<PAGE> 1
SCHEDULE 14A-INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BLUE DIAMOND COAL COMPANY
------------------------------------------------
(Name of Registrant as Specified In its Charter)
----------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK
(2) Aggregate number of securities to which transaction applies:
464,980 SHARES
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): $60.413
(4) Proposed maximum aggregate value of transaction: $28,090,837
(5) Total fee paid: $5,618.17
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------
(2) Form, Schedule or Registration Statement No.:
--------------
(3) Filing Party:
--------------
(4) Date Filed:
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BLUE DIAMOND COAL COMPANY
P. O. Box 59015
Knoxville, Tennessee 37950-9015
March 6, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Blue Diamond Coal Company ("Blue Diamond"), which will be held on Friday,
March 27, 1998, at the Howard Johnson Plaza Hotel, 7621 Kingston Pike,
Knoxville, Tennessee at 10:00 a.m., Eastern time (the "Special Meeting").
At this meeting, you will be asked to consider and vote upon a proposed
merger (the "Merger") involving Blue Diamond and James River Coal Company
("James River"), pursuant to which James River Coal Mergersub, Inc., a
wholly-owned subsidiary of James River ("Subsidiary"), will be merged with and
into Blue Diamond. Upon consummation of the Merger, Blue Diamond will be the
surviving company as a wholly-owned subsidiary of James River, and each share of
common stock, par value $1.00 per share, of Blue Diamond ("Common Stock"),
except for those shares as to which appraisal rights are exercised, will be
converted into the right to receive from James River $60.413 in cash and the
right to receive from Blue Diamond certain contingent consideration. The terms
and conditions regarding the contingent consideration are set forth in the
contingency agreement ("Contingency Agreement") to be entered into between Blue
Diamond, Hamilton Holdings, Ltd. ("Hamilton, Ltd.") and James River. The Merger
and the Contingency Agreement are more fully described in the accompanying Proxy
Statement. A copy of the Agreement of Merger dated as of February 11, 1998 (the
"Merger Agreement") is set forth as Appendix A to the attached Proxy Statement.
A copy of the Contingency Agreement is attached as Exhibit B to the Merger
Agreement.
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS (THE "SPECIAL
COMMITTEE") AND THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF BLUE DIAMOND AND ITS SHAREHOLDERS. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
All shareholders are invited to attend the Special Meeting in person.
Approval of the Merger requires the affirmative vote of a majority of the
outstanding shares of Common Stock. On February 13, 1998, James River purchased
470,240 shares of Common Stock from Hamilton Ltd. for a price of $60.413 per
share and the right to participate, ratably with other shareholders, in any
payments made under the Contingency Agreement. As of March 2, 1998, James River
owned 50.3% of the total outstanding shares of Common Stock. James River has
agreed to vote all of its shares in favor of the Merger, which is sufficient to
approve the Merger.
The accompanying Proxy Statement provides detailed information
concerning the Merger and certain additional information. You are urged to read
and carefully consider this information. Also enclosed are copies of Blue
Diamond's Annual Report on Form 10-K for the year ended March 31, 1997 and its
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997.
In order that your shares may be represented at the Special Meeting,
you are urged promptly to complete, sign, date and return the accompanying Proxy
in the enclosed envelope, whether or not you plan to attend the Special Meeting.
If you attend the Special Meeting in person, you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
Ted B. Helms
President
<PAGE> 3
BLUE DIAMOND COAL COMPANY
-------------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March 27, 1998
-------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Blue
Diamond Coal Company ("Blue Diamond") will be held on Friday, March 27, 1998 at
the Howard Johnson Plaza Hotel, 7621 Kingston Pike, Knoxville, Tennessee at
10:00 a.m., Eastern time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement of Merger dated as of February 11, 1998 (the "Merger Agreement") among
Blue Diamond, James River Coal Company ("James River") and James River Coal
Mergersub, Inc. ("Subsidiary") and the transactions contemplated thereby, a copy
of which is set forth as Appendix A to the attached Proxy Statement. The Merger
Agreement provides for, among other things (i) the proposed merger of
Subsidiary, a Delaware corporation and wholly-owned subsidiary of James River,
with and into Blue Diamond with Blue Diamond to be the surviving corporation in
the Merger and (ii) the appointment of Hamilton Holdings, Ltd. ("Hamilton,
Ltd.") as representative of the shareholders of Blue Diamond under the
Contingency Agreement to be entered into between Blue Diamond, James River and
Hamilton, Ltd., a copy of which is attached as Exhibit B to the Merger
Agreement.
2. To transact such other business as may properly come before the
Special Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on March 2, 1998,
are entitled to notice of, and to vote at, the Special Meeting and any
adjournments thereof.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of Blue Diamond common stock.
Under Delaware law, shareholders who do not vote in favor of the Merger
and who file demands for an appraisal prior to the shareholder vote on the
Merger Agreement have the right to seek, upon consummation of the Merger, an
appraisal of the "fair value" of their Common Stock by the Delaware Court of
Chancery. In order to exercise such right, a shareholder must comply with all
the procedural requirements of section 262 ("Section 262") of the Delaware
General Corporation Law, a description of which is provided in "The Merger -
Appraisal Rights" section of the attached Proxy Statement and the full text of
which is attached thereto as Appendix C.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE
MERGER AGREEMENT.
BY ORDER OF THE BOARD
OF DIRECTORS
K. Roger Foster
Secretary
Knoxville, Tennessee
March 6, 1998
<PAGE> 4
PROXY STATEMENT
BLUE DIAMOND COAL COMPANY
341 Troy Circle
P. O. Box 59015
Knoxville, Tennessee 37950
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 27, 1998
This Proxy Statement and the accompanying form of proxy are being
furnished in connection with the solicitation of proxies by the Board of
Directors of Blue Diamond Coal Company ("Blue Diamond"), to be used at the
Special Meeting of shareholders of Blue Diamond to be held on Friday, March 27,
1998 at 10:00 a.m., Eastern time (the "Special Meeting"). This Proxy Statement
and the accompanying proxy are first being mailed to shareholders on or about
March 6, 1998.
At the Special Meeting, shareholders will consider and vote upon the
approval and adoption of the Agreement of Merger dated as of February 11, 1998
(the "Merger Agreement"), among James River Coal Company ("James River"), Blue
Diamond and James River Coal Mergersub, Inc., a wholly-owned subsidiary of James
River ("Subsidiary"). The Merger Agreement provides for the merger (the
"Merger") of Subsidiary with and into Blue Diamond. Upon the effectiveness of
the Merger, Blue Diamond will be the surviving corporation as a wholly-owned
subsidiary of James River (the "Surviving Corporation").
Pursuant to the terms of the Merger Agreement and at the effective time
of the Merger (the "Effective Time"), each share of common stock, par value
$1.00 per share, of Blue Diamond ("Common Stock") outstanding prior to the
Effective Time (other than the shares owned by James River and treasury shares
which will be canceled and shares as to which appraisal rights are exercised)
will be converted into a right to receive from James River $60.413 in cash (the
"Cash Consideration") and the right to receive from Blue Diamond certain
contingent consideration (the "Contingent Consideration"). The Cash
Consideration and Contingent Consideration are referred to collectively herein
as the "Merger Consideration."
The Contingent Consideration will be paid pursuant to the terms of a
Contingency Agreement to be entered into between James River, Blue Diamond and
Hamilton Holdings, Ltd. ("Hamilton, Ltd."), which will be executed immediately
prior to the Effective Time (the "Contingency Agreement"). The Contingency
Agreement provides for the payment to shareholders of Blue Diamond, on a pro
rata basis, of 50% of the net value of the reduction, if any, in Blue Diamond's
liability under the Coal Industry Retiree Health Benefit Act of 1992 (the "Coal
Act"), if such reduction is a result of legislative action or final judicial
action occurring within a five year period after the Merger. Hamilton, Ltd. will
serve as representative of the Blue Diamond shareholders under the Contingency
Agreement and will have the authority to determine if a payment event has
occurred, to seek payment of the Contingent Consideration, and otherwise to
administer and enforce the terms of the Contingency Agreement. See "The Merger -
Contingency Agreement."
On February 13, 1998, James River purchased 470,240 shares of Common
Stock from Hamilton Ltd. at a price of $60.413 per share and the right to
participate, ratably with other shareholders, in any payments made under the
Contingency Agreement. As a result of this purchase, James River owns 50.3% of
the issued and outstanding shares of Common Stock entitled to vote at the
Special Meeting. James River has agreed to vote all of its shares in favor of
the Merger, which is sufficient to approve the Merger.
THE BOARD OF DIRECTORS OF BLUE DIAMOND RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT.
Only shareholders of record at the close of business on March 2, 1998
(the "Record Date") will be entitled to notice of, and to vote at, the Special
Meeting. At the close of business on the Record Date, there were 935,220 shares
of Common Stock outstanding and entitled to vote at the Special Meeting. Each
share of Common Stock is entitled to one vote. The holders of a majority of the
Common Stock issued and outstanding and entitled to vote at the Special Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business. An "abstention" (including broker "non votes") will be
considered present for quorum purposes, but will have the same effect as a vote
"against" the proposal to approve the Merger Agreement. A "broker non-vote"
refers to shares represented at the Special Meeting in person or by proxy by a
broker
<PAGE> 5
or nominee where such broker or nominee (i) has not received voting instructions
on a particular matter from the beneficial owners or persons entitled to vote
and (ii) the broker or nominee does not have the discretionary voting power on
such matter.
If the accompanying proxy card is executed and returned, it will be
voted at the Special Meeting in accordance with the specifications made thereon,
or if no specifications are made, will be voted for approval of the Merger
Agreement and for approval of any other business presented at the Special
Meeting. A proxy may be revoked at any time before it is voted by submission of
a written revocation to Blue Diamond, by the return of a new proxy to Blue
Diamond or by the shareholder's personal vote at the Special Meeting. A written
revocation or new proxy may be sent to Blue Diamond at P. O. Box 59015,
Knoxville, Tennessee 37950-9015, Attention: Secretary, and must be received
prior to the Special Meeting. No special form of revocation is required. The
presence of a shareholder at the Special Meeting does not automatically revoke
his proxy.
SHAREHOLDERS ARE REQUESTED TO PROMPTLY SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE, EVEN
IF THEY PLAN TO ATTEND THE SPECIAL MEETING. FAILURE TO RETURN A PROPERLY
EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE MERGER AGREEMENT.
The Merger will be a taxable transaction to shareholders of Blue
Diamond for federal income tax purposes.
------------------
The date of this Proxy Statement is March 6, 1998
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<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................................................................................1
The Special Meeting and Required Vote...........................................................................1
The Merger and the Merger Agreement ............................................................................1
Other Agreements................................................................................................4
Market Price of Common Stock....................................................................................5
THE SPECIAL MEETING AND REQUIRED VOTE....................................................................................6
Meeting of Shareholders.........................................................................................6
Purpose of Meeting..............................................................................................6
Voting Requirements at Meeting..................................................................................6
Proxies .......................................................................................................6
THE MERGER...............................................................................................................7
General .......................................................................................................7
Background of the Merger........................................................................................7
Reasons for the Merger; Recommendation of the Special Committee and the Board...................................9
Opinion of Blue Diamond's Financial Advisor....................................................................10
Information Concerning Hilliard Lyons .........................................................................13
Merger Consideration and Source of Funds ......................................................................13
Interests of Certain Members of Management in the Merger.......................................................14
Effect on Employee Benefit Plans...............................................................................14
Accounting Treatment...........................................................................................15
Appraisal Rights...............................................................................................15
THE MERGER AGREEMENT....................................................................................................17
Effective Time.................................................................................................17
The Merger.....................................................................................................17
Consideration to be Received in the Merger.....................................................................17
Payment Procedures and Paying Agent ...........................................................................17
Representations and Warranties.................................................................................18
Covenants......................................................................................................19
Conditions to the Merger ......................................................................................20
Termination and Expenses.......................................................................................20
Contingency Agreement..........................................................................................20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................................21
OTHER AGREEMENTS........................................................................................................22
The Option Agreement...........................................................................................22
Extension of Contracts.........................................................................................22
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT......................................................24
FINANCIAL INFORMATION ..................................................................................................25
MARKET PRICES AND DIVIDENDS.............................................................................................26
GENERAL.................................................................................................................26
Independent Public Accountants.................................................................................26
Shareholder Proposals..........................................................................................26
Other Matters..................................................................................................26
Solicitation of Proxies and Cost Thereof ......................................................................27
Additional Information.........................................................................................27
Incorporation of Certain Documents by Reference................................................................27
</TABLE>
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<PAGE> 7
APPENDICES
APPENDIX A - MERGER AGREEMENT
APPENDIX B - OPINION OF J.J.B. HILLIARD, W.L. LYONS, INC.
APPENDIX C - DELAWARE GENERAL CORPORATION LAW SECTION 262
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement and in the attached Appendices and in the other documents delivered
herewith. Shareholders are urged to read all of this information carefully.
THE SPECIAL MEETING AND REQUIRED VOTE
The Special Meeting will be held on Friday, March 27, 1998, at the
Howard Johnson Plaza Hotel, 7621 Kingston Pike, Knoxville, Tennessee at 10:00
a.m., Eastern time. Only holders of record of Common Stock at the close of
business on March 2, 1998 (the "Record Date"), will be entitled to vote at the
Special Meeting. On the Record Date, there were issued and outstanding 935,220
shares of Common Stock held by 378 holders of record. Each such share is
entitled to one vote on each matter which is brought before the shareholders at
the Special Meeting.
At the Special Meeting, the shareholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement, which provides
for the merger of Subsidiary with and into Blue Diamond, with Blue Diamond being
the Surviving Corporation. Approval of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Common Stock.
As of the Record Date, directors and executive officers of Blue Diamond
owned beneficially an aggregate of 38,919 shares of Common Stock, or
approximately 4.2% of the shares of Common Stock outstanding on such date. Such
directors and executive officers intend to vote all such shares in favor of the
Merger. At that date, James River owned beneficially an aggregate of 470,240
shares of Common Stock, or approximately 50.3% of the shares of Common Stock
outstanding on such date. James River has agreed to vote all of its shares in
favor of the Merger, which is sufficient to approve the Merger.
Under Delaware law, shareholders who do not vote in favor of the Merger
and who file demands for an appraisal prior to the shareholder vote on the
Merger Agreement have the right to seek, upon consummation of the Merger, an
appraisal of the "fair value" of their Common Stock by the Delaware Court of
Chancery. In order to exercise such right, a shareholder must comply with all
the procedural requirements of section 262 ("Section 262") of the Delaware
General Corporation Law, a description of which is provided in "The Merger -
Appraisal Rights" section herein and the full text of which is attached to this
Proxy Statement as Appendix C. Such "fair value" will be determined in judicial
proceedings, the result of which cannot be predicted. Failure to take any of the
steps required under Section 262 may result in a loss of such appraisal rights.
See "The Merger - Appraisal Rights."
THE MERGER AND THE MERGER AGREEMENT
Parties to the Merger
Blue Diamond. Blue Diamond is engaged, together with its wholly-owned
subsidiary, Blue Diamond Coal Export Company, in the leasing of coal properties
and the purchasing, processing, and selling of bituminous coal. Eolia Resources,
Inc., a wholly-owned subsidiary, owns and leases certain mineral rights.
The principal product of Blue Diamond is low sulphur coal suitable for
industrial and utility uses. Blue Diamond purchases coal produced by independent
operators from underground and surface mines on properties owned or leased by it
in southeastern Kentucky. As of March 31, 1997, Blue Diamond owned reserves of
approximately 116.4 million tons of clean, recoverable, coal. Blue Diamond also
purchases coal for brokerage from other producers and purchases a limited amount
of coal for processing from other producers. The processing and loading for
shipment to the customers of coal purchased from other operators is performed by
employees of Blue Diamond. Blue Diamond's operations accounted for less than 1%
of the United States' 1997 coal production.
Blue Diamond's coal, both purchased and brokered, is sold primarily to
utility companies and industrial users. Blue Diamond's coal competes with
hydroelectric and nuclear power as well as other fossil fuels in the production
of electricity. Blue Diamond competes in markets located in the southeastern and
midwestern United States.
<PAGE> 9
During the fiscal year ended March 31, 1997, two customers accounted
for a significant portion of Blue Diamond's total coal sales. Georgia Power
Company and Orlando Utilities Commission accounted for 31.8% and 30.9%,
respectively, of consolidated revenue from coal sales.
Blue Diamond's earnings have been adversely affected by the Coal Act
which was enacted by Congress to fund deficits which existed in certain United
Mine Workers of America ("UMWA") Welfare Funds. Although Blue Diamond employees
were last covered by a UMWA wage agreement which expired in 1964, Blue Diamond
was assessed significant annual premiums under this legislation to fund a
portion of the deficits. Blue Diamond has exhausted all judicial appeals with
respect to the Coal Act's constitutionality.
Blue Diamond's principal executive offices are located at 341 Troy
Circle, Knoxville, Tennessee 37919 and its telephone number is (423)588-8511.
Blue Diamond's mailing address is P.O. Box 59015, Knoxville, TN 37950-9015. For
more information about Blue Diamond, reference is made to Blue Diamond's Annual
Report on Form 10-K for the year ended March 31, 1997 and its Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997, copies of which are being
mailed to shareholders together with this Proxy Statement.
James River. James River is engaged in mining, processing and selling
premium quality steam and metallurgical coal from four deep mining complexes
located in Pike, Perry, Leslie, Harland and Bell Counties, Kentucky. James River
conducts its operations primarily through four operating subsidiaries, McCoy
Elkhorn Coal Corporation, Leeco, Inc., Bledsoe Coal Corporation and Bell County
Coal Corporation. James River produces and processes approximately 12.7 million
tons of coal per year and owns clean, recoverable reserves of approximately 218
million tons. James River sells primarily to electric utilities, steel producers
and other industrial customers located in the eastern United States.
James River's principal executive offices are located at 701 East Byrd
Street, Suite 1100, Richmond, Virginia, and its telephone number is (804)
780-3000.
Subsidiary. Subsidiary is a wholly-owned subsidiary of James River and
was formed for the sole purpose of effecting the Merger. Subsidiary's principal
executive offices are 701 East Byrd Street, Suite 1100, Richmond, Virginia 23219
and its telephone number is (804)780-3000.
Merger Consideration and Source of Funding
The Merger Agreement provides that each share of Common Stock issued
and outstanding prior to the Effective Time (other than the shares owned by
James River and treasury shares which will be canceled and shares as to which
appraisal rights are exercised) will be converted in the Merger into a right to
receive from James River $60.413 in cash and the right to receive from Blue
Diamond Contingent Consideration.
The Contingency Agreement will entitle the shareholders of Blue Diamond
to receive, on a pro rata basis, 50% of the net value of the reduction, if any,
in Blue Diamond's liability under the Coal Act that results from legislative
action or final judicial action occurring within a five year period after the
Merger. The Contingency Agreement is attached as Exhibit B to the Merger
Agreement and is more fully described under "The Merger - Contingency Agreement"
herein.
James River plans to finance its obligation to pay the aggregate Cash
Consideration to the shareholders of Blue Diamond from the proceeds of an
existing bank credit facility.
Recommendation of the Special Committee of the Board of Directors and the Board
of Directors
On January 9, 1998, the Board of Directors appointed Alexander
Bonnyman, Thomas Dickenson, and Thomas O'Connell as members of a special
committee of the Board of Directors (the "Special Committee") to evaluate the
proposed merger transaction and to provide a recommendation regarding whether to
proceed with the Merger. After analyzing the transaction, and based upon advice
received from its financial advisors and other information known to it, the
Special Committee, believing the Merger to be in the best interests of Blue
Diamond's shareholders, unanimously recommended that the Board of Directors of
Blue Diamond approve the Merger Agreement.
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<PAGE> 10
Based upon the Special Committee's analysis and recommendation, as well
as the Board's own analysis and evaluation of the transaction, the Board of
Directors believes that the Merger is fair to, and in the best interests of,
Blue Diamond and its shareholders. The Board has approved the Merger Agreement
and recommends that the shareholders of Blue Diamond vote FOR approval of the
Merger Agreement. For a discussion of the factors considered by the Special
Committee and the Board in reaching their decision, see "The Merger - Reasons
for the Merger; Recommendation of the Special Committee and the Board."
Opinion of Blue Diamond's Financial Advisor
J.J.B. Hilliard, W. L. Lyons, Inc. ("Hilliard Lyons") has acted as
financial advisor to Blue Diamond in connection with the Merger. On February 5,
1998, Hilliard Lyons delivered an oral opinion to the Special Committee to the
effect that, as of the date of such opinion, the Merger Consideration was fair,
from a financial point of view, to the minority holders of the Common Stock.
Hilliard Lyons has confirmed the foregoing oral opinion by delivery of a written
opinion, dated the date of the Merger Agreement. The full text of the written
opinion of Hilliard Lyons, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix B
to this Proxy Statement. The opinion should be read carefully in its entirety.
See "The Merger - Opinion of Blue Diamond's Financial Advisor."
No Regulatory Approvals Required
The Merger is exempt from review under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, by the Federal Trade Commission and the
Department of Justice. There are no other federal or state regulatory approvals
required with respect to this transaction.
Conditions to the Merger
In addition to obtaining requisite shareholder approval, the
obligations of James River and Blue Diamond to consummate the Merger are subject
to the satisfaction or waiver of various conditions, including, among other
things, the obtaining of required third party consents, the receipt of customary
legal opinions, the truth and correctness of representations and warranties and
the absence of certain material adverse changes with respect to Blue Diamond.
See "The Merger Agreement Conditions to the Merger."
Certain Covenants
The Merger Agreement contains various covenants of James River and Blue
Diamond with respect to certain matters during the period prior to the Effective
Time. Blue Diamond has agreed to conduct its business and operations prior to
the Effective Time in the ordinary course consistent with past practices, except
as contemplated by the Merger Agreement, and not to take certain actions without
the prior written consent of James River. Blue Diamond has agreed that, except
as required to comply with the fiduciary duties of the Board, it will not
solicit other acquisition transactions. Both James River and Blue Diamond have
agreed, among other things, to take all actions necessary, proper or advisable
to consummate the transactions contemplated by the Merger Agreement, to
coordinate in making public announcements, to obtain certain consents with
respect to the Merger, and to provide each other with prompt notice upon the
occurrence of certain events.
See "The Merger Agreement - Covenants."
Termination and Expenses
The Merger Agreement may be terminated by either Blue Diamond or James
River if the Merger has not been consummated by June 30, 1998, or at any time by
mutual consent. In addition, the Merger Agreement may be terminated prior to
such date (i) by either party if (a) the other party materially breaches a
representation, warranty or covenant contained in the Merger Agreement and fails
to cure such breach within ten business days following notice of the breach or
(b) any governmental authority prohibits the Merger and such action is final and
nonappealable; or (ii) by James River, if the Board fails to call a Special
Meeting for the shareholders to vote on the Merger or the recommendation of the
Blue Diamond Board is withdrawn or modified in any manner which is adverse to
James River.
In the event the Merger Agreement is terminated, the Merger Agreement
will be void, without any liability on the part of either party or its
directors, officers, or shareholders, other than with respect to liability
regarding maintaining
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<PAGE> 11
confidentiality, any breaches of covenants or warranties, and fees and expenses
incurred in pursuing the Merger. See "The Merger Agreement - Termination and
Expenses."
Certain Federal Income Tax Consequences
The Merger will be a taxable transaction to shareholders of Blue
Diamond for federal income tax purposes. All Blue Diamond shareholders should
read carefully the discussion under "Certain Federal Income Tax Consequences"
and are urged to consult their own tax advisors as to the specific consequences
to them of the Merger under federal, state, local or any other applicable tax
laws.
Interests of Certain Persons in the Merger
Blue Diamond's management and certain members of the Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as shareholders of Blue Diamond generally and which may create
potential conflicts of interest. These interests include an agreement between
James River and an affiliate of Directors Thomas Hamilton, Leo Hamilton, and
Stephen Hamilton to cause Blue Diamond to extend a coal supply contract and
sublease agreement between the affiliated entity and Blue Diamond, the continued
employment of Ted B. Helms, the President and a Director of Blue Diamond,
employee severance plans, other employee benefits, indemnification and insurance
benefits that may be affected by the Merger.
See "The Merger - Interests of Certain Persons in the Merger."
Appraisal Rights
Under Delaware law, shareholders who do not vote in favor of the Merger
and who file demands for appraisal prior to the shareholder vote on the Merger
Agreement have the right to seek, upon consummation of the Merger, an appraisal
of the "fair value" of their Common Stock by the Delaware Court of Chancery. In
order to exercise such rights, a shareholder must comply with all the procedural
requirements of Section 262 ("Section 262") of the Delaware General Corporation
Law, a description of which is provided in "The Merger - Appraisal Rights"
section herein and the full text of which is attached to this Proxy Statement as
Appendix C. Such "fair value" will be determined in judicial proceedings, the
result of which cannot be predicted. Failure to take all the necessary steps
required under Section 262 may result in a loss of such appraisal rights.
See "The Merger-Appraisal Rights."
OTHER AGREEMENTS
On December 15, 1997, Hamilton, Ltd. and James River entered into an
agreement (the "Option Agreement") which granted James River the option (the
"Option") to purchase 470,240 shares of Common Stock owned by Hamilton, Ltd.
(the "Hamilton Shares"). Director Thomas Hamilton owns a controlling interest
and Directors Leo and Stephen Hamilton own minority interests in Hamilton, Ltd.
James River exercised the Option on February 13, 1998 and purchased the Hamilton
Shares for a purchase price of $60.413 per share in cash plus the right for
Hamilton, Ltd. to participate, ratably with other shareholders, in any payments
made under the Contingency Agreement. Under the provisions of the Contingency
Agreement, Hamilton, Ltd. is deemed to be the holder of 470,240 shares of Common
Stock and will participate on that basis in payments, if any, made pursuant to
such agreement. A copy of the Contingency Agreement is attached as Exhibit B to
the Merger Agreement, which Merger Agreement is attached as Appendix A hereto.
The Option Agreement also provides for the extension of a coal supply
contract ("Coal Supply Contract") and sublease ("Sublease") between Blue Diamond
and Nally & Hamilton Enterprises, Inc. ("Nally") for a three year period
commencing after the Effective Time. Director Thomas Hamilton is the President
and majority shareholder of Nally. Directors Leo Hamilton and Stephen Hamilton
are officers and minority shareholders of Nally. The Sublease, effective
December 31, 1992, provides that Nally sublease certain parcels from Blue
Diamond to mine coal in exchange for royalty payments payable to Blue Diamond.
The Coal Supply Contract, effective December 31, 1992, provides that Nally sell
a specified quantity of coal at a specified price to Blue Diamond from coal
produced from the parcels subject to the Sublease. The Option Agreement provides
that the Coal Supply Contract and the Sublease will be extended upon the same
terms and conditions as in effect at December 31, 1997, if they are not extended
earlier by agreement of Blue Diamond and Nally.
See "Other Agreements Extension of Contracts."
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MARKET PRICE OF COMMON STOCK
The ask price per share of Common Stock as of December 15, 1997, the
last business day preceding public announcement of the Option Agreement, was
$29.50. On February 11, 1998, the last business day preceding public
announcement of the execution of the Merger Agreement, the ask price was $39.50.
On March __, 1998, the ask price per share of Common Stock was
$_________.
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THE SPECIAL MEETING AND REQUIRED VOTE
MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished to the holders of Common Stock
in connection with the solicitation of proxies by and on behalf of the Board for
use at the Special Meeting to be held at 10:00 a.m., Eastern time, on March 27,
1998, at the Howard Johnson Plaza Hotel, 7621 Kingston Pike, Knoxville,
Tennessee, and at any adjournments thereof. The Board has fixed the close of
business on March 2, 1998, as the Record Date for determining the shareholders
of Blue Diamond entitled to notice of and to vote at the Special Meeting. This
Proxy Statement and the enclosed proxy are first being sent to holders of Common
Stock on or about March 6, 1998.
PURPOSE OF MEETING
At the Special Meeting, Blue Diamond's shareholders will consider and
vote upon (i) the approval and adoption of the Merger Agreement, pursuant to
which Hamilton, Ltd. will serve as representative of the Blue Diamond
shareholders under the Contingency Agreement, and (ii) such other business as
may properly come before the Special Meeting or any adjournments thereof.
VOTING REQUIREMENTS AT MEETING
At the Special Meeting, approval and adoption of the Merger Agreement
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock. The presence at the Special Meeting, in person or by
proxy, of the holders of a majority of the total number of shares of Common
Stock outstanding on the Record Date will constitute a quorum for the
transaction of business by such holders at the Special Meeting. On the Record
Date, there were 935,220 outstanding shares of Common Stock, each holder of
which is entitled to one vote per share with respect to each matter to be voted
on at the Special Meeting. Blue Diamond has no class or series of stock
outstanding other than Common Stock entitled to vote at the Special Meeting or
otherwise entitled to vote with respect to the Merger Agreement.
