no
event shall MAPCO's choice of cure or indemnity hereunder result in additional
cost to Virginia Power, starting at the point in time the breach initially
occurred. Cure by MAPCO hereunder shall be deemed to cure breach by Mettiki
under the Agreement, and if MAPCO provides such cure, cure hereunder shall be
Virginia Power's exclusive remedy for such breach. If indemnity is provided by
MAPCO hereunder, indemnity shall not be nor shall it be deemed to be Virginia
Power's exclusive remedy against Mettiki for such breach. Cure or indemnity by
MAPCO hereunder shall be deemed to be Virginia Power's exclusive remedy against
MAPCO for breach of the Agreement by Mettiki.
3. Subject to the conditions set forth above, Virginia Power may
bring a separate action against MAPCO to enforce this Guarantee Agreement,
whether or not an action may be commenced against Mettiki. If Virginia Power
asserts any rights under or brings any action to enforce this Guarantee
Agreement, MAPCO may assert any rights or privileges of Mettiki as set forth in
the Agreement and may assert any defenses available to either MAPCO or Mettiki,
including, but not limited to, the right to contest whether either MAPCO or
Mettiki has any obligation to Virginia Power in event of an alleged breach,
including without limitation the right
3
<PAGE> 137
to contest whether an alleged breach has occurred and/or has been cured.
Notwithstanding the foregoing, Virginia Power and MAPCO acknowledge that any
final, binding and non-appealable judgment for monetary damages against Mettiki
for material breach of the Agreement or, alternatively, against MAPCO for
material breach of this Guarantee Agreement shall be a sufficient basis for a
claim by Virginia Power against MAPCO which claim shall obligate MAPCO under
this Guarantee Agreement. However, Virginia Power and MAPCO agree that such
judgment shall be satisfied first by MAPCO's application of the judgment
lien(s), if any, against the assets of Mettiki and, if such assets are not
sufficient or legally available to satisfy such judgment lien(s), then against
the assets of MAPCO, if necessary and as appropriate.
4. MAPCO agrees that Virginia Power, without notice to or demand
upon MAPCO, and without affecting in any way whatever the obligations of MAPCO
under this Guarantee Agreement, may at any time, and from time to time, agree
with Mettiki to amend the terms and conditions of the Agreement affecting the
obligations of Mettiki thereunder.
Except as it otherwise expressly provides, this Guarantee Agreement
will terminate upon the satisfaction of all of Mettiki's obligations to
Virginia Power under the Agreement, or upon the written release of Mettiki
and/or MAPCO by Virginia Power from such obligations. Nothing in this
Guarantee Agreement shall be interpreted to limit, negate or alter the
obligations and rights of Virginia Power and Mettiki under the Agreement.
MAPCO COAL INC.
By: /s/Gary J. Rathburn
------------------------------
Title: Vice President-Marketing
------------------------------
Date: January 4, 1996
------------------------------
4
<PAGE> 1
EXHIBIT 11.
Statement re: computation of per share earnings
<PAGE> 2
EXHIBIT 11
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in Millions except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Computation for Consolidated Statements of Income
Net income (a) ............................... $ 74.7 $ 79.1 $127.0
====== ====== ======
Weighted average common shares outstanding ... 29.7 30.0 30.0
Common stock equivalents (stock options) ..... - - -
------ ------ ------
Weighted average common shares outstanding ... 29.7 30.0 30.0
====== ====== ======
Primary earnings per common share (a) ........ $ 2.51 $ 2.64 $ 4.24
====== ====== ======
Additional Primary Computation
Net income (a) ............................... $ 74.7 $ 79.1 $127.0
====== ====== ======
Weighted average common shares outstanding ... 29.7 30.0 30.0
Dilutive effect of outstanding options ....... .1 .1 .2
------ ------ ------
Weighted average common shares outstanding,
as adjusted ............................ 29.8 30.1 30.2
====== ====== ======
Primary earnings per common share,
as adjusted(b)......................... $ 2.50 $ 2.63 $ 4.20
====== ====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE
Additional Fully Diluted Computation
Net income (a) ............................... $ 74.7 $ 79.1 $127.0
====== ====== ======
Weighted average common shares outstanding ... 29.7 30.0 30.0
Dilutive effect of outstanding options ....... .1 .1 .2
------ ------ ------
Weighted average common shares outstanding,
as adjusted ................................ 29.8 30.1 30.2
====== ====== ======
Fully diluted earnings per common share (b) .. $ 2.50 $ 2.63 $ 4.20
====== ====== ======
</TABLE>
- -------------
(a) These figures agree with the related amounts in the Consolidated
Statements of Income.
(b) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
<PAGE> 1
EXHIBIT 12.
Computation of Ratio of Earnings to Fixed Charges
<PAGE> 2
EXHIBIT 12
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings as defined:
Income before provision for income taxes ............................... $114.2 $116.6 $202.9 $144.6 $182.6
Fixed charges .......................................................... 66.2 60.1 55.3 60.1 63.9
Capitalized interest included in fixed charges ......................... (1.7) (2.8) (2.0) (1.2)
Amortization of capitalized interest ................................... 3.5 3.4 3.5 3.5 3.3
------ ------ ------ ------ ------
Total .............................................................. $182.2 $180.1 $258.9 $206.2 $248.6
====== ====== ====== ====== ======
Fixed charges as defined:
Interest and debt expense (includes amortization of debt expense
and discount) ....................................................... $ 58.7 $ 53.7 $ 46.9 $ 51.7 $ 55.5
Capitalized interest ................................................... 1.7 2.8 2.0 1.2
Portion of rentals representative of the interest factor ............... 5.8 6.4 5.6 6.4 7.2
------ ------ ------ ------ ------
Total ............................................................. $ 66.2 $ 60.1 $ 55.3 $ 60.1 $ 63.9
====== ====== ====== ====== ======
Ratio of earnings to fixed charges ....................................... 2.8 3.0 4.7 3.4 3.9
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.
