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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
LODESTAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1221, 1222 13-3903875
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
LODESTAR ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1221, 1222 95-2623858
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
EASTERN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
KENTUCKY 1221, 1222 61-1140112
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
INDUSTRIAL FUELS MINERALS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 1221, 1222 36-3256999
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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<TABLE>
<S> <C>
LODESTAR HOLDINGS, INC.
30 ROCKEFELLER PLAZA, SUITE 4225
NEW YORK, NEW YORK 10112
(212) 541-6000
LODESTAR ENERGY, INC.
EASTERN RESOURCES, INC. MICHAEL E. DONOHUE
INDUSTRIAL FUELS MINERALS COMPANY CHIEF FINANCIAL OFFICER
333 WEST VINE STREET, SUITE 1700 333 WEST VINE STREET, SUITE 1700
LEXINGTON, KENTUCKY 40507 LEXINGTON, KENTUCKY 40507
(606) 255-4006 (606) 255-4006
(Address, including zip code, and telephone number, including (Name, address, including zip code, and telephone number,
area code, of registrant's principal executive offices) including area code, of agent for service)
</TABLE>
COPIES TO:
MICHAEL C. RYAN, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6177
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE+ REGISTRATION FEE
<S> <C> <C> <C> <C>
11 1/2% Senior Notes due 2005, Series B............ $150,000,000 100% $150,000,000 $44,250
Guarantees of 11 1/2% Senior Notes due 2005, Series
B................................................ $150,000,000 100% $150,000,000 ++
</TABLE>
+ Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(f).
++ Pursuant to Rule 457(n), no additional filing fee is required, as no
separate consideration will be paid for each of the Guarantees by the
Guarantors.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 14, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
LODESTAR HOLDINGS, INC.
OFFER TO EXCHANGE ITS 11 1/2% SENIOR NOTES DUE 2005, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SENIOR NOTES DUE 2005, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Lodestar Holdings, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer"), to
exchange its 11 1/2% Senior Notes due 2005, Series B (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined) of which
this Prospectus is a part, for an equal principal amount of its outstanding
11 1/2% Senior Notes due 2005, Series A (the "Old Notes"), of which $150.0
million is outstanding. The Exchange Notes and the Old Notes are collectively
referred to herein as the "Senior Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Notes will be issued and
delivered promptly after the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer." Old Notes may be tendered only in integral
multiples of $1,000. The Company has agreed to pay the expenses of the Exchange
Offer.
The Exchange Notes will be obligations of the Company evidencing the same
debt as the Old Notes and will be entitled to the benefits of the same
indenture, dated as of May 15, 1998 (the "Indenture"), by and among the Company,
as issuer, Lodestar Energy, Inc., ("Lodestar"), Eastern Resources, Inc.
("Eastern Resources") and Industrial Fuels Minerals Company ("Industrial
Fuels"), as guarantors (the "Guarantors"), and State Street Bank and Trust
Company, as trustee (the "Trustee"). The form and terms of the Exchange Notes
are substantially the same as the form and terms of the Old Notes except that
the Exchange Notes have been registered under the Securities Act. See "The
Exchange Offer."
The Exchange Notes will bear interest from May 15, 1998. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
up until the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders, since the Exchange Notes
will bear interest from the issue date of the Old Notes.
Interest on the Exchange Notes will be payable semi-annually on May 15 and
November 15 of each year, commencing on November 15, 1998. The Exchange Notes
will mature on May 15, 2005. Except as set forth below, the Exchange Notes will
not be redeemable prior to May 15, 2002. Thereafter, the Exchange Notes will be
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to May 15, 2001,
the Company may, subject to certain requirements, redeem up to 35% of the
original aggregate principal amount of the Exchange Notes with the net cash
proceeds of one or more Equity Offerings (as defined), at 111.5% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of redemption; PROVIDED that at least 65% of the original aggregate
principal amount of Senior Notes remain outstanding immediately after any such
redemption. Upon the occurrence of a Change of Control (as defined), each holder
of Exchange Notes may require the Company to repurchase such holder's Exchange
Notes at 101% of the principal amount thereof plus accrued interest to the date
of repurchase. The Company is obligated in certain instances to make offers to
repurchase the Exchange Notes with the net cash proceeds of certain sales and
other dispositions of assets. See "Description of the Senior Notes."
The Exchange Notes will be general unsecured obligations of the Company
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company and PARI PASSU in right of payment with all other
senior indebtedness of the Company. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") on a senior unsecured basis by the
Guarantors. However, Lodestar's indebtedness under its $90.0 million revolving
credit facility and $30.0 million letter of credit facility (collectively, the
"New Senior Credit Facility"), and Lodestar's contingent obligations to the
surety of various performance bonds related primarily to reclamation and
workers' compensation (the "Performance Bonds"), are secured by a first and
second priority security interest, respectively, in substantially all of the
property and other assets of Lodestar. Accordingly, holders of such secured
obligations, and any other secured obligations of the Company and the
Guarantors, will have claims that effectively rank prior to those of holders of
Exchange Notes with respect to the assets securing such obligations. See
"Description of the Senior Notes--Guarantees." The Indenture permits the Company
and the Guarantors to incur additional indebtedness, including senior
indebtedness and secured indebtedness, subject to certain limitations. As of
April 30, 1998, on a consolidated pro forma basis, the Company would have had
approximately $150.0 million of indebtedness outstanding (exclusive of unused
commitments of $90.0 million and approximately $21.5 million of outstanding
letters of credit, in each case, under the New Senior Credit Facility). See
"Description of the Senior Notes" and "Description of New Senior Credit
Facility."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a Prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities. The Company has agreed that
for a period of 180 days after consummation of the Exchange Offer, it will make
this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
There has been no public market for the Old Notes. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount from
their principal amount. The Company does not intend to list the Exchange Notes
on a national securities exchange or quotation system. There can be no assurance
that an active public market for the Exchange Notes will develop.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE
NOTES.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the Exchange
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company, and the Exchange Notes offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of certain documents filed as exhibits to the Registration Statement
are not necessarily complete and, in each case, are qualified by reference to
the copy of the document so filed. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material also can be reviewed through the Commission's Electronic
Data Gathering, Analysis, and Retrieval System, which is publicly available
through the Commission's web site (http://www.sec.gov).
The Company intends to furnish to each holder of the Exchange Notes annual
reports containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. The Company also will furnish to each holder of the Exchange Notes such
other reports as may be required by applicable law.
The principal executive offices of the Company are located at 30 Rockefeller
Plaza, Suite 4225, New York, New York, 10112, telephone number: (212) 541-6000,
and the principal executive offices of each of the Guarantors are located at 333
West Vine Street, Suite 1700, Lexington, Kentucky 40507, telephone number: (606)
255-4006.
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere constitute "forward-looking statements." Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions; industry trends, including coal pricing;
competition; the loss of any significant customers or long-term contracts; and
other factors referenced in this Prospectus. See "Risk Factors." These
forward-looking statements speak only as of the date of this Prospectus. The
Company expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY BEFORE INVESTING IN THE EXCHANGE NOTES. PRIOR TO THE
ACQUISITION (AS DEFINED), THE PREDECESSOR COMPANY'S (AS DEFINED) FISCAL YEAR
ENDED DECEMBER 31; AS OF MARCH 15, 1997, THE COMPANY ESTABLISHED A FISCAL YEAR
ENDING OCTOBER 31. REFERENCES TO RESULTS OF THE COMPANY OR LODESTAR FOR PERIODS
BEGINNING PRIOR TO THE ACQUISITION REPRESENT THE COMBINED RESULTS OF THE
PREDECESSOR COMPANY THROUGH MARCH 14, 1997 AND THE COMPANY OR LODESTAR, AS
APPLICABLE, THEREAFTER. AS USED HEREIN, "TON" MEANS A SHORT TON (2,000 POUNDS).
UNLESS THE CONTEXT INDICATES OTHERWISE, REFERENCES HEREIN TO THE "COMPANY" ARE
TO LODESTAR HOLDINGS, INC. AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS, AND
REFERENCES HEREIN TO "LODESTAR" ARE TO LODESTAR ENERGY, INC. AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS.
THE COMPANY
The Company, through its wholly-owned subsidiary Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. For the twelve months
ended April 30, 1998, the Company had coal shipments of 10.9 million tons,
resulting in coal sales and related revenue of $278.7 million.
Lodestar focuses on selected niche coal markets in the Eastern, South
Central and Great Lakes regions of the United States. Through its diverse
portfolio of seven deep and five surface coal mines located in Eastern and
Western Kentucky, Lodestar is among the largest coal producers in Kentucky, the
third largest coal producing state. Lodestar believes that it is a low cost
producer offering its customers flexibility in order quantities and
transportation methods, including barge, rail or truck. In addition, Lodestar
processes the vast majority of its coal through its washing and blending
facilities to meet customers' combustion and environmental specifications, such
as energy (as measured by British thermal units ("Btus")), ash and sulfur
content. Lodestar believes that its niche market strategy, together with its
operating flexibility, permits it to meet customer demand for quality products
and services at competitive prices, resulting in long-term contracts with its
customers.
For the twelve months ended April 30, 1998, approximately 72% of Lodestar's
coal sales and related revenue were derived from contracts which had remaining
terms exceeding one year ("long-term contracts"). As of April 30, 1998, Lodestar
had long-term contracts, including long-term contracts with the Tennessee Valley
Authority (the "TVA") and certain affiliates of U.S. Generating Company ("U.S.
Gen"), with a weighted average term of approximately 8.4 years. Lodestar
believes that the facilities to which it supplies coal generally are well
positioned to compete in a deregulated environment for electricity generation.
Lodestar's niche market strategy targets customers whose needs are
compatible with the particular coal qualities it produces. Lodestar supplies mid
to high sulfur coal (above 1.8% sulfur) from its Western Kentucky operations to
customers, such as electricity generation facilities, that can economically use
such coal by employing sulfur-reduction techniques, including scrubbers and coal
blending, in addition to utilizing emissions allowance credits. Lodestar also
supplies low sulfur coal (less than 1.0% sulfur) from its Eastern Kentucky
operations to customers that require such coal to meet environmental discharge
requirements.
Lodestar believes that the proximity of its reserves and facilities to
customers that can economically use its coal provides it a competitive
advantage. In addition, Lodestar uses its preparation and loadout facilities in
Eastern and Western Kentucky to wash and blend coal to satisfy customer needs
for Btu, ash and sulfur content. Moreover, Lodestar provides its customers
transportation flexibility by offering delivery by barge, rail or truck. For
example, Lodestar's barge loading facility at Caseyville, Kentucky (the
"Caseyville Dock") is located farther south on the Ohio River than any
comparable facility. As a result, the Caseyville Dock provides Lodestar a cost
advantage in delivering coal to customers in the Southern United
3
<PAGE>
States over competitors that must load and ship from facilities located farther
north. Lodestar believes that its production and transportation flexibility
enables it to satisfy customer requirements, while maintaining efficient and low
cost operations.
Lodestar owns eleven of its mines, which for the twelve months ended April
30, 1998, accounted for more than 90% of its coal production. In addition,
Lodestar operates one mine owned by a third party and purchases most of the coal
produced from such mine. In excess of 90% of the coal produced at Lodestar's
mines is produced by Lodestar employees, and the balance is mined by independent
contractors. Lodestar believes that the selective use of independent contractors
lowers its costs and increases its operating flexibility to vary production in
response to market conditions. In the future, Lodestar will seek to increase its
coal purchases from third parties to maximize the utilization of its washing and
blending facilities and thus improve operating margins.
For the twelve months ended April 30, 1998, electrical power utilities and
independent power producers ("IPPs") accounted for approximately 56% and 21% of
Lodestar's coal sales and related revenue, respectively. The balance of
Lodestar's coal sales and related revenue was attributable to brokers and
industrial customers. Accordingly, Lodestar believes that it is well positioned
to benefit from favorable trends in the electricity generation industry. From
1973 to 1996, coal consumption experienced a compound annual growth rate (a
"CAGR") of 2.6%, reaching approximately 1.01 billion tons of consumption in
1996. This growth in coal consumption is directly related to the growth in
electricity consumption in the United States. Electricity generation in 1996
accounted for approximately 89% of the coal consumed in the United States.
In 1996, coal-fired facilities generated approximately 56% of the
electricity consumed in the United States, and the balance was generated by
nuclear, hydroelectric and gas-fired facilities, representing approximately 22%,
11% and 9%, respectively, of electricity consumption. Coal is one of the least
expensive and most abundant domestic resources for the production of
electricity. Accordingly, notwithstanding the alternative fuel sources,
management believes that coal will continue to be a major raw material for
electricity generation in the United States for the foreseeable future.
Lodestar further believes that it will benefit from increasing deregulation
among electricity producers. Since 1935, domestic electricity utilities have
operated in a regulated environment, with prices and return on investment
determined by state utility and power commissions. In April 1996, the Federal
Energy Regulatory Commission (the "FERC") issued orders establishing rules
providing for open access to electricity transmission systems, which are
designed to initiate consumer choice in electricity purchasing and encourage
competition in the generation of electricity. Lodestar believes that this trend
toward deregulation will likely (i) increase the desirability of coal as a raw
material for electricity generation due to its relative low cost and (ii) favor
coal producers, such as Lodestar, that have diverse reserves in addition to cost
and transportation advantages.
COMPETITIVE STRENGTHS
The Company believes its competitive strengths include the following:
PORTFOLIO OF LONG-TERM CONTRACTS
Lodestar has secured long-term coal supply contracts with a weighted average
term of approximately 8.4 years as of April 30, 1998. Lodestar's long-term
contracts have accounted for approximately 80% of its coal sales and related
revenue since 1992. Lodestar believes its strong performance history with major
customers, attributable to, among other things, its low cost structure and
customer service, will strengthen existing relationships, as well as facilitate
the development of new relationships, which will result in additional long-term
contracts.
4
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HIGHLY EFFICIENT OPERATIONS
Lodestar has been successful in increasing productivity at both its Eastern
and Western Kentucky operations. Since 1993, Lodestar's deep mine operations
have improved production from 3.5 tons to 4.9 tons per manhour for the year
ended December 31, 1997. Over the same period, Lodestar's surface mine
operations in Kentucky have improved productivity from 83.7 cubic yards moved to
109.2 cubic yards moved per manhour. Lodestar has achieved such improvements by
developing and instituting more efficient mining techniques, altering its mine
plans and incorporating new mining technologies, such as the high efficiency,
high production longwall mining equipment used in Western Kentucky. Lodestar
also has invested in state-of-the-art surface mining equipment, such as the
Komatsu 575 dozer, the largest dozer in the world, and the DeMag 285S 25-cubic
yard hydraulic shovel, which is used on mountaintop surface mines, to further
improve its operating efficiencies.
FLEXIBLE OPERATIONS
Lodestar's coal reserves, along with its extensive processing infrastructure
and transportation capabilities, enable it to maintain a high degree of
operating flexibility to meet its customers' specific requirements. In
particular, Lodestar's washing and blending capabilities permit Lodestar to
provide coal with a specific Btu, sulfur and ash content. In addition,
Lodestar's diverse transportation capabilities enable it to provide delivery of
coal by barge, rail or truck in a timely manner. In response to varying market
conditions, Lodestar also has the ability, to a certain extent, to revise its
mine production. By maintaining such operating and production flexibility,
management believes that Lodestar is able to respond to changing market
conditions, as well as to meet its customers' needs.
DIVERSE PORTFOLIO OF RESERVES
Lodestar owns or operates twelve mines, four in Western Kentucky (three
underground and one surface) and eight in Eastern Kentucky (four underground and
four surface) with a total demonstrated reserve base of approximately 198.6
million recoverable tons as of January 31, 1998. As of such date, 22%, or
approximately 43.7 million recoverable tons, of its demonstrated reserves was
low sulfur coal and 78%, or 154.9 million recoverable tons, was mid to high
sulfur coal. Lodestar's demonstrated reserve life index (total demonstrated
reserves divided by production for the twelve months ended January 31, 1998) was
approximately eighteen years as of January 31, 1998. All of Lodestar's reserves
are of a quality suitable for use in the generation of electricity throughout
its market area. See "Risk Factors--Reliance on Estimates of Recoverable
Reserves" and "--Replacement of Reserves."
HIGH BARRIERS TO ENTRY
Management believes that the capital costs and environmental requirements
associated with constructing facilities comparable to those of Lodestar result
in high barriers to entry for prospective entrants. Management further believes
that its combination of mining, processing and transportation facilities
provides it significant operating flexibility that would be difficult for a
potential entrant to duplicate. In addition, management believes that the cost
and time commitment required to achieve commercial production for any new mining
or processing operation, including regulatory approvals, would be prohibitively
expensive, further heightening the barriers to entry.