An "abstention" (including broker "non-votes") will be considered
present for quorum purposes, but will have the same effect as a vote "against"
the proposal to approve the Merger Agreement. A "broker non-vote" refers to
shares represented at the Special Meeting in person or by proxy by a broker or
nominee where such broker or nominee (i) has not received voting instructions on
a particular matter from the beneficial owners or persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting power on such
matter.
As of the Record Date, directors and executive officers of Blue Diamond
owned beneficially an aggregate of 38,919 shares of Common Stock, or
approximately 4.2% of the shares of Common Stock outstanding on such date. Such
directors and executive officers intend to vote all such shares in favor of the
Merger. As of that date, James River owned beneficially an aggregate of 470,240
shares of Common Stock, or approximately 50.3% of the shares of Common Stock
outstanding on such date. James River has agreed to vote all of its shares in
favor of the Merger, which is sufficient to approve the Merger.
PROXIES
All proxies that are properly executed by holders of Common Stock and
received by Blue Diamond prior to the Special Meeting will be voted in
accordance with instructions noted thereon. Any proxy that does not specify to
the contrary will be voted in favor of approval and adoption of the Merger
Agreement. Any holder of Common Stock who submits a proxy will have the right to
revoke it, at any time before it is voted, by filing with the Secretary of Blue
Diamond written notice of revocation or a duly executed later-dated proxy, or by
attending the Special Meeting and voting such Common Stock in person.
It is important that proxies be returned promptly. Shareholders who do
not expect to attend the Special Meeting in person are urged to mark, sign and
date the accompanying proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
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THE MERGER
GENERAL
This section of the Proxy Statement describes certain aspects of the
Merger, the Merger Agreement and other related matters. The following
description does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Appendix A to this Proxy
Statement and is incorporated herein by reference. All shareholders are urged to
read the Merger Agreement and the Contingency Agreement in their entirety.
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions, including but not limited to the receipt of all
necessary third party, regulatory and shareholder approvals, Subsidiary will be
merged with and into Blue Diamond. Blue Diamond will survive the Merger as a
wholly-owned subsidiary of James River. As a result of the Merger, each share of
Common Stock outstanding prior to the Effective Time will be converted, except
for those shares as to which appraisal rights are exercised, into the right to
receive from James River $60.413 in cash and the right to receive from Blue
Diamond the Contingent Consideration. See "Appraisal Rights."
BACKGROUND OF THE MERGER
On October 10, 1997, representatives of James River contacted Ted
Helms, President of Blue Diamond, regarding a potential acquisition of Blue
Diamond by James River. Prior to October 10, 1997, James River had researched
the feasibility of a possible business combination with Blue Diamond and had
expressed some initial interest to Thomas Hamilton, the majority owner of Blue
Diamond's majority shareholder, Hamilton, Ltd. On October 14, 1997, James River
and Blue Diamond executed a confidentiality agreement pursuant to which Blue
Diamond provided James River certain information requested by James River to
assist it in evaluating the feasibility of entering into a transaction to
acquire Blue Diamond. Throughout the months of October and November 1997, James
River and Blue Diamond provided information to each other with respect to each
company's respective businesses, assets and financial condition.
On November 17, 1997, James Crawford, President of James River, and Mr.
Helms met in Knoxville, Tennessee to discuss generally the proposed acquisition
of Blue Diamond by James River. At that meeting, and in a subsequent telephone
conversation on November 19, 1997, Messrs. Crawford and Helms discussed various
methodologies of valuing Blue Diamond and the synergies and other cost savings
James River might realize in an acquisition. James River indicated that it would
consider a purchase price of approximately $52 million, with a possible escrow
account to provide Blue Diamond shareholders with funds if Blue Diamond were
granted relief from the Coal Act. The parties agreed to continue discussions,
and Mr. Helms indicated he would present the matter to the Blue Diamond Board of
Directors at its next meeting.
On November 20, 1997, the Board of Directors of Blue Diamond met to
discuss and evaluate James River's proposal. After reviewing the discussions to
date with James River, the Board instructed Mr. Helms to contact James River and
request a postponement of further acquisition discussions for a period of 45 to
60 days. During that period, Blue Diamond would review its legal position as to
limiting its acquisition discussions solely with James River. The Board also
instructed Mr. Helms to engage a financial advisor to advise the Board as to the
potential value of Blue Diamond, the identity of other acquisition candidates
and the advisability of a sale of Blue Diamond. In a telephone conversation on
November 21, 1997, Mr. Helms communicated to Mr. Crawford the Blue Diamond
Board's decision to postpone further discussions until a financial advisor could
advise the Board as to its alternatives.
On December 1, 1997, Blue Diamond contacted Energy Ventures Analysis,
Inc. ("EVA"), an independent energy consulting firm, specializing in the coal
industry, with offices in Pittsburgh, Pennsylvania and Arlington, Virginia, to
assist Blue Diamond in analyzing its strategic alternatives. During the first
two weeks of December 1997, Blue Diamond provided EVA with certain information
regarding Blue Diamond's production, sales and capital expenditure budgets, coal
sale contracts, mine operations and coal reserves. EVA was paid a fixed fee plus
expenses for its work, which totaled approximately $46,000. No portion of this
fee was contingent on the results of EVA's analysis.
On December 15, 1997, James River and Hamilton, Ltd. executed the
Option Agreement pursuant to which Hamilton, Ltd. granted James River the Option
to purchase the Hamilton Shares for a purchase price equal to $60.413 per share
and the right to participate, ratably with other shareholders, in any payments
made under the Contingency Agreement. In the Option Agreement, James River
indicated that it intended to negotiate with Blue Diamond to effect a merger or
other acquisition
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pursuant to which it would acquire the remaining shares of Common Stock at a
price per share equal to the price being paid under the Option Agreement. Thus,
the aggregate consideration proposed to be paid for all shares of Blue Diamond
Common Stock outstanding at such date was $56.5 million. Shortly thereafter, Mr.
Helms and Mr. Crawford recommenced discussions concerning an acquisition of Blue
Diamond by James River.
On January 9, 1998, a telephonic meeting of the Blue Diamond Board of
Directors was held to receive a report from Mr. Helms with respect to
discussions with James River. At that meeting, the Board of Directors
established the Special Committee consisting of Directors Alexander Bonnyman,
Thomas Dickenson and Thomas O'Connell. The Special Committee was authorized to
pursue negotiations with James River and to engage financial advisors to assist
it in carrying out its responsibilities. The Board also ratified the engagement
of Baker, Donelson, Bearman & Caldwell as legal counsel to Blue Diamond.
The Special Committee met on January 12, 1998 and considered the
engagement of financial advisors to prepare a valuation of Blue Diamond and to
render an opinion as to the fairness of the Merger Consideration. The Special
Committee discussed Mr. O'Connell's business relationship with James River. Mr.
O'Connell is President and majority shareholder of Drill Steel Services, Inc.
("Drill Steel"), a distributor of coal mine related products. Pursuant to an
equipment supply agreement which expires in August 1998, Drill Steel sells
drilling equipment to James River. Sales to James River were approximately 21%
of total sales of Drill Steel during 1997. In consideration of Mr. O'Connell's
business relationship with James River, the Special Committee agreed that all
decisions must be approved by unanimous vote. The Special Committee ratified the
engagement of EVA and engaged Hilliard Lyons to render a fairness opinion as to
the consideration to be received in the Merger.
The Special Committee met on January 20, 1998 with EVA in Knoxville,
Tennessee. EVA was retained by Blue Diamond to prepare an analysis as to the
value of Blue Diamond from a coal industry perspective. EVA had been provided
with information that it requested regarding Blue Diamond's current and
projected operations. The information which was provided to EVA included:
historical financial statements, projected financial and operating data, coal
sales contracts, mining and production cost statements, coal reserve studies and
geological data, and coal quality analyses. This is information on which EVA
normally relies in the course of similar projects. In its presentation, EVA
explained the analyses which it had performed, the methodologies employed and
the conclusions which it reached.
EVA prepared a discounted cash flow analysis of the forecasted earnings
of Blue Diamond. In the analysis, EVA relied upon its own forecast of future
coal market prices, its analysis of the future price changes in Blue Diamond's
long-term sales contracts, the current cost of Blue Diamond's mining operations,
and Blue Diamond's projection of future capital expenditures and liability
payments. EVA also considered different scenarios regarding coal market prices
and potential business developments, including possible new product offerings
and a possible new company mine. Applying a range of discount rates which EVA
believed were appropriate for each scenario, EVA concluded that the discounted
present value of Blue Diamond on a cash flow basis was in the range of $45.3 to
$56.3 million.
EVA also prepared a comparison of the valuation of Blue Diamond with
other publicly-traded coal companies (Arch Coal Inc., Zeigler Coal Holding
Company, Pittston Minerals Group, and Rochester & Pittsburgh Coal Company). EVA
believed that such a comparison was impacted by a number of factors: the small
number of public coal companies available for comparison, the substantial number
of unusual gains and charges included in current earnings of such companies, the
lack of analysts' opinions as to projected earnings, the lack of liquidity in
the trading of these coal stocks, and the substantial differences among the
companies in the methods of recognition of long-term liabilities. EVA stated
that taking into account such matters and making the proper adjustments for
valuation purposes was beyond its expertise. EVA did not conclude a valuation of
Blue Diamond based on a comparable public company comparison.
EVA also prepared a comparison with the prices paid for other coal
companies in other recent coal property transactions involving other Appalachian
low-sulfur coal properties. As part of the comparison, EVA performed a number of
adjustments to reflect its views as to the different conditions of each
property. These adjustments included: the ownership and royalty rates associated
with coal reserves, coal mining conditions, the value of long-term coal
contracts, the use of contract mining operations, and the existence of unusual
long-term liabilities. Using this methodology, EVA concluded that a comparable
value for Blue Diamond based on comparable coal property transactions was in the
range of $42.0 to $49.0 million.
On January 21, 1998, EVA presented its analysis to the Board of
Directors of Blue Diamond. At that meeting, the Special Committee reported to
the Board its assessment of EVA's analysis. After discussion, the Special
Committee agreed that it
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would schedule a meeting with James River to explore whether there was any
opportunity to increase the Merger Consideration based on certain potential
business ventures of the company, including new coal product offerings and the
establishment of a new company mine. On January 28, 1998, Messrs. Bonnyman and
Helms met with Mr. Crawford to discuss the Merger. During this meeting, the
possibility of increasing the Merger Consideration was discussed, and Mr.
Crawford indicated James River had considered these potential ventures and
believed it was paying a full and fair value for Blue Diamond and was unwilling
to increase the Merger Consideration. Additional discussions were held as to the
terms of the Merger Agreement and the Contingency Agreement.
On February 5, 1998, the Special Committee heard a presentation from
Hilliard Lyons with respect to the financial terms and fairness to the minority
shareholders of Blue Diamond, from a financial point of view, of the Merger.
Hilliard Lyons delivered an oral opinion to the Special Committee to the effect
that, based upon and subject to certain assumptions, factors and limitations set
forth in its report, as of such date, the Merger Consideration to be received by
the minority holders of Blue Diamond Common Stock is fair, from a financial
point of view, to such holders. See "Opinion of Blue Diamond's Financial
Advisor." The Special Committee concluded, based on the EVA analysis and the
fairness opinion of Hilliard Lyons, to recommend to the Board of Directors that
the Board approve the Merger, on the terms and conditions contained in the
Merger Agreement, substantially in the form attached as Appendix A hereto.
At a meeting of the Blue Diamond Board of Directors on February 10,
1998, the Special Committee reported on its negotiations with James River and
the advice received from its financial advisors. The Special Committee concluded
that it would recommend the Board of Directors approve the Merger, subject to
the Special Committee's review of the final terms of the Contingency Agreement.
Blue Diamond's legal counsel then discussed with the Board the legal structure
and terms of the Merger Agreement and the Contingency Agreement. After review of
the final terms of the Contingency Agreement, the Special Committee affirmed its
recommendation that the Board of Directors approve the Merger. Based upon this
recommendation and on its own analysis, the Board of Directors voted unanimously
in favor of the Merger, on the terms and conditions contained in the Merger
Agreement substantially in the form attached as Appendix A.
REASONS FOR THE MERGER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD
The Special Committee believes that the terms of the Merger are fair
to, and in the best interest of Blue Diamond and its shareholders and
recommended that the Board of Directors approve the Merger. The Board, based
upon the Special Committee's recommendation and its own analysis, also believes
that the terms of the Merger are fair to and in the best interest of Blue
Diamond and its shareholders, and recommends that the Blue Diamond shareholders
vote FOR approval of the Merger. The Special Committee and the Board considered
the following factors in reaching their conclusions:
(i) The consideration to be received by the shareholders in the
Merger, and the premium over the market price represented thereby;
(ii) The strategic alternatives available to Blue Diamond, including
the continued implementation of its strategic plan;
(iii) James River's option to acquire a controlling interest in Blue
Diamond;
(iv) Because of James River's option to acquire a controlling interest
in Blue Diamond, the impracticality of conducting a public auction and
sale of Blue Diamond;
(v) The certainty of value provided by the cash consideration;
(vi) The potential of receiving additional consideration provided by
the Contingent Consideration; and
(vii) Consideration of the evaluation analyses performed by EVA and the
opinion of H-L that the Merger Consideration was fair, from a financial
point of view, to the minority holders of the Common Stock.
The interest of Mr. Helms in continued employment by Blue Diamond was
considered by the Board in its discussions relating to the Merger, as well as
the interests of certain directors in contracts and business relationships with
James River, but such interests did not have any effect upon the Board's
reaching its determination that the Merger is fair to, and in the best interests
of, the Blue Diamond shareholders. See "The Merger - Interest of Certain Persons
in the Merger." In view
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of the wide variety of factors considered by the Board, the Board did not
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making its determination.
THE BOARD OF DIRECTORS RECOMMENDS THAT BLUE DIAMOND SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF BLUE DIAMOND'S FINANCIAL ADVISOR
On February 5, 1998, Hilliard Lyons orally rendered its opinion to the
Special Committee of the Board of Directors of Blue Diamond to the effect that,
based upon and subject to certain assumptions, factors and limitations set forth
in the written opinion described below, as of such date, the consideration to be
received by the minority holders of Common Stock of Blue Diamond is fair, from a
financial point of view, to such holders. Hilliard Lyons subsequently confirmed
its oral opinion in writing on February 11, 1998 after confirming that its
analysis and the Agreement Merger, dated February 11, 1998, had not changed in
any material respect.
THE FULL TEXT OF THE HILLIARD LYONS OPINION DATED FEBRUARY 11, 1998, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS CONSIDERED BY
HILLIARD LYONS, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. HILLIARD LYONS' OPINION DELIVERED TO THE
SPECIAL COMMITTEE OF THE BLUE DIAMOND BOARD OF DIRECTORS WAS DIRECTED ONLY TO
THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE MINORITY HOLDERS OF BLUE
DIAMOND COMMON STOCK, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY BLUE
DIAMOND SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE. THE SUMMARY OF THE
HILLIARD LYONS OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. BLUE DIAMOND
SHAREHOLDERS ARE URGED TO READ THE ENTIRE OPINION CAREFULLY.
In connection with rendering its opinion, Hilliard Lyons reviewed and
analyzed, among other things, (i) the Merger Agreement, (ii) certain information
and analyses prepared by EVA, an independent consulting firm retained by Blue
Diamond, (iii) certain publicly available business and financial information
concerning Blue Diamond, (iv) certain internal information, primarily financial
in nature, including projections, concerning the business and operations of Blue
Diamond, (v) certain publicly available information concerning the trading of,
and the trading market for, Blue Diamond's Common Stock (vi) certain publicly
available information with respect to certain other companies that Hilliard
Lyons believed to be comparable to Blue Diamond and the trading markets for
certain of such other companies' securities, and (vii) certain publicly
available information concerning the nature and terms of other transactions that
Hilliard Lyons considered relevant to its inquiry. Hilliard Lyons also conducted
discussions with representatives of Blue Diamond to discuss the foregoing
matters, including the past and current business operations, financial condition
and prospects of Blue Diamond as well as other matters Hilliard Lyons believed
relevant to its inquiry. Hilliard Lyons also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria as it deemed relevant.
In its review and analysis and in arriving at its opinion, Hilliard
Lyons assumed that the financial and other information provided to it that was
publicly available was accurate and complete and neither attempted independently
to verify nor assumed any responsibility for verifying any of such information.
Hilliard Lyons conducted a physical inspection of certain of the properties and
facilities of Blue Diamond but did not make or obtain or assume any
responsibility for making or obtaining any independent evaluations or appraisals
of such properties or facilities. In addition, the Special Committee did not
request Hilliard Lyons to solicit, and accordingly Hilliard Lyons did not
solicit, the interest of third parties to effect a transaction involving Blue
Diamond. With respect to projections, Hilliard Lyons assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Blue Diamond's management as to the future financial
performance of Blue Diamond, and Hilliard Lyons expressed no view with respect
to such projections or the assumptions on which they were based.
In conducting its analysis and in arriving at its opinion, Hilliard
Lyons considered such financial and other factors as it deemed appropriate under
the circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of Blue Diamond; (ii) the
business prospects of Blue Diamond; (iii) the historical and current market for
Blue Diamond's Common Stock and for the equity securities of other companies
that Hilliard Lyons believed to be comparable to Blue Diamond; and (iv) the
nature and terms of other acquisition transactions that Hilliard Lyons believed
to be relevant. Hilliard Lyons also took into account its assessment of general
economic, market and financial conditions as well
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as its experience in connection with similar transactions and securities
valuation generally. No limitations were imposed by the Special Committee or
Blue Diamond with respect to the investigations made or the procedures followed
by Hilliard Lyons in rendering its opinion.
The Hilliard Lyons opinion necessarily was based upon conditions as
they existed and could be evaluated on the date of its opinion, and Hilliard
Lyons assumed no responsibility to update or revise its opinion based upon
circumstances or events occurring after the date of its opinion. The Hilliard
Lyons opinion was limited to the fairness, from a financial point of view, of
the consideration to be received by the minority holders of Blue Diamond Common
Stock and did not address Blue Diamond's underlying business decision to effect
the Merger or constitute a recommendation to any minority holder of Blue Diamond
Common Stock as to how such holder should vote with respect to the Merger.
The preparation of an opinion of fairness involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its fairness opinion, Hilliard Lyons did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Hilliard Lyons believes that its analyses must
be considered as a whole and that considering any portions of such analyses,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the opinion. In its analyses, Hilliard
Lyons made certain assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Blue Diamond. Any estimates contained in the Hilliard Lyons analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than as set forth
therein.
The following is a brief summary of the material financial analyses
which Hilliard Lyons used in providing its written opinion on February 11, 1998
to the Special Committee of the Board of Directors of Blue Diamond. The
following quantitative information, to the extent it is based on market data, is
based on market data as it existed at February 11, 1998, and is not necessarily
indicative of current market conditions.
Summary of Analyses
In order to derive an estimated valuation range for the Blue Diamond
Common Stock, Hilliard Lyons completed a comprehensive valuation analysis of
Blue Diamond based on three primary valuation techniques: (i) a Comparable
Public Company Analysis; (ii) a Discounted Cash Flow Analysis; and (iii) a
Merger and Acquisition Transaction Analysis. In addition to the three primary
valuation techniques, Hilliard Lyons considered several other factors including
a liquidity and trading analysis, a control premium analysis and an analysis of
miscellaneous factors related to the valuation of Blue Diamond including an
assessment of the value of net operating loss carryforwards, an assessment of
the estimated value of any reduction in Blue Diamond's reserve for liability
under the Coal Act and an assessment of Blue Diamond's estimated coal reserves
and customer contracts, among other things.
Comparable Public Company Analysis. Hilliard Lyons compared selected
financial data of Blue Diamond with certain financial data from publicly traded
coal companies considered by Hilliard Lyons to be comparable in some respect to
Blue Diamond. The comparison group consisted of Arch Coal, Pittston Minerals,
Rochester & Pittsburgh Coal Company and Zeigler Coal Holding Company. Hilliard
Lyons noted, however, that the universe of publicly traded companies engaged
exclusively in the coal business is limited. Based on its review of certain
publicly available information regarding the companies in the comparison group
(including multiples of (i) enterprise value to each of cash flow, defined as
EBITDA (earnings before interest, taxes, depreciation and amortization), sales
and tonnage produced, and (ii) market capitalization to each of net earnings,
sales and book value), Hilliard Lyons established a reference range of implied
per share equity values of $52 to $71 for Blue Diamond. Hilliard Lyons
determined that the consideration to be received by the minority holders of Blue
Diamond Common Stock was consistent with this range of implied per share equity
values and that, accordingly, this Comparable Public Company Analysis supported
the conclusions of its opinion.
Discounted Cash Flow Analysis. Hilliard Lyons used two discounted cash
flow methodologies to derive terminal values, or values of cash flows beyond
2004, which yield per share equity value ranges for Blue Diamond: (i) free cash
flow perpetuity growth multiple; and (ii) EBITDA multiple. Further, Hilliard
Lyons estimated per share equity value ranges for Blue Diamond based upon
applying each methodology to each of three separate cases, each case yielding a
set of cash flow projections through 2004. The first case was based upon
forecasted operating results estimated by Blue Diamond management, prepared in
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November 1997. The second case was based on more aggressive, forecasted
operating results estimated by Blue Diamond management, prepared in January
1998. The third case was based upon Hilliard Lyons' assumptions regarding Blue
Diamond management's forecasted operating results derived from cases one and
two.
Hilliard Lyons aggregated, with respect to each of the three cases, the
present value of the projected free cash flows of Blue Diamond through 2004 with
the present value of a range of estimated terminal values for Blue Diamond
(representing estimates of the value of Blue Diamond beyond 2004). Using the
first methodology (free cash flow perpetuity growth multiple), the ranges of
terminal values were calculated by assuming, in each case, post-2004 growth in
perpetuity of 3.0% (determined by Hilliard Lyons based on an assessment of
general economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally). Using
assumed discount rates for annual cash flows ranging from 9.0% to 11.5% for Blue
Diamond, Hilliard Lyons established reference ranges of implied per share equity
values as follows: (i) under case one, $31 to $41 for Blue Diamond, (ii) under
case two, $47 to $58 for Blue Diamond; and (iii) under case three, $47 to $60
for Blue Diamond. Hilliard Lyons determined that the consideration to be
received by minority holders of Blue Diamond Common Stock was consistent with
these ranges of impled per share equity values and that, accordingly, this
Discounted Cash Flow Analysis supported the conclusions of its opinion.
Under the second methodology (EBITDA multiple), the ranges of terminal
values were calculated by assuming, in each case, a post-2004 terminal value
multiple to EBITDA of eight times (determined by Hilliard Lyons based on an
assessment of market and financial conditions, the previously referenced
Comparable Public Company Analysis, as well as its experience in connection with
similar transactions and securities valuation generally). Using assumed discount
rates for yearly cash flows ranging from 9.0% to 11.5% for Blue Diamond,
Hilliard Lyons established reference ranges of implied per share equity values
as follows: (i) under case one, $23 to $26 for Blue Diamond; (ii) under case
two, $48 to $52 for Blue Diamond, and (iii) under case three $43 to $47 for Blue
Diamond. Hilliard Lyons determined that the consideration to be received by
minority holders of Blue Diamond Common Stock was higher than these ranges of
impled per share equity values and that, accordingly, this Discounted Cash Flow
Analysis supported the conclusions of its opinion.
Merger and Acquisition Transaction Analysis. Hilliard Lyons reviewed 18
selected merger and acquisition transactions in the coal industry since 1994 and
concluded that seven transactions yielded sufficient relevant data and were
deemed comparable to Blue Diamond. Hilliard Lyons noted, however, that publicly
available data on precedent transactions is limited. Based on its review of the
available data (including multiples of enterprise value to each of EBIT
(earnings before interest and taxes), EBITDA, and production), Hilliard Lyons
established a reference range of implied per share equity values of $51 to $64
for Blue Diamond. Hilliard Lyons determined that the consideration to be
received by minority holders of Blue Diamond Common Stock was consistent with
this range of implied per share equity values and that, accordingly, this Merger
and Acquisition Transaction Analysis supported the conclusions of its opinion.
Liquidity and Trading Analysis. Hilliard Lyons reviewed the six-month
daily and two-year weekly recorded trading volume for Blue Diamond and each of
the four companies deemed comparable to Blue Diamond. Hilliard Lyons noted that
the six-month daily average trading volume in Blue Diamond Common Stock, as a
percentage of Blue Diamond's estimated float (defined as the number of shares
outstanding less any closely held shares and large, illiquid stakes) was
materially lower for Blue Diamond than for the companies in the comparable
group. In addition, Hilliard Lyons assessed (i) analyst coverage, (ii)
institutional ownership and (iii) bid-ask spreads (defined as the difference
between the bid price and ask price), where applicable, for Blue Diamond and for
the four companies deemed comparable to Blue Diamond. Hilliard Lyons noted that
Blue Diamond had less securities firm research analyst coverage than any of the
companies in the comparable group. Estimated institutional ownership, as a
percentage of shares outstanding, was materially lower for Blue Diamond than for
the companies in the comparable group. Finally, Hilliard Lyons noted that the
general bid-ask spread for Blue Diamond, as a percentage of Blue Diamond's bid
price, was materially higher for Blue Diamond than for the one company in the
comparable group which, like Blue Diamond, is traded in the over-the-counter
market. Hilliard Lyons noted that, collectively, the foregoing data demonstrates
the relative illiquidity of Blue Diamond Common Stock.
Control Premium Analysis. Hilliard Lyons reviewed published
compilations of data regarding numerous merger and acquisition transactions
across various industries. Such data compared the price paid per share in each
transaction to the prevailing market prices at various intervals prior to the
public announcement of such transaction. The Hilliard Lyons control premium
analysis revealed annual average premiums ranging from approximately 25% to 45%.
Hilliard Lyons noted that the premium applicable to Blue Diamond's Common Stock
price immediately prior to the announcement of the Option Agreement was
significantly above the range of premiums indicated by the Hilliard Lyons
analysis of control premiums.
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<PAGE> 20
Miscellaneous Fairness Opinion Issues. As part of its analysis,
Hilliard Lyons considered other items it deemed relevant to its opinion of
fairness including, but not limited to, (i) an assessment of the estimated value
of Blue Diamond's net operating loss carryforwards, (ii) an assessment of the
estimated value of any reduction in Blue Diamond's reserve for liability under
the Coal Act as a result of judicial or other actions and (iii) an assessment of
Blue Diamond's coal reserves and customer contracts.
With regard to (i) above, Hilliard Lyons noted that, pursuant to
operating forecasts prepared by Blue Diamond management, Blue Diamond does not
expect to generate income which would be taxable over the next several years.
Therefore, Blue Diamond's ability to utilize net operating loss carryforwards is
limited.
With regard to (ii) above, given the uncertainty and speculative nature
of a reduction in Blue Diamond's reserve for liability under the Coal Act,
Hilliard Lyons determined for purposes of its analysis that no reduction could
reasonably be expected to occur or, alternatively, no Contingent Consideration
would be payable under the Contingency Agreement. Hilliard Lyons also noted that
all action required to trigger payment of any Contingent Consideration is
outside the control of Blue Diamond, its management and the minority holders of
Blue Diamond's Common Stock.
With regard to (iii) above, the quantity and quality of Blue Diamond's
estimated coal reserves, along with the terms and conditions of Blue Diamond's
customer contracts, are factors which impact the value of Blue Diamond's Common
Stock. For purposes of its analysis, Hilliard Lyons reviewed and considered the
terms and conditions of the customer contracts. Hilliard Lyons relied, without
independent verification, on information provided to it by management related to
Blue Diamond's estimated coal reserves. Hilliard Lyons believes the value of
Blue Diamond's estimated coal reserves and customer contracts is inherent in
Blue Diamond's historical, current and projected operating performance.
INFORMATION CONCERNING HILLIARD LYONS
Hilliard Lyons was retained pursuant to an engagement letter dated
January 13, 1998 (the "Engagement Letter') to act as a financial advisor to the
Special Committee of the Board of Directors of Blue Diamond to provide an
opinion, as investment bankers, as to the fairness, from a financial point of
view, to the minority holders of Blue Diamond Common Stock of the consideration
to be received by such holders in connection with the Merger. Hilliard Lyons was
selected by the Special Committee because of its reputation and its experience
with similar transactions. Hilliard Lyons is a nationally recognized investment
banking firm continuously engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions, and for corporate and other purposes.