List of Subsidiaries
<PAGE> 2
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR OTHER
SUBSIDIARIES AND JURISDICTION IN
AFFILIATES OF MAPCO INC. WHICH INCORPORATED
------------------------ ------------------
<S> <C> <C>
MAPCO Alaska Inc. Alaska
MAPCO Alaska Petroleum Inc. Alaska
MAPCO Ammonia Pipeline Inc. Delaware
MAPCO Coal Inc. Delaware
MAPCO Coal International Inc. Barbados
MAPCO Equities Inc. Oklahoma
MAPCO Express Inc. Alaska
MAPCO Fertilizer Inc. Delaware
MAPCO Gas Inc. Delaware
MAPCO Impressions Inc. Oklahoma
MAPCO Inc. Nevada
MAPCO Indonesia Inc. Delaware
MAPCO Indonesia Inc. Grand Cayman Islands
MAPCO International Inc. Delaware
MAPCO Intrastate Pipeline Company, Inc. Kansas
MAPCO Land & Development Corporation Delaware
MAPCO Land Corporation Delaware
MAPCO Minerals Corporation Delaware
MAPCO Natural Gas Liquids Inc. Delaware
MAPCO Oil & Gas Company Delaware
MAPCO Petroleum Inc. Delaware
MAPCO Petroleum Pipeline Systems, Inc. Delaware
MAPCO Purchasing Company Delaware
(5) Ark City Tank Storage Company Arkansas
(1) Cari International Mining Corporation Delaware
Denali Pipeline Company Alaska
Flat Gap Mining Company Delaware
Garrett County Coal Corporation Delaware
Gibson County Coal Corporation Delaware
Juarez Pipeline Company Delaware
(5) LEXAS OIL, L.L.C. Oklahoma
Martiki Coal Corporation Delaware
Martiki-Pochahontas Partnership Kentucky
MC Mining, Inc. Delaware
Mettiki Coal Corporation Delaware
Mid-America Pipeline Company Delaware
Mt. Vernon Coal Transfer Company Delaware
(2) Permac, Inc. Virginia
Pontiki Coal Corporation Delaware
Posey County Coal Corporation Delaware
(2) Race Fork Coal Corporation Virginia
(2) Raven Coal Co. Delaware
REP Sales, Inc. West Virginia
(6) Rio Grande Pipeline Company, PT Texas
Scotts Branch Co. Delaware
(3) Seminole Pipeline Company Delaware
(4) South Atlantic Coal Company, Inc. Virginia
Thermogas Company Delaware
Toptiki Coal Corporation Delaware
Valley Towing Service, Inc. Tennessee
Webster County Coal Corporation Kentucky
White County Coal Corporation Delaware
</TABLE>
(1) 80% stock by Garrett County Coal Corporation.
(2) 100% stock ownership by South Atlantic Coal Company, Inc.
(3) A consolidated affiliate with 80% ownership effective as of 1/91.
(4) 50% stock ownership by MAPCO Coal Inc. and 50% stock ownership by REP
Sales, Inc.
(5) 50% ownership by MAPCO Petroleum Inc.
(6) Texas Partnership, 45% stock ownership by Juarez Pipeline Company.
<PAGE> 1
EXHIBIT 23.
Independent Auditors' Consent
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
MAPCO Inc.:
We consent to the incorporation by reference in MAPCO Inc.'s Post-Effective
Amendment No. 1 to Registration Statement No. 33-13090 on Form S-8,
Post-Effective Amendment No. 2 to Registration Statement No. 2-77050 on Form
S-8, Post-Effective Amendment No. 1 to Registration Statement No. 33-28722 on
Form S-8, Post-Effective Amendment No. 1 to Registration Statement No. 33-29043
on Form S-8, Post-Effective Amendment No. 1 to Registration Statement No.
33-29044 on Form S-8, Registration Statement No. 33-33217 on Form S-8 and
Registration Statement No. 33-34044 on Form S-3 of our report dated January 26,
1996 (March 7, 1996 as to Note 12 to the consolidated financial statements)
with respect to the consolidated financial statements and financial statement
schedules of MAPCO Inc., which report includes an explanatory paragraph
relating to certain litigation and an explanatory paragraph concerning MAPCO
Inc.'s change during 1995 in its method of accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of to conform with
Statement of Financial Accounting Standards No. 121, included in the Annual
Report on Form 10-K of MAPCO Inc. for the year ended December 31, 1995.
Deloitte & Touche LLP
Tulsa, Oklahoma
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAPCO INC.'S
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995, AND MAPCO INC.'S
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 33,300
<SECURITIES> 0
<RECEIVABLES> 239,300
<ALLOWANCES> 1,500
<INVENTORY> 117,100
<CURRENT-ASSETS> 685,800
<PP&E> 2,209,100
<DEPRECIATION> 835,400
<TOTAL-ASSETS> 2,293,300
<CURRENT-LIABILITIES> 417,500
<BONDS> 801,000
<COMMON> 62,900
0
0
<OTHER-SE> 579,400
<TOTAL-LIABILITY-AND-EQUITY> 2,293,300
<SALES> 3,310,000
<TOTAL-REVENUES> 3,310,000
<CGS> 0
<TOTAL-COSTS> 2,912,800
<OTHER-EXPENSES> 224,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,300
<INCOME-PRETAX> 114,200
<INCOME-TAX> 37,200
<INCOME-CONTINUING> 74,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,700
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.50
</TABLE>