EXPERIENCED MANAGEMENT
Lodestar's senior management team has an average of approximately nineteen
years of experience in coal or related industries. Lodestar believes this
experience enables it to identify and respond to important trends in the coal
industry.
5
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to improve its operations and financial
performance by focusing on the following principal elements:
MAINTAIN OPERATIONAL FLEXIBILITY
Lodestar strives to maintain a high level of operational flexibility to
respond to customer requirements, as well as other market opportunities. With
its mining facilities in Eastern and Western Kentucky, Lodestar operates in two
distinct coal supply regions. In that regard, Lodestar has flexibility in
developing its mining and production plans in terms of volume and type of coal
to take advantage of prevailing market conditions and enhance its position with
customers. With its multiple mines and coal washing and blending capabilities,
Lodestar also is able to minimize the production costs associated with the
particular quality of coal produced. With respect to transportation, Lodestar
has available multiple options, including facilities and equipment controlled by
Lodestar, designed to provide effective coal transportation and delivery at
competitive costs.
IMPROVE OPERATING EFFICIENCIES AND CAPACITY UTILIZATION
Lodestar is committed to continuous improvement through focused capital
investment and the implementation of non-capital cost reduction programs
throughout its operations. Since 1993, Lodestar has completed approximately
$112.2 million of capital investments designed to, among other things, increase
capacity utilization, enhance productivity and lower production costs.
Management expects to spend approximately $10.0 million to $15.0 million
annually for capital expenditures, of which approximately $8.0 million is
required annually to maintain its current level of operations.
EXPAND NICHE MARKETS
By expanding the use of its extensive preparation and transportation
facilities, Lodestar will seek to enter new markets which generate higher
operating margins. Given its proximity to end users of coal, Lodestar seeks to
leverage its infrastructure to expand into niche markets for industrial
corporations, as well as to expand its relationships with IPPs. In addition,
Lodestar intends to expand its coal trading activities and recommence its
brokering operations which will permit Lodestar to optimize the use of its
facilities.
BUILD AND MAINTAIN STRONG RELATIONSHIPS WITH STRATEGIC CUSTOMERS
Through its ongoing customer service initiatives, Lodestar strives to build
and maintain strong relationships with its customers. Lodestar's sales,
transportation and production professionals work closely with customers to be
responsive to their needs, such as small order quantities, specialized sizing,
technical assistance, and flexible and reliable deliveries. As evidence of its
customer commitment, Lodestar has served the TVA for over twenty years and was
the recipient of the TVA's supplier of the year award in 1996.
ACHIEVE OPERATING IMPROVEMENTS FROM THE OLD NOTES OFFERING
Lodestar used a portion of the net proceeds of the Old Notes Offering (as
defined) to: (i) purchase certain equipment previously financed pursuant to
leases, most of which were entered into by the Predecessor Company; (ii) buy out
certain long-term royalty agreements entered into by the Predecessor Company;
and (iii) make payments to normalize accounts payable which had been extended
prior to the Acquisition. As a result of undertaking the foregoing, Lodestar
would have increased its EBITDA (as defined) by approximately $5.5 million on a
pro forma basis for the six months ended April 30, 1998, thereby improving its
operating cash flow and financial flexibility.
6
<PAGE>
GROW THROUGH STRATEGIC ACQUISITIONS
To capitalize on the trend toward asset rationalization by coal mining
companies, Lodestar plans to pursue the acquisition of coal companies and
reserves that complement its existing operations or provide strategic expansion
opportunities. Based upon the breadth of Lodestar's operating capabilities in
Eastern and Western Kentucky, Lodestar believes opportunities exist to
consolidate coal reserves within its primary geographic areas. In addition,
Lodestar will consider the acquisition of mines outside its geographic areas
that are compatible with its niche marketing strategy. Although the Company has
discussions from time to time with respect to potential acquisitions of reserves
and/or coal companies, it currently has no commitments or other such
arrangements.
CONTROL OF THE COMPANY
The Company is a wholly-owned subsidiary of The Renco Group, Inc. ("Renco"),
which is 97.9% owned by Mr. Ira Leon Rennert, the Chairman of the Company and
Lodestar and Chairman and Chief Executive Officer of Renco, and by trusts
established by him for himself and members of his family (but of which he is not
a trustee). As a result of such ownership, Mr. Rennert controls the Company and
its subsidiaries.
THE ACQUISITION
The Company (formerly named Rencoal, Inc.) purchased all of the outstanding
shares of capital stock of Costain Coal Inc. (prior to the Acquisition, the
"Predecessor Company") from Costain America Inc. (the "Predecessor's Parent"),
effective March 14, 1997 (the "Acquisition"). After the Acquisition, Costain
Coal Inc. was renamed Lodestar Energy, Inc.
OLD NOTES OFFERING
On May 15, 1998, the Company sold and issued the Old Notes (the "Old Notes
Offering"). The Company used the net proceeds of the Old Notes Offering to (i)
repay all existing indebtedness ("the Existing Indebtedness"), (ii) purchase
certain equipment financed pursuant to leases, (iii) buy out certain long-term
royalty agreements, (iv) pay a dividend to Renco, (v) make certain contractual
payments to certain executives of Lodestar and (vi) pay related fees and
expenses and reduce accounts payable and accrued expenses and for general
corporate purposes. The Old Notes Offering and the uses of proceeds therefrom
set forth in clauses (i) through (vi) above are collectively referred to herein
as the "Transactions."
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER........... $1,000 principal amount of Exchange Notes will be issued in
exchange for each $1,000 principal amount of Old Notes,
validly tendered pursuant to the Exchange Offer. As of the
date hereof, $150.0 million in aggregate principal amount of
Old Notes are outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes promptly
after the Expiration Date.
RESALES...................... Based on an interpretation by the staff of the Commission
set forth in Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) (the "Morgan
Stanley Letter"), Exxon Capital Holdings Corporation, SEC
No-Action Letter (available May 13, 1988) (the "Exxon
Capital Letter") and similar letters, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such Exchange
Notes, whether or not such person is the holder (other than
any such holder or other person which is (i) a broker-dealer
that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading
activities, or (ii) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act (collectively,
"Restricted Holders")) without compliance with the registra-
tion and prospectus delivery provisions of the Securities
Act, PROVIDED that (a) such Exchange Notes are acquired in
the ordinary course of business of such holder or other
person (b) neither such holder nor such other person is
engaged in or intends to engage in a distribution of such
Exchange Notes and (c) neither such holder nor other person
has any arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. If
any person were to be participating in the Exchange Offer
for the purposes of participating in a distribution of the
Exchange Notes in a manner not permitted by the Commission's
interpretation, such person (a) could not rely upon the
Morgan Stanley Letter, the Exxon Capital Letter or similar
letters and (b) must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Each broker
or dealer that receives Exchange Notes for its own account
in exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of market-
making or other activities, must acknowledge that it will
deliver a Prospectus in connection with any sale of such
Exchange Notes. See "Plan of Distribution."
EXPIRATION DATE.............. 5:00 p.m., New York City time, on , 1998, unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND OLD
NOTES...................... The Exchange Notes will bear interest from May 15, 1998.
Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed
</TABLE>
8
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<TABLE>
<S> <C>
to have waived the right to receive any payment in respect
of interest on such Old Notes accrued to the date of
issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER...................... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in general
to proceedings which have been instituted or laws which have
been adopted that might impair the ability of the Company to
proceed with the Exchange Offer. As of the date of this
Prospectus, none of these events had occurred, and the
Company believes their occurrence to be unlikely. If any
such conditions exist prior to the Expiration Date, the
Company may (a) refuse to accept any Old Notes and return
all previously tendered Old Notes, (b) extend the Exchange
Offer or (c) waive such conditions. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING OLD
NOTES...................... Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes to be exchanged and
any other required documentation to the Exchange Agent (as
defined) at the address set forth herein and therein.
Tendered Old Notes, the Letter of Transmittal and
accompanying documents must be received by the Exchange
Agent by 5:00 p.m. New York City time, on the Expiration
Date. See "The Exchange Offer--Procedures for Tendering." By
executing the Letter of Transmittal, each holder will repre-
sent to the Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is
the holder, that neither the holder nor any such other
person is engaged in or intends to engage in a distribution
of the Exchange Notes or has an arrangement or understanding
with any person to participate in the distribution of such
Exchange Notes, and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company.
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS......... Any beneficial holder whose Old Notes are registered in the
name of his broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender in the Exchange
Offer should contact such registered holder promptly and
instruct such registered holder to tender on his behalf. If
such beneficial holder wishes to tender on his own behalf,
such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a
properly completed bond power from the registered holder.
The transfer of record ownership may take considerable time.
See "The Exchange Offer--Procedures for Tendering."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Notes who wish to tender their Old Notes and
whose Old Notes are not immediately available or who cannot
deliver their Old Notes and a properly completed Letter of
Transmittal or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration
Date may tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............ Tenders may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES...................... Subject to certain conditions, the Company will accept for
exchange any and all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered promptly
after the Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS......... The exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer will not be a taxable event for federal
income tax purposes. A holder's holding period for Exchange
Notes will include the holding period for Old Notes. For a
discussion summarizing certain U.S. federal income tax
consequences to holders of the Exchange Notes, see "Certain
U.S. Federal Income Tax Considerations."
EXCHANGE AGENT............... State Street Bank and Trust Company is serving as exchange
agent (the "Exchange Agent") in connection with the Exchange
Offer. The mailing address of the Exchange Agent is State
Street Bank and Trust Company, Two International Place, 4th
Floor, Boston, Massachusetts 02110, Attention: Claire
Young--Corporate Trust Department. Deliveries by hand or
overnight courier should be addressed to State Street Bank
and Trust Company, 61 Broadway, 15th Floor, New York, New
York 10016, Attention: Corporate Trust Department. For
information with respect to the Exchange Offer, call the
Exchange Agent at telephone number: (860) 244-1846 or
facsimile number: (860) 244-1881.
</TABLE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Offer constitutes an offer to exchange up to $150.0 million
aggregate principal amount of the Exchange Notes for up to an equal aggregate
principal amount of Old Notes. The Exchange Notes will be obligations of the
Company evidencing the same indebtedness as the Old Notes, and will be entitled
to the benefit of the same Indenture. The form and terms of the Exchange Notes
are substantially the same as the form and terms of the Old Notes, except that
the Exchange Notes have been registered under the Securities Act. See
"Description of the Notes."
COMPARISON WITH OLD NOTES
<TABLE>
<S> <C>
FREELY TRANSFERABLE.......... The Exchange Notes will be freely transferable under the
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Securities Act by holders who are not Restricted Holders.
Restricted Holders are restricted from transferring the
Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act. The
Exchange Notes will be identical in all material respects
(including interest rate, maturity and restrictive
covenants) to the Old Notes, with the exception that the
Exchange Notes will be registered under the Securities Act.
See "The Exchange Offer--Terms of the Exchange Offer."
REGISTRATION RIGHTS.......... The holders of Old Notes currently are entitled to certain
registration rights pursuant to the Registration Rights
Agreement, dated as of May 15, 1998 (the "Registration
Rights Agreement"), by and among the Company, the Guarantors
and Donaldson, Lufkin & Jenrette Securities Corporation and
BT Alex. Brown Incorporated, the initial purchasers of the
Old Notes (collectively, the "Initial Purchasers"),
including the right to cause the Company and the Guarantors
to register the Old Notes under the Securities Act if the
Exchange Offer is not consummated prior to the Exchange
Offer Termination Date (as defined). See "The Exchange
Offer--Conditions." However, pursuant to the Registration
Rights Agreement, such registration rights will expire upon
consummation of the Exchange Offer. Accordingly, holders of
Old Notes who do not exchange their Old Notes for Exchange
Notes in the Exchange Offer will not be able to reoffer,
resell or otherwise dispose of their Old Notes unless such
Old Notes are subsequently registered under the Securities
Act or unless an exemption from the registration
requirements of the Securities Act is available.
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
GUARANTORS................... Lodestar, Eastern Resources and Industrial Fuels.
MATURITY DATE................ May 15, 2005.
INTEREST PAYMENT DATES....... May 15 and November 15, commencing November 15, 1998.
OPTIONAL REDEMPTION.......... The Exchange Notes will be redeemable at the Company's
option, in whole or in part, at any time on or after May 15,
2002, at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date of
redemption. In addition, on or prior to May 15, 2001, in the
event of one or more Equity Offerings, the Company may, at
its option, redeem up to 35% of the principal amount of
Exchange Notes originally issued from the net proceeds
thereof at a redemption price equal to 111.5% of the
principal amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption; PROVIDED that
at least 65% of the original aggregate principal amount of
Senior Notes remain outstanding immediately after such
redemption and any such redemption occurs not more than 120
days after the consummation of any such Equity Offering. See
"Description of the Senior Notes--Optional Redemption."
CHANGE OF CONTROL............ Upon a Change of Control, each holder of the Exchange Notes
will have the right to require the Company to repurchase all
or a portion of such holder's Exchange Notes at a price of
101% of the principal
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
amount thereof plus accrued interest to the repurchase date.
See "Description of the Senior Notes--Certain
Covenants--Change of Control."
ASSET SALE PROCEEDS.......... The Company is obligated in certain instances to make offers
to purchase the Exchange Notes at a redemption price of 100%
of the principal amount thereof plus accrued interest to the
repurchase date with the net cash proceeds of certain sales
or other dispositions of assets. See "Description of the
Senior Notes--Certain Covenants-- Limitation on Sale of
Assets."
RANKING...................... The Exchange Notes and the Guarantees will be general
unsecured obligations of the Company and the Guarantors,
respectively, ranking senior in right of payment to all
existing and future subordinated indebtedness of the Company
and the Guarantors, respectively, and pari passu in right of
payment with all other existing or future senior
indebtedness of the Company and the Guarantors,
respectively; however, Lodestar's indebtedness under the New
Senior Credit Facility, and Lodestar's contingent
obligations to the surety of the Performance Bonds, are
secured by a first and second priority security interest,
respectively, in substantially all of the property and other
assets of Lodestar. Accordingly, holders of such secured
obligations, and any other secured obligations of the
Company and the Guarantors, will have claims that
effectively rank prior to those of holders of the Exchange
Notes with respect to the assets securing such obligations.
CERTAIN COVENANTS............ The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters:
(a) limitation on indebtedness, (b) limitation on liens, (c)
limitation on restricted payments, (d) limitation on
dividends and other payment restrictions affecting
restricted subsidiaries, (e) limitation on restricted
transactions with affiliates, (f) limitation on sale of
assets, (g) consolidations, mergers and transfers of all or
substantially all of the assets of the Company, (h) conduct
of business and (i) limitation on preferred stock of
subsidiaries. See "Description of the Senior Notes--Certain
Covenants."
USE OF PROCEEDS.............. The Company will not receive any proceeds from the Exchange
Offer. See "Use of Proceeds." The Company has agreed to bear
the expenses of the Exchange Offer pursuant to the
Registration Rights Agreement (as defined). No underwriter
is being used in connection with the Exchange Offer. For a
description of the use of proceeds of the Old Notes
Offering, see "--The Company--Old Notes Offering."
</TABLE>
RISK FACTORS
Prospective purchasers of the Exchange Notes should carefully consider all
of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors set forth under "Risk Factors" for risks involved
with an investment in the Exchange Notes.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical and unaudited pro forma
consolidated financial data of the Company and the Predecessor Company at the
dates and for the periods indicated. The summary data presented below under the
captions "Statement of Operations Data" and "Other Data" for each of the fiscal
years in the two-year period ended December 31, 1996, for the period January 1,
1997 to March 14, 1997 and for the period March 15, 1997 to October 31, 1997 are
derived from the consolidated financial statements of the Predecessor Company
and the Company, as applicable, which consolidated financial statements have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The summary data presented below under the captions "Statement of Operations
Data" and "Other Data" for the period November 1, 1996 to December 31, 1996, for
the period March 15, 1997 to April 30, 1997 and for the six months ended April
30, 1998 and "Balance Sheet Data" as of April 30, 1998 are unaudited but, in the
opinion of management, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial and operating data
for such periods. Data as of and for the six months ended April 30, 1998 do not
purport to be indicative of results to be expected for the full year.
The unaudited summary pro forma consolidated data presented below under the
caption "Balance Sheet Data" give effect to the Transactions as if they had
occurred on April 30, 1998. The unaudited pro forma adjustments are based upon
available information and certain assumptions which management believes are
reasonable. The pro forma consolidated financial data do not purport to
represent what the Company's consolidated financial position would have been had
the Transactions actually occurred at April 30, 1998. In addition, the unaudited
pro forma financial data do not purport to be indicative of the Company's
consolidated financial position at any future period or date.