Pursuant to the terms of the Engagement Letter, Blue Diamond agreed to
pay Hilliard Lyons a fee of $50,000, payable upon signing the Engagement Letter
and $50,000 payable upon delivery of the written fairness opinion. As a result,
Hilliard Lyons has become entitled to receive aggregate fees of $100,000. Blue
Diamond also has agreed to reimburse Hilliard Lyons for its out-of-pocket
expenses and to indemnify Hilliard Lyons and certain related persons against
certain liabilities, including certain liabilities under the federal securities
laws, relating to or arising out of its engagement.
MERGER CONSIDERATION AND SOURCE OF FUNDS
The Merger Agreement provides that each share of Common Stock issued
and outstanding prior to the Effective Time (other than shares held by James
River and treasury shares which will be canceled and shares as to which
appraisal rights are exercised) will be converted in the Merger into the right
to receive from James River $60.413 in cash and the right to receive from Blue
Diamond the Contingent Consideration. See "The Merger Agreement - Contingency
Agreement" for a detailed discussion regarding the terms of the Contingency
Agreement and the circumstances under which the Contingent Consideration may be
realized.
James River plans to finance its obligation to pay the aggregate Cash
Consideration to the shareholders of Blue Diamond from the proceeds of an
existing bank credit facility.
INTERESTS OF CERTAIN MEMBERS OF MANAGEMENT IN THE MERGER
In considering the Merger, Blue Diamond shareholders should be aware
that certain members of the Board and management of Blue Diamond have certain
interests that are in addition to the interests of Blue Diamond shareholders
generally and may cause them to have potential conflicts of interest.
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<PAGE> 21
Interests of Hamilton Directors
Nally & Hamilton Enterprises, Inc. ("Nally"), a contract surface mining
company owned by Directors Thomas Hamilton, Leo Hamilton, and Stephen Hamilton,
entered into the Coal Supply Contract and the Sublease, each effective as of
December 31, 1992, with Blue Diamond. Pursuant to the Sublease, Blue Diamond
subleases certain parcels of land to be mined by Nally in exchange for royalty
payments. Pursuant to the Coal Supply Contract, Nally sells a certain minimum
amount of the coal mined from these parcels to Blue Diamond. The Coal Supply
Contract expired on December 31, 1997. However, Nally and Blue Diamond have
continued to sell and purchase coal pursuant to this agreement. Pursuant to the
Option Agreement between James River and Hamilton, Ltd., James River agreed that
as of the Effective Time, the Coal Supply Contract and the Sublease would be
extended for a period of three years beginning at the Effective Time of the
Merger on the same terms and conditions as in effect on December 31, 1997. See
"Other Agreements - Extension of Contracts."
Severance Arrangements
Blue Diamond has established a severance package plan ("Severance
Plan") for employees and certain key employees ("Key Employees") (including all
executive officers of Blue Diamond other than Mr. Helms) of Blue Diamond. Under
the Severance Plan, Key Employees who do not accept offers of comparable
employment by James River will receive severance benefits of (i) 16 monthly
payments in an amount equal to the Key Employee's monthly compensation
(including a pro rata share of any bonus payments made in 1997) immediately
prior to the Effective Time; (ii) medical, life and disability coverage for a
period of 60 days after termination of employment; (iii) three weeks lump sum
vacation pay to the extent not taken prior to termination of employment and (iv)
outplacement job services. All other employees of Blue Diamond who do not accept
offers of comparable employment with James River will receive (i) a lump sum
payment in an amount equal to two month's salary; (ii) a severance payment based
on years of service, (iii) medical, life and disability coverage for a period of
60 days after termination of employment; (iv) three weeks lump sum vacation pay
to the extent not taken prior to termination of employment; and (v) outplacement
job services.
Blue Diamond entered into a Retention/Severance Agreement with Mr.
Helms dated as of February 11, 1998 (the "Severance Agreement"). Under the
Severance Agreement, the Company has agreed to employ Mr. Helms in his position
immediately preceding the Effective Time for a period of 3 years after the
Merger. During this period, Mr. Helms will receive an annual base salary of
$144,800 per year. In the event Mr. Helms' employment by Blue Diamond is
terminated for any reason, either by Blue Diamond or by Mr. Helms, Blue Diamond
will pay Mr. Helms a severance benefit of $12,066 per month for 36 months, for
an aggregate severance payment of $434,400. In addition, Blue Diamond will (i)
pay Mr. Helms a lump sum payment for vacation days accrued but unused prior to
the termination of employment, (ii) continue all medical, life and disability
insurance benefits for a period of 60 days after termination and (iii) provide
outplacement job services.
Indemnification; Insurance
James River has agreed that Blue Diamond, as the Surviving Corporation,
to the full extent permitted by the Delaware General Corporation Law as in
effect from time to time, will indemnify the present and former officers and
directors of Blue Diamond for a period of three years from the Effective Time,
from any loss, claim, damage, cost or expense suffered due to the fact that such
person was an officer or director of Blue Diamond prior to the Effective Time.
In addition, James River has agreed that Blue Diamond, as the Surviving
Corporation, will maintain directors' and officers' liability insurance for Blue
Diamond directors and officers at the present levels of coverage for three years
from the Effective Time, subject to certain limitations. See "The Merger
Agreement - Covenants."
EFFECT ON EMPLOYEE BENEFIT PLANS
In the Merger Agreement, James River acknowledged that it intends to
cause Blue Diamond, as the Surviving Corporation, and each of its subsidiaries
to provide any employees of Blue Diamond or its subsidiaries who continue to be
employed on the date 30 days following the Effective Time by Blue Diamond, as
the Surviving Corporation, with employee benefit coverage provided either by
Blue Diamond's employment benefit plans in effect as of the Effective Time or by
James River's employment benefit plans, at the option of James River. James
River has agreed that with respect to Blue Diamond employees that are covered
under James River's welfare benefit plans (as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), the plans will not
include a waiting or eligibility period or preexisting condition
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<PAGE> 22
restrictions. To the extent any limits or deductibles have been met by Blue
Diamond employees prior to the Merger, such amounts will be credited to the
James River plans. The James River plans will recognize Blue Diamond employees'
service with Blue Diamond for purposes of eligibility, vesting and other
features of the James River plans. See "The Merger Agreement - Covenants."
ACCOUNTING TREATMENT
James River intends to treat the Merger as a purchase for accounting
purposes.
APPRAISAL RIGHTS
Record holders of shares of Common Stock are entitled to appraisal
rights under Section 262 of the Delaware General Corporation Law ("DGCL") in
connection with the Merger. The following discussion is not a complete statement
of the law pertaining to appraisal rights under the DGCL and is qualified in its
entirety by reference to the full text of Section 262 which is reprinted in its
entirety as Appendix C to this Proxy Statement. Except as set forth herein and
in Appendix C, holders of shares of Common Stock will not be entitled to
appraisal rights in connection with the Merger.
Under the DGCL, record holders of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger will be entitled to have their shares of Common Stock appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, as determined
by such court.
Under Section 262, where a merger agreement is to be submitted for
adoption at a meeting of shareholders, as in the case of the Special Meeting,
not less than 20 days prior to such meeting, Blue Diamond must notify each of
the holders of Common Stock at the close of business on the record date for such
meeting that such appraisal rights are available and include in each such notice
a copy of Section 262. This Proxy Statement constitutes such notice for purposes
of the Special Meeting. Any shareholder of record who wishes to exercise
appraisal rights should review the following discussion and Appendix C carefully
because failure to timely and properly comply with the procedures specified in
Section 262 will result in the loss of appraisal rights under the DGCL.
A holder of Common Stock wishing to exercise appraisal rights must
deliver to Blue Diamond, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. A proxy or vote against the Merger will not
constitute such a demand. Failure to vote against the Merger will not constitute
a waiver of the holder's appraisal rights. In addition, a holder of Common Stock
wishing to exercise appraisal rights must hold of record such Common Stock on
the date the written demand for appraisal is made and must continue to hold such
Common Stock through the Effective Time.
Only a holder of record of Common Stock is entitled to assert appraisal
rights for the shares of Common Stock registered in that holder's name. A demand
for appraisal should be executed by or on behalf of the holder of record fully
and correctly, as the holder's name appears on the stock certificates.
If shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand for
appraisal should be made in that capacity, and if the shares of Common Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one for two or more joint owners, may execute the
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for owner or owners. A record
holder such as a broker who holds shares of Common Stock as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
Common Stock held for one or more beneficial owners while not exercising such
rights with respect to the shares of Common Stock held for other beneficial
owners; in such case, the written demand should set forth the number of shares
of Common Stock as to which appraisal is sought and where no number of shares of
Common Stock is expressly mentioned the demand will be presumed to cover all
shares of Common Stock held in the name of the record owner. Holders of shares
of Common Stock who hold their shares in brokerage accounts or other nominee
forms and who wish to exercise appraisal rights are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by such nominee. All written demands for appraisal of shares of Common
Stock should be mailed to Blue Diamond Coal
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<PAGE> 23
Company, P. O. Box 59015, Knoxville, Tennessee 37950-9150 or delivered to Blue
Diamond at its principal office located at 341 Troy Circle, Knoxville, Tennessee
37919.
Within 10 days after the Effective Time, Blue Diamond, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person who has satisfied the appropriate provisions of Section 262. Within 120
days after the Effective Time, but not thereafter, the Surviving Corporation or
any such shareholder who has satisfied the foregoing conditions and is otherwise
entitled to appraisal rights under Section 262, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of Common Stock held by such shareholder. Upon the filing of any such
petition by a shareholder, service of a copy of the petition must be made to
Blue Diamond. If no such petition is filed, appraisal rights will be lost for
all shareholders who had previously demanded appraisal of their shares of Common
Stock. Shareholders of Blue Diamond seeking to exercise appraisal rights should
assume that the Surviving Corporation will not file a petition with respect to
the appraisal of the value of shares of Common Stock and that the Surviving
Corporation will not initiate any negotiations with respect to the "fair value"
of shares of Common Stock. Accordingly, shareholders of Blue Diamond who wish to
exercise their appraisal rights should regard it as their obligation to take all
steps necessary to perfect their appraisal rights in the manner prescribed in
Section 262.
Within 120 days after the Effective Time, any record holder of shares
of Common Stock who has complied with the provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Common Stock not voted
in favor of approval of the Merger Agreement and with respect to which demands
for appraisal were received by Blue Diamond, and the number of holders of such
shares of Common Stock. Such statement must be mailed within ten days after the
written request therefore has been received by the Surviving Corporation or
within ten days after expiration of the time for delivery of demands for
appraisal under Section 262, whichever is later.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares of
Common Stock entitled to appraisal rights and will appraise the "fair value" of
the shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their shares of Common Stock as determined under Section 262 could be more than,
the same as or less than the value of the Merger Consideration that they would
otherwise receive if they did not seek appraisal of their shares of Common
Stock. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community are otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of shares of Common Stock in connection with an appraisal, including
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Common Stock entitled to appraisal.
Any shareholder of Blue Diamond who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her shares of Common Stock for any purpose nor, after the Effective
Time, be entitled to the payment of dividends or other distributions thereon.
If no petition for an appraisal is filed within the time provided, or
if a shareholder of Blue Diamond delivers to the Surviving Corporation a written
withdrawal of his or her demand for an appraisal and an acceptance of the Merger
within 60 days after the Effective Time or with the written approval of the
Surviving Corporation thereafter, then the right of such shareholder to an
appraisal will cease and such shareholder shall be entitled to receive the
Merger Consideration, without interest, as if he or she had not demanded
appraisal of her or her shares of Common Stock. No pending appraisal proceeding
in the Court of Chancery will be dismissed as to any shareholder without the
approval of the Court, which approval may be conditioned on such terms as the
Court deems just.
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<PAGE> 24
SHAREHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS MUST NOT VOTE
IN FAVOR OF THE MERGER AND SHOULD STRICTLY COMPLY WITH THE PROCEDURES SET FORTH
IN SECTION 262 OF THE DGCL. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT
IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262 OF THE DGCL.
THE MERGER AGREEMENT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE
MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT
OF THE MERGER AGREEMENT ATTACHED HERETO AS APPENDIX A, WHICH IS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective at
the time and date specified within the certificate of merger (the "Certificate
of Merger") which will be duly filed with the Secretary of State of the State of
Delaware on the first business day on which (i) the Merger Agreement is approved
by the shareholders of Blue Diamond and (ii) the closing of the transaction has
occurred in accordance with the Merger Agreement.
THE MERGER
At the Effective Time, Subsidiary will be merged with and into Blue
Diamond, at which time the separate corporate existence of Subsidiary will cease
and Blue Diamond will be the Surviving Corporation and a wholly-owned subsidiary
of James River. From and after the Effective Time, the Surviving Corporation
will possess all the assets, rights, privileges, powers and franchises and be
subject to all of the liabilities, restrictions, disabilities and duties of Blue
Diamond and Subsidiary, as provided under Delaware law. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will be determined in
accordance with the Certificate of Merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, (i) each share of Common Stock outstanding
immediately prior to the Effective Time (other than shares held by James River
and treasury shares which will be canceled and shares as to which appraisal
rights are exercised) will be converted into the right to receive from James
River $60.413 in cash and the right to receive from Blue Diamond the Contingent
Consideration and (ii) each share of common stock of Subsidiary outstanding
immediately prior to the Effective Time will be converted into and exchanged for
one share of Common Stock, $1.00 par value per share, of the Surviving
Corporation. In the event of any change in the Common Stock outstanding between
the date of the Merger Agreement and the Effective Time, the Merger
Consideration will be adjusted proportionately.
PAYMENT PROCEDURES AND PAYING AGENT
Prior to the Effective Time, James River will appoint a bank or trust
company reasonably acceptable to Blue Diamond to act as the Paying Agent in
connection with the Merger (the "Paying Agent"). From and after the Effective
Time, each holder of a Blue Diamond stock certificate shall be entitled to
receive in exchange, upon surrender to the Paying Agent and subject to
applicable withholding taxes, the Merger Consideration represented by such
certificates. Immediately prior to the Effective Time, James River will deliver
to the Paying Agent cash representing the Cash Consideration times the number of
outstanding shares of Blue Diamond Common Stock.
Promptly after the Effective Time, Blue Diamond will cause the Paying
Agent to mail to each holder of record of a Blue Diamond stock certificate, a
letter of transmittal and instructions for use in effecting the surrender of the
certificates in its exchange for the Merger Consideration. Upon surrender to the
Paying Agent of the certificate, together with such letter of transmittal duly
executed, and any other required documents, the holder of such stock certificate
will be entitled to receive the Cash Consideration times the number of shares of
Blue Diamond stock represented by the certificate, and the certificate shall be
canceled. The Paying Agent will send the Cash Consideration to the holder within
five business days of (i) receipt of the certificates and (ii) after all other
conditions to delivery of the Cash Consideration have been satisfied.
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SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES REPRESENTING COMMON STOCK
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE PAYING
AGENT.
After the Effective Time, there will be no transfers on Blue Diamond's
stock transfer books of Common Stock issued and outstanding immediately prior to
the Effective Time. Until surrendered to the Paying Agent, each certificate
previously representing Common Stock shall be deemed at any time after the
Effective Time to represent only the right to receive the Merger Consideration
upon such surrender. No interest will be paid or accrued on the Merger
Consideration, nor will any dividends be paid to, or accrued for the benefit of,
former holders of Common Stock after the Effective Time. Any payment of the
Contingent Consideration will be made to those shareholders of Blue Diamond
appearing in its stock transfer book at the Effective Time.
None of James River, the Surviving Corporation, nor the Paying Agent
shall be liable to any former holder of Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. In addition, any portion of the Merger Consideration
which remains unclaimed after 180 days after the Effective Time will be
delivered to the Surviving Corporation, and any former shareholders of Blue
Diamond may look only to the Surviving Corporation for payment of the Merger
Consideration.
If a certificate for Common Stock has been lost, stolen or destroyed,
the Paying Agent will issue the Merger Consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, and appropriate evidence as to the ownership of
such certificate by the claimant. When authorizing payment in exchange for any
lost certificate, the person to whom the Merger Consideration is to be issued
must give James River a bond or otherwise indemnify James River in a manner
satisfactory to James River against any claim that may be made against James
River or the Surviving Corporation with respect to the certificate alleged to
have been lost, stolen, or destroyed.
Shares of Blue Diamond Common Stock held by a holder who has not voted
in favor of the Merger and has demanded appraisal for such shares of Blue
Diamond Common Stock in accordance with Section 262 of the DGCL will not be
converted into a right to receive the Merger Consideration, unless such
dissenting holder fails to perfect or withdraws or otherwise loses his or her
right to appraisal. If, after the Effective Time, such dissenting holder fails
to perfect or withdraws, or loses his right to appraisal, such shares of Blue
Diamond Common Stock will be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration. See "The Merger
- - Appraisal Rights."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of James River, Blue Diamond and Subsidiary relating to, among other
things: (a) corporate organization, existence and good standing; (b) corporate
power and authority to enter into and perform the Merger Agreement (subject to
approval thereof by the Blue Diamond shareholders); (c) the validity and binding
effect of the Merger Agreement; (d) consents or approvals of governmental bodies
or any third parties; (e) litigation; (f) compliance with applicable laws; (g)
absence of broker fees in connection with the transaction; and (h) the accuracy
of information contained in this Proxy Statement. James River also makes
representations and warranties relating to (a) its obligation to make sufficient
funds available to the Paying Agent to pay the Cash Consideration and (b) that
the Contingent Consideration will constitute exempt securities which are not
required to be registered pursuant to the Securities Act of 1933, as amended.
Blue Diamond makes representations and warranties related to (a) its capital
structure, (b) its subsidiaries, (c) accuracy of documents filed with the SEC,
(d) accuracy of financial statements, (e) absence of undisclosed liabilities,
(f) absence of certain events, (g) accuracy of this Proxy Statement, (h)
insurance, (i) material agreements, (j) employee benefit plans, (k) labor
matters, (l) employment matters, (m) absence of restrictions applicable to
business combinations, (n) tax matters, (o) compliance with laws, (p) accuracy
of information, (q) owned and leased real property, facilities and equipment,
(r) intellectual property matters, (s) receipt of fairness opinion in connection
with the Merger (t) the vote required by shareholders of Blue Diamond, (u)
environmental matters and (v) adequacy of coal reserves.
COVENANTS
Blue Diamond has agreed that, from the date of the Merger Agreement
until the Effective Time, it will, and will cause its subsidiaries, to conduct
its business and operations in the ordinary course consistent with past
practices and, except as contemplated by the Merger Agreement, will not take
certain actions without the prior written consent of James River, which
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<PAGE> 26
actions include without limitation: (a) amendments to its organizational
documents; (b) issuance of any stock; (c) stock splits, combinations or
reclassifications, redemptions or reacquisitions; (d) assumption of any
indebtedness for borrowed money or making any material loans, advances or
capital contributions to any other person or entering into any contract or alter
any existing contract; (e) adopting or amending any employment or employee
benefit agreement or increasing the compensation of any director, officer or
employee except for annual salary increases in the ordinary course of business;
(f) acquiring or selling any material assets outside the ordinary course of
business; (g) taking any action with respect to accounting or tax issues other
than in the ordinary course of business and consistent with past practices; (h)
making any payments other than in the ordinary course of business; (i) taking
any action reasonably likely to result in the conditions to the Merger not being
satisfied; or (j) agreeing in writing or otherwise to take any of the foregoing
actions.
Blue Diamond has agreed that it will not, and it will not permit its
subsidiaries, or any of the officers, directors, employees or agents of Blue
Diamond and its subsidiaries to, directly or indirectly, initiate, solicit,
encourage, or participate in any negotiations regarding, furnish any
confidential information in connection with, endorse or otherwise cooperate
with, assist, participate in or facilitate the making of any proposal or offer
for, or which may be reasonably expected to lead, to the acquisition or merger,
consolidation or other business combination of Blue Diamond and its subsidiaries
in any manner other than with James River. Blue Diamond has agreed that its
Board will not withdraw it recommendation to the shareholders to vote in favor
of the Merger, unless such action is necessary in order for Blue Diamond's Board
to fulfill its fiduciary obligations under applicable law. Blue Diamond has also
agreed that, until the Effective Time or earlier termination of the Merger
Agreement, it will provide James River access to information concerning itself,
subject to the confidentiality provisions of the Merger Agreement.
Each of James River and Blue Diamond has agreed to: (a) subject to the
terms and conditions of the Merger Agreement, use its reasonable efforts to
consummate the transactions contemplated by the Merger Agreement; (b) cooperate
to make certain filings and obtain certain consents necessary to consummate the
transactions completed by the Merger Agreement; (c) cooperate with respect to
making any public announcements regarding the proposed transaction; and (d)
provide prompt notice of certain events with respect to the Merger Agreement.
Blue Diamond has agreed to terminate its 1989 Incentive Stock Option
Plan ("Stock Option Plan") and to amend its 401(k) Savings Plan to eliminate the
option to purchase Common Stock. There are currently no options granted under
the Stock Option Plan which have not been exercised. James River has agreed
that, at James River's discretion, Blue Diamond employees employed 30 days after
the Effective Time will be covered either by Blue Diamond employee benefit plans
after the Effective Time or James River plans. If covered under a James River
plan, Blue Diamond employees will not be subject to certain restrictions and
limitations contained in the plan. See "The Merger - Effect on Employee Benefit
Plans."
James River has agreed that from the Effective Time, as to any claims
made or asserted (even if not resolved) prior to the third anniversary of the
Effective Time, the Surviving Corporation will indemnify, defend and hold
harmless any person who is or was, at any time prior to the Effective Time, a
director, officer, employee or agent of Blue Diamond or its subsidiaries (each,
an "Indemnified Party"), from and against all losses, claims, damages, costs,
expenses, liabilities, judgments and settlement amounts that are paid or
incurred in connection with any claim, action, suit, proceeding or investigation
that is based in whole or in part or arises out of (i) any action or omission by
an Indemnified Party in his or her capacity as a director, officer, employee or
agent of Blue Diamond or its subsidiaries, or (ii) the Merger Agreement or the
transactions contemplated by such agreement.
James River has also agreed that for a period of three years from and
after the Effective Time, the Surviving Corporation will cause to be maintained
in effect (i) all available policies of directors' and officers' liability
insurance maintained by Blue Diamond and its subsidiaries on the date of the
Merger Agreement, or (ii) policies of at least the same coverage and amounts
containing terms that are no less advantageous to the insured parties, with
respect to claims arising from facts or events that occurred on or prior to the
Effective Time. Notwithstanding the foregoing, the Surviving Corporation will
not be obligated to expend any amount per annum in excess of the aggregate
premiums paid by Blue Diamond and its subsidiaries as of the date of the Merger
Agreement in order to maintain such insurance.
CONDITIONS TO THE MERGER
The obligations of each of James River and Blue Diamond to consummate
the Merger are subject to the satisfaction of certain conditions including
without limitation: (a) approval and adoption of the Merger Agreement by the
requisite vote of
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<PAGE> 27
the shareholders of Blue Diamond; (b) the absence of any governmental suit,
action, inquiry, investigation or proceeding which seeks to prevent consummation
of the Merger; (c) satisfaction of all applicable requirements under federal
securities laws and state takeover and antitrust laws; and (d) the receipt of
all necessary authorizations.
The obligation of Blue Diamond to consummate the Merger is subject to
certain conditions including, without limitation: (a) the truth and correctness,
in all material respects, of the representations and warranties of James River
contained in the Merger Agreement; (b) James River's performance of or
compliance, in all material respects, with its obligations under the Merger
Agreement; (c) all corporate proceedings taken by James River in connection with
the Merger will be reasonably satisfactory to Blue Diamond and Blue Diamond's
counsel; (d) receipt of all necessary third party consents; (e) receipt of an
officer's certificate from James River certifying the fulfillment of (a), (b)
and (d) above; and (f) receipt of an opinion from counsel to James River.
The obligation of James River to consummate the transactions
contemplated by the Merger is subject to the satisfaction of additional
conditions including, without limitation: (a) the absence of any material
adverse change in the business, assets, liabilities, financial condition or
results of operation of Blue Diamond; (b) the truth and correctness, in all
material respects, of the representations and warranties of Blue Diamond
contained in the Merger Agreement; (c) Blue Diamond's performance of or
compliance, in all material respects, with its obligations under the Merger
Agreement; (d) all corporate proceedings taken by Blue Diamond in connection
with the Merger shall be reasonably satisfactory to James River and James
River's counsel; (e) receipt of all third party consents; (f) receipt of a
certificate from the President of Blue Diamond certifying the fulfillment of
(a), (b), (c) and (e) above; (g) receipt of an opinion from counsel to Blue
Diamond and (h) all officers and directors of Blue Diamond and its subsidiaries
shall have delivered their resignations to James River.
TERMINATION AND EXPENSES
The Merger Agreement may be terminated by either Blue Diamond or James
River if the Merger has not been consummated by June 30, 1998, or at any time by
mutual consent. In addition, the Merger Agreement may be terminated prior to
such date (i) by either party if (a) the other party materially breaches a
representation, warranty or covenant contained in the Merger Agreement and fails
to cure such breach within ten business days after receipt of notice of such
breach, or (b) any governmental authority takes any action prohibiting the
Merger and such action shall become final and nonappealable or (ii) by James
River, if (a) the requisite vote of the shareholders is not obtained at the
Special Meeting, or (b) the Blue Diamond Board has withdrawn or modified its
recommendation in any manner which is adverse to James River.
If the Merger Agreement is terminated, it will become void and have no
effect, without liability on the part of either party or its directors, officers
or shareholders, other than any liability for damages due to a breach of any
representation, warranty or covenant or agreement. In addition, each of the
parties will be liable for its own fees and expenses incurred in connection with
the Merger Agreement.
CONTINGENCY AGREEMENT
The Contingency Agreement, a copy of which is attached hereto as
Exhibit B to the Merger Agreement, which Merger Agreement is attached hereto as
Appendix A, provides for the payment to the shareholders of Blue Diamond and
Hamilton, Ltd., on a pro rata basis, of an amount equal to 50% of (i) the
present value (discounted at 7%) of the permanent reduction in the amount of the
liability of Blue Diamond under the Coal Act, plus (ii) any refund of amounts
previously paid by Blue Diamond under the Coal Act, provided that such refund
arises solely as a result of a Payment Event (defined below). Such amount is
computed net of 50% of applicable federal and state income taxes, reasonable
out-of-pocket expenses incurred by Blue Diamond and James River in their effort
to obtain any such reduction or refund and out-of-pocket expenses incurred by
James River and Blue Diamond in administering the Contingency Agreement,
including all costs associated with the letter of credit described below.
A "Payment Event" is defined as one of the following events:
(1) The expiration of 180 days after the effective date of United
States federal legislation which has been enacted and passed
into law which has the effect of either (a) reducing the
amount to be paid to or on behalf of retirees or their
beneficiaries or (b) providing for a refund of premiums
previously paid under the Coal Act, and which legislation is
not subject to any legal challenge; or
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<PAGE> 28
(2) The rendering of a final nonappealable judicial order in any
case challenging the Coal Act or its application which has the
effect of (a) reducing the amount required to be paid to or on
behalf of retirees or their beneficiaries or (b) providing for
a refund of premiums previously paid under the Coal Act.
There are several pending matters which could lead to a Payment Event.
First, there is a case before the United States Supreme Court styled Eastern
Enterprises vs. Apfel, in which oral arguments will be held during the month of
March 1998. In this case, Eastern argues, as Blue Diamond did in its
constitutional case, that the Coal Act as applied to Eastern as a pre-1974
signatory violates the due process and takings clauses of the United States
Constitution. Of the multiple cases pertaining to the constitutionality of the
Coal Act that have requested consideration by the United States Supreme Court,
this is the first case that the Supreme Court has agreed to hear. Second, Senate
Bill 1105 was introduced in the 105th Congress and, if enacted as drafted, would
relieve Blue Diamond and other "super-reachback" companies of any future premium
obligations, but would not provide refunds of amounts previously paid. It is
likely that Congress may delay action on this bill pending the outcome of the
Supreme Court's decision in the Eastern case. The third avenue of possible
relief to Blue Diamond under the Coal Act would be affirmative judicial action
in a case being heard in an Alabama Federal district court wherein an
association of coal industry employees is seeking to have the per-beneficiary
premium rate under the Coal Act reduced. This litigation was successful in
reducing the premiums for the 4th premium year going forward, but the UMWA
Combined Fund did not grant refunds for the first three premium years. This
action, if resolved in Blue Diamond's favor, would result in about a $750,000
premium refund or credit against future premium payments.
The aggregate maximum amount which may be paid to shareholders of Blue
Diamond and Hamilton, Ltd. under the Contingency Agreement is $14 million, or
approximately $14.97 per share. There can be no assurance that a Payment Event
will ever occur, or, if a Payment Event does occur, that any particular amount
will be available for distribution.
Amounts, if any, payable to Blue Diamond under the Contingency
Agreement will be distributed by a paying agent ("Paying Agent"), the identity
of which will be determined prior to the Effective Time. Payments will be made
to shareholders of Blue Diamond in accordance with the information set forth in
Blue Diamond's stock records existing as of the Effective Time. Subsequent to
the Effective Time, shareholders will be obligated to inform the Paying Agent of
any change of address or any other changes in such stock information.
Blue Diamond's obligation to pay any Contingent Consideration will be
secured by a letter of credit issued by a bank with assets of at least $10
billion. It is presently contemplated that First Union National Bank will be the
issuer of such letter of credit.
Hamilton, Ltd., which will share in any payments of Contingent
Consideration based upon its former ownership of 470,240 shares of Common Stock
and will serve as representative of the shareholders of Blue Diamond. Hamilton,
Ltd. will be authorized to take all actions and to execute and deliver all
documents contemplated under the Contingency Agreement including, without
limitation, employment of accountants, counsel and other agents as it may deem
advisable, in its discretion, and to pay reasonable compensation for their
services. The Contingency Agreement further provides that Hamilton, Ltd. will
have no liability to any shareholder of Blue Diamond in connection with the
performance of its duties thereunder, except in cases of its willful misfeasance
or gross negligence. Hamilton, Ltd. will be reimbursed for reasonable out of
pocket expenses (including reasonable legal fees and expenses), if any. James
River has agreed to indemnify and hold harmless Hamilton, Ltd. for any loss,
claim, damage, liability or expense (including reasonable attorney's fees)
arising in connection with the performance of its duties thereunder, except for
any incidents of wilful misfeasance or gross negligence.
The term of the Contingency Agreement is five years, and any disputes
arising thereunder will be settled by arbitration in accordance with the
procedures set forth in the Contingency Agreement. The five year term is subject
to an extension of an additional year in the event of any judicial challenge to
any legislative action which, but for such challenge, would have constituted a
"Payment Event."
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<PAGE> 29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal federal income tax
consequences of the Merger is based upon the provisions of the Internal Revenue
Code of 1986, as amended, the regulations thereunder, judicial authority,
administrative rulings and practice as of the date hereof and the advice of
Baker, Donelson, Bearman & Caldwell, counsel to Blue Diamond. The following
discussion does not address the federal income tax consequences to special
classes of taxpayers, including, without limitation, foreign corporations, tax
exempt entities and persons who acquired their shares of Common Stock pursuant
to the exercise of an employee option or otherwise as compensation.
Shareholders are encouraged to consult their tax advisors concerning
the federal income tax consequences in their particular circumstances, as well
as any tax consequences arising under foreign, state or local law.
The cancellation of shares of Common Stock in exchange for cash
pursuant to the Merger will be a taxable transaction to the holders thereof for
federal income tax purposes and may also be a taxable transaction under
applicable state, local and other tax laws.
In general, a shareholder who receives the Merger Consideration will
recognize gain or loss equal to the difference between the adjusted tax basis of
his shares of Common Stock and the amount of cash received in exchange therefor.
Such gain or loss will be capital gain or loss if, as should be the case for
most holders of Common Stock, the shares are capital assets in the hands of the
shareholder and will be long-term capital gain or loss if the holding period for
the Common Stock is more than one year. The foregoing discussion may not apply
to shareholders who acquired their Common Stock pursuant to the exercise of
stock options or other compensation arrangements with Blue Diamond, who are not
citizens or residents of the United States or who are otherwise subject to
special tax treatment under the Code. In addition, a shareholder may be required
to allocate the adjusted tax basis of his shares of Common Stock to the receipt
of Cash Consideration and Contingent Consideration to determine the actual gain
or loss with respect to the receipt of each type of consideration. Although it
is likely that the Contingent Consideration has nominal value, each shareholder
is urged to consult with his tax advisor as to such allocation and other issues
that may be applicable with respect to the Contingent Consideration.
Each holder of Common Stock who receives the Merger Consideration will,
in general, be required to provide to the Paying Agent a Social Security or
other taxpayer identification number, or in certain instances other information,
in order to avoid "back-up withholding" requirements which might otherwise apply
under the Code. Any such person who does not furnish such information may be
subject to a penalty imposed by the Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT NECESSARILY
SET FORTH ALL OF THE TAX CONSEQUENCES OF THE MERGER THAT MAY BE RELEVANT TO ALL
SHAREHOLDERS IN ALL CIRCUMSTANCES. SHAREHOLDERS SHOULD THEREFORE CONSULT THEIR
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
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<PAGE> 30
OTHER AGREEMENTS
THE OPTION AGREEMENT
On December 15, 1997, Hamilton, Ltd. and James River entered into (the
Option Agreement) which granted James River the Option to purchase 470,240
shares of Common Stock owned by Hamilton, Ltd. In addition, the Option Agreement
provided that in the event James River did not exercise its option prior to this
Special Meeting of the shareholders, Hamilton, Ltd. would vote in favor of the
proposed merger and against certain extraordinary corporate transactions. James
River paid Hamilton, Ltd. $1.0 million in consideration of the Option. The
Agreement provided that the Option would expire if not exercised on or before
February 13, 1998. The purchase price for the Hamilton Shares was $60.413 in
cash plus the right to participate, ratably with other shareholders, in any
payments made under the Contingency Agreement.
On February 13, 1998, James River exercised the option and purchased
the Hamilton Shares. James River financed the purchase of the Hamilton Shares
with proceeds from an existing bank line of credit.
EXTENSION OF CONTRACTS
James River has agreed to cause Blue Diamond, as the Surviving
Corporation, to extend the Coal Supply Contract and the Sublease between Blue
Diamond and Nally for three years after the Effective Time of the Merger upon
the same terms and conditions as in effect as of December 31, 1997, if such
contracts have not been extended earlier by Blue Diamond and Nally.
Nally is a company affiliated with Directors Stephen, Leo and Thomas Hamilton.
The Sublease, effective December 31, 1992, provides that Nally sublease
certain parcels from Blue Diamond to mine coal in exchange for royalty payments
payable to Blue Diamond. The Sublease gives Nally the right to mine coal by
surface mining methods and expressly reserves to Blue Diamond all other mineral
and other rights to the parcels of land. Pursuant to the Sublease, Nally agreed
to pay Blue Diamond a royalty rate of $2.87 per ton for all coal purchased by
Blue Diamond and 10% of the gross sales price for all coal sold to any third
parties. The Sublease requires Nally to mine at least 20,833 tons per month
during the term of the agreement. If such minimum is not met, Nally must make
payments to Blue Diamond equal to the difference between the actual royalty
payment due and the amount which would be due if Nally had met the minimum
requirement. The Sublease gives Blue Diamond the right of first refusal for all
coal mined from the leased parcels.
The Coal Supply Contract, effective December 31, 1992, provides that
Nally sell a specified quantity of coal at a specified price to Blue Diamond
from coal produced from the parcels subject to the Sublease. Pursuant to the
Coal Supply Contract, Nally has agreed to mine and deliver to Blue Diamond's
preparation and loadout facility in Perry County, Kentucky, a minimum of 650,000
tons of merchantable raw coal per year, delivered in monthly shipments of no
less than 50,000 tons per calendar month. The Coal Supply Agreement requires
that the coal meet certain qualitative criteria to be eligible for purchase.
Blue Diamond has agreed to pay Nally a base price of $22.35 per ton, with
adjustments made based upon changes in fuel costs and mining costs. The Coal
Supply Contract expired on December 31, 1997. Nally and Blue Diamond have
continued to sell and purchase coal pursuant to this agreement.
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<PAGE> 31
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
To the best knowledge of Blue Diamond, based on information filed with
the Securities and Exchange Commission and Blue Diamond's stock records, the
following table sets forth, as of February 28, 1998, the number of shares of
Common Stock beneficially owned by (i) each person who beneficially owns more
than 5% of the Common Stock, (ii) directors and executive officers, and (iii)
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER (1) PERCENT OF CLASS (2)
------------------- --------------------- --------------------
<S> <C> <C>
James River Coal Company 470,240 50.3%
701 East Byrd Street
Suite 1100
Richmond, VA 23219
Gordon Bonnyman 75,5,075 (3) 8.0%
6633 Sherwood Dr.
Knoxville, TN 37919
Ted B. Helms 18,990 2.0%
Alexander A. Bonnyman 205 --
Leo Hamilton 2,200 --
Thomas O'Connell 17,524 1.9%
All Directors and Executive 38,919 4.2%
Officers as a Group (10
persons)
</TABLE>
- -------------
(1) Except as noted below, the nature of the beneficial ownership of all shares
is sole voting and investment power.
(2) Percentages less than 1% are not reflected.
(3) Includes 6,675 shares owned by Gordon Bonnyman, individually; also includes
12,100 shares owned by a trust with respect to which he shares voting and
investment power with the trustee and in which he has beneficial interests
and 56,300 shares owned by two trusts with respect to which he shares
voting and investment power, but in which he has no beneficial interest
except as such fiduciary. Does not include 2,700 shares owned by Gordon
Bonnyman's wife nor 7,500 shares in a trust with respect to which she
shares voting and investment powers with the trustee. Gordon Bonnyman
disclaims beneficial ownership of these shares.
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<PAGE> 32
FINANCIAL INFORMATION
Financial information for Blue Diamond is included in its Annual Report
on Form 10-K for the year ended March 31, 1997, and its Quarterly Report on Form
10-Q for the quarter ended December 31, 1997, both of which are enclosed with
this Proxy Statement.
MARKET PRICES AND DIVIDENDS
An established public trading market does not exist for Blue Diamond's
Common Stock, but a few brokers make a market from time-to-time over the
counter. The following table sets forth the high and low bid quotations for Blue
Diamond Common Stock in the over the counter market for fiscal years ending
1996, 1997, and year-to-date 1998. The following quotations were taken from the
National Quotation Bureau Report with quotes supplied by the National
Association of Securities Dealers, Inc. through the NASD OTC Bulletin Board.
They represent interdealer prices without retail markup, markdown or commission
and may not necessarily represent actual transactions. On the Record Date, Blue
Diamond had 378 shareholders of record and based on information available to it,
Blue Diamond believes it has over 425 beneficial owners of its Common Stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996
First quarter....................................................... $19 1/2 $13
Second quarter...................................................... 21 1/2 16
Third quarter....................................................... 22 19
Fourth quarter...................................................... 23 22
1997
First quarter....................................................... 22 1/2 21 1/2
Second quarter...................................................... 22 1/2 22 1/2
Third quarter....................................................... 23 22 1/2
Fourth quarter...................................................... 24 1/2 23
1998
First quarter....................................................... 25 25
Second quarter...................................................... 26 25
Third quarter....................................................... 35 1/2 26
Fourth quarter through February 28..................................
</TABLE>
No dividends have been paid during fiscal years 1996, 1997, or year to
date 1998. On December 15, 1997, the last full day of trading prior to the
announcement of the Option Agreement, the ask price of a share of Common Stock
was $29.50. On February 11, 1998, the last full day of trading prior to the
announcement of the Merger Agreement, the ask price of a share of Common Stock
was $39.50. At March 31, 1997 and December 31, 1997 the book value of a share of
Common Stock was $36.88 and $38.63, respectively.
GENERAL
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Coulter & Justus, P.C., Blue Diamond's certified
public accountants, is expected to be present at the Special Meeting, will have
an opportunity to make a statement if he desires to do so and is expected to be
available to respond to all appropriate questions relating to the financial
statements.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, Blue Diamond anticipates that its
Annual Meeting for the fiscal year ending March 31, 1998 will occur on August
25, 1998. Consequently, a proposal submitted by a shareholder for action at such
meeting, if held, should be received at Blue Diamond's principal executive
office prior to March 31, 1998 in order to be eligible for inclusion in Blue
Diamond's proxy statement related to said meeting.
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<PAGE> 33
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no matters
which will be presented for consideration at the Special Meeting other than the
proposal set forth in this Proxy Statement. If any other matters properly come
before the Special Meeting, it is intended that the persons named in the proxy
will act in respect thereof in accordance with their best judgment.
SOLICITATION OF PROXIES AND COST THEREOF
The cost of solicitation, which will be undertaken by mail, telephone,
telegraph, and personal contact, will be borne by Blue Diamond. Solicitation of
proxies may be undertaken by directors, officers and employees of Blue Diamond,
none of whom will be additionally compensated therefor, but who will be
reimbursed for out-of-pocket expenses
ADDITIONAL INFORMATION
Blue Diamond is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Securities and Exchange Commission (the "SEC"). Reports and other
information filed by Blue Diamond can be inspected and copied at the public
reference facilities at the SEC's office at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's Regional Offices at Seven World Trade Center, New
York, New York 10048 and Citicorp Center, 500 W. Madison Street, Chicago,
Illinois 60621-2511. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such material may also be accessed electronically by means
of the SEC's home page on the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Blue Diamond delivers herewith or hereby incorporates by reference its
Annual Report on Form 10-K for the year ended March 31, 1997 and its Quarterly
Reports on Form 10-Q for the quarters ended June 30, September 30 and December
31, 1997. All documents filed by Blue Diamond pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy Statement and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
herein) are available, without charge, upon oral or written request by any
person to whom this Proxy Statement has been delivered. Shareholders who wish to
receive copies of such documents may call Blue Diamond at (423)588-8511 or write
to Blue Diamond Coal Company, P. O. Box 59015, Knoxville, Tennessee 37950-9015,
Attention: Secretary.
By Order of the Board of Directors
K. Roger Foster
Secretary
March 6, 1998
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<PAGE> 34
APPENDIX A
AGREEMENT OF MERGER
BY AND AMONG
JAMES RIVER COAL COMPANY
JAMES RIVER COAL MERGERSUB, INC.
AND
BLUE DIAMOND COAL COMPANY
-----------------------------
Dated as of February 11, 1998
-----------------------------
<PAGE> 35
<TABLE>
<CAPTION>
PAGE
----
TABLE OF CONTENTS
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
Section 1.1. Acquiror............................................................................................1
Section 1.2. Acquiror Companies..................................................................................1
Section 1.3. Acquisition Proposal................................................................................2
Section 1.4. Act. ...............................................................................................2
Section 1.5. Agreement...........................................................................................2
Section 1.6. BDCC................................................................................................2
Section 1.7. BDCC Common Stock...................................................................................2
Section 1.8. BDCC Companies......................................................................................2
Section 1.9. BDCC Current Balance Sheet..........................................................................2
Section 1.10. BDCC Licenses.......................................................................................2
Section 1.11. BDCC SEC Reports....................................................................................2
Section 1.12. BDCC Stock Plan.....................................................................................2
Section 1.13. Cash Consideration..................................................................................3
Section 1.14. CERCLA..............................................................................................3
Section 1.15. Certificates........................................................................................3
Section 1.16. Certificate of Merger...............................................................................3
Section 1.17. Closing; Closing Date...............................................................................3
Section 1.18. Coal Leases.........................................................................................3
Section 1.19. Code................................................................................................3
Section 1.20. Company Disclosure Schedule.........................................................................3
Section 1.21. Company Operations..................................................................................3
Section 1.22. Contingency Agreement...............................................................................3
Section 1.23. Contingency Amount..................................................................................4
Section 1.24. Contracts...........................................................................................4
Section 1.25. Delaware Code.......................................................................................4
Section 1.26. Dissenting Holder...................................................................................4
Section 1.27. Effective Time......................................................................................4
Section 1.28. Employee Benefit Plan...............................................................................4
Section 1.29. Environmental Law...................................................................................4
Section 1.30. ERISA...............................................................................................4
Section 1.31. Exchange Act........................................................................................4
Section 1.32. Facilities..........................................................................................4
Section 1.33. Fee Property........................................................................................4
Section 1.34. Financial Advisor...................................................................................5
Section 1.35. GAAP................................................................................................5
Section 1.36. Governmental Authority..............................................................................5
Section 1.37. HSR Act.............................................................................................5
Section 1.38. IRS.................................................................................................5
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1.39. Knowledge of Acquiror...............................................................................5
Section 1.40. Knowledge of BDCC...................................................................................5
Section 1.41. Law.................................................................................................5
Section 1.42. Leased Property.....................................................................................5
Section 1.43. Liens...............................................................................................6
Section 1.44. Material Adverse Effect.............................................................................6
Section 1.45. Merger..............................................................................................6
Section 1.46. Merger Consideration................................................................................6
Section 1.47. Merger Subsidiary...................................................................................6
Section 1.48. Mineral Properties..................................................................................6
Section 1.49. Mining Permits......................................................................................6
Section 1.50. MSHA................................................................................................6
Section 1.51. Multiemployer Plans.................................................................................6
Section 1.52. Operators...........................................................................................6
Section 1.53. OSM.................................................................................................7
Section 1.54. Paying Agent........................................................................................7
Section 1.55. PBGC................................................................................................7
Section 1.56. Pension Plans.......................................................................................7
Section 1.57. Person..............................................................................................7
Section 1.58. Personalty..........................................................................................7
Section 1.59. Proxy Statement.....................................................................................7
Section 1.60. Qualified Plans.....................................................................................7
Section 1.61. Real Property Interests.............................................................................7
Section 1.62. RCRA................................................................................................7
Section 1.63. Schedule............................................................................................7
Section 1.64. SEC.................................................................................................7
Section 1.65. Securities Act......................................................................................8
Section 1.66. Special Meeting.....................................................................................8
Section 1.67. Subsidiary; Subsidiaries............................................................................8
Section 1.68. Surface Mining Enforcement Agency...................................................................8
Section 1.69. Surface Mining Laws.................................................................................8
Section 1.70. Surface Mining Permits..............................................................................8
Section 1.71. Surviving Corporation...............................................................................8
Section 1.72. Taxes...............................................................................................8
Section 1.73. Tax Returns.........................................................................................9
Section 1.74. TSCA................................................................................................9
Section 1.75. Welfare Plans.......................................................................................9
ARTICLE II THE MERGER.............................................................................................9
Section 2.1. The Merger..........................................................................................9
Section 2.2. Exchange of Certificates...........................................................................10
Section 2.3. Dissenting Shares..................................................................................11
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE III SHAREHOLDER APPROVAL; CLOSING........................................................................12
Section 3.1. Shareholder Approval...............................................................................12
Section 3.2. Time and Place of Closing..........................................................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUBSIDIARY......................................13
Section 4.1. Organization and Authority of Acquiror and Merger Subsidiary.......................................13
Section 4.2. Authority Relative to this Agreement...............................................................13
Section 4.3. Consents and Approvals; No Violations..............................................................13
Section 4.4. Litigation.........................................................................................14
Section 4.5. Fees and Expenses of Brokers and Others............................................................14
Section 4.6. Obligation to Fund.................................................................................14
Section 4.7. Proxy Statement....................................................................................14
Section 4.8. Registration.......................................................................................15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BDCC.................................................................15
Section 5.1. Organization and Authority of the BDCC Companies...................................................15
Section 5.2. Capitalization.....................................................................................15
Section 5.3. Authority Relative to this Agreement...............................................................16
Section 5.4. Subsidiaries.......................................................................................16
Section 5.5. Consents and Approvals; No Violations..............................................................16
Section 5.6. Reports............................................................................................17
Section 5.7. Absence of Undisclosed Liabilities.................................................................18
Section 5.8. Absence of Certain Events..........................................................................18
Section 5.9. Litigation.........................................................................................19
Section 5.10. Proxy Statement....................................................................................19
Section 5.11. Insurance..........................................................................................20
Section 5.12. Material Agreements................................................................................20
Section 5.13. Employee Benefit Plans.............................................................................21
Section 5.14. Labor Matters......................................................................................22
Section 5.15. Employment Matters.................................................................................23
Section 5.16. Takeover Statute...................................................................................23
Section 5.17. Tax Matters........................................................................................23
Section 5.18. Compliance with Law................................................................................24
Section 5.19. Fees and Expenses of Brokers and Others............................................................26
Section 5.20. Accuracy of Information............................................................................26
Section 5.21. Properties.........................................................................................26
Section 5.22. Intellectual Property..............................................................................28
Section 5.23. Fairness Opinion...................................................................................28
Section 5.24. Vote Required......................................................................................28
Section 5.25. Environmental......................................................................................28
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Section 5.26. Certain Reserves...................................................................................30
ARTICLE VI COVENANTS.............................................................................................30
Section 6.1. Conduct of the Businesses of Acquiror and BDCC.....................................................30
Section 6.2. No Solicitation....................................................................................32
Section 6.3. Proxy Statement....................................................................................32
Section 6.4. Access to Information; Confidentiality.............................................................33
Section 6.5. Reasonable Efforts; Cooperation....................................................................34
Section 6.6. Consents...........................................................................................34
Section 6.7. Public Announcements...............................................................................34
Section 6.8. Employee Benefit Matters...........................................................................34
Section 6.9. Indemnification....................................................................................35
Section 6.10. Notice of Certain Events...........................................................................36
Section 6.11. Termination and Amendment of Certain Stock-Based Plans.............................................37
Section 6.12. Subsequent BDCC Reports............................................................................37
Section 6.13. Vote on Merger.....................................................................................37
ARTICLE VII CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER...................................................37
Section 7.1. Conditions Precedent to Each Party's Obligation to Effect the Merger...............................37
Section 7.2. Conditions Precedent to Obligations of BDCC........................................................38
Section 7.3. Conditions Precedent to Obligations of Acquiror and Merger Subsidiary..............................38
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER......................................................................39
Section 8.1. Termination........................................................................................39
Section 8.2. Effect of Termination..............................................................................40
Section 8.3. Amendment..........................................................................................40
Section 8.4. Extension; Waiver..................................................................................41
ARTICLE IX MISCELLANEOUS.........................................................................................41
Section 9.1. Survival of Representations and Warranties.........................................................41
Section 9.2. Brokerage Fees and Commissions.....................................................................41
Section 9.3. Entire Agreement; Assignment.......................................................................41
Section 9.4. Notices............................................................................................41
Section 9.5. Governing Law......................................................................................42
Section 9.6. Descriptive Headings...............................................................................43
Section 9.7. Parties in Interest................................................................................43
Section 9.8. Counterparts.......................................................................................43
Section 9.9. Specific Performance...............................................................................43
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Section 9.10. Fees and Expenses..................................................................................43
Section 9.11. Severability.......................................................................................43
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AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated as of February 11, 1998, by and among JAMES
RIVER COAL COMPANY, a Virginia corporation ("Acquiror"), JAMES RIVER COAL
MERGERSUB, INC., a Delaware corporation and an indirect wholly-owned subsidiary
of Acquiror ("Merger Subsidiary") and BLUE DIAMOND COAL COMPANY, a Delaware
corporation ("BDCC").
RECITALS
WHEREAS, the respective Boards of Directors of Acquiror, Merger
Subsidiary and BDCC each has determined that it is in the best interests of its
respective shareholders that Merger Subsidiary shall merge with and into BDCC in
accordance with the terms of this Agreement and the applicable provisions of the
laws of the State of Delaware (the "Merger"); and the Board of Directors of
Merger Subsidiary and BDCC have, by resolutions duly adopted, approved this
Agreement; and Merger Subsidiary and BDCC have directed that this Agreement be
submitted to their respective shareholders for approval; and
WHEREAS, pursuant to the Merger, each outstanding share of BDCC Common
Stock (as hereinafter defined) will be converted into the right to receive the
Merger Consideration (as hereinafter defined) in accordance with this Agreement;
and
WHEREAS, pursuant to the Merger, each share of Common Stock of Merger
Subsidiary will be converted into and exchanged for one share of BDCC Common
Stock; and
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Acquiror.
"Acquiror" shall mean James River Coal Company, a Virginia corporation.
Section 1.2. Acquiror Companies.
"Acquiror Companies" shall mean Acquiror and its Subsidiaries,
collectively.
Section 1.3. Acquisition Proposal.
"Acquisition Proposal" shall have the meaning given in Section 6.2(c)
hereof.
<PAGE> 41
Section 1.4. Act.
"Act" shall mean the Coal Industry Retiree Health Benefit Act of 1992,
26 U.S.C. ss. 9701 et. seq. (1997 Supp.).
Section 1.5. Agreement.
"Agreement" shall mean this Agreement, together with the Exhibits and
the Schedules attached hereto, as amended from time to time in accordance with
the terms hereof.
Section 1.6. BDCC.
"BDCC" shall mean Blue Diamond Coal Company, a Delaware corporation.
Section 1.7. BDCC Common Stock.
"BDCC Common Stock" shall mean the common stock, $1.00 par value, of
BDCC.
Section 1.8. BDCC Companies.
"BDCC Companies" shall mean BDCC and its Subsidiaries, collectively.
Section 1.9. BDCC Current Balance Sheet.
"BDCC Current Balance Sheet" shall mean the consolidated audited
balance sheet of the BDCC Companies as of March 31, 1997.
Section 1.10. BDCC Licenses.
"BDCC Licenses" shall have the meaning given in Section 5.18 hereof.
Section 1.11. BDCC SEC Reports.
"BDCC SEC Reports" shall mean (a) BDCC's Annual Reports on Form 10-K
for the fiscal years ended March 31, 1997, 1996 and 1995; (b) all documents
filed by BDCC with the SEC pursuant to Sections 13(a) and 13(c) of the Exchange
Act, any definitive proxy statements filed pursuant to Section 14 of the
Exchange Act and any report filed pursuant to Section 15(d) of the Exchange Act
and all other reports or registration statements under the Securities Act filed
by BDCC with the SEC since January 1, 1995.
Section 1.12. BDCC Stock Plan.
"BDCC Stock Plan" shall mean the Blue Diamond Coal Company 1989
Incentive Stock Option Plan.
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Section 1.13. Cash Consideration.
"Cash Consideration" shall have the meaning given in Section 2.1(b)
hereof.
Section 1.14. CERCLA.
"CERCLA" shall have the meaning given in Section 5.25(b) hereof.
Section 1.15. Certificates.
"Certificates" shall have the meaning given in Section 2.2(a) hereof.
Section 1.16. Certificate of Merger.
"Certificate of Merger" shall mean the Certificate of Merger, in the
form of Exhibit A hereto, to be filed with the Delaware Secretary of State in
accordance with Section 251 of the Delaware Code.
Section 1.17. Closing; Closing Date.
"Closing" shall mean the closing conference held pursuant to Section
3.2 hereof, and "Closing Date" shall mean the date on which the Closing occurs.
Section 1.18. Coal Leases.
"Coal Leases" shall have the meaning given in Section 5.21(b) hereof.
Section 1.19. Code
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
Section 1.20. Company Disclosure Schedule.
"Company Disclosure Schedule" shall mean the disclosure schedule of
BDCC dated the date of this Agreement delivered by BDCC to Acquiror concurrently
with the execution and delivery of this Agreement.
Section 1.21. Company Operations.
"Company Operations" shall have the meaning given in Section 5.18(b)
hereof.
Section 1.22. Contingency Agreement.
"Contingency Agreement" shall mean the Contingency Agreement
substantially in the form attached hereto as Exhibit B, to be entered into among
BDCC, the Acquiror, First Union National Bank and Paying Agent as of the Closing
Date.
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<PAGE> 43
Section 1.23. Contingency Amount.
"Contingency Amount" shall have the meaning given in Section 1 of the
Contingency Agreement attached hereto as Exhibit B.
Section 1.24. Contracts.
"Contracts" shall mean contracts, agreements, leases, licenses, notes,
indentures, reinsurance treaties, bonds, mortgages, instruments, and other
binding commitments, arrangements and understandings, written or oral.
Section 1.25. Delaware Code.
"Delaware Code" shall mean the Delaware General Corporation Law, as
amended.
Section 1.26. Dissenting Holder.
"Dissenting Holder" shall have the meaning given in Section 2.3 hereof.
Section 1.27. Effective Time.
"Effective Time" shall have the meaning given in Section 3.1(b) hereof.
Section 1.28. Employee Benefit Plan.
"Employee Benefit Plan" shall have the meaning given in Section 5.13(a)
hereof.
Section 1.29. Environmental Law.
"Environmental Law" shall mean any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating to the environment, natural resources or public health and
safety.
Section 1.30. ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
Section 1.31. Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.32. Facilities.
"Facilities" shall have the meaning given in Section 5.21(c) hereof.
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Section 1.33. Fee Property.
"Fee Property" shall have the meaning given in Section 5.21(a) hereof.
Section 1.34. Financial Advisor.
"Financial Advisor" shall mean J. J. B. Hilliard, W. L. Lyons, Inc.,
advisor to BDCC.
Section 1.35. GAAP.
"GAAP" shall mean generally accepted accounting principles as in effect
in the United States of America at the time of the preparation of the subject
financial statement, consistently applied throughout the specified period and in
the immediately prior comparable period.
Section 1.36. Governmental Authority.
"Governmental Authority" shall mean any local, federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, or any court, in each case whether of the
United States, any of its possessions or territories, or of any foreign nation.
Section 1.37. HSR Act.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
Section 1.38. IRS.