The following information should be read in conjunction with the audited
consolidated financial statements and the related notes thereto for the fiscal
years ended December 31, 1995 and 1996 and for the period January 1, 1997 to
March 14, 1997 for the Predecessor Company and for the period March 15, 1997 to
October 31, 1997 for the Company and the unaudited consolidated financial
statements for the period November 1, 1996 to December 31, 1996 for the
Predecessor Company and for the period March 15, 1997 to April 30, 1997 and for
the six months ended April 30, 1998 for the Company appearing elsewhere herein
and with the "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1) THE COMPANY
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
<CAPTION>
PERIOD PERIOD PERIOD PERIOD SIX
FISCAL YEAR ENDED NOVEMBER 1, JANUARY 1, MARCH 15, MARCH 15, MONTHS
DECEMBER 31, 1996 TO 1997 TO 1997 TO 1997 TO ENDED
-------------------- DECEMBER 31, MARCH 14, OCTOBER 31, APRIL 30, APRIL 30,
1995 1996 1996 1997 1997 1997 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS AND TONS IN THOUSANDS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Coal sales and related revenue...... 308,370 255,386 36,910 46,486 173,881 31,387 136,238
Operating income (loss)............. 10,002 (38,867) (5,069) (5,129) 2,066 (983) 4,891
Interest expense, net............... 4,436 2,801 550 809 6,004 1,020 4,757
Net income (loss)................... 5,995 (41,668) (5,619) (5,938) (3,938) (2,003) 80
OTHER DATA:
EBITDA(2)........................... 40,834 (16,153) (1,775) (380) 16,342 1,896 16,720
Capital expenditures................ 5,785 10,705 1,820 1,149 3,771 833 2,917
Depreciation, depletion and
amortization...................... 30,832 22,714 3,294 4,749 14,276 2,879 11,829
OTHER OPERATING DATA:
Tons of coal shipped................ 11,811 10,569 1,561 1,910 6,855 1,285 5,409
Tons of coal produced per manhour
(underground)(3)(4)............... 4.4 4.4 4.9
Cubic yards moved per manhour
(surface)(3)(4)................... 92.3 107.9 109.2
</TABLE>
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<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
------------------------
<S> <C> <C>
<CAPTION>
PRO
ACTUAL FORMA(5)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................................... $ 5,404 $ 6,904
Working capital (deficit)............................................................... (32,092) 4,372
Property, plant and equipment, net...................................................... 77,668 106,456
Total assets............................................................................ 187,510 222,710
Total debt (including current portion).................................................. 55,767 150,000
Stockholder's equity (deficit).......................................................... 1,143 (24,300)
</TABLE>
- ------------------------
(1) Lodestar was acquired by the Company as of March 14, 1997.
(2) "EBITDA" represents earnings before net interest expense, other income
(expense), income taxes and depreciation, depletion and amortization. The
trends of EBITDA generally follow the trends of operating income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the recent trends of operating income.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or more
meaningful than, operating income, net income or cash flow as defined by
generally accepted accounting principles or as an indicator of an issuer's
operating performance. Furthermore, caution should be used in comparing
EBITDA to similarly titled measures of other companies as the definitions of
these measures may vary.
(3) Data regarding manhours is available only on a calendar year basis.
Accordingly, data for shorter periods is not presented, and the data
presented as the period March 15, 1997 to October 31, 1997, represents data
for calendar 1997.
(4) Excludes divested and idled operations.
(5) Adjusted to give effect to the Transactions as if they had occurred on April
30, 1998.
14
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH
BELOW AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
SUBSTANTIAL INDEBTEDNESS; STRUCTURAL SUBORDINATION
The Company has substantial indebtedness and debt service requirements. As
of April 30, 1998, after giving pro forma effect to the Transactions, the
Company would have had outstanding consolidated long-term debt of approximately
$150.0 million (exclusive of unused commitments of $90.0 million and
approximately $21.5 million of outstanding letters of credit, in each case,
under the New Senior Credit Facility) and a stockholder's deficit of
approximately $24.3 million.
The Company's level of indebtedness will have several important effects on
its future operations, including the following: (a) a significant portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on its indebtedness and will not be available for other purposes, (b) the
financial covenants and other restrictions contained in the New Senior Credit
Facility require the Company to meet certain financial tests and limit its
ability to borrow additional funds or to dispose of assets and (c) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired. In addition, the Company's ability to meet its debt service
obligations and to reduce its total debt will be primarily dependent upon
Lodestar's future performance, which will be subject to economic, financial,
political, competitive and other factors, including the demand for electricity
and the market prices for coal, many of which are beyond the Company's control.
Moreover, an inability of the Company to meet the financial covenants contained
in the New Senior Credit Facility or other indebtedness could result in an
acceleration of amounts due thereunder.
The right of the Company and its creditors, including holders of the
Exchange Notes, to participate in certain assets of the Company upon any
liquidation or reorganization of the Company would be subject to the prior
claims of Lodestar's creditors, including the lenders under the New Senior
Credit Facility and the surety of the Performance Bonds. Lodestar's obligations
under the New Senior Credit Facility and to the surety of the Performance Bonds
are secured by substantially all of the Company's property and other assets.
Holders of the Exchange Notes will be effectively subordinated to the claims of
the lenders under the New Senior Credit Facility and the surety of the
Performance Bonds to the extent of the assets securing such obligations and to
any future secured indebtedness and other obligations of the Company and
Guarantors.
HOLDING COMPANY STRUCTURE
The Company is a holding company that has no significant assets other than
the capital stock of Lodestar. The Company has no operations or assets from
which it will be able to repay the Exchange Notes. Accordingly, the Company's
cash flow and, consequently, its ability to repay the Senior Notes at maturity
or otherwise, will be primarily dependent upon the results of operations of
Lodestar and its subsidiaries and the payment of funds by Lodestar in the form
of loans, dividends or otherwise. Lodestar is, and any future subsidiaries of
the Company may be, parties to agreements which contain limitations on the
ability of such subsidiaries to pay dividends or make loans or advances to the
Company, and the Indenture may not prohibit such agreements. In addition,
Lodestar's New Senior Credit Facility imposes restrictions on Lodestar's ability
to pay dividends or make other distributions.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms and conditions of the New Senior Credit Facility and the Indenture
impose restrictions that affect, among other things, the ability of the Company
to incur debt, pay dividends, make acquisitions, create liens, make capital
expenditures and make certain investments.
15
<PAGE>
The ability of the Company to comply with the foregoing provisions can be
affected by events beyond its control. The breach of any of these covenants
could result in a default under the Company's indebtedness, including the New
Senior Credit Facility and the Indenture. In the event of any such default,
depending on the actions taken by the lenders under the New Senior Credit
Facility, the Company may be unable to make any payments of principal or
interest on the Exchange Notes for a period of time. In addition, the lenders
under the New Senior Credit Facility could elect to declare all amounts
borrowed, together with accrued and unpaid interest, to be due and payable. If
the Company were unable to repay such amounts, the lenders under the New Senior
Credit Facility could proceed against certain collateral. If such indebtedness
under the New Senior Credit Facility were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Exchange Notes. See "Description of New Senior Credit Facility" and "Description
of the Senior Notes."
CERTAIN CREDITORS' RIGHTS
The Old Notes Offering and the application of the net proceeds therefrom and
the obligation of any Guarantor under the Guarantees may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy,
reorganization or rehabilitation case or a lawsuit (including in circumstances
where bankruptcy is not involved) were commenced by or on behalf of unpaid
creditors of the Company or the Guarantors at some future date. These laws vary
among the various jurisdictions. In general, under these laws, if a court were
to find that, at the time an obligation (such as the Old Notes or the
Guarantees) was incurred, either (a) such obligation was incurred with the
intent of hindering, delaying or defrauding creditors or (b) the entity
incurring the obligation received less than reasonably equivalent or fair value
consideration in exchange for the incurrence of such obligation and (i) was
insolvent or was rendered insolvent by reason thereof, (ii) was engaged in a
business or transaction for which its remaining assets constituted unreasonably
small capital, (iii) intended to incur, or believed, or reasonably should have
believed, that it would incur, debts beyond its ability to pay such debts as
they matured (as all of the foregoing terms are defined in or interpreted under
the fraudulent conveyance statutes) or (iv) such entity was a defendant in an
action for money damages, or had a judgment for money damages docketed against
it (if, in either case, after final judgment, the judgment is unsatisfied) (each
of clauses (i)-(iv) above, a "Fraudulent Conveyance"), such court could impose
legal and equitable remedies, including (x) subordination of the obligation to
presently existing and future indebtedness of the entity, (y) avoidance of the
issuance of the obligation and the liens, and direction of the repayment of any
amounts paid from the proceeds thereof to a fund for the benefit of the entity's
creditors or (z) taking of other action detrimental to the holders of the Senior
Notes.
The measures of insolvency for purposes of determining whether a Fraudulent
Conveyance occurred would vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court. Generally, however, a company or guarantor would be considered insolvent
for purposes of the foregoing, if the sum of the debts of the company or
guarantor, including contingent unliquidated and unmatured liabilities, is
greater than all of the property of the company or guarantor at a fair
valuation, or the present fair saleable value of the assets of the company or
guarantor is less than the amount that would be required to pay the probable
liability on its existing debts as they become absolute and matured.
The Company believes that at the time of, or as a result of, the issuance of
the Old Notes and the use of proceeds therefrom, each of the Company and the
Guarantors (a) was not insolvent or rendered insolvent under the foregoing
standards, (b) was not engaged in a business or transactions for which its
remaining assets constitute unreasonably small capital, (c) did not intend to
incur, and does not believe that it did incur debts beyond its ability to pay
such debts as they mature and (d) had sufficient assets to satisfy any probable
money judgment against it in any pending actions. Consequently, the Company
believes that even if one or more elements of the Old Notes Offering were deemed
to involve the
16
<PAGE>
incurrence of an obligation for less than reasonably equivalent or fair value, a
Fraudulent Conveyance would not occur. The beliefs with regard to the solvency
of the Company and Lodestar are based in part on Lodestar's operating history
and management's analysis of internal cash flow projections and estimated values
of assets and liabilities of Lodestar at the time of the Old Notes Offering.
There can be no assurance, however, that a court passing on these issues would
adopt the same methodology or assumptions, or arrive at the same conclusions.
RELIANCE ON MAJOR CONTRACTS; CUSTOMER CONCENTRATION
A substantial portion of Lodestar's coal is sold pursuant to long-term coal
supply contracts with a limited number of customers which are significant to the
stability and profitability of Lodestar's operations. For the twelve months
ended April 30, 1998, approximately 72% of Lodestar's coal sales and related
revenue were derived from long-term contracts. As of such date, Lodestar's
long-term contracts had a weighted average term of approximately 8.4 years, and
since 1992, sales pursuant to long-term contracts generated approximately 80% of
Lodestar's coal sales and related revenue. Five long-term contracts with three
customers accounted for approximately 56% of coal sales and related revenue for
the twelve months ended April 30, 1998. Lodestar's long-term contracts with the
TVA accounted for, and are expected to account for, approximately 28% and 26% of
coal sales and related revenue for each of the twelve months ended April 30,
1998 and fiscal 1998, respectively. In addition, Lodestar's long-term contracts
with U.S. Gen accounted for approximately 18% of Lodestar's coal sales and
related revenue for the twelve months ended April 30, 1998 and are expected to
account for approximately 18% of coal sales and related revenue in fiscal 1998.
One of U.S. Gen's Facilities is currently involved in litigation with its
principal customer and the unfavorable resolution of such litigation could have
a material adverse effect on the U.S. Gen Facility, which, if it resulted in the
facility being unable to fulfill its obligations under its long-term contract
with Lodestar, could in turn have a material adverse effect on the Company's
business, financial condition and results of operations. Big Rivers Electric
Corporation ("Big Rivers"), which accounted for approximately 9.2% of coal sales
and related revenue for the twelve months ended April 30, 1998, has been
operating under bankruptcy court protection pursuant to Chapter 11 of the United
States Bankruptcy Code. No assurance can be given that any new ownership or
management resulting from Big Rivers' reorganization will elect to continue its
relationship with the Company subsequent to the expiration of the current
contract in June 2001. In addition, the Company currently is in negotiations
with Big Rivers concerning a portion of the coal supplied under their contracts.
The loss of these or other long-term contracts, or the curtailment of purchases
by such customers, could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Long-Term Coal
Supply Contracts" and "--Other Services."
Certain of Lodestar's long-term coal supply contracts are subject to price
adjustment provisions which permit an increase or decrease at specified times in
the contract price to reflect changes in certain price or other economic
indices, taxes and other charges. Four of Lodestar's nine long-term coal supply
contracts, currently representing approximately 65% of tons supplied under all
long-term contracts, contain price reopener provisions, which provide for the
contract price to be adjusted upward or downward at specified times on the basis
of market factors. Price adjustment, price reopener and other provisions
contained in such contracts may increase the impact of short-term coal price
volatility. Moreover, failure of the parties to agree on a price pursuant to
such price adjustment and reopener provisions could result in modification or
termination of any of these contracts and could have a material adverse effect
on the financial condition and results of operation of Lodestar. Four of
Lodestar's nine long-term coal supply contracts, currently representing
approximately 29% of tons supplied under all long-term contracts, contain
"requirements" provisions, whereby the power plant customer orders only the
amount of coal needed to meet its electricity demand. Many contracts include
force majeure provisions, which allow the suspension of performance by Lodestar
or the customer during certain events. If force majeure provisions are triggered
or tonnage quantities required by power plant customers decrease, operating
profit margins realized by Lodestar
17
<PAGE>
could decrease, which could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Long-Term Coal
Supply Contracts."
OPERATING RISKS; CONCENTRATION OF COAL PRODUCTION
The business of mining is generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations, cave-ins, rockbursts,
variations in coal seam thickness, variation in the amount of rock and soil
overlying the coal deposit, variations in rock and other natural materials,
disruption of transportation services, flooding and periodic interruptions due
to inclement or hazardous weather conditions. Such risks could result in damage
to, or destruction of, mineral properties or producing facilities, personal
injury, environmental damage, delays in mining, monetary losses and possible
legal liability. During 1994 and 1996, the Predecessor Company experienced a
number of geological and other problems which materially adversely affected its
EBITDA. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There can be no assurance that Lodestar's operations
will not be so adversely affected in the future by conditions beyond Lodestar's
control. Although Lodestar maintains insurance within ranges of coverage
consistent with industry practice, no assurance can be given that such insurance
will be available at economically feasible premiums, nor that it would cover all
the hazards to which the Company is subject.
The coal shipped from the Baker mine, the largest coal mine in Kentucky, was
approximately 4.3 million tons, or approximately 39%, of Lodestar's total
shipments for the twelve months ended April 30, 1998. There can be no assurance
that if the Baker mine were to experience a significant operating risk or
hazard, including those set forth above, production at the Baker mine would not
be significantly curtailed or suspended. Any significant curtailment or
suspension of production from the Baker mine could have a material adverse
effect on the Company's financial condition and results of operations.
TRANSPORTATION
The United States coal industry depends on barge, rail and truck
transportation owned and operated by third parties to deliver shipments of coal
to customers. Overall, 45%, 40% and 15% of Lodestar's total coal shipments for
the twelve months ended April 30, 1998 traveled by barge, rail and truck,
respectively. CSX Transportation, Inc. ("CSX") and Norfolk Southern Corporation
("Norfolk Southern") are presently negotiating the acquisition of Conrail Inc.
which could adversely affect Lodestar's rail rates and access to markets.
Disruption of these transportation services could temporarily impair Lodestar's
ability to supply coal to its customers and thus adversely affect Lodestar's
financial condition and results of operations. Transportation costs are a
significant component of the total cost of supplying coal to customers and can
affect significantly a coal producer's competitive position and profitability.
Increases in Lodestar's transportation costs, or change in such costs relative
to transportation costs incurred by providers of competing coal or of other
fuels, could have a material adverse effect on the Company's financial condition
and results of operations. See "Business--Coal Transportation."
RECLAMATION AND CLOSURE LIABILITIES
The federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA") and
similar state statutes require that mine property be restored in accordance with
specified standards and an approved reclamation plan. Reclamation costs include
amounts spent to reclaim the pit and support acreage at surface mines and to
seal portals at deep mines. Other such costs common to both types of mining
include the costs of reclaiming refuse and slurry ponds. The permitting agency
requires that performance bonds be posted in amounts sufficient to guarantee the
performance of such reclamation work. As of April 30, 1998, Lodestar had
approximately $42.4 million of reclamation performance bonds outstanding. The
cost of final reclamation of active mining areas is accrued over the life of the
respective mines based on the units-of-production method. This methodology
requires various estimates and assumptions principally associated with costs and
production levels. As of April 30, 1998, the reclamation liability recorded by
Lodestar was
18
<PAGE>
approximately $18.9 million. Lodestar reevaluates its reclamation liability
annually based on its current mining plans and most recent cost and production
estimates. Liability adjustments are recorded to cost of revenues. For the
twelve months ended April 30, 1998, the reclamation provision included in cost
of revenues was $1.4 million. Although management believes it is making adequate
provisions for all reclamation and other costs associated with mine closures,
the Company's financial condition and results of operations could be adversely
affected if such accruals were later determined to be insufficient.