"IRS" shall mean the Internal Revenue Service of the United States of
America.
Section 1.39. Knowledge of Acquiror.
"Knowledge of Acquiror" shall mean the actual knowledge, after due
inquiry, of James B. Crawford and William T. Sullivan, Jr..
Section 1.40. Knowledge of BDCC.
"Knowledge of BDCC" shall mean the actual knowledge, after due inquiry,
of those officers of the BDCC Companies identified on Schedule 1.40.
Section 1.41. Law.
"Law" shall mean any federal, state, provincial, local, municipal,
foreign or other law or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder, including, without limitation,
any Environmental Law.
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Section 1.42. Leased Property.
"Leased Property" shall have the meaning given in Section 5.21(b)
hereof.
Section 1.43. Liens.
"Liens" shall mean any lien, mortgage, security interest, tax lien,
levy, option, right of first refusal, easements, charge, debenture, deed of
trust, right-of-way, restriction, agreement, encroachment, license, lease,
permit, security agreement or any other encumbrance or any restriction or
limitation on the use of real or personal property.
Section 1.44. Material Adverse Effect.
"Material Adverse Effect" shall mean, with respect to any entity or
group of entities, a material adverse effect, individually or in the aggregate,
on the business, assets, liabilities, financial condition, results of
operations, value or prospects of such entity or group of entities taken as a
whole.
Section 1.45. Merger.
"Merger" shall have the meaning given in the Recitals.
Section 1.46. Merger Consideration.
"Merger Consideration" shall have the meaning given in Section 2.1(b)
hereof.
Section 1.47. Merger Subsidiary.
"Merger Subsidiary" shall mean James River Coal Mergersub, Inc., a
Delaware corporation and indirect wholly-owned subsidiary of Acquiror.
Section 1.48. Mineral Properties.
"Mineral Properties" shall have the meaning given in Section 5.21(b)
hereof.
Section 1.49. Mining Permits.
"Mining Permits" shall have the meaning given in Section 5.18(c)
hereof.
Section 1.50. MSHA.
"MSHA" shall have the meaning given in Section 5.18(d) hereof.
Section 1.51. Multiemployer Plans.
"Multiemployer Plans" shall have the meaning given in Section 5.13(a)
hereof.
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Section 1.52. Operators.
"Operators" shall have the meaning given in Section 5.18(b) hereof.
Section 1.53. OSM.
"OSM" shall have the meaning given in Section 5.18(d) hereof.
Section 1.54. Paying Agent.
"Paying Agent" shall have the meaning given in Section 2.2(a) hereof.
Section 1.55. PBGC.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
Section 1.56. Pension Plans.
"Pension Plans" shall have the meaning given in Section 5.13(a) hereof.
Section 1.57. Person.
"Person" shall mean any individual or entity.
Section 1.58. Personalty.
"Personalty" shall have the meaning given in Section 5.21(e) hereof.
Section 1.59. Proxy Statement.
"Proxy Statement" shall mean the definitive proxy statement and form of
proxy of BDCC distributed to the holders of BDCC Common Stock in connection with
the Special Meeting.
Section 1.60. Qualified Plans.
"Qualified Plans" shall have the meaning given in Section 5.13(a)
hereof.
Section 1.61. Real Property Interests.
"Real Property Interests" shall have the meaning given in Section
5.18(b) hereof.
Section 1.62. RCRA.
"RCRA" shall have the meaning given in Section 5.25(b) hereof.
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Section 1.63. Schedule.
"Schedule" shall mean the particular section of the Company Disclosure
Schedule that is referenced.
Section 1.64. SEC.
"SEC" shall mean the United States Securities and Exchange Commission.
Section 1.65. Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.66. Special Meeting.
"Special Meeting" shall mean the special meeting of the holders of BDCC
Common Stock called pursuant to Section 3.1(a) hereof to consider and approve
this Agreement and the transactions contemplated herein, and any adjournments
thereof.
Section 1.67. Subsidiary; Subsidiaries.
"Subsidiary" shall mean each entity with respect to which the specified
Person (a) has the right to vote (directly or indirectly through one or more
other entities or otherwise) shares or other ownership interests representing
50% or more of the votes eligible to be cast in the election of directors of
such entity or (b) owns a majority of the outstanding beneficial interests, or a
majority of the capital or profits (collectively, "Subsidiaries").
Section 1.68. Surface Mining Enforcement Agency.
"Surface Mining Enforcement Agency" shall have the meaning given in
Section 5.25(a) hereof.
Section 1.69. Surface Mining Laws.
"Surface Mining Laws" shall have the meaning given in Section 5.25(a)
hereof.
Section 1.70. Surface Mining Permits.
"Surface Mining Permits" shall have the meaning given in Section
5.25(a) hereof.
Section 1.71. Surviving Corporation.
"Surviving Corporation" shall mean BDCC on or after the Effective Time.
Section 1.72. Taxes.
"Taxes" shall mean any and all taxes, levies, imposts, duties,
assessments, charges and
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withholdings imposed or required to be collected by or paid over to any federal,
state, local or foreign Governmental Authority or any political subdivision
thereof, including, without limitation, income, premium, gross receipts, ad
valorem, value added, minimum tax, franchise, sales, use, excise, license, real
or personal property, unemployment, disability, stock transfer, mortgage
recording, estimated, withholding or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, and including any interest,
penalties, fines, assessments or additions to tax imposed in respect of the
foregoing, or in respect of any failure to comply with any requirement regarding
Tax Returns.
Section 1.73. Tax Returns.
"Tax Returns" shall mean any report, return, information statement,
payee statement or other information required to be provided to any federal,
state, local or foreign Governmental Authority or otherwise retained, with
respect to Taxes or the BDCC Benefit Plans.
Section 1.74. TSCA.
"TSCA" shall have the meaning given in Section 5.25(b) hereof.
Section 1.75. Welfare Plans.
"Welfare Plans" shall have the meaning given in Section 5.13(a) hereof.
ARTICLE II
THE MERGER
Section 2.1. The Merger.
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Subsidiary shall be merged with and into BDCC in
accordance with the provisions of, and with the effects provided in, Section 259
of the Delaware Code. BDCC shall be the surviving corporation resulting from the
Merger and as a result shall become an indirect wholly-owned subsidiary of
Acquiror and shall continue to be governed by the laws of the State of Delaware.
(b) Pursuant to the Merger, at the Effective Time, each share of BDCC
Common Stock outstanding immediately prior to the Effective Time (other than
shares of BDCC Common Stock held by Acquiror, if any, and shares of BDCC Common
Stock held in BDCC's treasury, which shares shall be canceled in the Merger, or
shares held by a Dissenting Holder) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive (i) $60.413 in cash, without interest thereon (subject to adjustment as
provided below) (the "Cash Consideration") and (ii) the right to receive the
Contingency Amount as set forth in the Contingency Agreement in substantially
the form attached hereto as Exhibit B (collectively, the "Merger
Consideration").
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(c) Pursuant to the Merger, at the Effective Time, each share of common
stock of Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and exchanged for one share of common
stock, $1.00 par value, of the Surviving Corporation. The separate existence and
corporate organization of Merger Subsidiary shall cease upon the Effective Time
and thereupon Merger Subsidiary and BDCC shall be a single corporation.
(d) BDCC, as the Surviving Corporation in the Merger, shall have a
Certificate of Incorporation as set forth in the Certificate of Merger.
(e) In the event of any change in the shares of BDCC Common Stock
outstanding between the date of this Agreement and the Effective Time by reason
of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like, the Merger
Consideration shall be adjusted proportionately.
(f) Acquiror and BDCC agree to use their respective best efforts to
cause the Merger to be consummated in accordance with the terms of this
Agreement.
Section 2.2. Exchange of Certificates.
(a) Prior to the Effective Time, Acquiror shall appoint a bank or trust
company reasonably acceptable to BDCC to act as the paying agent in connection
with the Merger (the "Paying Agent"). From and after the Effective Time, each
holder of a certificate that immediately prior to the Effective Time represented
outstanding shares of BDCC Common Stock (a "Certificate") shall be entitled to
receive in exchange therefor, upon surrender thereof to the Paying Agent and
subject to applicable withholding Taxes, the Merger Consideration represented by
such Certificates. Immediately prior to the Effective Time, Acquiror will
deliver or cause to be delivered to the Paying Agent, in trust for the benefit
of the holders of BDCC Common Stock, cash, representing the Cash Consideration
times the number of outstanding shares of BDCC Common Stock, necessary to make
the payments contemplated by Section 2.1(b)(i) hereof on a timely basis.
(b) Promptly after the Effective Time, Acquiror shall cause the Paying
Agent to mail to each holder of record of a Certificate or Certificates that
immediately prior to the Effective Time represented shares of BDCC Common Stock
entitled to payment pursuant to Section 2.1(b) hereof, a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificate(s) shall pass, only upon proper delivery of the
Certificate(s) to the Paying Agent) and instructions for use in effecting the
surrender of the Certificate(s) in exchange for the Merger Consideration in
accordance with Section 2.1(b) hereof. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal duly executed and any
other required documents, the holder of such Certificate shall be entitled to
receive (subject to applicable withholding Taxes) in exchange therefor the Cash
Consideration times the number of shares of BDCC Common Stock represented by the
Certificate, and such Certificate shall forthwith be canceled. If any cash is to
be paid to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of such payment that the
Certificate so surrendered shall be properly endorsed (with such signature
guarantees as may be required by the letter of transmittal) or otherwise in
proper form
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for transfer and that the person requesting such payment shall pay to the Paying
Agent any transfer or other Taxes required by reason of such payment to a person
other than the registered holder of the Certificate surrendered or establish to
the satisfaction of Acquiror that such Tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 2.2, each
Certificate shall represent for all purposes only the right to receive the
Merger Consideration times the number of shares of BDCC Common Stock represented
by such Certificate, as provided in Section 2.1(b) hereof, without any interest
thereon. The Paying Agent shall cause the Cash Consideration to be sent to the
holder within five (5) business days after (i) the Paying Agent has received the
Certificate(s), properly endorsed, and (ii) all other conditions to delivery of
the Cash Consideration have been satisfied.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of BDCC of the shares of BDCC Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for transfer, they shall
be canceled and exchanged for the Merger Consideration times the number of
shares of BDCC Common Stock represented by such Certificates, as provided in
Section 2.1(b) hereof, in accordance with the procedures set forth in this
Section 2.2. Any payment of the Contingency Amount shall be made to those
shareholders of BDCC appearing in its stock transfer book at the Effective Time.
(d) Any portion of the Merger Consideration made available to the
Paying Agent pursuant to paragraph (a) of this Section 2.2 to pay for shares of
BDCC Common Stock for which appraisal rights shall have been perfected shall be
returned to the Acquiror, upon demand.
(e) Any portion of the Cash Consideration delivered to the Paying Agent
for payment, as contemplated herein, that remains unclaimed by the former
holders of BDCC Common Stock on the date that falls 180 days after the Effective
Time shall be delivered by the Paying Agent to the Surviving Corporation. Any
former holders of BDCC Common Stock who have not theretofore complied with this
Section 2.2 shall thereafter look only to the Surviving Corporation for
satisfaction of their claim for the Merger Consideration, without any interest
thereon. Notwithstanding the foregoing, neither Acquiror nor the Surviving
Corporation shall be liable to any holder of shares of BDCC Common Stock for any
consideration as contemplated herein that is delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed, Acquiror shall cause the
Paying Agent to issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration deliverable in respect thereof as determined in
accordance with Section 2.1 hereof. When authorizing such payment in exchange
for any lost, stolen or destroyed Certificate, the person to whom the Merger
Consideration is to be issued, as a condition precedent to the issuance thereof,
shall give Acquiror a bond satisfactory to Acquiror in such sum as it may direct
or otherwise indemnify Acquiror in a manner satisfactory to Acquiror against any
claim that may be made against Acquiror or the Surviving Corporation with
respect to the Certificate alleged to have been lost, stolen or destroyed.
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Section 2.3. Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary, shares of
BDCC Common Stock outstanding immediately prior to the Effective Time and held
by a holder who has not voted in favor of the Merger or consented thereto in
writing and who has demanded appraisal for such shares of BDCC Common Stock in
accordance with the Delaware Code (a "Dissenting Holder") shall not be converted
into a right to receive the Merger Consideration, unless such Dissenting Holder
fails to perfect or withdraws or otherwise loses his right to appraisal. If,
after the Effective Time, such Dissenting Holder fails to perfect or withdraws
or loses his right to appraisal, such shares of BDCC Common Stock shall be
treated as if they had been converted as of the Effective Time into a right to
receive the Merger Consideration payable in respect of such Shares pursuant to
Section 2.2. BDCC shall give Acquiror (i) prompt notice of any demands received
by BDCC for appraisal of shares, withdrawals of such demands, and any other
instruments served pursuant to the Delaware Code and received by BDCC and (ii)
all negotiations and proceedings with respect to such demands. BDCC shall not,
except with the prior written consent of Acquiror, make any payment with respect
to any demands for appraisal, or offer to settle, or settle any such demands.
ARTICLE III
SHAREHOLDER APPROVAL; CLOSING
Section 3.1. Shareholder Approval.
(a) Acquiror's Board of Directors has approved, and BDCC's Board of
Directors has approved and shall recommend that its shareholders vote for the
approval of, this Agreement and the transactions contemplated hereby and shall
cause to be taken such other actions as may be necessary and appropriate to
effect the transactions contemplated hereby. The recommendation of BDCC's Board
of Directors shall be contained in the Proxy Statement. As soon as practicable
after the execution of this Agreement, BDCC will take all actions necessary in
accordance with applicable Laws, this Agreement and BDCC's Certificate of
Incorporation and bylaws, to duly call and cause to be held a special meeting of
the holders of BDCC Common Stock (the "Special Meeting"), and this Agreement
shall be submitted by BDCC for consideration and approval at the Special
Meeting.
(b) On the first business day on which (i) this Agreement has been duly
approved by the requisite vote of the holders of BDCC Common Stock and (ii) the
Closing of the transactions contemplated by this Agreement has occurred, or such
later date as shall be agreed upon by Acquiror and BDCC, the Certificate of
Merger shall be filed in accordance with the Delaware Code, and the Merger shall
become effective in accordance with the terms of this Agreement at the time and
date contemplated therein (such time and date being referred to herein as the
"Effective Time").
Section 3.2. Time and Place of Closing.
The Closing of the transactions contemplated by this Agreement will
take place at 11:00 A.M., Eastern time, on a date mutually agreed upon by the
parties hereto, which (unless otherwise agreed by the parties hereto) shall be
no later than the fifth business day following the date on which
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all of the conditions to the obligations of the parties hereunder set forth in
Article VII hereof have been satisfied or waived. The Closing shall be at such
place as may be mutually agreed upon by the parties hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER
SUBSIDIARY
Acquiror and Merger Subsidiary represent and warrant to BDCC as
follows:
Section 4.1. Organization and Authority of Acquiror and Merger
Subsidiary.
Each of Acquiror and Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of organization. Acquiror owns directly or indirectly all of the
outstanding capital stock of Merger Subsidiary.
Section 4.2. Authority Relative to this Agreement.
The execution, delivery and performance of this Agreement and of all of
the other documents and instruments required hereby by Acquiror and Merger
Subsidiary are within the corporate power of Acquiror and Merger Subsidiary. The
execution and delivery of this Agreement and the consummation of the Merger and
of the other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Acquiror and Merger Subsidiary
(including by the Acquiror or a wholly-owned subsidiary of Acquiror as sole
shareholder of Merger Subsidiary) and no other corporate proceedings on the part
of Acquiror or Merger Subsidiary are necessary to authorize the execution,
delivery and performance of this Agreement or to consummate the transactions
contemplated hereby. This Agreement and all of the other documents and
instruments required hereby have been or will be duly and validly executed and
delivered by each of Acquiror and Merger Subsidiary and (assuming the due
authorization, execution and delivery hereof or thereof by BDCC) constitute or
will constitute valid and binding agreements of each of Acquiror and Merger
Subsidiary, enforceable against them in accordance with their respective terms,
except to the extent that their enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other Laws affecting the enforcement
of creditors' rights generally or by equitable principles.
Section 4.3. Consents and Approvals; No Violations.
Except for (a) any applicable requirements of the Exchange Act, the HSR
Act and any applicable filings under state takeover Laws and (b) the filing of
the Certificate of Merger as required by the Delaware Code, no filing or
registration with, and no permit, authorization, consent or approval of, any
Governmental Authority is necessary or required in connection with the execution
and delivery of this Agreement by Acquiror and Merger Subsidiary or for the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
by this Agreement. Assuming that
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all filings, registrations, permits, authorizations, consents and approvals
contemplated by the immediately preceding sentence have been duly made or
obtained, neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated hereby by Acquiror and Merger
Subsidiary will (a) conflict with or result in any breach of any provision of
the respective Articles of Incorporation or bylaws of Acquiror or Certificate of
Incorporation or bylaws of Merger Subsidiary; (b) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under or result in the loss of a benefit under, or result in the creation of a
Lien on any property or asset of Acquiror or Merger Subsidiary under, any of the
terms, conditions or provisions of any material Contract or other instrument or
obligation to which either Acquiror or Merger Subsidiary is a party or by which
either of them or any of their properties or assets may be bound; or (c) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
either Acquiror or Merger Subsidiary or any of their properties or assets;
except, in the case of subsection (c) above, for violations, breaches or
defaults that are not reasonably likely to have a Material Adverse Effect on
Acquiror or Merger Subsidiary or that will not prevent or delay te consummation
of the transactions contemplated hereby.
Section 4.4. Litigation.
There is no action, suit, proceeding or investigation pending or, to
the Knowledge of Acquiror, threatened against or relating to any of the Acquiror
Companies at law or in equity, or before any Governmental Authority, that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
Section 4.5. Fees and Expenses of Brokers and Others.
None of the Acquiror Companies is directly or indirectly committed to
any liability for any brokers' or finders' fees or any similar fees in
connection with the transactions contemplated by this Agreement or has retained
any broker or other similar intermediary to act directly or indirectly on its
behalf in connection with the transactions contemplated by this Agreement.
Section 4.6. Obligation to Fund.
Acquiror has (or will have at the Effective Time) on hand cash or other
short term investments in an amount sufficient to pay in U.S. dollars the Cash
Consideration for each share of BDCC Common Stock upon surrender of all the
shares of the BDCC Common Stock after consummation of the Merger. Acquiror will
make such funds available to the Paying Agent at such times, in such amounts and
in such a manner as is contemplated by Section 2.2 hereof.
Section 4.7. Proxy Statement.
Neither the information supplied by, or to be supplied by, or on behalf
of Acquiror for inclusion in the Proxy Statement in connection with the Merger
or any other transaction contemplated hereby will, on the date of its filing or
on the date first mailed to shareholders of BDCC, contain any untrue statement
of a material fact or omit to state any material fact required to
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be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
Section 4.8. Registration.
The Contingency Amount constitute exempt securities under the
registration provisions of the Securities Act, and the offer, issue, sale and
delivery of the Contingency Amount is not required to be registered under the
Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BDCC
BDCC represents and warrants to Acquiror and Merger Subsidiary as
follows:
Section 5.1. Organization and Authority of the BDCC Companies.
Each of the BDCC Companies is duly incorporated and organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation. Each of the BDCC Companies has full corporate power to carry on
its respective business as it is now being conducted and to own, operate and
hold under lease its assets and properties as, and in the places where, such
properties and assets now are owned, operated or held. Each of the BDCC
Companies is duly qualified as a foreign entity to do business, and is in good
standing, in each jurisdiction where the failure to be so qualified would have a
Material Adverse Effect on the BDCC Companies. Schedule 5.1 of the Company
Disclosure Schedule contains a true and complete list of all of the BDCC
Companies, together with the jurisdiction of incorporation of each such Company.
The copies of the Articles or Certificate of Incorporation and bylaws of each of
the BDCC Companies that have been delivered to Acquiror are complete and correct
and in full force and effect on the date hereof.
Section 5.2. Capitalization.
BDCC's authorized equity capitalization consists of 1,000,000 shares of
BDCC Common Stock, $1.00 par value. As of the close of business on January 31,
1998, 935,220 shares of BDCC Common Stock were issued and outstanding, and
25,912 shares were held in treasury. Such shares of BDCC Common Stock
constituted all of the issued and outstanding shares of capital stock of BDCC as
of such date. No Subsidiary of BDCC owns, of record or beneficially, any shares
of BDCC Common Stock. All issued and outstanding shares of BDCC Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, are not subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any federal or state
securities Laws. All of the outstanding shares of capital stock of the
Subsidiaries of BDCC have been duly authorized and are validly issued, fully
paid and nonassessable and owned of record and beneficially by BDCC, directly or
indirectly, free and clear of all Liens. BDCC has not,
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subsequent to March 31, 1997, declared or paid any dividend on, or declared or
made any distribution with respect to, or authorized or effected any split-up or
any other recapitalization of, any of the BDCC Common Stock, or directly or
indirectly redeemed, purchased or otherwise acquired any of the BDCC Common
Stock or agreed to take any such action and will not take any such action during
the period between the date of this Agreement and the Effective Time. There are
(a) no outstanding options, warrants, subscriptions or other rights to purchase
or acquire any capital stock of any of the BDCC Companies that would require any
BDCC Company to issue any capital stock, (b) no Contracts or agreements (oral or
written) pursuant to which any of the BDCC Companies is bound to sell or issue
any shares of its capital stock or securities convertible into or exchangeable
for such shares of capital stock and (c) no Contracts to which any of the BDCC
Companies is a party with respect to the voting or registration of any shares of
capital stock of any of the BDCC Companies.
Section 5.3. Authority Relative to this Agreement.
The execution, delivery and performance of this Agreement, and of all
of the other documents and instruments required hereby, by BDCC are within the
corporate power of BDCC. The execution and delivery of this Agreement and the
consummation of the Merger and of the other transactions contemplated hereby
have been duly authorized by the Board of Directors of BDCC and no other
corporate proceedings on the part of BDCC are necessary to authorize the
execution, delivery and performance of this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the
approval of this Agreement by the holders of at least a majority of the
outstanding shares of BDCC Common Stock at the Special Meeting). This Agreement
and all of the other documents and instruments required hereby have been or will
be duly and validly executed and delivered by BDCC and (assuming the due
authorization, execution and delivery hereof and thereof by Acquiror and Merger
Subsidiary) constitute or will constitute valid and binding agreements of BDCC,
enforceable against BDCC in accordance with their respective terms, except to
the extent that their enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other Laws affecting the enforcement of creditors'
rights generally or by equitable principles.
Section 5.4. Subsidiaries.
BDCC owns, directly or indirectly, all the outstanding capital stock of
each of its Subsidiaries, free and clear of all liens and all such capital stock
is duly authorized, validly issued and outstanding, fully paid and
nonassessable. Neither BDCC nor any of its Subsidiaries has made any material
investment in, or material advance of cash or other extension of credit to, any
person, corporation or other entity other than its Subsidiaries. None of such
Subsidiaries has any commitment to issue or sell any share of its capital stock
or any securities or obligations convertible into or exchangeable for, or giving
any person (other than BDCC) any right to acquire from such Subsidiary, any
shares of its capital stock, and no such securities or obligations are
outstanding.
Section 5.5. Consents and Approvals; No Violations.
Except for (a) any applicable requirements of the Exchange Act, the HSR
Act and any
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applicable filings under state securities, "Blue Sky" or takeover Laws; (b) the
filing and recordation of a Certificate of Merger as required by the Delaware
Code; and (c) those required filings, registrations, consents and approvals
listed on Schedule 5.5, no filing or registration with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary
or required in connection with the execution and delivery of this Agreement by
BDCC or for the consummation by BDCC of the transactions contemplated by this
Agreement. Assuming that all filings, registrations, permits, authorizations,
consents and approvals contemplated by the immediately preceding sentence have
been duly made or obtained, neither the execution, delivery and performance of
this Agreement nor the consummation of the transactions contemplated hereby by
BDCC will (a) conflict with or result in any breach of any provision of the
respective Certificate of Incorporation, bylaws or other organizational
documents of any of the BDCC Companies; (b) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
or result in the loss of a benefit under, or result in the creation of a Lien on
any property or asset of the BDCC Companies under, any of the terms, conditions
or provisions of any Contract or other instrument or obligation to which any of
the BDCC Companies is a party or by which it or any of them or any of their
properties or assets may be bound; or (c) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any of the BDCC Companies or
any of their properties or assets; except, in the case of subsection (c) above,
for violations, breaches or defaults that would not have a Material Adverse
Effect on the BDCC Companies or that will not prevent or delay the consummation
of the transactions contemplated hereby.
Schedule 5.5 hereto sets forth all consents which are required pursuant
to Coal Leases or Contracts to which BDCC or its Subsidiaries are a party as a
result of the transactions contemplated by this Agreement. BDCC shall obtain
such consents prior to the Closing Date, without any changes adverse to Acquiror
or its Subsidiaries, provided, however, that to the extent obtaining any consent
requires guarantees or assurances from Acquiror, such guarantees or assurances
shall not be unreasonably withheld.
Section 5.6. Reports.
The BDCC SEC Reports complied, as of their respective dates of filing,
in all material respects with all applicable requirements of the Exchange Act,
the Securities Act and the rules and regulations of the SEC promulgated
thereunder. As of their respective dates, none of the BDCC SEC Reports,
including, without limitation any exhibits thereto or financial statements or
schedules included or incorporated by reference therein, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein not
misleading in light of the circumstances under which they were made. Each of the
balance sheets (including the related notes and schedules) included or
incorporated by reference in the BDCC SEC Reports fairly presented the
consolidated financial position of the BDCC Companies as of the respective dates
thereof, and the other related financial statements (including the related notes
and schedules) included or incorporated by reference therein fairly presented
the consolidated results of operations and cash flows of the BDCC Companies for
the respective fiscal periods or as of the respective dates set forth therein.
Each of the financial
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statements (including the related notes and schedules) included or incorporated
by reference in the BDCC SEC Reports (i) complied as to form with the applicable
accounting requirements and rules and regulations of the SEC and (ii) was
prepared in accordance with GAAP consistently applied during the period
presented, except as otherwise noted therein and subject to normal year-end and
audit adjustments in the case of any unaudited interim financial statements.
Except for BDCC, none of the BDCC Companies is required to file any forms,
reports or other documents with the SEC, or any other foreign or domestic
securities exchange or Governmental Authority with jurisdiction over securities
Laws. Since March 31, 1995, BDCC has timely filed all reports, registration
statements and other filings to be filed by it with the SEC. BDCC has heretofore
delivered to Acquiror, in the form filed with the SEC, true and complete copies
of BDCC's annual report on Form 10-K for the fiscal year ended March 31, 1997
and BDCC's quarterly report on Form 10-Q for the quarterly periods ended June
30, 1997, September 30, 1997 and December 31, 1997.
The accounts receivable of the BDCC Companies as reflected in the BDCC
SEC Reports (except those collected since the dates thereof in the ordinary
course of business), are good and collectible without the necessity of legal
process except to the extend reserved against on the financial statements
included therein. To the Knowledge of BDCC and except for raw coal that must be
processed, the coal inventories of the BDCC Companies reflected in the BDCC SEC
Reports are in good, saleable condition and of marketable quality and are of
kinds currently marketed by the BDCC Companies, and all such coal inventories
have been reflected on the financial statements included in such reports at the
lower of cost or market in accordance with GAAP.
Section 5.7. Absence of Undisclosed Liabilities.
Except as disclosed on Schedule 5.7, neither BDCC nor any of its
Subsidiaries has any liabilities of any nature, whether absolute, contingent or
otherwise, and whether due or to become due (including, without limitation, all
liabilities for Taxes) that should be reflected or reserved against in
accordance with GAAP, and that are not adequately reflected or reserved against
on the BDCC Current Balance Sheet, including the footnotes thereto, except such
as have arisen in the ordinary course of business consistent with past practice
since March 31, 1997.
Section 5.8. Absence of Certain Events.
Except as set forth in the BDCC SEC Reports filed prior to the date of
this Agreement or as otherwise specifically disclosed on Schedule 5.8, since
March 31, 1997, the business of BDCC has been operated in the ordinary course
and none of the BDCC Companies has suffered any change in its business, assets,
liabilities, financial condition or results of operations that has had or is
reasonably likely to have a Material Adverse Effect upon the BDCC Companies.
Except as disclosed in the BDCC SEC Reports or on Schedule 5.8, or as otherwise
specifically contemplated by this Agreement, there has not been since March 31,
1997: (a) any labor dispute that has had or is reasonably likely to have a
Material Adverse Effect upon the BDCC Companies; (b) any entry by any of the
BDCC Companies into any material Contract or transaction (including, without
limitation, any borrowing, capital expenditure, sale of assets or any Lien made
on any of the properties or assets of any of the BDCC Companies) that cannot be
terminated within 30 days without penalty; (c) any change in the accounting
policies or practices of BDCC; (d) any damage, destruction or loss, whether
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covered by insurance or not, that has had or is reasonably likely to have a
Material Adverse Effect upon the BDCC Companies; (e) any material change in
underwriting, pricing, actuarial or investment practices or policies; (f) any
new, or amendment to any existing, employment, severance or consulting Contract,
the implementation of, or any agreement to implement, any increase in benefits
with respect to any BDCC Benefit Plans, or any alteration of any of the BDCC
Companies' employment practices or terms and conditions of employment, in each
case other than in the ordinary course of business consistent with past
practice; (g) any issuance by any of the BDCC Companies of any shares of capital
stock, or any repurchase or redemption by any of the BDCC Companies of any
shares of their respective capital stock; or (h) any sale, lease or other
disposition of, or execution and delivery of any agreement by any, BDCC Company
contemplating the sale, lease or other disposition of, properties and assets of
any BDCC Company other than in the ordinary course of business; (i) any merger
or consolidation of any of the BDCC Companies with any other corporation, person
or entity or any acquisition by any of the BDCC Companies of the stock or
business of another corporation, partnership or other entity, or any action
taken or any commitment entered into with respect to or in contemplation of any
liquidation, dissolution, recapitalization, reorganization or other winding up
of the business or operation of any of the BDCC Companies; (j) any borrowing,
agreement to borrow funds or assumption, endorsement or guarantee of
indebtedness by any of the BDCC Companies or any termination or material
amendment of any evidence of indebtedness, contract, agreement, deed, mortgage,
lease, license or other instrument, commitment or agreement to which any of the
BDCC Companies is bound or by which any of them or their respective properties
is bound other than in the ordinary course of business and consistent with past
practices and other than any such borrowing, agreement to borrow, termination or
amendment that would not have a material adverse effect; (k) any declaration or
payment of any dividend on, or any other distribution with respect to, the
capital stock of any of the BDCC Companies; (l) any Lien on any of the assets,
tangible or intangible, of any of the BDCC Companies; or (n) any agreement to do
any of the foregoing.
Section 5.9. Litigation.
Except as set forth on Schedule 5.9, there are no civil, criminal or
administrative actions, suits, claims, hearings, proceedings or investigations
pending or, to the Knowledge of BDCC, threatened against or relating to any of
the BDCC Companies at law or in equity, or before any Governmental Authority,
that are reasonably likely to have a Material Adverse Effect upon the BDCC
Companies or that seek restraint, prohibition, damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
Section 5.10. Proxy Statement.
None of the information with respect to BDCC to be included in the
Proxy Statement or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy Statement or any amendments thereof or supplements
thereto, and at the time of the BDCC Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Securities Act, the Exchange Act and the rules and regulations promulgated
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thereunder, except that no representation is made by BDCC with respect to
information supplied by Acquiror or any affiliate of Acquiror for inclusion in
the Proxy Statement.
Section 5.11. Insurance.
Schedule 5.11 contains a complete and correct list of all policies of
property, fire and casualty, product liability, workers' compensation,
automobile and other forms of insurance owned or held by the BDCC Companies and
includes for each such policy its type, term, limits and retentions,
deductibles, name of insurer, annual premiums, the aggregate remaining unused
limits for each such policy giving effect to claims made and expected to be made
thereunder and, for product liability policies, whether such policy is claims
made coverage or occurrence-based coverage. All such policies (a) are in full
force and effect with all premiums due having been paid in full and are
sufficient for compliance by BDCC with all requirements of Law and all
agreements to which BDCC is a party, (b) are valid, outstanding and enforceable
policies, (c) insure against risks of the kind customarily insured against and
(d) provide that they will remain in full force and effect through the
respective dates set forth on Schedule 5.11, subject to the cancellation rights
specified in such policies. Except as set forth on Schedule 5.11, during the
last two years, BDCC has not been denied any insurance coverage which it has
requested, has made no material change in the scope or nature of its insurance
coverage and has not received notice of any material increase in premiums for
any of such policies nor of any termination or refusal to renew such policies.
All policies of primary comprehensive general liability insurance and excess
carriers insurance which insure against product liability claims which BDCC has
maintained during the past five years are set forth on Schedule 5.11 including
the same information with respect to such policies as is set forth for BDCC
current policies. All vendors to BDCC which maintain vendor's endorsements on
their liability insurance policies are set forth on Schedule 5.11. During the
past five years, there has been no lapse in coverage of BDCC property, fire and
casualty, product liability, workers' compensation, automobile, comprehensive
general liability or other form of insurance carried by BDCC in the ordinary
course of its business.
Section 5.12. Material Agreements.
Schedule 5.12 contains a list of all Contracts to which any of the BDCC
Companies is a party that are material to the BDCC Companies. All such Contracts
were duly and validly executed by one of the BDCC Companies. None of the BDCC
Companies is in breach or default under any such Contract. To the Knowledge of
BDCC, no breach or default under any such Contract by any party thereto other
than a BDCC Company has occurred. All Contracts to which BDCC or any of its
Subsidiaries is a party or by which BDCC or any of its property is bound or
affected, including, but not limited to, Contracts for the future purchase of
mining supplies, equipment, or any other materials or goods (except for
Contracts for purchases of materials or goods to meet immediate operating
needs), Contracts for sales, agency or brokerage services, Contracts for future
sale of coal or coal products to any customer or person, contract mining
agreements or other contracts providing for the operation of facilities or
properties, contracts for the washing, tippling or other processing of coal by
or for third parties, or contracts for the trucking, transportation or
transloading of coal, fire, theft, casualty, liability, Workers' Compensation,
black lung and other insurance policies insuring BDCC or any of its
Subsidiaries, loan agreements, indentures, mortgages, pledges,
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conditional sale or title retention agreements, security agreements, equipment
obligations, guaranties, leases or lease purchase agreements to which BDCC or
any of its Subsidiaries is a party or by which BDCC is bound (other than
contracts requiring payment by, or payment to, any of the BDCC Companies of less
than $25,000 per year) are valid, binding and enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and to
applicable limitations on the availability of equitable remedies, including
considerations of public policy, are in full force and effect, and there exists
no defalt which, after notice or lapse of time, or both, would result in a right
to accelerate or loss of rights of BDCC or its Subsidiaries thereunder.
Section 5.13. Employee Benefit Plans.
(a) Set forth on Schedule 5.13 is a true and complete list of each
employee benefit plan as defined in Section 3(3) of ERISA and any other plan or
arrangement, whether or not subject to ERISA, that provides deferred
compensation, bonus, stock option, stock purchase, hospitalization, disability,
severance, insurance or similar benefits (each, an "Employee Benefit Plan"), at
any time contributed to, maintained or sponsored by or on behalf of any BDCC
Company, for the benefit of any present or former employee, independent
contractor, officer or director of any BDCC Company or with respect to which any
BDCC Company has any liability or potential liability, which list identifies (i)
each Employee Benefit Plan that is a "pension plan" (as defined in Section 3(2)
of ERISA but not including a multiemployer plan within the meaning of Section
3(37) or 4001(a)(3) of ERISA) (the "Pension Plans"), and denotes those Pension
Plans (the "Qualified Plans") intended to be qualified under Section 401(a) of
the Code, (ii) each Employee Benefit Plan that is a "multiemployer plan" (as
defined in Sections 3(37) and 4001(a)(3) of ERISA (the "Multiemployer Plans")
and (iii) each Employee Benefit Plan that is a "welfare plan" (as defined in
Section 3(1) of ERISA) (the "Welfare Plans"). True and complete copies of each
Employee Benefit Plan have been delivered to the Acquiror. To the knowledge of
the BDCC, each Employee Benefit Plan is enforceable in accordance with its
terms.
(b) Each Qualified Plan complies in all material respects with
applicable law as of the date hereof, and the IRS has issued favorable
determination letters to the effect that the forms of Qualified Plans (or
predecessor plans) satisfy the requirements of Section 401(a) and related
sections of the Code or an application for such a determination has been filed
with the IRS. There are no facts or circumstances that would jeopardize or
adversely affect in any material respect the qualification under Code Section
401(a) of any Qualified Plan. No Qualified Plan has been amended in a manner
that would require security to be provided in accordance with Code Section
401(a)(29). As of the Effective Date, the present value of all liabilities of
each Qualified Plan that would be benefit liabilities under ERISA Section
4001(a)(16) if benefits described in Code Section 411(d)(6) were included, will
not exceed the then fair market value of the assets of such plan (determined
using the actuarial assumptions used for the most recent actuarial valuation of
such plan).
(c) As of the Effective Date, full payment will be made to each
Employee Benefit Plan of all contributions that are required by any BDCC Company
under the terms thereof, ERISA or the Code to be made on or prior to the
Effective Date. No "accumulated funding deficiency" (as defined in ERISA Section
302 or Code Section 412), whether or not waived, exists or will exist as of the
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Effective Date with respect to any Pension Plan.
(d) Each Employee Benefit Plan (other than any Multiemployer Plan) has
been administered substantially in accordance with its terms. In addition, each
Employee Benefit Plan (other than any Multiemployer Plan) complies, and has been
administered substantially in accordance with, any applicable provisions of
ERISA and the Code and the rulings and regulations promulgated thereunder
(including the continuation coverage requirements of group health plans under
Code Section 4980(B) and ERISA Section 602), and all other applicable laws, and
all reports, returns and other documentation that are required to have been
filed with the IRS, the United States Department of Labor, PBGC or any other
Governmental Authority (federal, state or local) have been filed on a timely
basis, in each instance in which the failure to file such reports, returns and
other documents would result in any material liability or obligation to any BDCC
Company. No lawsuits or complaints to or by any person or Governmental Authority
have been filed or, to the knowledge of BDCC, are contemplated or threatened,
with respect to any Employee Benefit Plan (other than any Multiemployer Plan).
To the knowledge of BDCC, all of the foregoing applies to any Multiemployer
Plan.
(e) No BDCC Company has received a notice of, or incurred, any
withdrawal liability with respect to any Multiemployer Plan. Except as set forth
in Schedule 5.13(e), no BDCC Company has an obligation to contribute to any
"Multiemployer Plan."
(f) No BDCC Company has incurred any material liability with respect to
any Welfare benefits" (as defined in Code Section 419) including, without
limitation, any liability for tax under Code Section 5000 that are not fully
reflected in the BDCC SEC Reports. Except as required under Code Section
4980B(f) and ERISA Section 602, no BDCC Company is obligated on or after the
Effective Date to provide or to pay any benefits to former employees or to their
dependents or beneficiaries.
Section 5.14. Labor Matters.
BDCC represents that it is not a party to or bound by any collective
bargaining agreement or other agreement or obligation of any sort with any labor
union. Set forth on Schedule 5.14 is a true and complete list of all labor and
collective bargaining agreements to which BDCC or its Subsidiaries have been a
party, together with amendments thereto. BDCC represents that it is no longer
bound by any provision of the agreements listed on Schedule 5.14 and that it
does not retain any obligations or liabilities of any sort, contractual or
otherwise, as a result of having been a party to such agreements. There are no
strikes or other work stoppages involving any employees of BDCC or any of its
Subsidiaries and there are no material labor disputes by any labor organization
in progress or pending or, to its knowledge, threatened against BDCC or any of
its Subsidiaries that would constitute a Material Adverse Effect. To its
knowledge, BDCC and its Subsidiaries are in compliance with all applicable laws
and regulations in respect of employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety, health or
welfare conditions relating to premises occupied, and civil rights,
non-compliance with which would constitute a Material Adverse Effect. There are
no charges of unfair labor practices pending before any Governmental Authority
involving or affecting BDCC or any of its Subsidiaries that would
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constitute a Material Adverse Effect. It has not been notified that any customer
or supplier (including any supplier of transportation services) of BDCC or any
Subsidiary is involved in or threatened with or affected by any strike or other
labor disturbance or dispute, litigation or administrative proceeding or
judgment, order, injunction, decree or award, the consequences of which would
constitute a Material Adverse Effect.
Section 5.15. Employment Matters.
Set forth on Schedule 5.15 is a true and complete list (and BDCC has
made available to Acquiror) (i) a description of the terms of employment and
compensation arrangements of all officers of BDCC and a copy of each such
agreement currently in effect; (ii) copies of all agreements with consultants
obligating BDCC to make annual cash payments in an amount exceeding $25,000
(iii) a schedule listing all officers of BDCC who have executed a
non-competition agreement with BDCC and a copy of each such agreement currently
in effect; (iv) copies (or descriptions) of all severance agreements, programs
and policies of BDCC with or relating to its employees, except programs and
policies required to be maintained by law; and (v) copies of all plans,
programs, agreements and other arrangements of BDCC with or relating to its
employees which contain change in control provisions. Except as set forth on
Schedule 5.15, BDCC is not a party to or bound by any severance, golden
parachute or other agreement with any employee or consultant pursuant to which
such person would be entitled to receive any additional compensation or an
accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby that would not be deductible for federal income
tax purposes under Section 280G of the Code or another section of the Code.
Section 5.16. Takeover Statute.
The Board of Directors of BDCC has taken all actions so that the
restrictions contained in Section 203 of the Delaware Code applicable to a
"business combination" (as defined in Section 203) will not apply to the
execution, delivery or performance of this Agreement or the consummation of the
Merger or the other transactions contemplated by this Agreement.
Section 5.17. Tax Matters.
Except as set forth on Schedule 5.17:
(a) BDCC and each of its Subsidiaries are members of the affiliated
group, within the meaning of Section 1504(a) of the Code, of which BDCC is the
common parent, and such affiliated group files a consolidated federal income tax
return;
(b) Each of BDCC and its Subsidiaries has timely filed or caused to be
filed all material Tax Returns required to have been filed by or for it, and all
information set forth in such Tax Returns (including, without limitation, the
computation of all net operating loss, credit, and other carryovers) is accurate
and complete in all material respects;
(c) Each of BDCC and its Subsidiaries has paid or made adequate
provision on its books
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and records in accordance with GAAP for all Taxes covered by such Tax Returns;
(d) None of BDCC and its Subsidiaries has granted (or is subject to)
any waiver that is currently in effect of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or asserted
against or with respect to BDCC or any of its Subsidiaries by any Governmental
Authority; no power of attorney relating to Taxes that is currently in effect
has been granted by or with respect to BDCC or any of its Subsidiaries; there
are no currently pending administrative or judicial proceedings, or any
deficiency or refund litigation, with respect to Taxes of BDCC or any of its
Subsidiaries; and any such assertion, assessment, proceeding or litigation
disclosed on Schedule 5.17 is being contested in good faith through appropriate
measures, and its status is described in Schedule 5.17;
(e) None of BDCC and its Subsidiaries is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments, that would not be deductible by reason of Section 162(m) or Section
280G of the Code.
(f) The IRS has examined the federal income tax returns for the BDCC
Companies for all years up to and including the year ended March 31, 1979, and,
except as set forth on Schedule 5.17 has finally determined all Taxes thereon,
all of which have been paid;
(g) Each of BDCC and its Subsidiaries is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements;
(h) There are no unpaid Taxes due and payable by BDCC, any of its
Subsidiaries, or any other person that are or could become a lien on any asset,
or otherwise adversely affect the business, properties, or financial condition,
of BDCC or any of its Subsidiaries;
(i) None of the BDCC and its Subsidiaries has made or entered into, or
holds any asset subject to, a consent filed pursuant to Section 341(f) of the
Code or a "safe harbor lease" subject to former Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended before the Tax Reform Act of 1984; and
(j) None of BDCC and the Subsidiaries is required to include in income
any amount for an adjustment pursuant to Section 481 of the Code.
Schedule 5.17 describes all material, currently effective Tax
elections, consents, and agreements made by or affecting BDCC or any of its
Subsidiaries, lists all material types of Taxes paid and Tax returns filed by or
on behalf of BDCC or any of its Subsidiaries, and expressly indicates each Tax
with respect to which BDCC or any of its Subsidiaries is or has been included in
a consolidated, unitary, or combined Tax Return.
Section 5.18. Compliance with Law.
(a) The conduct of the business of each of the BDCC Companies and its
use of its assets
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has not violated or conflicted with or is not in violation of any Law, which
violation or conflict is reasonably likely to have a Material Adverse Effect on
the BDCC Companies. None of the BDCC Companies has received any notice asserting
or alleging a violation or failure to comply with any Law where such violation
or failure to comply is reasonably likely to have a Material Adverse Effect on
the BDCC Companies. Each of the BDCC Companies possesses all mining permits and
all other material permits, licenses, authorizations, certificates, franchises,
orders, consents or other indicia of authority required by any Governmental
Authority or otherwise necessary in order to conduct its business and operations
as presently conducted by the BDCC Companies (the "BDCC Licenses"), all of which
are listed on Schedule 5.18 or 5.25. Each of the BDCC Companies is in material
compliance with the terms and conditions of the BDCC Licenses, and all the BDCC
Licenses are in full force and effect. No proceeding is pending or, to the
Knowledge of BDCC, threatened that is reasonably likely to result in the
suspension, revocation or limitation of any of the BDCC Licenses.
(b) Except with respect to items set forth on Schedule 5.18, to the
Knowledge of BDCC, none of the BDCC Companies, nor any past or present lessor,
sublessor, lessee, sublessee, owner, occupant, contract miner or operator of the
Mineral Properties and the other Fee Property and Leased Property (collectively,
the "Real Property Interests") for which any of the BDCC Companies is presently
responsible as a matter of law (such persons or entities, being referred to in
this Agreement as "Operators"), are in any material respect, out of lawful
compliance with, or are in default under, any federal, state or local laws,
ordinances, requirements, rules, regulations, licenses, permits, orders,
injunctions, judgments, or decrees applicable to the Real Property Interests or
business operations, now or previously conducted thereon (the "Company
Operations"), such that any such noncompliance or default would result in (a)
closure of any mine, (b) revocation of any license or permit, including the
Mining Permits and the BDCC Licenses, the loss of which could have a Material
Adverse Effect, (c) material impairment of the ability of any BDCC Company or
any Operator to carry out its business, or (d) exposure of any BDCC Company or
any Operator to the imposition of any fines or other civil or criminal or
monetary penalties in excess of an aggregate of one hundred thousand dollars
($100,000), for any violation or series of violations of such laws, ordinances,
requirements, rules, regulations, licenses, permits, orders, injunctions,
judgments or decrees.
(c) BDCC has made available to Acquiror true and complete copies of (a)
all of the current mining permits held by each of the BDCC Companies or the
Operators (to the extent in BDCC's possession) covering the Real Property
Interests and the Company Operations, (all such mining permits being referred to
herein as the 'Mining Permits"), together with a list of all pending
applications for additional mining permits which have been submitted to any
governmental agency.
(d) Schedule 5.18 contains a true and complete list of all of the
material citations, notices of non-compliance, cessation orders, notices of
violation and consent decrees that remain outstanding and were received by any
of the BDCC Companies or the Operators (to the extent in BDCC's possession) with
respect to the Real Property Interests and the Company Operations from the
Federal Office of Surface Mining ("OSM"), the Federal Mine Safety and Health
Administration ("MSHA") or any other environmental or health and safety
regulatory agency (federal, state or local)
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having jurisdiction over the Real Property Interests or the Company Operations.
Except as set forth on Schedule 5.18 none of the BDCC Companies or, to the
Knowledge of BDCC, the Operators are subject to any cessation orders or cease or
desist orders issued by OSM, MSHA or any such other regulatory agency with
respect to the Real Property Interests or the Company Operations.
(e) To the Knowledge of BDCC, and except as disclosed on Schedule 5.18,
the BDCC Companies and the Operators are in compliance in all material respects
with all applicable and valid requirements of the Mining Permits.
(f) Except as disclosed on Schedule 5.18, to the Knowledge of BDCC, the
BDCC Companies and the Operators have complied in all material respects with
all, and are not in default under any federal, state or local laws, ordinances,
requirements, rules, regulations, licenses, permits, orders, injunctions,
judgments or decrees applicable to such entity or to its business operations,
including worker's compensation, black lung, the American's with Disabilities
Act and the Coal Industry Retiree Health Benefits Act of 1992, Pub. L. No.
102-486, 26 U.S.C. ss. ss. 9701-9722, except for such instances of
non-compliance or default that will not have a Material Adverse Effect.
Section 5.19. Fees and Expenses of Brokers and Others.
None of the BDCC Companies is directly or indirectly committed to any
liability for any brokers' or finders' fees or any similar fees in connection
with the transactions contemplated by this Agreement or has retained any broker
or other intermediary to act directly or indirectly on its behalf in connection
with the transactions contemplated by this Agreement, except that BDCC has
engaged the Financial Advisor to represent it in connection with such
transactions, and shall pay all the fees and expenses to which the Financial
Advisor is entitled in connection with such engagement. BDCC has provided to
Acquiror true and complete copies of any Contracts to which any of the BDCC
Companies is a party relating to the engagement of the Financial Advisor. In
addition, set forth on Schedule 5.19 is an estimate of the fees and expenses
that will be payable by BDCC to its other advisors and intermediaries in
connection with this Agreement and the transactions contemplated hereby.
Section 5.20. Accuracy of Information.
The representations and warranties of the Company in this Agreement, as
supplemented and modified by the Company Disclosure Schedule, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained herein not misleading.
Section 5.21. Properties.
(a) Owned Real Property. BDCC and each of its Subsidiaries has good and
marketable title to all real property owned or purported to be owned by it or
its Subsidiaries which is used or projected to be used by it or its Subsidiaries
or any other person in connection with its mining activities (the "Fee
Property"). The Fee Property is listed on Schedule 5.21(a). As used herein "good
and marketable title" shall mean title which is free from encumbrances and any
reasonable doubt as to its validity excepting only those imperfections of title
and encumbrances, if any, which
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do not constitute a Material Adverse Effect.
(b) Leased Real Property. Set forth on Schedule 5.21(b) hereto is a
list of all real property leased by BDCC in connection with its business (the
"Leased Property") which is subject to leases (the "Coal Leases") pursuant to
which such BDCC Company leases the properties and possesses the mining rights
described therein (the "Mineral Properties"). BDCC and each of its Subsidiaries
has good and marketable leasehold title to all the Leased Property and the
Leased Property is not subject to any restrictions on transfer or use, except as
created by the lease or license pursuant to which BDCC or its Subsidiaries holds
the Leased Property or as would not constitute a Material Adverse Effect. True
and complete copies of the Coal Leases have been made available to Acquiror. To
the Knowledge of BDCC, each of the Coal Leases is validly executed and in full
force and effect. Except as set forth on Schedule 5.21(b), there is no default
by any of the BDCC Companies with respect to the Coal Leases or, to the
Knowledge of BDCC, by any of the other parties to the Coal Leases, nor has any
event occurred which, with notice, the passage of time or both would constitute
such a default. Except as disclosed on Schedule 5.21(b), the BDCC Companies have
received no written notice of any adverse claims to the Coal Leases or mining
rights described in the Coal Leases, nor have the BDCC Companies received any
notice of default. Except as listed on Schedule 5.21(b), to BDCC's Knowledge,
there are no disputes with persons owning or occupying lands adjoining or near
any of the Mineral Properties regarding the location boundary lines,
encroachments, blasting damage, environmental matters or any other matter of any
nature for which any of the BDCC Companies have received written notice. As used
herein "good and marketable leasehold title" shall mean a valid and subsisting
leasehold interest which is free from encumbrances and any reasonable doubt as
to its validity excepting only those imperfections of title and encumbrances, if
any, which do not constitute a Material Adverse Effect.
(c) Facilities and Improvements. BDCC and each of its Subsidiaries has
good and marketable title (as defined in Section 5.21(a)) to all preparation
plants, loadouts, tipples, docks and other facilities material to its operations
(the "Facilities") owned or purported to be owned by BDCC or its Subsidiaries,
and good and marketable leasehold title (as defined in Section 5.21(b)) to the
Facilities which are leased by BDCC or its Subsidiaries. All of the Facilities,
and the use presently being made of the Fee Property and the Leased Property,
comply with all applicable zoning and building code ordinances and all
applicable fire, environmental, occupational safety and health standards and
similar requirements established by law or regulation, except as would not
constitute a Material Adverse Effect.
(d) Reserve Information. The coal reserve information dated as of March
31, 1997, furnished by BDCC to Acquiror and described on Schedule 5.21(c) has
been prepared in accordance with prudent and accepted engineering practices and
BDCC is not aware of any inaccuracies in such information that would constitute
a Material Adverse Effect.
(e) Equipment and Other Personalty. BDCC and each of its Subsidiaries
has good and marketable title (as defined in Section 5.21(a)) to the equipment,
machinery, vehicles, rolling stock, supplies inventory and other tangible
personal property used by BDCC or its Subsidiaries in its business and material
to its operations (the "Personalty") which is owned by BDCC and good and
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marketable leasehold title (as defined in Section 5.21(b)) to the Personalty
used in its business which is leased. Schedule 5.21(e) contains a list of all
machinery and equipment owned by the BDCC Companies (other than fixtures) with
an individual book value of over one hundred thousand dollars ($100,000). All
such Personalty shall remain where currently located until the Closing Date.
Except as set forth in Schedule 5.21(e) hereto, to the Knowledge of BDCC, all
buildings, structures, machines and equipment used in BDCC's and the
Subsidiaries' operations have been maintained in all material respects in a
state of adequate repair and are otherwise generally adequate for their normal
operation. Except as set forth in Schedule 5.21(e), neither BDCC nor any of the
Subsidiaries has received any notice that any such buildings, structures,
machines and equipment do not substantially conform in all respects with all
applicable ordinances, regulations and zoning or other laws, and such Personalty
considered as a whole is in all respects in good working order, and, to the
Knowledge of BDCC, there is no pending or threatened condemnation of any
material part of the Real Property Interests.
Section 5.22. Intellectual Property.
BDCC or a BDCC Company owns, has registered or has, and after the
Effective Time will have, valid rights to use, free and clear of any Liens, such
trademarks, service marks, trade names, copyrights and computer software,
programs and similar systems as are material to the operation of the respective
businesses, operations or affairs of the BDCC Companies. To the Knowledge of
BDCC, none of the BDCC Companies is infringing upon any third party's
trademarks, service marks, trade names, copyrights or any application pending
therefor or any proprietary computer software, programs or similar systems which
infringement has or is reasonably likely to have a Material Adverse Effect on
the BDCC Companies.
Section 5.23. Fairness Opinion.
BDCC has received the written opinion of the Financial Advisor, to the
effect that, as of the date hereof, the consideration to be received by the
holders of BDCC Common Stock pursuant to the Merger is fair, from a financial
point of view, to the minority shareholders of BDCC. BDCC has previously
delivered to Acquiror a copy of such opinion.
Section 5.24. Vote Required.
The affirmative vote of the holders of a majority of the outstanding
shares of BDCC Common Stock entitled to vote thereon is the only vote of the
holders of any class or series of capital stock of BDCC necessary to approve
this Agreement and the transactions contemplated hereby.
Section 5.25. Environmental.
(a) Surface Mining Permits. BDCC and each of its Subsidiaries, and to
the Knowledge of BDCC each of its contract miners, is in compliance with all of
the current permits (the "Surface Mining Permits") held by BDCC or any such
Subsidiary, or such contract miner, issued pursuant to the Surface Mining
Control and Reclamation Act of 1977, as amended, or pursuant to an equivalent
state regulatory program granted primacy under the provisions of 30 U.S.C. (S)
1253 (collectively,
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the "Surface Mining Laws"), including the mining plans as respects reclamation,
coal processing and related activities as submitted to the Office of Surface
Mining or any state equivalent agency having jurisdiction over a state program
granted primacy under the provisions of 30 U.S.C. (S) 1253 (the "Surface Mining
Enforcement Agency") to obtain the Surface Mining Permits, the failure to be in
compliance with which would constitute a Material Adverse Effect. All of the
Surface Mining Permits of BDCC and each of its Subsidiaries and such contract
miners are listed on Schedule 5.25. Neither BDCC nor any of its Subsidiaries
nor, to the Knowledge of BDCC, any such contract miner, has been subjected to or
is as of the date hereof subject to any bond forfeiture, permit suspension or
revocation proceedings instituted by any Surface Mining Enforcement Agency and
neither BDCC nor, to the knowledge of BDCC, any of its Subsidiaries nor any such
contract miner is presently "permit-blocked" in any state or under the federal
Applicant Violator System.