UNIONIZATION OF WORKFORCE
In August 1997, the United Mineworkers of America (the "UMWA") was certified
by the National Labor Relations Board (the "NLRB") as the bargaining
representative for certain employees located in Western Kentucky, constituting
approximately 47% of Lodestar's total employees. Lodestar has entered into a
collective bargaining agreement with the UMWA which either party may terminate
on or after May 13, 2000. Lodestar believes this agreement will not have a
material impact on its financial condition or results of operations. However,
there can be no assurance as to whether future collective bargaining agreements
will be negotiated without production interruptions or the possible impact of
future collective bargaining agreements, or the negotiation thereof, on
Lodestar's financial condition and results of operations. Although the remainder
of Lodestar's workforce remains nonunion, there can be no assurance that they
will not unionize in the future. Furthermore, there can be no assurance that
work stoppages will not occur in the future in connection with labor
negotiations or otherwise.
RELIANCE ON ESTIMATES OF RECOVERABLE RESERVES
There are numerous uncertainties inherent in estimating quantities of
recoverable reserves, including many factors beyond the control of Lodestar. The
reserve data set forth herein represents engineering estimates of Lodestar's
reserves as of January 31, 1998 prepared by Marshall Miller & Associates, an
independent engineering firm. Estimates of economically recoverable coal
reserves and future net cash flows necessarily depend upon a number of variable
factors and assumptions, such as geological and mining conditions (which may not
be fully identified by available exploration data and/or differ from experience
in current operations), historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future coal prices, future
operating costs, severance and excise taxes, development costs and reclamation
costs, all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities attributable to
any particular group of properties, classifications of such reserves based on
risk of recovery and estimates of future net cash flows expected therefrom
prepared by different engineers or by the same engineers at different times may
vary substantially. Actual coal tonnage recovered from identified reserve areas
or properties, revenues and expenditures with respect to Lodestar's reserves may
vary from estimates, and such variances may be material. No assurance can be
given that these estimates are an accurate reflection of Lodestar's actual
reserves. See "Business--Coal Reserves." Most of Lodestar's mining operations
are conducted on properties owned or leased by Lodestar. The loss of any lease
could adversely affect Lodestar's ability to develop the applicable reserves.
Because title to most of Lodestar's leased properties and mineral rights is not
thoroughly verified until a permit is being obtained to mine the property,
Lodestar's right to mine certain of its reserves may be adversely affected if
defects in title or boundaries exist. In addition, there can be no assurance
that Lodestar can successfully negotiate new leases or mining contracts for
properties containing additional reserves or maintain its leasehold interest in
properties on which mining operations are not commenced during the term of the
lease.
REPLACEMENT OF RESERVES
Lodestar's future success depends upon its ability to find, develop or
acquire additional coal reserves that are recoverable. The recoverable reserves
of Lodestar decline as reserves are depleted. Over 50% of
19
<PAGE>
Lodestar's current coal production is from mines that, based on current reserve
estimates and current production levels, will be depleted within seven years.
Lodestar can replace these reserves by successful exploration or development
activities or acquiring properties containing recoverable reserves, or both. In
order to increase reserves and production, Lodestar must continue its
development and exploration or undertake other replacement activities.
Lodestar's current strategy includes increasing its reserve base through
acquisitions of producing properties and by continuing to develop its existing
properties. There can be no assurance, however, that Lodestar's planned
development and exploration projects and acquisition activities will result in
significant additional reserves or that Lodestar will have continuing success
developing additional mines. For a discussion of Lodestar's reserves, see
"Business--Coal Reserves" and "--Development and Exploration."
ENVIRONMENTAL MATTERS; GOVERNMENT REGULATION OF MINING INDUSTRY
Lodestar is subject to numerous federal, state and local environmental laws
and regulations governing, among other things, air emissions, waste water
discharge, solid and hazardous waste storage and treatment and disposal and
remediation of releases of hazardous materials. See "Government
Regulation--Environmental Matters."
The mining operations of Lodestar are subject to inspection and regulation
by the Mine Safety and Health Administration of the Department of Labor ("MSHA")
under provisions of the Federal Mine Safety and Health Act of 1977. All other
operations of Lodestar are subject to inspection and regulation by the
Occupational Safety and Health Administration of the Department of Labor
("OSHA") under the provisions of the Occupational Safety and Health Act of 1970.
It is Lodestar's policy to comply with the directives and regulations of MSHA
and OSHA. In addition, Lodestar takes such necessary actions as, in its
judgment, are required to provide for the safety and health of its employees.
Lodestar believes that it is substantially in compliance with the regulations
promulgated by MSHA and OSHA. However, compliance with new, more stringent MSHA
and/or OSHA directives could have a material adverse effect on results of
operations, financial condition and liquidity of Lodestar. See "Government
Regulation--Health and Safety."
The Department of Labor is considering revised regulations that would alter
the claims process for coal miners and would make claims for black lung benefits
easier to file and establish, which could result in a higher incidence of black
lung claims against Lodestar. See "Government Regulation--Health and Safety."
The federal Clean Air Act, as amended (the "Clean Air Act"), among other
things, places limits on sulfur dioxide emissions from electric power generation
plants and requires major sources of nitrogen oxides to install control
technology. The effect of the Clean Air Act on Lodestar's operations cannot be
completely ascertained at this time. Lodestar believes that compliance with the
sulfur emission limits will likely exert a downward pressure on the price of
high sulfur coal. The extent to which this price decrease will adversely affect
Lodestar will depend on a number of factors, including Lodestar's ability to
secure long-term contracts for its high sulfur coal. In addition, the federal
Environmental Protection Agency (the "EPA") is expected to regulate fine
particulate matter and to implement stricter ozone standards by 2003.
No assurance can be given that the cost of complying with federal, state and
local environmental laws and regulations, as well as the cost of any personal
injury and property or other damage claims, will not have a material adverse
affect on the financial condition and results of operations of Lodestar. See
"Government Regulation--Environmental Matters."
COAL PRICE FLUCTUATIONS
Lodestar's results of operations are highly dependent upon the prices
received for Lodestar's coal. Although 72% of Lodestar's coal sales and related
revenue for the twelve months ended April 30, 1998 were made pursuant to
long-term contracts, the balance of sales were made in the spot market, or
pursuant
20
<PAGE>
to contracts based on spot market prices and not pursuant to long-term
contracts. Certain of Lodestar's long-term coal supply contracts are subject to
price adjustment provisions, which provide for increases or decreases in price
determined by specific conditions set forth in the contracts, and price reopener
provisions, which provide for renegotiation of price terms. Accordingly, the
prices received by Lodestar for a portion of its coal production are dependent
upon numerous factors beyond the control of Lodestar. These factors include, but
are not limited to, the level of consumer demand for electricity, governmental
regulations and taxes, the price and availability of alternative energy sources,
weather and the overall economic environment. Any significant decline in prices
for coal could have a material adverse effect on the Company's financial
condition and results of operation and quantities of reserves recoverable on an
economic basis. Should the industry experience significant price declines from
current levels or other adverse market conditions, Lodestar may not be able to
generate sufficient cash flow from operations to meet its obligations and make
planned capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
COMPETITION
The United States coal industry is highly competitive, with numerous
producers in all coal producing regions. Lodestar competes with other large
producers and hundreds of small producers in the United States and abroad. Many
of Lodestar's customers are also customers of Lodestar's competitors. Continued
demand for Lodestar's coal and the prices that Lodestar will be able to obtain
will depend primarily on coal consumption patterns of the domestic electric
utility industry, which in turn are affected by the demand for electricity, coal
transportation costs, environmental and other governmental regulations and
orders, technological developments and the availability and price of competing
coal and alternative fuel supply sources such as oil, natural gas, nuclear
energy and hydroelectric energy. See "Government Regulation--Environmental
Matters" and "Business--Competition." In addition, during the mid-1970's and
early 1980's, a growing coal market and increased demand attracted new investors
to the coal industry and spurred the development of new mines and added
production capacity throughout the industry. Although demand for coal has grown
over the recent past, the industry has since been faced with overcapacity, which
in turn has increased competition and lowered prevailing coal prices. Moreover,
because of greater competition among electricity producers and increased
pressure from customers and regulators to lower electricity prices, public
utilities are lowering fuel costs by buying higher percentages of spot coal
through a competitive bidding process and by only buying the amount of coal
necessary to meet their requirements. There can be no assurance that
overcapacity or increased competition in the future will not have a material
adverse effect on the Company's financial condition and results of operations.
PREDECESSOR COMPANY RISK
Pursuant to the stock purchase agreement under which the Company acquired
the capital stock of the Predecessor Company, the seller, the Predecessor's
Parent, retained certain assets and liabilities that were excluded from the
Acquisition, including, among others, certain litigation matters and all
liabilities relating to prior operations outside of Kentucky and West Virginia
(including business conducted in Alabama, Colorado, Illinois, Indiana,
Louisiana, Michigan, Ohio and Wisconsin). The Acquisition was structured as a
purchase of capital stock of the Predecessor Company. The Predecessor's Parent
retained responsibility for these matters pursuant to an indemnification
agreement which was guaranteed by the seller's parent, Costain Group PLC. At the
time of the Acquisition, the aggregate indemnification obligations were
estimated to be in excess of $15.0 million payable over a period of years. The
Predecessor's Parent may not itself have assets sufficient to satisfy these
indemnification obligations, and the Company is not able to assess the financial
strength or long-term viability of Costain Group PLC, which has recently
completed a financial restructuring. Accordingly, there can be no assurance that
the Company will be able to obtain the benefit of this indemnification, if
necessary.
21
<PAGE>
CONTROL BY RENCO
The Company is a wholly-owned subsidiary of Renco, which is 97.9% owned by
Mr. Ira Leon Rennert, the Chairman and Chief Executive Officer of Renco, and by
trusts established by him for himself and members of his family (but of which he
is not a trustee). As a result of Renco's ownership of all of the capital stock
of the Company, Mr. Rennert is, and will continue to be, able to direct and
control the policies of the Company, including mergers, sales of assets and
similar transactions.
ABSENCE OF A PUBLIC MARKET
The Exchange Notes will be new securities for which there is currently no
public market. The Company does not intend to list the Exchange Notes on any
national securities exchange or quotation system. The Initial Purchasers have
advised the Company that they currently intend to make a market in the Exchange
Notes, but they are not obligated to do so and, if commenced, may discontinue
such market making at any time. Accordingly, there can be no assurance as to the
development of any market or liquidity of any market that may develop for the
Exchange Notes. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the aggregate principal amount of Old Notes outstanding will
decrease, with a resulting decrease in the liquidity of the market therefor.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act. In general,
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company currently
does not anticipate that it will register the Old Notes under the Securities
Act.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Old Notes of like principal amount, the
terms of which are identical in all material respects to the Exchange Notes. The
Old Notes surrendered in exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company. The Company
has agreed to bear the expenses of the Exchange Offer pursuant to the
Registration Rights Agreement. No underwriter is being used in connection with
the Exchange Offer.
For a description of the use of proceeds of the Old Notes Offering, see
"Prospectus Summary--The Company--Old Notes Offering."
22
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of April 30, 1998 and as adjusted to give effect to the
Transactions, including the application of the estimated net proceeds from the
Offering. The table below should be read in conjunction with "Unaudited Pro
Forma Consolidated Financial Data," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the related
notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
----------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Long-term debt, including current portion:
New Senior Credit Facility(1)........................................................... -- --
Existing Credit Facility................................................................ $ 31,133 --
Term Note............................................................................... 4,500 --
Due to Renco............................................................................ 5,682 --
Old Notes............................................................................... -- $ 150,000
Other................................................................................... 14,452 --
--------- -----------
Total long-term debt, including current portion..................................... 55,767 150,000
--------- -----------
Stockholder's equity (deficit):
Common stock, $1.00 par value. Authorized, issued and outstanding 1,000 shares.......... 1 1
Additional paid-in capital.............................................................. 5,000 5,000
Accumulated deficit..................................................................... (3,858) (29,301)
--------- -----------
Total stockholder's equity (deficit)................................................ 1,143 (24,300)
--------- -----------
Total capitalization...................................................................... $ 56,910 $ 125,700
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Represents Lodestar's $90.0 million revolving credit facility which would
have been undrawn, and a $30.0 million letter of credit facility, of which
approximately $21.5 million in letters of credit would have been
outstanding, as of April 30, 1998 on a pro forma basis. The New Senior
Credit Facility will expire in May 2001. See "Description of New Senior
Credit Facility."
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data have been
prepared to give effect to the Acquisition and the Transactions. The unaudited
pro forma consolidated balance sheet as of April 30, 1998, gives effect to the
Transactions as if they had occurred on such date. The unaudited pro forma
consolidated statement of operations for the six months ended April 30, 1998,
gives effect to the Transactions as if they had occurred on November 1, 1997 and
the unaudited pro forma consolidated statement of operations for the ten months
ended October 31, 1997 gives effect to the Acquisition and the Transactions as
if they had occurred on January 1, 1997.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
Pro forma adjustments are applied to account for the Acquisition under the
purchase method of accounting. Under the purchase method of accounting, the
total purchase price was allocated to the Company's assets and liabilities based
on their relative fair values.
The unaudited pro forma consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the audited consolidated financial statements of the
Company and the Predecessor Company, and the notes thereto, and the other
financial information included elsewhere herein. The unaudited pro forma
consolidated financial data do not purport to be indicative of the results which
would have actually been attained had the Acquisition and the Transactions been
consummated on the dates indicated or of the results which may be expected to
occur in the future.
24
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL TRANSACTIONS PRO FORMA
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 5,404 $ 150,000(1) $ 6,904
(35,633)(2)
(5,682)(3)
(43,240)(4)
(9,064)(5)
(27,818)(6)
(2,782)(7)
(6,300)(8)
(17,981)(9)
Accounts receivable.................................................. 28,831 28,831
Inventories.......................................................... 11,994 11,994
Prepaid expenses and other current assets............................ 5,772 5,772
---------- ------------ -----------
Total current assets............................................... 52,001 1,500 53,501
Property, plant and equipment, net..................................... 77,668 28,788(4) 106,456
Coal and ash disposal contracts in excess of market, net............... 43,307 43,307
14,534 6,300(8) 19,446
Other assets...........................................................
(1,388) 10)
---------- ------------ -----------
Total assets....................................................... $ 187,510 $ 35,200 $ 222,710
---------- ------------ -----------
---------- ------------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt............................... $ 4,000 $ (4,000)(2) $ --
Current installments of capital lease obligations.................... 6,059 (6,059)(4) --
Due to Renco......................................................... 3,682 (3,682)(3) --
Accounts payable..................................................... 39,841 (13,981)(9) 25,860
Accrued expenses..................................................... 30,511 (4,826)(5) 23,269
(4,000)(9)
1,584 (11
---------- ------------ -----------
Total current liabilities.......................................... 84,093 (34,964) 49,129
Capital lease obligations, excluding current installments.............. 8,393 (8,393)(4) --
Long-term debt......................................................... 31,633 150,000(1) 150,000
(31,633)(2)
Due to Renco........................................................... 2,000 (2,000)(3) --
Other non-current liabilities.......................................... 60,248 (12,367)(5) 47,881
---------- ------------ -----------
Total liabilities.................................................. 186,367 60,643 247,010
Stockholder's equity (deficit):
Common stock, $1.00 par value. Authorized, issued and outstanding
1,000 shares....................................................... 1 -- 1
Additional paid-in capital........................................... 5,000 -- 5,000
Accumulated deficit.................................................. (3,858) 8,129(5) (29,301)
(27,818)(6)
(2,782)(7)
(1,388) 10)
(1,584) 11)
---------- ------------ -----------
Total stockholder's equity (deficit)............................... 1,143 (25,443) (24,300)
---------- ------------ -----------
Total liabilities and stockholder's equity (deficit)................... $ 187,510 $ 35,200 $ 222,710
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(1) Reflects gross proceeds from the Old Notes Offering.
(2) Reflects the repayment in full of the Existing Indebtedness.
(3) Reflects the repayment in full of the indebtedness due to Renco.
(4) Reflects the purchase of certain equipment presently financed pursuant to
leases.
(5) Reflects the buyout of certain long-term royalty agreements at a discount
from book value of approximately $8.1 million. The discount is a
nonrecurring credit which has been excluded from the "Unaudited Pro Forma
Consolidated Statement of Operations."
(6) Reflects the dividend to Renco.