(b) Use and Condition of Real Property. Except for valid grandfathered
nonconforming uses, the operations on, conditions of and use of all of the real
property owned, leased, controlled or used by BDCC and each of its Subsidiaries
in its business have conformed in the past and now conform to all, and give rise
to no liability under, any federal, state and local laws, ordinances,
requirements, regulations, licenses, permits, judicial or administrative orders,
injunctions, judgements and decrees relating to zoning, land use, mining,
health, safety or the environment including, without limitation, those
pertaining to Hazardous Materials (as hereinafter defined), subsidence, water
drainage, treatment or impoundment, reclamation and all other restrictions and
covenants regarding the use of any real property owned, leased, controlled or
used by BDCC or any of its Subsidiaries in its business, the failure to conform
or to comply with which would constitute a Material Adverse Effect. The term
"Hazardous Materials" shall mean (A) "hazardous wastes" as defined in the
Resource Conservation and Recovery Act ("RCRA"); (B) "hazardous substances" as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"); (C) gasoline, petroleum or other hydrocarbon product,
by-products, derivatives, additives or fractions (including used or spent
products); (D) "chemical substances" as defined in the Toxic Substance Control
Act ("TSCA"); (E) asbestos; (F) Polychlorinated Biphenyls; and (G) any
radioactive materials or substances. The real property owned, leased, controlled
or used by BDCC and each of its Subsidiaries in BDCC's business is free of any
waste or debris or Hazardous Materials, except as would not constitute a
Material Adverse Effect.
(c) Releases and Arranging for Disposal of Hazardous Materials. There
have been no releases (as "release" is defined under any applicable federal,
state or local Environmental Law) of Hazardous Materials (A) by BDCC or any of
its Subsidiaries, or (B) by any other person or entity at, on, in, from, under,
over or in any way affecting any real property owned, leased, controlled or used
by BDCC or any of its Subsidiaries in its business, an adjacent site or
facility, or any other real property which may have been owned, leased,
controlled or used in the past by BDCC or any of its Subsidiaries, other than in
each case such releases which would not constitute a Material Adverse Effect.
BDCC has not disposed, or caused the disposal, of Hazardous Materials in a
manner that would constitute a Material Adverse Effect.
(d) Production, Storage and Disposal of Hazardous Materials. No real
property owned, leased, controlled or used by BDCC or any of its Subsidiaries in
its business has been or is being
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used to produce, manufacture, process, generate, store, treat, dispose of,
manage, ship or transport Hazardous Materials other than as would not constitute
a Material Adverse Effect.
(e) Safety Matters. BDCC and each of its Subsidiaries have complied
with the requirements of the Federal Mine Safety and Health Act of 1977, as
amended, and all applicable similar or related statutes of any state and have
complied with all applicable federal, state or local laws, ordinances,
requirements, rules, regulations, licenses, permits, orders, injunctions,
judgments, or decrees pertaining to mine safety and health, the failure to
comply with which would constitute a Material Adverse Effect.
Section 5.26. Certain Reserves.
The reserves of the BDCC Companies for workers' compensation and
occupational disease and liabilities under the Act, as reflected in the BDCC SEC
Reports, have been determined in accordance with GAAP consistently applied. BDCC
has delivered to Acquiror all data and information regarding claims for workers
compensation and occupational disease and for BDCC's liabilities under the Act.
ARTICLE VI
COVENANTS
Section 6.1. Conduct of the Businesses of Acquiror and BDCC.
(a) Except as otherwise expressly provided in this Agreement, during
the period from the date of this Agreement to the Effective Time, BDCC will
conduct, and will cause each of its Subsidiaries to conduct, their respective
operations according to their ordinary and usual course of business and
consistent with past practice, and will use their respective reasonable best
efforts (i) to preserve intact, as appropriate in the ordinary course of
business consistent with past practice, their respective business organizations,
to keep available the services of their officers, employees and agents,
including without limitation their current product distribution systems, to
maintain in effect any licenses, franchises, authorizations or similar rights
material to the businesses of the BDCC Companies and to preserve the goodwill of
those having relationships with any of the BDCC Companies; and (ii) to cooperate
with Acquiror in jointly communicating with BDCC's employees, customers, vendors
and other contracting parties regarding the Merger and continuing operations
after consummation of the Merger. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, BDCC will not, and will cause each of its Subsidiaries
not to, without the prior written consent of Acquiror:
(i) amend its Certificate of Incorporation, bylaws or other
organizational documents;
(ii) authorize for issuance or issue, sell, pledge,
transfer, dispose of or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights
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to purchase or otherwise) any capital stock of any class or series or any other
securities;
(iii) split, combine or reclassify any shares of its capital
stock or declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, or redeem or otherwise acquire any of its securities or any securities of
its respective Subsidiaries;
(iv) (A) incur or assume any obligations or additional
indebtedness for borrowed money, (with the exception of borrowings under BDCC's
existing credit agreement made in the ordinary course of business and consistent
with past practice); (B) assume, guarantee, endorse or otherwise become liable
or responsible for the obligations of any Person, other than a direct or
indirect wholly-owned Subsidiary of BDCC or the endorsement of checks in the
ordinary course of business consistent with past practice; or (C) other than in
the ordinary course of business consistent with past practice, (i) make any
material loans, advances or capital contributions to, or investments in, any
other Person or (ii) enter into any Contract, or alter, amend, modify or
exercise any option under any existing Contract, other than in connection with
the transactions contemplated by this Agreement;
(v) adopt or amend (except as may be required by Law or as
provided in this Agreement) any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock, pension,
retirement, deferred compensation, employment or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or welfare of
any director, officer or employee, or (except for annual salary increases in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense) increase the compensation or fringe benefits of any director, officer
or employee or pay any benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or enter
into any Contract, agreement, commitment or arrangement to do any of the
foregoing;
(vi) acquire, sell, pledge, transfer, assign, license, lease
or dispose of any material assets outside the ordinary course of business
consistent with past practice;
(vii) take any action other than in the ordinary course of
business consistent with past practice and in a manner consistent with past
practice with respect to accounting policies or practices, or make any Tax
election or change any Tax accounting method;
(viii) except for the payment of professional fees, pay,
discharge or satisfy any material claims, liabilities or obligations (absolute,
accrued or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice of liabilities reflected or reserved against in BDCC's
consolidated financial statements for the year ended March 31, 1997, or incurred
in the ordinary course of business consistent with past practice since the date
thereof;
(ix) take any action that would or is reasonably likely to
result in any of the
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conditions set forth in Article VII hereof not being satisfied as of the Closing
Date; or
(x) agree in writing or otherwise to take any of the
foregoing actions.
(b) Except as otherwise expressly provided in this Agreement, prior to
the Effective Time, neither Acquiror nor Merger Subsidiary will, without the
prior written consent of BDCC, take or agree to take, any action that would or
is reasonably likely to result in any of the conditions set forth in Article VII
hereof not being satisfied as of the Closing Date.
(c) BDCC will promptly advise Acquiror in writing of the occurrence of
any Material Adverse Effect, or any event or condition that in the judgment of
the persons listed on Schedule 1.40 is reasonably likely to result in a Material
Adverse Effect with respect to the BDCC Companies.
Section 6.2. No Solicitation.
(a) Except as set forth below, BDCC shall not, nor shall BDCC authorize
or permit any of its affiliates, officers, directors, employees, representatives
or agents to, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
Person (other than Acquiror, Merger Subsidiary, or any affiliate or designee of
Acquiror or Merger Subsidiary) with respect to, or take any action to facilitate
any inquiries or the making of, any proposal that constitutes, or may reasonably
be expected to constitute, any Acquisition Proposal (as defined in subsection
(c) below); BDCC, its affiliates, officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted heretofore with respect to any
Acquisition Proposal.
(b) BDCC's Board of Directors shall not withdraw its recommendation of
the transactions contemplated hereby or approve or recommend any Acquisition
Proposal in each case unless such action is necessary in order for BDCC's Board
of Directors to fulfill its fiduciary obligations under applicable law.
(c) "Acquisition Proposal" means a proposal that would result in the
occurrence of any of the following events: (i) the acquisition of BDCC or any
Subsidiary by merger or otherwise by any Person (which includes a "person" as
such term is defined in Section 13(d)(3) of the Exchange Act) other than
Acquiror, Merger Subsidiary or any affiliate thereof ("Third Party"); (ii) the
acquisition by a Third Party of 10% or more of the total assets of the BDCC
Companies, in a single transaction or series of transactions; (iii) the
acquisition by a Third Party of 10% or more of the outstanding shares of BDCC
Common Stock or the outstanding capital stock of any Subsidiary of BDCC; (iv)
any tender offer or exchange offer for 10% or more of the outstanding shares of
BDCC Common Stock or the filing of a registration statement under the Securities
Act in connection therewith; or (v) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
Section 6.3. Proxy Statement.
(a) BDCC shall, as soon as practicable following the execution of this
Agreement,
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prepare and file with the SEC a draft of the Proxy Statement together with a
form of proxy (in a form mutually agreeable to Acquiror and BDCC) as preliminary
proxy materials under the Exchange Act. Acquiror and BDCC shall cooperate to
respond promptly to any comments made by the SEC with respect thereto. Each of
Acquiror and Merger Subsidiary shall furnish to BDCC such information relating
to it and its affiliates and the transactions contemplated by this Agreement and
such further and supplemental information as reasonably may be requested by BDCC
to aid it in the preparation of the preliminary proxy materials, the Proxy
Statement or any amendment or supplement thereto. The Proxy Statement shall
include the recommendation of BDCC's board of directors that the holders of BDCC
Common Stock approve this Agreement and the transactions contemplated by this
Agreement, in each case unless otherwise required by the fiduciary duties of the
directors under applicable Law. Each of Acquiror and Merger Subsidiary agrees
that the information provided and to be provided by and on behalf of it, and
BDCC agrees that the information provided and to be provided by and on behalf of
the BDCC Companies, for use in the Proxy Statement, shall, on the date the Proxy
Statement is filed with the SEC, and first mailed to holders of BDCC Common
Stock, and on the date of the Special Meeting, be true and correct in all
material respects and shall not misstate or omit to state any material fact
necessary in order to make such information not misleading, and Acquiror, Merger
Subsidiary and BDCC each agree to correct as promptly as practicable any
information provided by it for use in the Proxy Statement that shall have become
false or misleading in any material respect. The Proxy Statement shall comply as
to form in all material respects with all applicable requirements of Law.
(b) Upon resolution of any SEC comments with respect to the preliminary
proxy materials, BDCC shall cause the Proxy Statement to be filed with the SEC
and mailed to holders of BDCC Common Stock at the earliest practicable time.
Unless otherwise required by the fiduciary duties of BDCC's board of directors
under applicable Law, BDCC shall use its best efforts (including, without
limitation, retention of a proxy solicitation firm of national reputation and
acceptable to Acquiror in its reasonable discretion) to solicit from holders of
BDCC Common Stock proxies in favor of approval of this Agreement.
If, at any time when the Proxy Statement is required to be delivered
under the Exchange Act, any event occurs as a result of which the Proxy
Statement as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, or if it shall be necessary to supplement the Proxy
Statement to comply with the Exchange Act or the rules thereunder, Acquiror and
BDCC will cooperate to permit BDCC promptly to prepare and file with the SEC and
mail to holders of BDCC Common Stock a supplement that will correct such
statement or omission or effect such compliance.
Section 6.4. Access to Information; Confidentiality.
Between the date of this Agreement and the Effective Time, BDCC will
(i) give Acquiror and its authorized representatives reasonable access during
normal business hours, subject to coordination with BDCC, to all facilities and
to the officers, employees, properties, Contracts, customers, vendors, and books
and records of the BDCC Companies, (ii) permit Acquiror to make such inspections
as it may reasonably request and (iii) cause its officers and those of its
Subsidiaries
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to furnish such financial and operating data and other information with respect
to its businesses and properties as from time to time reasonably may be
requested. Subject to Section 6.7 hereof, all such information shall be kept
confidential.
Section 6.5. Reasonable Efforts; Cooperation.
Subject to the terms and conditions herein provided and subject to
fiduciary obligations under applicable Law, each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable under applicable Law, to consummate
and make effective the transactions contemplated by this Agreement. Acquiror,
Merger Subsidiary and BDCC will execute any additional instruments reasonably
necessary to consummate the transactions contemplated hereby. In addition, BDCC
agrees to consult and work cooperatively with representatives of Acquiror with
respect to all strategic and operating plans of the BDCC Companies.
Section 6.6. Consents.
Acquiror and BDCC each shall use its best efforts to obtain such
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to the consummation of the transactions contemplated by
this Agreement.
Section 6.7. Public Announcements.
The parties hereto have agreed upon the text of a joint press release
announcing, among other things, the execution of this Agreement, which joint
press release shall be disseminated promptly following the execution hereof.
Acquiror and BDCC will consult with each other before issuing or making, and
will provide each other the opportunity to review and comment upon, any
additional press release or public statement with respect to this Agreement, the
Merger or the transactions contemplated herein and shall not issue any such
press release or make any such public statement prior to such consultation or as
to which the other party promptly and reasonably objects, except as may be
required by Law (as determined in good faith by the party proposing to issue the
press release or public statement), in which case the party proposing to issue
such press release or make such public announcement shall use its best efforts
to consult in good faith with the other party before issuing any such press
release or making any such public announcement.
Section 6.8. Employee Benefit Matters.
The BDCC Companies shall take any and all actions necessary to amend
the Employee Benefit Plans as of the Effective Time to remove or modify all
provisions therefrom that make available BDCC Common Stock as an investment
option or an investment measure or that authorize the issuance or open-market
purchases of shares of BDCC Common Stock. Notwithstanding anything to the
contrary in this Agreement, the BDCC Companies shall take any and all actions
necessary to amend or modify the Employee Benefit Plans as of the Effective Time
to comply with the provisions of this Section 6.8. At the discretion of
Acquiror, employees who are employed on the date 30 days following the Closing
Date, will be covered either by the Employee Benefit Plans
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or by Acquiror's benefit plans offered to similarly situated employees of the
Acquiror ("Acquiror Benefit Plans"). With respect to any such employee and his
beneficiaries and dependents, Acquiror's welfare benefit plans (as defined in
Section 3(1)) of ERISA (the "Acquiror's Welfare Plans") shall not include a
waiting or eligibility period or a preexisting condition restriction or
limitation and to the extent that such employees or their dependents or
beneficiaries have satisfied any internal limits, deductibles or copayment
requirements of the Welfare Plans for the year, such amounts will be credited
toward the satisfaction of any such requirements under Acquiror's Welfare Plans.
The Acquiror Benefit Plans will recognize for purposes of eligibility to
participate, early retirement, and eligibility for vesting, service with the
BDCC Companies, subject to applicable break-in-service rules, of all employees
employed a BDCC Company on the Effective Date.
Section 6.9. Indemnification.
(a) From and after the Effective Time, the Surviving Corporation (the
"Indemnifying Party") shall, as to any claim or claims made or asserted (even if
not resolved) prior to the third anniversary of the Effective Time, indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date hereof or who becomes prior to the Effective Time a director or
officer of BDCC or any of its Subsidiaries (each, an "Indemnified Party")
against (i) all losses, claims, damages, costs and expenses (including
attorneys' fees), liabilities, judgments and settlement amounts that are paid or
incurred in connection with any claim, action, suit, proceeding, or
investigation (whether civil, criminal, administrative or investigative and
whether asserted or claimed prior to, at or after the Effective Time) that is
based in whole or in part on, or arises in whole or in part out of, the fact
that such Indemnified Party is or was a director or officer of BDCC or any of
its Subsidiaries or in the case of a present or former director or officer of
BDCC or a Subsidiary, a fiduciary of any employee benefit plan or arrangement of
BDCC or any of its Subsidiaries and, in either case relates to or arises out of
any action or omission occurring at or prior to the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent permitted
under the Articles of Incorporation of BDCC, in the form attached to the
Certificate of Merger; provided that the Indemnifying Party shall not be liable
for any settlement of any claim effected without its written consent, which
consent shall not be unreasonably withheld. Without limiting the foregoing, in
the event that any such claim, action, suit, proceeding or investigation is
brought against any Indemnified Party (whether arising prior to or after the
Effective Time), (i) the Indemnifying Party will pay expenses in advance of the
final disposition of any such claim, action, suit, proceeding or investigation
to each Indemnified Party to the full extent permitted by applicable law
provided that the person to whom expenses are advanced provides an undertaking
to repay such advance if it is ultimately determined that such person is not
entitled to indemnification; (ii) the Indemnified Parties shall retain counsel
reasonably satisfactory to the Indemnifying Party; (iii) the Indemnifying Party
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties (subject to the final sentence of this paragraph) promptly as statements
therefor are received; and (iv) the Indemnifying Party shall use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter. Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Indemnifying Party, but the failure so to notify
an
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Indemnifying Party shall not relieve it from any liability which it may have
under this paragraph except to the extent such failure irreparably prejudices
such party. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict of any significant
issue between the positions of any two or more Indemnified Parties.
(b) The Surviving Corporation shall, until the third anniversary of the
Effective Time, cause to be maintained in effect, to the extent available, the
policies of directors' and officers' liability insurance maintained by BDCC and
its Subsidiaries as of the date hereof (or policies of at least the same
coverage and amounts containing terms that are no less advantageous to the
insured parties) with respect to claims arising from facts or events that
occurred on or prior to the Effective Time; and in no event shall the coverage
for the transactions contemplated hereby be excluded; provided that in no event
shall the Surviving Corporation be obligated to expend in order to maintain or
procure insurance coverage pursuant to this paragraph any amount per annum in
excess of the aggregate premiums paid by BDCC and its Subsidiaries as of the
date hereof for such purpose, but in such case shall purchase as much coverage
as possible for such maximum annual amount; and provided, further, that in the
event any claim or claims are asserted or made within such three-year period,
the obligations of the Surviving Corporation to maintain in effect insurance
shall continue until the disposition of any and all claims.
(c) In the event that any action, suit, proceeding or investigation
relating to this Agreement or to the transactions contemplated by this Agreement
is commenced, whether before or after the Closing, the parties hereto agree to
cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
(d) This Section 6.9 shall survive the Effective Time and is intended
to benefit the Indemnified Parties and their successors and assigns and shall be
binding on all successors and assigns of BDCC and the Surviving Corporation.
Section 6.10. Notice of Certain Events.
BDCC shall give prompt written notice to Acquiror, and Acquiror shall
give prompt notice to BDCC, of (a) the occurrence or nonoccurrence of any event
or fact that would be reasonably likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (b) any failure of BDCC, Acquiror or
Merger Subsidiary, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 6.10
shall not serve to cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
After giving or receiving notice that any representation, warranty or covenant
set forth herein has been breached or that any condition set forth in Article
VII cannot be satisfied, the affected party shall have 10 business days to cure
same or to demonstrate to the other party's reasonable satisfaction that such
breach or condition both is curable and will be cured prior to the estimated
Effective Time. If such party fails to cure or demonstrate such ability to cure
such breach or satisfy such condition, the other party shall have the right to
waive the breach or failure of condition unless the nature of such breach
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or failure of condition renders closing under this Agreement impossible. If such
breach or failure of condition is not waived, this Agreement may be terminated
in accordance with Section 8.1.
Section 6.11. Termination and Amendment of Certain Stock-Based
Plans.
At or prior to the Effective Time, BDCC shall take such action and, as
applicable, cause its Subsidiaries to take such action, as may be necessary to
terminate the BDCC Stock Plan and to amend the BDCC 401(k) plan to eliminate the
option to purchase BDCC Common Stock.
Section 6.12. Subsequent BDCC Reports.
BDCC shall deliver to Acquiror, promptly upon the filing thereof, a
copy of any reports, registration statements or other documents filed by BDCC
with the SEC prior to the Effective Time.
Section 6.13. Vote on Merger.
Acquiror and Merger Subsidiary agree to vote all shares of BDCC Common
Stock owned by them in favor of the Merger.
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
Section 7.1. Conditions Precedent to Each Party's Obligation to
Effect the Merger.
The respective obligation of each party to consummate the Merger is
subject to the satisfaction at or prior to the Effective Time of the following
conditions precedent:
(a) the transactions contemplated in this Agreement shall have been
approved by the affirmative vote of a majority of the outstanding shares of BDCC
Common Stock in accordance with the Delaware Code, and by Acquiror as sole
shareholder of Merger Subsidiary;
(b) no order, decree, Law or injunction shall have been enacted,
entered, issued, promulgated or enforced by any court of competent jurisdiction
or any other Governmental Authority that prohibits or delays the consummation of
the Merger; provided, however, that the parties hereto shall use their best
efforts to have any such order, decree or injunction vacated or reversed;
(c) all applicable requirements of the Exchange Act shall have been
satisfied and any applicable filings under state takeover or antitrust laws
shall have been made; and
(d) there shall have been obtained permits, consents and approvals of
all Governmental Authorities referred to in Section 4.3 and Section 5.5 and the
other transactions contemplated hereby will be in compliance with applicable
Laws, and no such permit, consent or approval shall contain any condition that,
in the judgment of Acquiror or BDCC reasonably exercised, could have a
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Material Adverse Effect on the BDCC Companies or the transactions contemplated
by this Agreement.
Section 7.2. Conditions Precedent to Obligations of BDCC.
The obligation of BDCC to consummate the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions precedent:
(a) the representations and warranties of Acquiror and Merger
Subsidiary contained in Article IV hereof shall be true and correct in all
material respects when made and, except to the extent such representations and
warranties by their terms relate only to a specified earlier date or time
period, at and as of the Effective Time with the same force and effect as if
those representations and warranties had been made at and as of such time,
except as otherwise contemplated or permitted by this Agreement;
(b) each of Acquiror and Merger Subsidiary shall, in all material
respects, have performed all obligations and complied with all covenants
necessary to be performed or complied with by it on or before the Effective
Time;
(c) all corporate proceedings taken by Acquiror in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in all respects to BDCC and BDCC's counsel, and BDCC and
BDCC's counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request;
(d) all required authorizations, consents or approvals of any third
party whose consent is required to permit Acquiror to perform its obligations
under this Agreement shall have been received;
(e) BDCC shall have received a certificate of the Chief Executive
Officer of Acquiror and Merger Subsidiary, in form satisfactory to counsel for
BDCC, certifying fulfillment of the matters referred to in paragraphs (a), (b)
and (d) of this Section 7.2; and
(f) BDCC shall have received the opinion of Hunton & Williams, counsel
for Acquiror, dated the Effective Time in substantially the form attached hereto
as Exhibit C.
Section 7.3. Conditions Precedent to Obligations of Acquiror and
Merger Subsidiary.
The obligation of Acquiror and Merger Subsidiary to consummate the
Merger is subject to the satisfaction or waiver at or prior to the Effective
Time of the following conditions precedent:
(a) there shall have occurred no material adverse change in the
business, assets, liabilities, financial condition or results of operations of
the BDCC Companies from the date hereof to the Effective Time;
(b) the representations and warranties of BDCC contained in Article V
hereof shall be
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true and correct in all material respects when made and, except to the extent
such representations and warranties by their terms relate only to a specified
earlier date or time period, at and as of the Effective Time with the same force
and effect as if those representations and warranties had been made at and as of
such time, except as otherwise contemplated or permitted by this Agreement;
(c) BDCC shall, in all material respects, have performed all
obligations and complied with all covenants necessary to be performed or
complied with by it on or before the Effective Time;
(d) All corporate proceedings taken by BDCC in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in all respects to Acquiror and Acquiror's counsel, and
Acquiror and Acquiror's counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request;
(e) there shall have been obtained all consents and approvals of any
third party under any Contract with any of the BDCC Companies that are required
in connection with the performance by BDCC of its obligations under this
Agreement, except such consents and approvals the failure of which to have so
obtained could not reasonably be expected to have a Material Adverse Effect on
the BDCC Companies;
(f) Acquiror shall have received a certificate of the President of
BDCC, in form satisfactory to counsel for Acquiror, certifying fulfillment of
the matters referred to in paragraphs (a), (b), (c) and (e) of this Section 7.3;
(g) Acquiror shall have received the opinion of Baker, Donelson,
Bearman & Caldwell, counsel for BDCC, dated the Effective Time in substantially
the form attached hereto as Exhibit D; and
(h) All officers and directors of each BDCC Company shall have
delivered their resignations in writing to Acquiror.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1. Termination.
This Agreement may be terminated and the Merger contemplated hereby may
be abandoned, notwithstanding approval thereof by the respective shareholders of
BDCC and Acquiror, at any time prior to the Effective Time:
(a) by mutual written consent of BDCC and Acquiror;
(b) by BDCC or Acquiror, if the Effective Time shall not have occurred
on or before
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June 30, 1998, unless extended by the Board of Directors of both BDCC and
Acquiror in accordance with Section 8.4 (provided that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any party who
has breached in any material respect any of its representations, warranties,
covenants or agreements under this Agreement and such breach has been the cause
of or has resulted in the failure of the Effective Time to occur on or before
such date);
(c) by BDCC if there has been a material breach by Acquiror or Merger
Subsidiary of any representation, warranty, covenant or agreement set forth in
this Agreement or any certificate or other instrument delivered or furnished to
BDCC pursuant hereto, which breach has not been cured within ten business days
following receipt by the breaching party of notice of such breach (it being
understood that disclosure after the date hereof is not deemed to cure any such
breach);
(d) by Acquiror if (i) the transactions contemplated by this Agreement
shall have been voted on by the holders of BDCC Common Stock at the Special
Meeting and the votes shall not have been sufficient to satisfy the condition
set forth in Section 7.1(a) hereof, (ii) there has been a material breach by
BDCC of any representation, warranty, covenant or agreement set forth in this
Agreement or any certificate or other instrument delivered or furnished by BDCC
pursuant hereto, which breach has not been cured within ten business days
following receipt by BDCC of notice of such breach (it being understood that
disclosure after the date hereof is not deemed to cure any such breach), or
(iii) the Board of Directors of BDCC should fail to call, give notice of,
convene or hold the Special Meeting to vote upon the Merger, or should fail to
recommend to its shareholders approval of the transactions contemplated by this
Agreement or such recommendation shall have been made and subsequently
withdrawn, amended or modified in a manner adverse to Acquiror, or shall have
adopted a resolution to the foregoing effect; or
(e) by BDCC or Acquiror, if any court of competent jurisdiction or
other Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable.
Section 8.2. Effect of Termination.
If this Agreement is so terminated and the Merger is not consummated,
this Agreement shall forthwith become void and have no effect, without any
liability on the part of either party or its directors, officers or
shareholders, other than the provisions of Section 6.4 hereof, this Section 8.2
and Section 9.10 hereof. Notwithstanding the foregoing, nothing in this Section
8.2 shall relieve any party hereto of any liability for damages that such party
may have by reason of such party's breach of any representation, warranty,
covenant or agreement in this Agreement or any certificate or other instrument
delivered pursuant hereto.
Section 8.3. Amendment.
At any time before the Effective Time, this Agreement may be amended by
action approved by the Boards of both BDCC and MergerSub, provided, however,
that upon adoption of this Agreement by the holders of BDCC Common Stock and
MergerSub, no amendment shall be made
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that would have any of the effects specified in Section 251(d) of the Delaware
Code without the approval of the Shareholders adversely affected thereby. This
Agreement may not be amended except by an instrument in writing signed on behalf
of both of the parties hereto.
Section 8.4. Extension; Waiver.
At any time prior to the Effective Time, either party hereto may (i)
extend the time for the performance of any of the obligations or other acts of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document, certificate or writing delivered
pursuant hereto by the other party hereto or (iii) waive compliance with any of
the agreements or conditions contained herein by the other party hereto. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Survival of Representations and Warranties.
The representations and warranties made herein shall not survive beyond
the Effective Time. This Section 9.1 shall not limit any covenant or agreement
of the parties that by its terms requires performance after the Closing.
Section 9.2. Brokerage Fees and Commissions.
No broker, finder or investment banker (other than the Financial
Advisor, whose fees shall be paid by BDCC) is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
BDCC; and no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquiror.
Section 9.3. Entire Agreement; Assignment.
This Agreement and the Confidentiality Agreement between BDCC and
Acquiror dated October 14, 1997, (a) constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes, all other
prior agreements and understandings, both written and oral, between the parties
or any of them with respect to the subject matter hereof and (b) shall not be
assigned by operation of law or otherwise, except that Acquiror and/or Merger
Subsidiary may assign its rights and obligations hereunder to a newly-formed
direct or indirect wholly-owned Subsidiary of Acquiror, provided that any such
assignment by Acquiror and/or Merger Subsidiary shall not relieve it of
liability for breach of any of its obligations hereunder.
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Section 9.4. Notices.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telecopy,
telegram or telex, or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
if to BDCC:
Blue Diamond Coal Company
341 E. Troy Circle
Knoxville, Tennessee 37919
Attention: Ted B. Helms
President
with a copy to:
Baker, Donelson, Bearman & Caldwell
First Tennessee Building, 20th Floor
165 Madison Avenue
Memphis, Tennessee 38103
Attention: Matthew S. Heiter, Esq.
if to Acquiror:
James River Coal Company
701 East Byrd Street
Suite 1100
Richmond, Virginia 23219
Attention: James B. Crawford
Chairman of the Board, President
and Chief Executive Officer
with a copy to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: T. Justin Moore, III, Esquire
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
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Section 9.5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Tennessee regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
Section 9.6. Descriptive Headings.