(7) Reflects the effect of contractual payments to certain employees of Lodestar
of approximately $2.8 million. These payments are a nonrecurring charge
which have been excluded from the "Unaudited Pro Forma Consolidated
Statement of Operations."
(8) Reflects payment and capitalization of debt issuance costs associated with
the Old Notes Offering and the New Senior Credit Facility.
(9) Reflects proceeds used to reduce accounts payable and accrued expenses.
(10) Reflects the write-off of certain capitalized costs associated with the
Existing Indebtedness. This write-off is a non-recurring charge which has
been excluded from the "Unaudited Pro Forma Consolidated Statement of
Operations."
(11) Reflects the net tax liability due to the nonrecurring charge and credits
discussed in notes (5), (7) and (10).
26
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL TRANSACTIONS PRO FORMA(1)
<S> <C> <C> <C>
Coal sales and related revenue..................................... $ 136,238 -- $ 136,238
---------- ------------ -------------
Operating costs:
Cost of revenues................................................. 113,635 $ (5,462)(2) 108,173
Depreciation, depletion and amortization......................... 11,829 3,204(3) 15,033
General and administrative....................................... 5,883 -- 5,883
---------- ------------ -------------
131,347 (2,258) 129,089
---------- ------------ -------------
Operating income (loss).......................................... 4,891 2,258 7,149
Interest expense, net.............................................. 4,757 8,625(4) 9,075
450(5)
(4,757)(6)
---------- ------------ -------------
Income (loss) before income taxes and nonrecurring charges and
credits.......................................................... $ 134 $ (2,060) $ (1,926)
---------- ------------ -------------
---------- ------------ -------------
OTHER DATA:
EBITDA(7).......................................................... $ 16,720 $ 5,462 $ 22,182
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
(1) The "Unaudited Pro Forma Consolidated Statement of Operations" is presented
before consideration of nonrecurring charges or credits directly
attributable to the Transactions. The total of such net credits has the
effect of decreasing the accumulated deficit as presented on the "Unaudited
Pro Forma Consolidated Balance Sheet" by approximately $2.4 million as
explained in detail in notes (5), (7), (10) and (11) thereto.
(2) Reflects the elimination of lease expenses as a result of repayment in full
of operating lease obligations.
(3) Reflects additional depreciation associated with the purchase of certain
equipment previously financed pursuant to leases.
(4) Reflects interest on the Old Notes.
(5) Reflects amortization of debt issuance costs associated with the Old Notes
Offering and the New Senior Credit Facility.
(6) Reflects the elimination of historical interest expense associated with
indebtedness previously outstanding, including the Existing Indebtedness and
indebtedness due Renco.
(7) EBITDA represents earnings before net interest expense, other income
(expense), income taxes and depreciation, depletion and amortization. The
trends of EBITDA generally follow the trends of operating income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the recent trends of operating income.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or more
meaningful than, operating income, net income or cash flow as defined by
generally accepted accounting principles or as an indicator of an issuer's
operating performance. Furthermore, caution should be used in comparing
EBITDA to similarly titled measures of other companies as the definitions of
these measures may vary.
28
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TEN MONTHS ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR THE
COMPANY COMPANY
<CAPTION>
JANUARY 1, MARCH 15,
1997 TO 1997 TO ADJUSTMENTS ADJUSTMENTS
MARCH 14, OCTOBER 31, FOR THE FOR THE
1997 1997 ACQUISITION TRANSACTIONS PROFORMA(1)
<S> <C> <C> <C> <C> <C>
Coal sales and related revenue......... $ 46,486 $ 173,881 -- -- $ 220,367
----------- ----------- ----------- ------------ ------------
Operating costs:
Cost of revenues..................... 44,676 150,716 $ (9,104)(4) 186,288
Depreciation, depletion and
amortization....................... 4,749 14,276 $ (1,370)(2) 5,340(5) 23,750
General and administrative........... 2,190 6,823 755(3) -- 9,013
----------- ----------- ----------- ------------ ------------
51,615 171,815 (615) (3,764) 219,051
----------- ----------- ----------- ------------ ------------
Operating income (loss).............. (5,129) 2,066 615 3,764 1,316
Interest expense, net.................. 809 6,004 14,375(6) 15,125
750(7)
(6,813)(8)
----------- ----------- ----------- ------------ ------------
Income (loss) before income taxes and
nonrecurring charges and credits..... $ (5,938) $ (3,938) $ 615 $ (4,548) $ (13,809)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
OTHER DATA:
EBITDA(9).............................. $ (380) $ 16,342 -- $ 9,104 $ 25,066
</TABLE>
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TEN MONTHS ENDED OCTOBER 31, 1997
(1) The "Unaudited Pro Forma Consolidated Statement of Operations" is presented
before consideration of nonrecurring charges or credits directly
attributable to the Transactions. The total of such net credits has the
effect of decreasing the accumulated deficit as presented on the "Unaudited
Pro Forma Consolidated Balance Sheet" by approximately $2.4 million as
explained in detail in notes (5), (7), (10) and (11) thereto.
(2) Reflects reduced depreciation due to write-down of fixed assets to fair
value for the period January 1, 1997 to March 14, 1997 related to purchase
accounting for the Acquisition.
(3) Reflects amortization of coal supply contracts and goodwill for the period
January 1, 1997 to March 14, 1997 related to purchase accounting for the
Acquisition.
(4) Reflects the elimination of lease expenses as a result of repayment in full
of operating lease obligations.
(5) Reflects additional depreciation associated with the purchase of certain
equipment previously financed pursuant to leases.
(6) Reflects interest on the Old Notes.
(7) Reflects amortization of debt issuance costs associated with the Old Notes
Offering and the New Senior Credit Facility.
(8) Reflects the elimination of historical interest expense associated with
indebtedness previously outstanding, including the Existing Indebtedness and
indebtedness due Renco.
(9) EBITDA represents earnings before net interest expense, other income
(expense), income taxes and depreciation, depletion and amortization. The
trends of EBITDA generally follow the trends of operating income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the recent trends of operating income.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or more
meaningful than, operating income, net income or cash flow as defined by
generally accepted accounting principles or as an indicator of an issuer's
operating performance. Furthermore, caution should be used in comparing
EBITDA to similarly titled measures of other companies as the definitions of
these measures may vary.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company and the Predecessor Company at the dates and for the periods
indicated. The selected data presented below under the captions "Statement of
Operations Data" and "Financial Ratios and Other Data" for each of the fiscal
years in the four-year period ended December 31, 1996, for the period January 1,
1997 to March 14, 1997 and for the period March 15, 1997 to October 31, 1997,
and "Balance Sheet Data" as of December 31, 1993, 1994, 1995 and 1996 and
October 31, 1997, are derived from the consolidated financial statements of the
Predecessor Company and the Company, as applicable, which consolidated financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The selected data presented below under the captions
"Statement of Operations Data" and "Financial Ratios and Other Data" for the
period November 1, 1996 to December 31, 1996, for the period March 15, 1997 to
April 30, 1997 and for the six months ended April 30, 1998 and "Balance Sheet
Data" as of April 30, 1997 and 1998 are unaudited but, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial and operating data for such
periods. Data as of and for the six months ended April 30, 1998 do not purport
to be indicative of results to be expected for the full year. The following
information should be read in conjunction with the audited consolidated
financial statements and the related notes thereto for the fiscal years ended
December 31, 1995 and 1996 and for the period January 1, 1997 to March 14, 1997
for the Predecessor Company and for the period March 15, 1997 to October 31,
1997 for the Company and the unaudited consolidated financial statements for the
period November 1, 1996 to December 31, 1996 for the Predecessor Company and for
the period March 15, 1997 to April 30, 1997 and for the six months ended April
30, 1998 for the Company appearing elsewhere herein and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)
PERIOD PERIOD
NOVEMBER 1, JANUARY 1,
FISCAL YEAR ENDED DECEMBER 31, 1996 TO 1997 TO
--------------------------------------- DECEMBER 31, MARCH 14,
1993 1994(2) 1995(3) 1996(4) 1996 1997
(UNAUDITED)
(DOLLARS AND TONS IN THOUSANDS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Coal sales and related revenue..... $418,295 $ 389,996 $308,370 $255,386 $36,910 $ 46,486
Cost of revenues................... 337,012 360,635 255,859 257,269 36,378 44,676
Depreciation, depletion and
amortization..................... 49,267 46,641 30,832 22,714 3,294 4,749
General and administrative......... 18,418 19,601 11,677 14,270 2,307 2,190
-------- --------- -------- -------- ------------ ------------
Operating income (loss)............ 13,598 (36,881) 10,002 (38,867) (5,069) (5,129)
Interest expense, net.............. 2,387 4,428 4,436 2,801 550 809
Other income (expense), net........ (6,171) (204,347) 3,708 -- -- --
-------- --------- -------- -------- ------------ ------------
Income (loss) before income
taxes............................ 5,040 (245,656) 9,274 (41,668) (5,619) (5,938)
Income taxes....................... 1,786 1,414 3,279 -- -- --
-------- --------- -------- -------- ------------ ------------
Net income (loss).................. $ 3,254 $(247,070) $ 5,995 $(41,668) $(5,619) $ (5,938)
-------- --------- -------- -------- ------------ ------------
-------- --------- -------- -------- ------------ ------------
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(5).......................... $ 62,865 $ 9,760 $ 40,834 $(16,153) $(1,775) $ (380)
Capital expenditures............... 37,761 50,162 5,785 10,705 1,820 1,149
Ratio of earnings to fixed
charges(6)....................... 3.1x -- 3.1x -- -- --
OTHER OPERATING DATA:
Tons of coal shipped............... 16,692 15,705 11,811 10,569 1,561 1,910
Tons of coal produced per manhour
(underground) (7)(8)............. 3.5 2.9 4.4 4.4
Cubic yards moved per manhour
(surface)(7)(8).................. 83.7 81.6 92.3 107.9
<CAPTION>
THE COMPANY
PERIOD PERIOD SIX
MARCH 15, MARCH 15, MONTHS
1997 TO 1997 TO ENDED
OCTOBER 31, APRIL 30, APRIL 30,
1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Coal sales and related revenue..... $173,881 $ 31,387 $136,238
Cost of revenues................... 150,716 28,602 113,635
Depreciation, depletion and
amortization..................... 14,276 2,879 11,829
General and administrative......... 6,823 889 5,883
----------- ----------- -----------
Operating income (loss)............ 2,066 (983) 4,891
Interest expense, net.............. 6,004 1,020 4,757
Other income (expense), net........ -- -- --
----------- ----------- -----------
Income (loss) before income
taxes............................ (3,938) (2,003) 134
Income taxes....................... -- -- 54
----------- ----------- -----------
Net income (loss).................. $ (3,938) $ (2,003) $ 80
----------- ----------- -----------
----------- ----------- -----------
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(5).......................... $ 16,342 $ 1,896 $ 16,720
Capital expenditures............... 3,771 833 2,917
Ratio of earnings to fixed
charges(6)....................... -- -- 1.0x
OTHER OPERATING DATA:
Tons of coal shipped............... 6,855 1,285 5,409
Tons of coal produced per manhour
(underground) (7)(8)............. 4.9
Cubic yards moved per manhour
(surface)(7)(8).................. 109.2
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1) THE COMPANY
AS OF DECEMBER 31, AS OF AS OF AS OF
------------------------------------------ APRIL 30, OCTOBER 31, APRIL 30,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ 7,314 $ 17,835 $ 17,806 $ 8,314 $ 7,050 $ 3,055 $ 5,404
Working capital (deficit).................. 7,515 (13,687) (2,115) (33,251) (41,668) (31,424) (32,092)
Property, plant and equipment, net......... 284,710 211,211 131,073 116,094 91,326 84,541 77,668
Total assets............................... 460,253 302,033 233,386 208,358 208,164 200,448 187,510
Total debt (including current portion)..... 26,359 63,119 28,077 22,793 59,035 63,556 55,767
Stockholder's equity....................... 314,224 69,992 75,700 33,666 2,998 1,063 1,143
</TABLE>
- ------------------------
(1) Lodestar was acquired by the Company as of March 14, 1997.
(2) Cost of revenues in 1994 was negatively affected by certain events. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Events." In addition, in 1994, $204.3 million in other
expenses were recognized, of which $200.8 million represented a provision to
adjust the valuation of certain assets and liabilities resulting from the
Predecessor Company's reassessment of anticipated business activity in the
coal industry.
(3) Other income (expense) during 1995 represents the net effect of a $44.0
million gain recorded in connection with disposing of the Predecessor
Company's Louisiana operations, a $39.6 million loss to adjust the value of
the Predecessor Company to an expected sales price, and a $.7 million
minority interest in earnings of the Louisiana operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) Results for fiscal 1996 were negatively affected by certain unusual charges
made in connection with an evaluation of the Predecessor Company's accrued
reserves and its legal expenses associated with selling the business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Events."
(5) EBITDA represents earnings before net interest expense, other income
(expense), income taxes and depreciation, depletion and amortization. The
trends of EBITDA generally follow the trends of operating income. See
"Management's Dicussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the recent trends of operating income.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or more
meaningful than, operating income, net income or cash flow as defined by
generally accepted accounting principles or as an indicator of an issuer's
operating performance. Furthermore, caution should be used in comparing
EBITDA to similarly titled measures of other companies as the definitions of
these measures may vary.
(6) Fixed charges consist of interest expense, capitalized interest,
amortization of deferred financing costs and the portion of rental expense
that is representative of interest expense. Earnings consist of income
before taxes plus fixed charges less capitalized interest. Earnings were
insufficient to cover fixed charges by $245.7 million, $41.7 million, $5.6
million, $5.9 million, $3.9 million and $2.0 million for the fiscal years
ended December 31, 1994 and 1996, the period from November 1, 1996 to
December 31, 1996, the period January 1, 1997 to March 14, 1997, the period
March 15, 1997 to October 31, 1997 and the period March 15, 1997 to April
30, 1997, respectively.
(7) Data regarding manhours is available only on a calendar year basis.
Accordingly, data for shorter periods is not presented, and the data
presented as the period March 15, 1997 to October 31, 1997, represents data
for calendar 1997.
(8) Excludes divested and idled operations.
32
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of Old Notes to the Initial Purchasers pursuant
to the Purchase Agreement, dated May 12, 1998, among the Company, the Guarantors
and the Initial Purchasers, the holders of the Old Notes became entitled to the
benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company became obligated to (a)
file a registration statement in connection with a registered exchange offer
within 60 days after May 15, 1998, the date the Old Notes were issued (the
"Issue Date"), and (b) cause the registration statement relating to such
registered exchange offer to become effective within 180 days after the Issue
Date. The Exchange Offer being made hereby, if consummated within the required
time periods, will satisfy the Company's obligations under the Registration
Rights Agreement. The Company understands that there are approximately
beneficial owners of such Old Notes. This Prospectus, together with the Letter
of Transmittal, is being sent to all such beneficial holders known to the
Company.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in the
Morgan Stanley Letter, the Exxon Capital Letter and similar letters, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
person who received such Exchange Notes, whether or not such person is the
holder (other than Restricted Holders) without compliance with the registration
and prospectus delivery provisions of the Securities Act, PROVIDED that such
Exchange Notes are acquired in the ordinary course of such holder's or other
person's business, neither such holder nor such other person is engaged in or
intends to engage in any distribution of the Exchange Notes and such holders or
other persons have no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
If any person were to be participating in the Exchange Offer for the
purposes of participating in a distribution of the Exchange Notes in a manner
not permitted by the Commission's interpretation, such person (a) could not rely
upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after consummation of the Exchange Offer, it will
make this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
33
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain conditions set forth herein under
"--Conditions" without waiver by the Company, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes in connection with the Exchange Offer. See
"--Fees and Expenses."
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will issue a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time.
The Company reserves the right (a) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Notes not previously accepted if any of the conditions set forth herein under
"--Conditions" shall have occurred and shall not have been waived by the Company
(if permitted to be waived by the Company), by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (b) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment, and the Company may extend the Exchange Offer for a
period of up to ten business days, depending upon the significance of the
amendment and the manner of disclosure to holders of the Old Notes, if the
Exchange Offer would otherwise expire during such extension period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
34
<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from May 15, 1998, payable
semiannually on May 15 and November 15 of each year, commencing November 15,
1998, at the rate of 11 1/2% per annum. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued up until the date of the
issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 3 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents. To be validly tendered, such
documents must reach the Exchange Agent on or before 5:00 p.m., New York City
time, on the Expiration Date.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or other nominees to effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery to the Exchange Agent on or before 5:00 p.m.
New York City time, on the Expiration Date. No Letter of Transmittal or Old
Notes should be sent to the Company or the Guarantors.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such registered holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (a) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (b) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers and a proxy
35
<PAGE>
which authorizes such person to tender the Old Notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority so to act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as the
Company shall determine. None of the Company, the Guarantors, the Exchange Agent
or any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the Exchange Agent to the
tendering holders of Old Notes, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth under "--Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (b) to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such holder or other person, (b)
neither such holder nor such other person is engaged in or intends to engage in
a distribution of the Exchange Notes (c) neither such holder or other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and (d) such holder or other person is not
an "affiliate," as defined under Rule 405 of the Securities Act, of the Company
or, if such holder or other person is such an affiliate, will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after consummation of the Exchange Offer, it will
make this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
36
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Old Notes were issued on May 15, 1998, and there is no public market for
them at present. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the principal amount of outstanding Old Notes will decrease with
a resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (a) whose Old Notes are not
immediately available or (b) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if: (i) the tender is made through an
Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (a) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"), (b)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (c) be signed by the Depositor
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the Depositor withdrawing the tender and (d) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
37
<PAGE>
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Old Notes, if
the Company or the holders of at least a majority in principal amount of Old
Notes reasonably determine in good faith that any of the following conditions
exist: (a) the Exchange Notes to be received by such holders of Old Notes in the
Exchange Offer, upon receipt, will not be tradable by each such holder (other
than a holder which is an affiliate of the Company at any time on or prior to
the consummation of the Exchange Offer) without restriction under the Securities
Act and the Exchange Act and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States, (b) the
interests of the holders of the Old Notes, taken as a whole, would be materially
adversely affected by the consummation of the Exchange Offer or (c) after
conferring with counsel, the Commission is unlikely to permit the making of the
Exchange Offer on or before November 11, 1998.
Pursuant to the Registration Rights Agreement, if an Exchange Offer shall
not be consummated prior to the Exchange Offer Termination Date, the Company
will be obligated to cause to be filed with the Commission a shelf registration
statement with respect to the Old Notes (the "Shelf Registration Statement") as
promptly as practicable after the Exchange Offer Termination Date and thereafter
use its best efforts to have the Shelf Registration Statement declared
effective.
"Exchange Offer Termination Date" means the date on which the earliest of
any of the following events occurs: (a) applicable interpretations of the staff
of the Commission do not permit the Company to effect the Exchange Offer or (b)
any holder of Notes notifies the Company within 20 business days following the
consummation of the Exchange Offer that (i) such holder is not eligible to
participate in the Exchange Offer, (ii) such holder participated in the Exchange
Offer and did not receive freely transferable Exchange Notes in exchange for
tendered Old Notes or (iii) such holder is a broker-dealer and holds Old Notes
acquired directly from the Company or one of its affiliates.
If any of the conditions described above exist, the Company will refuse to
accept any Old Notes and will return all tendered Old Notes to exchanging
holders of the Old Notes.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Notes should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY MAIL BY HAND/OVERNIGHT DELIVERY
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place, 4th Floor 61 Broadway, 15th Floor
Boston, Massachusetts 02110 New York, New York 10006
Attention: Claire Young--Corporate Trust Attention: Corporate Trust Department
Department
</TABLE>
The Company will indemnify the Exchange Agent and its agents for any loss,
liability or expense incurred by them, including reasonable costs and expenses
of their defense, except for any such loss, liability or expense caused by
negligence or bad faith.
38
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telephone or facsimile.
The Company will not make any payments to brokers, dealers, or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes, and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and expenses, will be paid by the Company, and are estimated in the
aggregate to be approximately $250,000.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes (or Old Notes for principal amounts not tendered or
accepted for exchange) are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes upon
the consummation of the Exchange Offer. The expense of the Exchange Offer will
be amortized by the Company over the term of the Exchange Notes under GAAP.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its wholly-owned subsidiary Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. Lodestar operates a
diverse portfolio of seven deep and five surface coal mines located in Eastern
and Western Kentucky and is among the largest coal producing companies in
Kentucky, the third largest coal producing state. Lodestar focuses on select
niche coal markets in the Eastern, South Central and Great Lakes regions of the
United States. Lodestar offers flexibility in its coal qualities, as required by
varied and changing customer demands, through its diverse portfolio of mines and
mining methods, its blending capabilities and its transportation alternatives.
Lodestar believes its niche market strategy and flexible operations enable it to
meet customer demand for quality products and services at competitive prices,
resulting in long-term supply contracts. In excess of 90% of Lodestar's fiscal
1998 production is committed under purchase orders and contracts and
approximately 67% of such production is committed under long-term contracts that
had a weighted average term of approximately 8.4 years as of April 30, 1998.
During fiscal 1998, Lodestar will own and/or operate twelve mines, four in
Western Kentucky (three underground and one surface) and eight in Eastern
Kentucky (four underground and four surface). Lodestar also owns and operates an
ash disposal facility in Eastern Kentucky.
Lodestar's Western Kentucky coal product is mid to high sulfur and competes
primarily in the regional utility market. Targeted customers can effectively
burn high sulfur coal by utilizing "scrubbers" that remove sulfur dioxide from
plant emissions or by utilizing the emissions allowance market. Alternatively,
customers can blend such coals with low Btu, low sulfur coals from the Western
United States. Lodestar's Eastern Kentucky coal product, as compared to its
Western Kentucky coal product, is generally higher in Btu content and lower in
sulfur content, which provides for a broader market.
The Company was formed in August 1996 to acquire all of the capital stock of
Costain Coal Inc., the Predecessor Company, from Costain America Inc. The
Acquisition included substantially all of the Predecessor Company's mining
interests in Kentucky and West Virginia. The Acquisition, which was effective
March 14, 1997, has been accounted for using the purchase method of accounting.
After the Acquisition, Costain Coal Inc. was renamed Lodestar Energy, Inc.
CERTAIN EVENTS
Since 1994, the Predecessor's Parent had been divesting its operations and
assets in an attempt to exit the U.S. market. Accordingly, the Predecessor
Company undertook a process of selling operations or liquidating certain assets
based on the geographic location of such assets. In particular, the Predecessor
Company's operations in Ohio, which shipped approximately 325,000 tons of coal,
generating approximately $13.2 million of coal sales and related revenue in
1994, were closed after its coal supply agreement relating to those operations
was sold in December 1994. In March 1995, the Predecessor Company sold its
Louisiana operations, which produced approximately 2.7 million tons of lignite
coal, generating approximately $46.8 million of coal sales and related revenue
in 1994. In December 1995, the Alabama operations, which shipped approximately
820,000 tons of coal, generating approximately $30.8 million of coal sales and
related revenue in 1995, were sold.
In the first quarter of fiscal 1998, Lodestar idled its West Virginia
operations, which shipped approximately 513,000 tons of coal, generating
approximately $13.8 million of coal sales and related revenue for the twelve
months ended April 30, 1998. Lodestar expects reclamation activities to continue
throughout fiscal 1998. The estimated cost of all reclamation and mine closing
activities is included as a liability in the April 30, 1998 balance sheet. With
the idling of the West Virginia operations, all of Lodestar's operating assets
are located in Kentucky.
40
<PAGE>
During 1994, the Predecessor Company experienced a series of events which
materially adversely affected its results of operations. Specifically, due to
geologic anomalies and roof problems in its Wheatcroft mine (Western Kentucky),
as well as equipment trouble with the two operating longwall miners, the
Predecessor Company had lower production and yields, which adversely affected
results of operations. At the Baker mine (Western Kentucky), management revised
the long-term mine plan from continuous mining to longwall mining. As a result,
the Predecessor Company experienced development costs and lost production due to
the mine plan modifications necessary to complete the changeover, resulting in
increased cost of revenues. In an effort to generate cash, the Predecessor
Company elected to sell a short-line railroad it owned in Western Kentucky (the
"Short-Line Railroad"), which resulted in an $8.1 million charge to cost of
revenues. In addition, $2.2 million in provisions were made to account for
ongoing employee costs associated with personnel terminations and to increase
outstanding litigation reserves.
During 1996, the Predecessor Company was negatively affected by production
difficulties in Western Kentucky which increased cost of revenues. In addition,
a $7.7 million provision for expected future losses on sales and transportation
contracts, a $6.0 million provision for reclamation, a $4.0 million provision
for workers' compensation benefits and a $3.5 million provision for abandoned
property, all negatively affected cost of revenues. The Predecessor Company also
incurred legal expenses of approximately $2.0 million in connection with the
sales process.
PRODUCTION AND REVENUE SOURCES
As of January 31, 1998, Lodestar had approximately 198.6 million recoverable
tons of demonstrated reserves based upon estimates prepared by Marshall Miller &
Associates. Most of Lodestar's demonstrated reserves are leased from third
parties pursuant to long-term lease and royalty agreements with terms ranging
from five to 30 years. The following table summarizes the tons shipped by region
for the periods presented:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TEN MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, OCTOBER 31, APRIL 30,
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
REGION 1995 1996 1996 1997 1997 1998
<CAPTION>
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Eastern Kentucky.................................................. 3,304 4,129 3,463 3,403 1,901 1,978
Western Kentucky.................................................. 6,171 5,479 4,729 4,771 2,480 3,231
West Virginia..................................................... 724 803 690 574 375 200
Brokered.......................................................... 235 158 124 17 -- --
Louisiana......................................................... 533 -- -- -- -- --
Alabama........................................................... 820 -- -- -- -- --
Ohio.............................................................. 24 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total......................................................... 11,811 10,569 9,006 8,765 4,756 5,409
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
Lodestar's principal source of revenues are from the sale of coal pursuant
to long-term contracts, or through coal sales on the spot market. In addition,
Lodestar derives additional revenue from ancillary services related to its coal
operations, including ash disposal.
The principal components of Lodestar's expenses are costs relating to the
production and transportation of coal. These costs include labor expenses,
royalty and lease payments, payments for fuel, materials and supplies and
equipment repairs, production taxes and fees, reclamation expenditures, and
trucking costs. Other costs include depreciation, depletion and amortization
expense, general and administrative expense, as well as interest expense.
With respect to royalty and lease payments, Lodestar pays lessors royalties
for the right to mine coal either as a fixed amount per ton or as a percentage
of the sales price. Such royalty payments are reflected
41
<PAGE>
in the Company's cost of revenues. In addition, many leases also require the
payment to the lessor of a lease bonus or minimum royalty, payable upon
execution of the lease or in periodic installments. In most cases, the minimum
royalty payments are applied to reduce future production royalties as set forth
in the lease. The Company, in accordance with generally accepted accounting
principles, capitalizes the minimum royalty or lease bonuses and amortizes such
amount on a unit-of-production basis.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the
Predecessor Company and the Company for the periods presented. The combined
operations and other data for the ten months ended October 31, 1997 combine the
results of operations of the Predecessor Company for the period January 1, 1997
to March 14, 1997 and of the Company for the period March 15, 1997 to October
31, 1997. The combined operations and other data for the six months ended April
30, 1997 combine the results of operations of the Predecessor Company for the
periods November 1, 1996 to December 31, 1996 and January 1, 1997 to March 14,
1997 and the Company for the period March 15, 1997 to April 30, 1997. The
combined operations and other data for the ten months ended October 31, 1997 and
for the six months ended April 30, 1997 do not purport to represent what the
Company's consolidated results of operations would have been if the Acquisition
had actually occurred on January 1, 1997 and November 1, 1997, respectively. Due
to the purchase accounting adjustments applied to the Company's accounts as of
March 15, 1997, the results of the Predecessor Company for the ten months ended
October 31, 1996 and the combined results of the Predecessor Company and the
Company for the ten months ended October 31, 1997 are not comparable beyond
EBITDA. Similarly, the combined results of the Predecessor Company and the
Company for the six months ended April 30, 1997 and the results of the Company
for the six months ended April 30, 1998 are not comparable beyond EBITDA.
<TABLE>
<CAPTION>
THE
THE PREDECESSOR COMPANY COMPANY
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
COMBINED COMBINED
TEN TEN SIX SIX
FISCAL YEAR ENDED MONTHS MONTHS MONTHS MONTHS
DECEMBER 31, ENDED ENDED ENDED ENDED
---------------------- OCTOBER 31, OCTOBER 31, APRIL 30, APRIL 30,
1995 1996 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
(DOLLARS AND TONS IN THOUSANDS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS AND OTHER DATA:
Coal sales and related revenue............. $ 308,370 $ 255,386 $ 218,476 $ 220,367 $ 114,783 $ 136,238
Cost of revenues........................... 255,859 257,269 220,891 195,392 109,656 113,635
---------- ---------- ----------- ----------- ----------- -----------
Gross profit (loss)........................ 52,511 (1,883) (2,415) 24,975 5,127 22,603
General and administrative................. 11,677 14,270 11,963 9,013 5,386 5,883
---------- ---------- ----------- ----------- ----------- -----------
EBITDA(1).................................. $ 40,834 $ (16,153) $ (14,378) $ 15,962 $ (259) $ 16,720
---------- ---------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- -----------
OTHER OPERATING DATA:
Tons of coal shipped....................... 11,811 10,569 9,006 8,765 4,756 5,409
---------- ---------- ----------- ----------- ----------- -----------
Coal sales and related revenue per ton
shipped.................................. $ 26.11 $ 24.16 $ 24.26 $ 25.14 $ 24.14 $ 25.19
---------- ---------- ----------- ----------- ----------- -----------
Cost of revenues per ton shipped........... $ 21.66 $ 24.34 $ 24.53 $ 22.29 $ 23.06 $ 21.01
---------- ---------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) EBITDA represents earnings before net interest expense, other income
(expense), income taxes and depreciation, depletion and amortization. The
trends of EBITDA generally follow the trends of operating income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the recent trends of operating income.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to,
42
<PAGE>
or more meaningful than, operating income, net income or cash flow as
defined by generally accepted accounting principles or as an indicator of an
issuer's operating performance. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary.
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
COAL SALES AND RELATED REVENUE for the six months ended April 30, 1998 (the
"1998 Period") were $136.2 million, an increase of $21.5 million or 18.7%
compared to the six months ended April 30, 1997 (the "1997 Period"). This
increase was the result of a 13.8% increase in sales volume combined with a
$1.05 per ton net increase in coal sales and related revenue. The sales volume
increase is attributable to 750,000 tons of increased sales in Western Kentucky.
Additional tons were available for sale in Western Kentucky because of the
increased productivity at the Baker mine and the resumption of mining activities
at the Wheatcroft mine. The net increase in coal sales and related revenue of
$1.05 per ton combines the net effect of a $1.52 per ton increase in coal
related revenue from ancillary services, with a $.47 per ton decrease in coal
revenue per ton. The increase in ancillary services is primarily due to the
revenue generated from contract mining the Shop Branch mine in Eastern Kentucky.
The decrease in coal revenue per ton is primarily attributable to the higher
percentage of Western Kentucky coal sales.
COST OF REVENUES were $113.6 million in the 1998 Period as compared to
$109.7 million in the 1997 Period. The 3.6% increase in cost of revenues was
substantially less than the 13.8% increase in tons shipped. Accordingly, cost of
revenues per ton shipped decreased from $23.06 in the 1997 Period to $21.01 in
the 1998 Period. The primary reason for the cost per ton improvement has been
the improved productivity and resultant lower costs per ton at the Baker mine in
Western Kentucky.
GENERAL AND ADMINISTRATIVE costs increased to $5.9 million in the 1998
Period from $5.4 million in the 1997 Period. The increase of 9.2% in the 1998
Period is due to a combination of factors including: (i) the waiver of the Renco
management fee for the period March 15, 1997 to April 30, 1997; (ii) increased
banking charges, particularly in conjunction with the credit facility which was
not in place for most of the 1997 period; (iii) staffing of permanent personnel
in both the accounting and sales and marketing areas during the 1998 Period. The
variance between the 1997 Period and the 1998 Period would have been greater if
not for charges of $.8 million to write off certain uncollectible receivables
during the 1997 Period.
EBITDA for the 1998 Period was $16.7 million as compared to $(.3) million
for the 1997 Period. The $17.0 million improvement was the result of factors as
previously described in this section.
TEN MONTHS ENDED OCTOBER 31, 1997 COMPARED TO TEN MONTHS ENDED OCTOBER 31,
1996
COAL SALES AND RELATED REVENUE for the ten months ended October 31, 1997
(the "1997 Interim Period") increased to $220.4 million as compared to $218.5
million for the ten months ended October 31, 1996 (the "1996 Interim Period"),
an increase of 0.9%. Coal sales and related revenue per ton shipped increased
from $24.26 to $25.14 on tons shipped that were slightly lower than during the
1996 Interim Period. The increase in coal sales and related revenue was
attributable to minor pricing improvements and significant increases in
coal-related revenue including ash disposal income, revenue from contract coal
stripping and coal processing for third parties. The increased coal sales and
related revenue was achieved despite a decline of $2.9 million in West Virginia
revenues as operations were being idled, and a decline of $3.5 million in
brokered sales.