The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 9.7. Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and, except as otherwise provided herein, nothing in this
Agreement is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 9.8. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
Section 9.9. Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event any of the provisions of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity.
Section 9.10. Fees and Expenses.
All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs or expenses, whether or not the Merger is consummated, except as otherwise
expressly provided in Section 8.2 hereof.
Section 9.11. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to either party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner, to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
JAMES RIVER COAL COMPANY
By: /s/ James B. Crawford
----------------------------------------
Name: James B. Crawford
Title: Chairman of the Board, President
and Chief Executive Officer
JAMES RIVER COAL MERGERSUB, INC.
By: /s/ James B. Crawford
----------------------------------------
Name: James B. Crawford
Title:
BLUE DIAMOND COAL COMPANY
By: /s/ Ted B. Helms
----------------------------------------
Name: Ted B. Helms
Title: President
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EXHIBIT B TO AGREEMENT OF MERGER
CONTINGENCY AGREEMENT
THIS CONTINGENCY AGREEMENT, dated as of _________, 1998 among Acquiror
(this and other capitalized terms used herein have the meanings set forth in the
Merger Agreement referred to hereinafter unless otherwise defined herein), BDCC,
Hamilton Holdings, Ltd., as Shareholders' Representative (the "Shareholders'
Representative") and [Paying Agent] (the "Agent"), provides:
WHEREAS, Acquiror, Merger Subsidiary and BDCC have entered into an
Agreement of Merger, dated as of February 11, 1998 (the "Merger Agreement"),
that contemplates the merger of Merger Subsidiary with and into BDCC in
accordance with the Merger Agreement; and
WHEREAS, it is a condition to the obligations of Acquiror and BDCC
under the Merger Agreement that this Contingency Agreement be entered into by
the parties hereto; and
WHEREAS, at the Effective Time, Merger Subsidiary will be merged into
BDCC; and
WHEREAS, a copy of the Merger Agreement has been delivered to Agent,
and Agent is willing to act as Agent hereunder.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Additional Definitions.
"Agent" shall mean [Paying Agent].
"Bank" shall mean [L/C issuer].
"Coal Act" shall mean the Coal Industry Retiree Health Benefit Act of
1992.
"Contingency Amount" shall mean an amount equal to 50% of (i) the
present value (discounted at 7%), as determined by the Evaluator, of the
permanent reduction in the amount of the liability of the BDCC Companies under
the Coal Act from the amount carried on the books of BDCC as of the date hereof
in respect of such liability, that results solely from the occurrence of a
Payment Event during the Term plus (ii) any refund of amounts previously paid by
BDCC under the Coal Act, provided such refund (A) arises solely as a result of a
Payment Event during the Term and (B) is paid to BDCC in cash or there is
evidence reasonably satisfactory to Acquiror that such refund has been applied
against future liabilities due by BDCC under the Coal Act. Such amount shall be
computed net of 50% of (i) federal and state income taxes applicable
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<PAGE> 85
to such reduction or refund calculated at the actual rates in effect at such
time for the consolidated tax group of which BDCC is a member, (ii) all
reasonable out of pocket expenses incurred by BDCC and Acquiror in their efforts
to obtain any such reduction or refund and (iii) all out of pocket expenses
incurred by Acquiror and BDCC in performing their obligations under this
Agreement, including the expenses arising pursuant to Sections 5 and 8 hereof
and all costs associated with issuing the Letter of Credit. The calculation of
the Contingency Amount shall not be affected by any changes during the Term in
the accounting treatment of the liability of the BDCC Companies under the Coal
Act.
"Contingency Fund" shall mean all amounts received by Agent from BDCC,
from the issuer of a Letter of Credit in respect of draws thereunder and from
returns of unclaimed Contingency Payments that Agent attempts to pay to
Shareholders.
"Contingency Payment(s)" shall mean all amounts paid by Agent to
Shareholders pursuant to Section 3.
"Evaluator" shall mean the firm selected by Acquiror and Shareholders'
Representative pursuant to Section 2 hereof.
"Letter of Credit" shall mean (i) the irrevocable, standby letter of
credit issued by Bank in a stated amount equal to the Maximum Amount,
substantially in the form of Exhibit I attached hereto, that has been delivered
to Agent pursuant to Section 4 hereof, as the same may be renewed from time to
time in accordance with the terms hereof or thereof, or (ii) any irrevocable,
standby letter of credit issued to Agent that complies with the provisions of
Section 4(c).
"Maximum Amount" shall have the meaning given in Section 2 hereof.
"Payment Event" shall mean any occurrence of one of the following
events:
(i) The expiration of 180 days after the effective date of
U.S. federal legislation that has been enacted and passed into law which has the
effect, in the judgment of the Evaluator, as determined pursuant to Section 2(a)
hereof, of either (A) reducing the amount required to be paid to or on behalf of
retirees or their beneficiaries or the number of retirees that the BDCC
companies are required to compensate or (B) providing for a refund of premiums
heretofore paid by BDCC under the Coal Act and which legislation is not at the
time the subject of any legal challenge before a court of competent
jurisdiction, except any challenge that may be filed by the Acquiror or any of
its affiliates; or
(ii) The rendering of a final, nonappealable judicial order in
the case now pending under the style Eastern Enterprises v. Apfel, or any
similar constitutional or other legal challenge to the Coal Act or its
application that by its terms is applicable to the BDCC Companies, and that, in
any such event, has the effect in the judgment of the Evaluator, as determined
pursuant to Section 2(a) hereof, of either (A) reducing the amount required to
be paid to or on behalf of retirees or their beneficiaries or the number of
retirees that the BDCC Companies are required to compensate or (B) the BDCC
Companies receiving a refund of premiums heretofore paid under
2
<PAGE> 86
the Coal Act.
Any reduction in such liability resulting from any other cause shall not be a
Payment Event.
"Payment Determination" shall have the meaning given in Section 2(a)
hereof.
"Shareholders" shall mean the holders of record of BDCC Common Stock,
other than Acquiror, immediately before the Effective Time, plus Hamilton
Holdings, Ltd., which for purposes of this Agreement shall be deemed to be the
holder of 470,240 shares of BDCC Common Stock, but shall exclude any Dissenting
Holder.
"Shareholders' Representative" shall mean Hamilton Holdings, Ltd.
"Term" shall mean the period beginning on the date hereof and ending on
the fifth anniversary of the date hereof; provided, however, that if during the
180 day period prior to the fifth anniversary of the date hereof U.S. federal
legislation is enacted as contemplated by paragraph (i) of the definition of
Payment Event, the Term shall be extended for an additional 180 day period
following the effective date of the passage into law of such legislation.
2. Determination and Payment of Contingency Amount.
(a) Shareholders' Representative may from time to time give notice (the
"Payment Notice") to BDCC that in its good faith belief an event that may
constitute a Payment Event has occurred. Such notice shall include a written
statement setting forth the basis of such determination, including, without
limitation, reference to the applicable judicial or statutory authority, the
Contingency Amount claimed to be due and a recommendation as to an actuarial
and/or accounting firm knowledgeable as to the Coal Act to evaluate the basis of
its claim (the "Proposed Evaluator"). If BDCC agrees to engage the Proposed
Evaluator then such firm shall become the "Evaluator" for purposes of this
Agreement. If BDCC objects to the Proposed Evaluator, then BDCC and the
Shareholders' Representative shall mutually agree on another firm to serve as
Evaluator and such firm shall be deemed the "Evaluator" for purposes of this
Agreement. If the parties cannot agree on an Evaluator the selection of the
Evaluator shall be submitted to Arbitration pursuant to Section 10 hereof.
(b) Upon selection of an Evaluator, the Shareholders' Representative
shall give the Evaluator a copy of the Payment Notice and BDCC shall give the
Evaluator such information as it deems reasonably appropriate with respect to
the claim submitted in the Payment Notice. Upon receipt of the Payment Notice
and such information from BDCC, Evaluator shall determine (i) whether, in the
opinion of Evaluator, such event constitutes a Payment Event, and (ii) if so,
the Contingency Amount resulting therefrom (collectively, a "Payment
Determination"). Such determination must be based in part on satisfactory
evidence that the premiums due or already paid by BDCC to the United Mine
Workers of America Combined Benefit Fund have been reduced or refunded solely as
a result of a Payment Event.
(c) Promptly upon completion of such Payment Determination, Evaluator
shall deliver a copy thereof to Agent, Shareholders' Representative and BDCC
along with a written statement
3
<PAGE> 87
setting forth the basis of its determination. If neither Shareholders'
Representative nor BDCC gives notice to Agent of any objection to such Payment
Determination within 15 days after the providing of such determination by
Evaluator, Shareholders' Representative and BDCC shall be deemed to have
acknowledged the correctness of such determination of the Contingency Amount,
and promptly after the expiration of such 15-day period BDCC shall pay such
Contingency Amount to Agent.
(c) In the event that either BDCC or Shareholders' Representative make
timely objection to any such Payment Determination, and BDCC and Shareholders'
Representative fail to resolve or compromise the matters to which such objection
relates within thirty days after the date BDCC or Shareholders' Representative
has given notice of such objection, unless extended by the mutual consent of
BDCC and Shareholders' Representation, then such dispute shall be settled by
Arbitration in accordance with Section 10 hereof.
The total of all Contingency Amounts determined under this Agreement
shall not exceed $14,000,000 (the "Maximum Amount").
Acquiror and BDCC shall, in cooperation with the Shareholders'
Representative, use their good faith efforts to minimize the tax impact of the
Contingency Amount to the Shareholders; provided that Acquiror and BDCC shall
not be required to take any such action that would have an adverse financial
effect on Acquiror, BDCC or their affiliates.
(d) Set forth on Schedule I hereto are examples of how the Contingency
Amount would be determined under this Agreement. Such examples are for
illustrative purposes only and are not intended to limit or otherwise affect the
obligations of BDCC to make the Contingency Payments required by this Agreement.
3. Payment to Shareholders.
Promptly after its receipt of any Contingency Amount, Agent shall
distribute to each Shareholder an amount, rounded down to the nearest 1(cent),
equal to the Contingency Amount (less any expenses incurred on behalf of
Shareholders pursuant to Section 5 hereof and not otherwise deducted in
determining the Contingency Amount) multiplied by a fraction, the numerator of
which is the number of shares of BDCC Common Stock held by such Shareholder
immediately before the Effective Time and the denominator of which is the total
number of shares of BDCC Common Stock outstanding immediately before the
Effective Time. All payments by the Agent to the Shareholders pursuant to this
Contingency Agreement shall be made according to the terms of the Paying Agent
Agreement to be entered into between Acquiror, BDCC and Agent prior to the
Effective Time.
4. Establishment of Letter of Credit; Draw Procedures.
(a) On the date hereof, Acquiror has obtained and delivered to Agent,
as collateral security for the performance by BDCC of its obligations to pay the
Contingency Amount pursuant to Section 2 hereof, an irrevocable standby letter
of credit in the amount of $14,000,000
4
<PAGE> 88
issued by Bank in favor of Agent, as agent for Shareholders hereunder, in the
form attached hereto as Exhibit I. Subject to paragraph 4(d) below, Acquiror
agrees to maintain such Letter of Credit or a substitute Letter of Credit in
effect until the termination of this Agreement.
(b) Upon any default by BDCC in making timely payment of a Contingency
Amount determined in accordance with Section 2 hereof, Agent shall be authorized
to draw upon the Letter of Credit, in compliance with the terms thereof, in the
full amount of such Contingency Amount. The proceeds of any such draw shall be
held in the Contingency Fund until distributed in accordance with Section 3
hereof.
(c) At the direction of BDCC, the Letter of Credit delivered on the
date hereof may be replaced with a substitute Letter of Credit provided that
such substitute Letter of Credit:
(i) is irrevocable and is a standby letter of credit;
(ii) is issued by Bank, or another bank that constitutes a
"bank" under Section 3(a)(2) of the Securities Act, to Agent as the beneficiary
thereof for the benefit of Shareholders;
(iii) is issued by a bank that has assets of at least
$10,000,000,000;
(iv) has a stated amount at least equal to $14,000,000 minus
the aggregate amount previously drawn under any previous Letter of Credit;
(v) has an expiration date that is no earlier than 45 days
after the end of the Term and an effective date that is no later than the date
of replacement; and
(vi) is otherwise identical in substance to the outstanding
Letter of Credit.
(d) The Acquiror may terminate the Letter of Credit at any time during
the Term provided that (i) Acquiror provides Shareholders' Representative with
an opinion of counsel that BDCC's obligations under this Agreement are exempt
from the registration requirements of the Securities Act of 1933 and (ii) either
Acquiror guarantees BDCC's obligations under this Agreement or provides other
security for such obligations reasonably acceptable to Shareholders'
Representative.
(e) Acquiror may from time to time submit a written request to the
Shareholders' Representative that the stated amount of the Letter of Credit be
reduced. Such request shall be accompanied by appropriate evidence that in the
opinion of Acquiror due to certain legislative, judicial or other events the
maximum Contingency Payment cannot exceed the proposed amount of the Letter of
Credit. If the Shareholders' Representative does not object to such reduction
within 30 days of receipt of such request, the Acquiror may replace the Letter
of Credit with a substitute Letter of Credit with a stated amount equal to the
amount set forth in the request. If the Shareholders' Representative objects to
such request, the matter shall be submitted to Arbitration pursuant to Section
10 hereof. Any reduction in the Letter of Credit pursuant to this Section 4(e)
shall not reduce the Maximum Amount, as provided in Section 2(c) hereof.
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5. Concerning Agent.
(a) Agent shall be entitled to receive compensation for its regular
services as Agent hereunder in the amount agreed between Agent and BDCC, payable
at such times as may be similarly agreed. The compensation and expenses of Agent
shall be paid by BDCC and payment thereby shall be guaranteed by Acquiror.
(b) In taking any action hereunder, Agent shall be protected in relying
upon any notice, paper or other document believed by it to be genuine or upon
any evidence deemed by it to be sufficient, and in no event shall be liable for
any act performed or omitted to be performed by it hereunder in the absence of
gross negligence or willful misconduct. Agent may consult with counsel (who may
be an employee of Agent) in connection with its duties hereunder and shall be
fully protected by any act taken, permitted or omitted by it in good faith in
accordance with the advice of such counsel. Agent shall not be bound in any way
by any agreement or contract other than this Contingency Agreement and the
Merger Agreement, to the extent referenced herein, and its only duties or
responsibilities shall be to take the actions expressly required by the terms of
this Contingency Agreement and the Merger Agreement.
(c) Agent hereby accepts its appointment and agrees to act as Agent
under the terms and conditions of this Contingency Agreement and acknowledges
receipt of the Letter of Credit delivered pursuant to Section 4.
6. Shareholders' Representative.
Shareholders' Representative is hereby authorized (i) to take all
actions and to execute and deliver all documents contemplated under this
Agreement to be taken, executed or delivered by it or by or on behalf of the
Shareholders hereunder, including, without limitation, authorization to employ
accountants, counsel and other agents as Shareholders' Representative deems
advisable, in its discretion, and to pay reasonable compensation for their
services, and (ii) shall have no liability to any Shareholder for any loss,
cost, damage, liability and expense that may be imposed upon or incurred by him
in connection with the performance of its duties hereunder, provided, however,
that such exculpation shall not extend to its willful misfeasance or gross
negligence. Reimbursement for Shareholders' Representative's reasonable out of
pocket expenses (including reasonable legal fees and expenses) shall be paid
from the Contingency Fund.
Acquiror hereby agrees to indemnify and hold harmless the Shareholders'
Representative for any loss, claim, damage, liability or expense (including
reasonable attorney's fees) arising in connection with the performance of its
duties hereunder; provided, however, such indemnity shall not extend to its
willful misfeasance or gross negligence.
If Shareholders' Representative shall at any time be unable or
unwilling to act as such hereunder, Shareholders' Representative and BDCC shall
have the right jointly to select and appoint a substitute Shareholders'
Representative under this Contingency Agreement, upon notice to Agent.
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7. Termination of Agreement.
(a) Subject to Section 7(b) hereof, this Agreement and all obligations
of the parties hereto shall terminate at 5:00 p.m., Richmond, Virginia time, on
the later of the following dates (the "Termination Date"):
(i) Ten days after the end of the Term; or
(ii) The date on which all potential Payment Events that shall
have been identified by Shareholders' Representative on or before the
date determined pursuant to (i) above shall have been disposed of and
shall have been satisfied in accordance with Sections 2 and 3 hereof
but in no event shall such date extend beyond the sixth anniversary
hereof, unless mutually agreed upon by Acquiror and Shareholders'
Representative.
(b) If the Maximum Amount shall have been drawn on the Letter of Credit
and the proceeds thereof paid by Agent as Contingency Payments pursuant to the
terms hereof, this Agreement and all obligations of the parties hereto shall
terminate upon such final Contingency Payment.
(c) Upon the date determined under Section 7(a) or the event specified
in Section 7(b), Agent shall
(i) make any final Contingency Payments then required to be
made;
(ii) surrender the Letter of Credit to Bank for cancellation;
and
(iii) pay any amount remaining in the Contingency Fund to
BDCC.
(d) At any time prior to the Termination Date, BDCC and Shareholders'
Representative may, in a writing signed by both of them, upon notice to Agent,
terminate this Agreement.
8. Fees and Expenses.
All reasonable fees, expenses and costs incurred by the Evaluator or
Agent in connection with carrying out their duties under this Contingency
Agreement or relating to the Letter of Credit shall be paid in full by BDCC and
such payment shall be guaranteed by Acquiror.
9. Notices.
All claims, notices, objections and other communications hereunder
shall be in writing and shall be deemed to have been duly given if and at the
time delivered in person or by overnight courier, or mailed, registered mail,
return receipt requested, or sent by facsimile, as follows:
7
<PAGE> 91
If to Shareholders' Representative, to:
Hamilton Holdings, Ltd.
P. O. Box 157
Bardstown, Kentucky 40004
Attention: Mr. Thomas Hamilton
FAX No.: (502) 348-2552
If to BDCC or Acquiror:
c/o James River Coal Company
701 Est Byrd Street, Suite 1100
Richmond, Virginia 23219
Attention: James B. Crawford
Chairman & Chief Executive Officer
FAX No.: (804) 780-0643
If to Agent:
----------------------------------------------
----------------------------------------------
----------------------------------------------
or, such other person or address as Shareholders' Representative, BDCC, Acquiror
or Agent shall furnish to each of the other parties in writing.
10. Arbitration.
Any dispute arising under this Agreement shall be settled by
Arbitration in Richmond, Virginia in accordance with the rules of the American
Arbitration Association, except that there shall be three arbitrators, one
selected by BDCC, one selected by Shareholders' Representative and the third
selected by the two arbitrators initially so selected. If the two arbitrators
are unable to agree, in good faith within a reasonable time, on the selection of
the third arbitrator, either party may request appointment of a third arbitrator
chosen by the American Arbitration Association. The arbitrators shall promptly
obtain such information regarding the matter as they deem desirable and shall
with dispatch decide the matter. The arbitrators shall render a written award
that shall be delivered to BDCC, Shareholders' Representative and Agent. As part
of such award, the arbitrators shall establish their fees, expenses and any
other costs in connection therewith and shall apportion them in their judgment
between, and assess them against, the parties. In the absence of fraud or bad
faith, any such award shall be a conclusive determination of the matter and
shall be binding upon BDCC, Shareholders and Agent, and shall not be contested
further by any of them.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, successors and assigns.
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<PAGE> 92
12. Amendments.
This Agreement may be amended or modified at any time or from time to
time in a writing executed by Shareholders' Representative, BDCC, Acquiror and
Agent.
13. Governing Law.
This Agreement shall be construed and enforced in accordance with the
laws of the State of Tennessee.
14. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall not be necessary for every party hereto to
sign each counterpart but only that each party shall sign at least one
counterpart.
15. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to either party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner, to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
16. Waiver.
This Agreement may not be modified, amended, supplemented, canceled, or
discharged, except by written instrument executed by all parties. No failure to
exercise, and no delay in exercising, any right, power or privilege under this
Agreement shall operate as a waiver, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the exercise of any other
right, power or privilege. No waiver of any breach of any provision shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other provision, nor shall any waiver be implied from any course of dealing
between the parties. No extension of time for performance of any obligations or
other acts hereunder or under any other agreement shall be deemed to be an
extension of the time for performance of any other obligations or any other
acts.
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<PAGE> 93
IN WITNESS WHEREOF, the parties hereto have executed this Contingency
Agreement as of the day and year first above written.
JAMES RIVER COAL COMPANY
By:
-------------------------------------
Name:
Title:
BLUE DIAMOND COAL COMPANY
By:
-------------------------------------
Name:
Title: President
SHAREHOLDERS' REPRESENTATIVE
HAMILTON HOLDINGS, LTD.
By TYE FORK COAL COMPANY,
General Partner
By:
-------------------------------------
Name:
Title: General Partner
[AGENT]
By:
-------------------------------------
Name:
Title:
10
<PAGE> 94
APPENDIX B
February 11, 1998
Special Committee of
the Board of Directors
Blue Diamond Coal Company
341 Troy Circle
Knoxville, Tennessee 37919
Gentlemen:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the minority holders of common
stock of Blue Diamond Coal Company (the "Company") of the consideration to be
received by such holders of Company common stock in connection with the merger
transaction set forth in an Agreement and Plan of Merger dated February 11, 1998
by and between James River Coal Company, James River Coal Mergersub, Inc.
("Sub") and the Company (the "Agreement"). The Agreement provides for the merger
(the "Merger") of Sub with and into the Company pursuant to which each share of
Company common stock shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive (i)
$60.413 in cash, without interest thereon (subject to adjustment as set forth in
the Agreement) and (ii) the right to receive the Contingency Amount, as set
forth in a Contingency Agreement attached as Exhibit B to the Agreement.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the Agreement, including Exhibits thereto; certain
information and analyses prepared by Energy Venture Analysis, Inc., an
independent consulting firm retained by the Company; and certain publicly
available business and financial information concerning the Company. We have met
with the Company's management to discuss the business and prospects of the
Company. In meeting with certain members of Company management, we discussed the
past and current business operations, financial condition and prospects of the
Company as well as other matters we believe relevant to our inquiry.
We have reviewed (i) certain publicly available information concerning
the trading of, and the trading market for, the Company's common stock; (ii)
certain publicly available information with respect to certain other companies
that we believe to be comparable, in certain respects, to the Company; and (iii)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria
<PAGE> 95
Special Committee of
the Board of Directors
February 11, 1998
Page 2
that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have
assumed that the financial and other information provided us or that was
publicly available was accurate and complete and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have conducted a physical inspection of certain of the
properties and facilities of the Company, but have not made or obtained or
assumed any responsibility for making or obtaining any independent evaluations
or appraisals of any of such properties or facilities. In addition, you have not
requested us to, and accordingly we have not, solicited the interest of third
parties to effect a transaction involving the Company. With respect to
projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
the Company as to the future financial performance of the Company, and we
express no view with respect to such projections or the assumptions on which
they were based.
In conducting our analysis and in arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and certain other publicly-traded companies that we believe to be
comparable to the Company; (ii) the historical and current market for the equity
securities of certain other publicly-traded companies that we believe to be
comparable to the Company; and (iii) the nature and terms of certain other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise our opinion based upon circumstances or events occurring after
the date hereof. Our opinion is, in any event, limited to the fairness, from a
financial point of view, to the minority holders of Company common stock of the
consideration to be received by such holders of Company common stock in
connection with the Merger and does not address the Company's underlying
business decision to effect the Merger or constitute a recommendation to any
holder of common stock as to how such holder should vote with respect to the
Merger.
We have acted as financial advisor to the Company in connection with
the Merger and will receive a fee for our services and for rendering this
opinion. In addition, the Company has agreed to indemnify us for certain
potential liabilities arising out of the rendering of this opinion. In the
ordinary course of our business, we may actively trade securities of the Company
for our own account and for the accounts of customers and, accordingly, may at
any time hold long or short positions in such securities.
It is understood that this letter is for the use and benefit of the
Special Committee of the Company's Board of Directors and is not to be quoted or
referred to, in whole or in part, in any
<PAGE> 96
Special Committee of
the Board of Directors
February 11, 1998
Page 3
registration statement, prospectus or proxy statement, or in any other document
used in connection with the offering of securities, nor shall this letter be
used for any other purposes, without our prior written consent.
On the basis of and subject to the foregoing and other matters that we
deem relevant, we are of the opinion as investment bankers that, as of the date
hereof, the consideration to be received by the minority holders of Company
common stock in connection with the Merger is fair, from a financial point of
view, to such holders of Company common stock.
Very truly yours,
J.J.B. HILLIARD, W.L. LYONS, INC.
<PAGE> 97
APPENDIX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.sec. 251 (other than a merger effected pursuant to sec.
251g), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to sec.sec. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
<PAGE> 98
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than
20 days prior to the meeting, shall notify each of its stockholders who
was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action
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must do so by a separate written demand as herein provided. Within 10
days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of
each constituent corporation who has complied with this subsection and
has not voted in favor of or consented to the merger or consolidation
of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to sec. 228 or sec. 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after
the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If
such notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
not be more than 10 days prior to the date the notice is given;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof
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and who is otherwise entitled to appraisal rights, may file a petition in the
Court of Chancery demanding a determination of the value of the stock of all
such stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder shall
have the right to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon
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application by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until it
is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX D
BLUE DIAMOND COAL COMPANY FORM OF PROXY
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
BLUE DIAMOND COAL COMPANY FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON MARCH 27, 1998)
The undersigned hereby appoints Ted B. Helms and K. Roger Foster, and
either of them with full powers of substitution, as attorneys and proxies for
the undersigned, to represent and vote shares of Common Stock of Blue Diamond
Coal Company ("Blue Diamond") standing in my name on the books and records of
Blue Diamond at the close of business on March 2, 1998, which the undersigned is
entitled to cast at the Special Meeting of Shareholders to be held at the Howard
Johnson Plaza Hotel, 7621 Kingston Pike, Knoxville, Tennessee, on March 27, 1998
at 10:00 a.m., local time, and at any and all adjournments as follows:
Approval of the Agreement and Plan of Merger dated as of February 10, 1998 (the
"Merger Agreement") among James River Coal Company ("James River"), Blue Diamond
and James River Coal Mergersub, Inc., a wholly-owned subsidiary of James River
("Subsidiary"); which Merger Agreement provides for, among other things (i) the
proposed merger of Subsidiary, a Delaware corporation and wholly-owned
subsidiary of James River, with and into Blue Diamond with Blue Diamond to be
the surviving corporation in the Merger and (ii) the appointment of Hamilton
Holdings, Ltd. ("Hamilton, Ltd.") as representative of the shareholders of Blue
Diamond under the Contingency Agreement to be entered into between Blue Diamond,
James River and Hamilton, Ltd.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
- --------------------------------- --------------------------------------------- -------------------------------
</TABLE>
NOTE: The Board of Directors is not aware of any other business that may come
before the meeting.
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED IF NO CHOICE IS MADE HEREON.
Any holder of Blue Diamond Common Stock who has delivered a proxy may
revoke it any time before it is voted by attending the Special Meeting and
voting in person at the meeting or by giving notice of revocation in writing or
submitting a signed proxy card bearing either the same date but delivered at a
later time or a later date to Blue Diamond at P. O. Box 59015, Knoxville,
Tennessee 37950-9015, Attention: Secretary, provided such notice or proxy is
actually received by Blue Diamond before the vote of shareholders. Should the
undersigned be present and elect to vote at the Special Meeting or at any
adjournment thereof and, after notification to the Secretary of Blue Diamond at
the Special Meeting of the shareholder's decision to terminate this Proxy, then
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting
called for the 27th day of March, 1998 and the Proxy Statement dated March 6,
1998 prior to the execution of this Proxy.
-----------------------------------------
Print Name of Shareholder
-----------------------------------------
Signature of Shareholder
-----------------------------------------
Print Name of Shareholder
Date: -----------------------------------------
---------------------- Signature of Shareholder
(Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
more than one trustee, all should sign. If shares are held jointly, each holder
should sign.)
<PAGE> 103
OTHER DOCUMENTS
<PAGE> 104
CONSENT OF J.J.B. HILLIARD, W.L. LYONS, INC.
We hereby consent to the inclusion of our letter opinion dated February
11, 1998 and addressed to the Special Committee of the Board of Directors of
Blue Diamond Coal Company as Appendix C of the Proxy Statement of the Company.
Further, we consent to the references to our firm therein, and to the discussion
of our opinion therein, under the heading "Opinion of Blue Diamond Coal
Company's Financial Advisor" in the Proxy Statement.
J.J.B. HILLIARD, W.L. LYONS, INC.
February 11, 1998