COST OF REVENUES decreased to $195.4 million for the 1997 Interim Period
from $220.9 million for the 1996 Interim Period, a 11.5% decrease as compared to
a 2.7% decrease in tons shipped. The primary cause of the decrease was certain
unusual adjustments totaling $18.8 million affecting the 1996 Interim Period
including (i) a $5.3 million provision due to the expected failure to meet
minimum shipping obligations over the term of a transportation contract; (ii)
$6.0 million increase in reclamation reserves; (iii) $4.0 million increase in
workers' compensation reserve; and (iv) approximately $3.5 million charge
related to abandoned property. Excluding the aforementioned adjustments, costs
decreased from $22.44 per ton
43
<PAGE>
shipped during the 1996 Interim Period to $22.29 per ton shipped in the 1997
Interim Period, a decrease of 0.7%. Costs were lowered in Western Kentucky by a
cost-restructuring program reducing employee benefits, which was implemented
late in 1996. Eastern Kentucky costs remained relatively constant between the
1996 and 1997 Interim Periods.
GENERAL AND ADMINISTRATIVE costs decreased to $9.0 million in the 1997
Interim Period from $12.0 million in the 1996 Interim Period, representing a
decrease of 24.7%. The majority of this decline was attributable to decreased
legal costs of $1.7 million in the 1997 Interim Period. Other factors positively
affecting the 1997 Interim Period were reduced taxes other than income taxes,
services provided by Renco at no charge which were previously provided by
consultants, and reduced administrative expenses at the operating locations. The
aforementioned factors more than offset the greater benefit received in the 1996
Interim Period from the allocation of certain expenses to a company affiliated
with the Predecessor Company.
EBITDA for the 1997 Interim Period was $16.0 million. This was a $30.3
million improvement from EBITDA of $(14.4) million for the 1996 Interim Period
due to the factors discussed above.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1995
COAL SALES AND RELATED REVENUE for fiscal 1996 were $255.4 million as
compared to $308.4 million for fiscal 1995. This represented a decrease of 17.2%
between the periods. Of this decline, $9.3 million was due to the sale of the
Louisiana operations in March 1995 and $30.8 million was due to the sale of the
Alabama operations in December 1995. Western Kentucky coal sales and related
revenue also decreased by $27.3 million. Western Kentucky production decreased
0.7 million tons primarily attributable to the closure of the Wheatcroft
underground mine, partially offset by increased tons shipped from the Smith
operations which completed the transition from surface to underground
production. In addition, coal sales and related revenue per ton shipped in
Western Kentucky decreased by $1.92 per ton shipped primarily due to the
expiration or liquidation of higher priced contracts. The decline in Western
Kentucky coal sales and related revenue was partially offset by an approximate
$21.1 million increase in Eastern Kentucky coal sales and related revenue. This
was primarily due to a 0.8 million ton increase in shipments as a result of
increased production related to additional leased equipment.
COST OF REVENUES increased to $257.3 million in fiscal 1996 from $255.9
million in fiscal 1995, an increase of 0.6%. Cost of revenues increased from
$21.66 to $24.34 per ton shipped primarily as a result of: (i) $7.7 million
provision for expected future losses on sales and transportation contracts; (ii)
$6.0 million increase in reclamation reserves; (iii) $4.0 million increase in
workers' compensation reserve; and (iv) approximately $3.5 million charge
related to abandoned property. In addition, costs in Western Kentucky were
negatively impacted in fiscal 1996 as compared to fiscal 1995 because of adverse
geologic conditions. Excluding the aforementioned factors, Eastern and Western
Kentucky costs per ton were reasonably consistent between periods.
DEPRECIATION, DEPLETION AND AMORTIZATION decreased to $22.7 million in
fiscal 1996 from $30.8 million in fiscal 1995, a reduction of $8.1 million.
Approximately $3.2 million of this decrease was due to the disposition of the
Louisiana and Alabama operations. The remainder was primarily due to the
reduction in depreciation related to a $31.2 million write-down of impaired
assets on December 31, 1995.
GENERAL AND ADMINISTRATIVE COSTS increased to $14.3 million in fiscal 1996
from $11.7 million in fiscal 1995, an increase of 22.2%. These increased costs
were primarily due to an increase in legal fees of $2.3 million related to the
sales process undertaken by the Predecessor Company.
OPERATING INCOME (LOSS) decreased from $10.0 million in fiscal 1995 to a
loss of $38.9 million in fiscal 1996. The substantial reduction was the
combination of a decrease in coal sales and related revenue and a significant
increase in cost of revenues and an increase in general and administrative
costs.
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INTEREST EXPENSE, NET decreased from $4.4 million in fiscal 1995 to $2.8
million in fiscal 1996. Of this decrease, $1.1 million was the result of an
improved borrowing position. In addition, interest related to the Louisiana
operations was eliminated, and interest on capitalized leases declined slightly
between periods.
OTHER INCOME (EXPENSE), NET was $3.7 million of income in fiscal 1995. In
fiscal 1995, the Predecessor Company recorded a $44.0 million gain by disposing
of its Louisiana operations. Substantially offsetting this gain, a $39.6 million
loss was incurred, adjusting the value of the Predecessor Company to an expected
sales price. Of the total loss of $39.6 million, $31.2 million related to the
write-down of fixed assets. Also included as $.7 million of expense was the
minority interest in the earnings of the Louisiana operations.
INCOME TAXES of $3.3 million were generated in fiscal 1995 as compared to no
tax liability in fiscal 1996. The fiscal 1995 income taxes were the result of
the gain on the sale of the Louisiana operations.
NET INCOME (LOSS) was $6.0 million in fiscal 1995 as compared to a $41.7
million loss in fiscal 1996. The reduced net income was the result of the
factors as described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from working capital
requirements, capital investments and interest payment obligations. The
Company's primary available sources of liquidity are cash provided by operating
activities and existing cash balances. The Company also has available Lodestar's
New Senior Credit Facility that provides for advances by the lender to a maximum
of $90.0 million, based on specific percentages of eligible receivables and
inventories, and for letters of credit of up to $30.0 million. Upon the
consummation of the Transactions, the New Senior Credit Facility was undrawn,
and $22.0 million of letters of credit is outstanding. See "Description of New
Senior Credit Facility."
Cash provided (used) by the Company's operating activities was $(16.7)
million, $11.7 million, $13.0 million and $(6.3) million during the 1997 and
1996 Interim Periods, and fiscal 1996 and 1995, respectively. Cash used by
operating activities in the 1997 Interim Period was negatively affected by the
poor cash position of the Predecessor Company prior to the Acquisition. Between
the date of the Acquisition and October 31, 1997, $27.1 million in cash was used
to finance changes in operating accounts. The fiscal 1996 cash provided by
operating activities resulted from a $21.0 million deterioration of working
capital.
Capital expenditures were $4.9 million, $8.9 million, $10.7 million and $5.8
million during the 1997 and 1996 Interim Periods and fiscal 1996 and 1995,
respectively. Management expects to spend approximately $10.0 million to $15.0
million annually for capital expenditures, of which approximately $8.0 million
is required annually to maintain its current level of operations. In fiscal
1998, capital expenditures are estimated to be approximately $12.0 million. As
of April 30, 1998, the Company had capital expenditure commitments of
approximately $2.5 million.
The Company has significant indebtedness outstanding. See "Risk
Factors--Substantial Indebtedness; Structural Subordination." Management
believes that cash flow from operations at Lodestar, in addition to availability
under the New Senior Credit Facility, will be sufficient to provide for the
Company's liquidity needs for the foreseeable future.
The Indenture and the New Senior Credit Facility contain numerous covenants
and prohibitions that will impose limitations on the liquidity of the Company
and Lodestar, including requirements that the Company and Lodestar satisfy
certain financial ratios and limitations on the incurrence of additional
indebtedness. See "Risk Factors--Restrictions Imposed by Terms of Indebtedness,"
"Description of New Senior Credit Facility" and "Description of the Senior
Notes--Certain Covenants." The ability of the Company and Lodestar to meet their
respective debt service requirements and to comply with such covenants will be
dependent upon future operating performance and financial results which will be
subject to financial, economic, political, competitive and other factors
affecting the Company and Lodestar, many of which are beyond their control.
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INFLATION AND SEASONALITY
In general, the Company's cost of revenues and general and administrative
costs are affected by inflation, which could affect the Company in future
periods. Management believes, however, that such effects have not been material
to the Company and the Predecessor Company during the past three years. The
Company believes that its business is somewhat seasonal due to seasonal weather
conditions that affect the demand for electricity, as well as the ability to
transport coal.
RECLAMATION AND ENVIRONMENTAL MATTERS
The Company has incurred and will continue to incur capital and operating
expenditures for matters relating to reclamation. Cash expenses associated with
reclamation were approximately $1.2 million and $.9 million for the 1997 and
1996 Interim Periods, respectively. The Company estimates its cash expenditures
for reclamation will be approximately $2.5 million in fiscal 1998. The Company
has minimal expenses related to environmental control and monitoring. See
"Government Regulation--Environmental Matters."
As part of its reclamation activities in the ordinary course of its
business, Lodestar had obtained approximately $42.4 million of performance bonds
as of April 30, 1998. Lodestar's contingent obligations to the surety of these
performance bonds are supported by $17.8 million in outstanding letters of
credit as of April 30, 1998. See "Risk Factors--Reclamation and Closure
Liabilities."
Environmental laws and regulations have changed rapidly in recent years, and
the Company may become subject to more stringent environmental laws and
regulations in the future. Compliance with more stringent environmental laws and
regulations could have a material adverse effect on the Company's consolidated
financial position, results of operations and liquidity. See "Risk
Factors--Environmental Matters; Government Regulation of Mining Industry" and
"Government Regulation--Environmental Matters."
YEAR 2000 BUSINESS MATTERS
The Company has a thorough plan to achieve year 2000 compliance with respect
to its business systems, including systems and user testing scheduled to
commence in the latter part of 1998. The Company does not currently expect year
2000 issues related to its business systems to have any material effect on the
Company's costs or to cause any significant disruption in operations. The
Company has initiated a program to assess its process control environment for
year 2000 compliance, and it intends to make any necessary modifications to
prevent disruption to its operations. The Company relies on systems maintained
by third parties; accordingly, the Company also is developing a contingency plan
designed to minimize the risk of third party noncompliance. The Company believes
that it will incur minimal additional costs, if any, to achieve year 2000
compliance.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 130 defines comprehensive income
as the change in equity (net assets) of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources.
This Statement requires comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the implementation of this
Statement to have a material effect on its consolidated financial statements.
SFAS No. 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their
46
<PAGE>
quarterly report to stockholders. This Statement requires that companies
disclose segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. This Statement is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect the implementation of this Statement to have a material effect on its
consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. This Statement is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect the implementation of this Statement to have a material effect on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative is
dependent upon the intended use of the derivative. The Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not expect implementation of this Statement to have a material
effect on its consolidated financial statements.
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<PAGE>
INDUSTRY
GENERAL
According to data compiled by the United States Department of Energy's
Energy Information Administration (the "EIA"), United States coal production
totaled 1.06 billion tons in 1996, a 2.3% increase from the 1.03 billion tons
produced in 1995 and a record high. The increase in 1996 coal production levels
was driven by a large increase in coal consumption for electricity generation
due to increased natural gas prices, negligible growth in nuclear-powered
generation, abnormally cold weather and strong economic growth. Total United
States coal consumption reached 1.01 billion tons in 1996, a 4.6% increase from
1995, and export sales totaled 90.5 million tons. Approximately 89% of the coal
consumed in the United States is used for the generation of electricity, and
coal continues to be the principal energy source for United States utilities,
with its share of total electricity generation rising from approximately 55% in
1995 to approximately 56% in 1996, compared to approximately 22% from nuclear,
approximately 11% from hydroelectric and approximately 9% from gas-fired
facilities in 1996. In the last three years, coal prices under long-term
contracts have generally remained steady; however, spot market coal prices have
experienced greater fluctuation due to seasonal variations in supply and demand
caused by weather. Despite the increased consumption and the many inefficient
mines that have closed in the last ten years, coal mining companies with
improving productivity have filled the increasing demand without price
increases. Increased competition in the generation of electricity is forcing
utility buyers to purchase coal more selectively. This heightened fiscal
responsibility has led to lower stockpiles, increased spot market activity and
shorter contract terms, which may create greater price volatility than has been
experienced in the past.
Productivity gains and environmental legislation have worked together to
exert pressures on the fundamental structure of the coal industry. According to
statistics compiled by the EIA, the number of operating mines has declined by
approximately 54% from 1987 through 1996, even though production during that
same time has increased approximately 16%. During this period, work practice and
technological improvements have allowed overall production per miner per hour to
increase by approximately 73%, whereas industry employment declined by
approximately 42%. These productivity gains and the resulting excess productive
capacity in most segments of the industry have contributed to the stability of
coal prices in recent years at levels lower than in the 1970's and early 1980's.
Clean air concerns and legislation have increased consumption of low-sulfur
products mined in Appalachia and the western United States. Although recently
there has been some consolidation of coal producers in the United States, the
ten largest coal producers in 1996 accounted for in excess of 51% of total
domestic coal production, and no company held a domestic market share of more
than 13% in 1996.
COAL TYPES
In general, steam coal is classified by Btu content and sulfur content. In
ascending order of heat values, the four basic types of coal are lignite,
subbituminous, bituminous and anthracite.
LIGNITE COAL is a brownish-black coal with a Btu content that generally
ranges from 6,500 to 8,300 Btus per pound. Major lignite operations are located
in Texas, North Dakota, Montana and Louisiana. Lignite coal is used almost
exclusively in power plants located adjacent to such mines because any
transportation costs, coupled with the mining costs, would exceed the price a
customer would pay for such low-Btu coal.
SUBBITUMINOUS COAL is a black coal with a Btu content that ranges from
approximately 7,900 to 9,500 Btus per pound. Most subbituminous reserves are
located in Montana, Wyoming, Colorado, New Mexico, Washington and Alaska.
Subbituminous coal is used almost exclusively by electric utilities and some
industrial consumers.
BITUMINOUS COAL is a "soft" black coal with a Btu content that ranges from
10,500 to 14,000 Btus per pound. This coal is located primarily in Appalachia
(including Kentucky), the Midwest, Colorado and
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Utah, and is the type most commonly used for electric power generation in the
United States. Bituminous coal is used for utility and industrial steam
purposes, and as a feedstock for coke, which is used in steel production. All of
Lodestar's reserves are bituminous coal.
ANTHRACITE COAL is a "hard" coal with a Btu content that can be as high as
15,000 Btus per pound. Anthracite deposits are located primarily in the
Appalachian region of Pennsylvania, and are used primarily for industrial and
home heating purposes.
COAL QUALITIES
The primary factors considered in determining the value and marketability of
coal are the Btu content, the sulfur content and the percentage of ash (small
particles of inert material) and moisture. The Btu content provides the basis
for satisfying the heating requirements of boilers. Coal having a lower Btu
content frequently must be blended with coal having a higher Btu content to
allow the consumer to utilize the coal efficiently in its operations.
Due to the restrictive environmental regulations regarding sulfur dioxide
emissions, coal is commonly described with reference to its sulfur content. Coal
that emits no more than 1.6 pounds of sulfur dioxide/ MMBtu when burned is
called low-sulfur coal. Coal that emits no more than 1.2 pounds of sulfur
dioxide/ MMBtu is called compliance coal. Compliance coal exceeds the current
requirements of Phase I of the Clean Air Act and meets the prospective
requirements of Phase II of that legislation. Since compliance coal exceeds the
Phase I requirements, consumers using such coal can either earn sulfur emission
credits, which can be sold to other coal consumers, or blend the coal with
higher sulfur coal to lower the overall sulfur emissions without having to
install expensive sulfur-reduction technology (E.G., scrubbers).
The percentage of ash affects the heating value of coal, as well as the
amount of combustion by-products. Specifically, the higher the percentage of
ash, the lower the heating value of the coal and the higher the amount of
combustion by-products. Electric utilities typically require coal with an ash
content ranging from 6% to 15%, depending on individual power plant
specifications.
The percentage of moisture is important because the higher the moisture, the
lower the heating value of the coal. Also, if the percentage of moisture is too
high, customers may experience handling problems with the coal.
COAL REGIONS
The majority of United States coal production is generated from six regions:
Central Appalachia, Southern Appalachia, Northern Appalachia, Illinois Basin,
Rocky Mountain and Powder River Basin. With the exception of the coal from the
Northern Appalachia region, which generally serves only the Northeastern United
States market, coal from each region competes in a national market. The
geographic areas that comprise the six regions and characteristics of the coal
in those regions are as follows:
CENTRAL APPALACHIA consists of Southern West Virginia, Eastern Kentucky and
Virginia. The coal in this region is generally quite low in sulfur (0.7% to 1.5%
sulfur) and high in Btu content (12,000 to 13,500 Btus per pound of coal). The
majority of this coal complies with Phase I of the Clean Air Act. Central
Appalachia sources provide most of the United States' overseas export coal.
According to industry sources, this region has considerable excess production
capacity.
Lodestar has 43.7 million recoverable tons of demonstrated reserves in
Eastern Kentucky, representing 22% of its total demonstrated reserves.
Substantially all of Lodestar's coal in Eastern Kentucky complies with Phase I
of the Clean Air Act. However, Lodestar's coal in this region typically emits
1.5 pounds of sulfur dioxide/MMBtu, which is slightly higher than compliance
coal under Phase II of the Clean Air Act. Notwithstanding the foregoing,
Lodestar believes the sulfur content of its coal in this region will not affect
the marketability thereof.
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SOUTHERN APPALACHIA consists of Southeastern Kentucky, Tennessee and
Alabama. Coal from this region also has a low sulfur content (0.7% to 1.5%
sulfur), which is generally acceptable for Phase I of the Clean Air Act, and a
high Btu content (12,000 to 13,000 Btus per pound of coal). While productivity
is impaired by the region's thin seams, readily accessible waterways and
proximity to Southern utility plants help to
reduce delivery costs of coal from this region to utility customers.
NORTHERN APPALACHIA consists of Northern West Virginia, Pennsylvania and
Ohio. The Btu content of this coal is generally high (12,000 to 13,000 Btus per
pound of coal), with the exception of coal from Ohio. However, the sulfur
content in this coal (1.5% to 2.5% sulfur) generally does not meet the Phase I
standards of the Clean Air Act.
THE ILLINOIS BASIN consists of Western Kentucky, Illinois and Indiana. Coal
from this region generally has a Btu content of 10,000 to 12,500 Btus per pound
of coal and a sulfur content of 1.8% to 3.5% sulfur. Although there are
exceptions, generally no Illinois Basin coal satisfies the Phase I or Phase II
standards of the Clean Air Act. Therefore, Illinois Basin coal is primarily
blended with low-sulfur coal or burned in plants equipped with scrubbers.
Customers also can bank and trade sulfur dioxide emissions allowances as part of
an overall environmental compliance plan.
Lodestar has 154.9 million recoverable tons of demonstrated reserves in the
Illinois Basin, representing 78% of its total demonstrated reserves. Lodestar's
reserves in this region have relatively high Btu content for the region
(generally 12,500 Btus on a fully washed basis). Although such coal does not
satisfy Phase I or II of the Clean Air Act, Lodestar believes it is well
positioned to market its coal due to its relatively high Btu content, which
makes it attractive for blending with lower sulfur, lower Btu coal. In addition,
the proximity of such reserves to customers that can utilize high sulfur coal
results in lower transportation costs, thereby enhancing such coal's economic
value to the customer.
THE ROCKY MOUNTAIN region consists of Utah and Colorado. The coal in this
region is low in sulfur content (0.4% to 0.5%) and has a moderately high Btu
content (10,500 to 12,000 Btus per pound of coal). This coal complies with Phase
I and Phase II of the Clean Air Act, and, according to industry sources,
production capacity in this region has increased.
THE POWDER RIVER BASIN consists mainly of Wyoming and parts of Montana. This
coal is very low in sulfur content (0.25% to 0.65%), but also is low in Btu
content (8,000 to 8,800 Btus per pound of coal) and very high in moisture
content (20% to 35%). All of this coal complies with Phase I and Phase II of the
Clean Air Act, but most utilities cannot burn it without derating their plants,
unless it is blended with higher Btu coal. According to industry sources, this
region has considerable excess production capacity.
MINING METHODS
Coal is mined using either surface or underground methods. The method
utilized depends upon several factors, including the proximity of the target
coal seam to the earth's surface and the geology of the surrounding area.
Surface techniques generally are employed when a coal seam is within 200 feet of
the earth's surface, and underground techniques are used for deeper seams. In
1996, surface mining accounted for approximately 62% of total U.S. coal
production, and underground mining accounted for the balance. Surface mining
generally is less expensive and has a higher recovery percentage than
underground mining. Surface mining typically results in the recovery of 80% to
90%, and underground mining in the recovery of 50% to 60%, of the total coal
from a particular deposit. The following summarizes various mining methods.
UNDERGROUND (DEEP) MINING
LONGWALL MINING is a deep mining method that uses hydraulic jacks, varying
from five to twelve feet in height, to support the roof of the mine while a
large shearing machine extracts the coal. A chain line then moves the coal to a
deep mine belt system for delivery to the surface. Longwall mining equipment
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generally cuts blocks of coal, referred to as longwall panels, that have a width
of approximately 650 to 1,000 feet and a length ranging from approximately 7,000
to 18,000 feet. Longwall panels can contain more than 2.0 million tons of coal.
Longwall mining is a low-cost, high-output method of deep mining that results in
the highest coal recovery percentage for underground mining. In addition,
longwall mining is a much faster method of mining coal than room and pillar
mining. After a longwall panel is cut, the longwall mining equipment must be
disassembled and moved to the next panel location, a process which generally
takes one to two weeks. Lodestar presently utilizes a longwall mining system at
its Baker mine in Western Kentucky.
ROOM AND PILLAR MINING is a method of deep mining which uses
remote-controlled continuous miners that cut out a block of coal (the length of
each cut ranging from fifteen to 34 feet), cutting 20-foot wide passages as high
as the coal seam. Roof bolting machines are utilized to secure the immediate
strata above the coal, and pillars (50 to 100 feet squared) are left to provide
overall roof support. In some instances, it is possible to also remove the
pillars of coal, retreating from the back of the mine toward the mouth, allowing
the rock roof to fall in the mined out areas. Room and pillar mining using
continuous mining machines is the most common method of deep mining. Lodestar
and its contractors utilize the room and pillar method at its Smith Underground,
Wheatcroft, Miller Creek and the three Eastern Kentucky contract mines.
SURFACE MINING
MOUNTAINTOP REMOVAL MINING involves the removal of the top of a hill down to
the coal seam, using large earth-moving machines, such as dozers and hydraulic
shovels, leaving a level plateau in place of the hilltop. A more complete
recovery of the coal is accomplished through this method as compared to contour
mining. However, its feasibility depends on the amount of rock and soil
overlying a coal deposit (the "overburden") in relation to the coal to be
removed. The site then is backfilled with the overburden and otherwise restored
to its approximate original contour, and vegetation is replaced. The site is
often returned to higher value uses as the land will now be improved and more
suitable for development and use. The majority of Lodestar's Eastern Kentucky
mining consists of mountaintop removal mining.
CONTOUR MINING is conducted on coal seams where mountaintop removal is not
economical because of the amount of overburden on the coal seam. Mining proceeds
laterally around a hillside, using equipment such as dozers and hydraulic
shovels, at essentially the same elevation following the coal seam. The contour
cut in a coal seam provides a flat surface that can be used to facilitate
highwall mining. Once the coal has been removed, the overburden is replaced,
leaving the mined property with approximately the same contour as before mining.
This is a common surface mining method on the steeper slopes of the Appalachian
bituminous coal fields. Lodestar practices contour mining in Eastern Kentucky
when other mining methods are not economically feasible.
HIGHWALL AND AUGER MINING is a method of mining whereby a system bores into
the face of a coal seam, usually left accessible from contour mining, which has
ceased to be economically viable because of excessive overburden. Highwall
mining can be accomplished by a variety of methods, including relatively simple
auger mining where a corkscrew-like machine, or auger, bores into the side of a
hill and extracts coal by "twisting" it out or by combinations of other mining
equipment, including the use of modified continuous miners. Lodestar is engaged
in some highwall mining in its Eastern Kentucky operations using the continuous
and auger methods.
OPEN PIT MINING is essentially a large-scale earth moving operation, whereby
the overburden is excavated by using equipment, such as dozers, hydraulic
shovels and draglines. The exposed coal is then fractured by blasting and loaded
onto haul trucks or overland conveyors for transportation to processing and
loading facilities. The site then is backfilled with the overburden and
otherwise restored to its approximate original contour, and vegetation is
replaced. One of Lodestar's contractors practices open pit surface mining at the
Smith Surface mine in Western Kentucky.
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COAL PREPARATION
Depending on coal quality and customer requirements, it is sometimes
possible to ship raw coal directly from the mine to the customer. Generally, raw
coal from surface mines can be shipped in this manner. If raw coal is not
shipped directly to the customer, it is processed in a preparation plant or
blended and shipped to a customer from a loadout facility. Most coal mined by
deep mining methods and some coal mined by surface mining methods must be
processed in a preparation plant. The preparation plant crushes coal, washes it
in a liquid solution, separates it into higher and lower grades and removes
non-coal materials. This process upgrades the quality and heating value of the
coal by removing or reducing sulfur, rock, clay and other ash-producing
materials but entails significant expense and results in some loss of coal. Coal
blending or mixing of various sulfur types is often performed at a preparation
plant or loading facility to meet the specific combustion and environmental
needs of customers. Approximately two-thirds of Lodestar's saleable coal has
been processed through its various preparation facilities, and the vast majority
of the balance is blended and shipped from one of Lodestar's loadout facilities.
CUSTOMERS
Over the last ten years, coal consumption in the United States has generally
experienced steady annual growth, reaching a record level of 1.01 billion tons
in 1996. This steady growth in coal consumption is attributable to similar
growth in the demand for electricity over the same period, as the electric
utility industry accounts for approximately 89% of domestic coal consumption in
1996. In 1996, coal-fired utilities generated approximately 56% of the nation's
electricity, followed by nuclear (approximately 22%), hydroelectric
(approximately 11%) and gas-fired (approximately 9%) utilities. According to
industry sources, over the next several years, electricity usage is expected to
increase at an average annual rate of 1.4%. Since 1980, coal-fired utilities
have generated a majority of all electricity generated in the United States.
Electricity can be generated less expensively using coal rather than gas,
oil or geothermal energy. The delivered cost of coal for utilities averaged
$1.29/MMBtu in 1996 compared to $2.64/MMBtu for gas and $3.16/MMBtu for oil.
Although nuclear and hydro energy are less expensive than coal on an operating
cost basis, no new nuclear plant permits have been issued since 1978, and many
existing plants are near the end of their useful life. In addition, hydro
electricity is limited by the availability of adequate water resources and
environmental considerations. Moreover, an insignificant incremental amount of
geothermally-produced electricity is currently viable in the United States.
Because coal is one of the least expensive and most abundant resources for
the production of electricity, and imports of coal historically have not
exceeded 1% of domestic coal consumption, domestically produced coal is expected
to continue to play a significant role in the production of electricity in the
future. Lodestar believes that it is well positioned to benefit from favorable
trends in the coal and electric utility industries because approximately 56% of
Lodestar's 1997 shipments were to electric utilities.
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The following table (derived from publications of the EIA) presents
five-year domestic coal production by region, and consumption by sector:
<TABLE>
<CAPTION>
FIVE YEAR COAL PRODUCTION AND CONSUMPTION
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
<CAPTION>
(TONS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
PRODUCTION BY REGION
Appalachia........................................................ 456.6 409.7 445.4 434.9 445.1
Illinois Basin/Midwest............................................ 195.7 167.2 179.9 168.5 172.2
Western........................................................... 345.3 368.5 408.3 429.6 439.5
--------- --------- --------- --------- ---------
Total........................................................... 997.6 945.5 1,033.6 1,033.0 1,056.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CONSUMPTION BY SECTOR
Utilities......................................................... 779.9 813.5 817.3 829.0 873.7
Other Industrial Plants........................................... 74.0 74.9 75.2 72.8 70.6
Coke Plants....................................................... 32.4 31.3 31.7 33.0 31.7
Independent Power Producers....................................... 14.8 17.8 20.9 21.2 24.0
Residential/Commercial Users...................................... 6.2 6.2 6.0 5.8 5.8
--------- --------- --------- --------- ---------
Total........................................................... 907.3 943.7 951.1 961.8 1,005.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
UTILITY DEREGULATION
Since 1935, domestic electric utilities have operated in a regulated
environment, with prices and return on investment being determined by state
utility and power commissions. In April 1996, the FERC established rules
providing for open access to electricity transmission systems, thereby
initiating consumer choice in electricity purchasing and encouraging competition
in the generation of electricity. It is anticipated that the FERC rules will
create a national market for the sale of wholesale electricity where competition
will primarily focus on price. Within the electric utility industry, the
low-cost producers of electricity should benefit most due to the increased focus
on price. Competition will likely benefit the coal industry generally because
coal is a relatively low-cost source of electricity generation. Within the coal
industry, companies with customers that are low-cost producers are likely to see
the greatest increase in coal demand. Lodestar's primary customers are low-cost
electricity producers, located in Kentucky, Tennessee, Florida, Michigan and
Ohio.
CLEAN AIR ACT
The Clean Air Act has had, and will continue to have, a significant effect
on the domestic coal industry. Phase I of the Clean Air Act, which became
effective in 1995, regulates the level of sulfur dioxide emissions from power
plants and targets the highest sulfur dioxide emitters. Phase II, which is
scheduled to be implemented in 2000, will extend the restrictions of the Clean
Air Act to most remaining power plants. The Clean Air Act does not define
allowable emission levels on a per plant basis, but instead allocates emission
allowances to the affected plants and allows the emission allowances to be
traded so that market participants can fashion more efficient and flexible
compliance strategies. The emission allowance allocations for Phase I were based
on 2.5 pounds of sulfur dioxide/MMBtu, and Phase II allocations will be based on
1.2 pounds of sulfur dioxide/MMBtu. See "Risk Factors--Environmental Matters;
Government Regulation of Mining Industry" and "Government
Regulation--Environmental Matters."
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<PAGE>
BUSINESS
OVERVIEW
The Company, through its wholly-owned subsidiary Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. For the twelve months
ended April 30, 1998, the Company had coal shipments of 10.9 million tons,
resulting in coal sales and related revenue of $278.7 million.
Lodestar focuses on selected niche coal markets in the Eastern, South
Central and Great Lakes regions of the United States. Through its diverse
portfolio of seven deep and five surface coal mines located in Eastern and
Western Kentucky, Lodestar is among the largest coal producers in Kentucky, the
third largest coal producing state. Lodestar believes that it is a low cost
producer offering its customers flexibility in order quantities and
transportation methods, including barge, rail or truck. In addition, Lodestar
processes the vast majority of its coal through its washing and blending
facilities to meet customers' combustion and environmental specifications, such
as energy (as measured by Btus), ash and sulfur content. Lodestar believes that
its niche market strategy, together with its operating flexibility, permits it
to meet customer demand for quality products and services at competitive prices,
resulting in long-term contracts with its customers.
For the twelve months ended April 30, 1998, approximately 72% of Lodestar's
coal sales and related revenue were derived from long-term contracts. As of
April 30, 1998, Lodestar had long-term contracts, including long-term contracts
with the TVA and certain affiliates of U.S. Gen, with a weighted average term of
approximately 8.4 years. Lodestar believes that the facilities to which it
supplies coal generally are well positioned to compete in a deregulated
environment for electricity generation.
Lodestar's niche market strategy targets customers whose needs are
compatible with the particular coal qualities it produces. Lodestar supplies mid
to high sulfur coal (above 1.8% sulfur) from its Western Kentucky operations to
customers, such as electricity generation facilities, that can economically use
such coal by employing sulfur-reduction techniques, including scrubbers and coal
blending, in addition to utilizing emissions allowance credits. Lodestar also
supplies low sulfur coal (less than 1.0% sulfur) from its Eastern Kentucky
operations to customers that require such coal to meet environmental discharge
requirements.
Lodestar believes that the proximity of its reserves and facilities to
customers that can economically use its coal provides it a competitive
advantage. In addition, Lodestar uses its preparation and loadout facilities in
Eastern and Western Kentucky to wash and blend coal to satisfy customer needs
for Btu, ash and sulfur content. Moreover, Lodestar provides its customers
transportation flexibility by offering delivery by barge, rail or truck. For
example, Lodestar's Caseyville Dock is located farther south on the Ohio River
than any comparable facility. As a result, the Caseyville Dock provides Lodestar
a cost advantage in delivering coal to customers in the Southern United States
over competitors that must load and ship from facilities located farther north.
Lodestar believes that its production and transportation flexibility enables it
to satisfy customer requirements, while maintaining efficient and low cost
operations.
Lodestar owns eleven of its mines, which for the twelve months ended April
30, 1998, accounted for more than 90% of its coal production. In addition,
Lodestar operates one mine owned by a third party and purchases most of the coal
produced from such mine. In excess of 90% of the coal produced at Lodestar's
mines is produced by Lodestar employees, and the balance is mined by independent
contractors. Lodestar believes that the selective use of independent contractors
lowers its costs and increases its operating flexibility to vary production in
response to market conditions. In the future, Lodestar will seek to increase its
coal purchases from third parties to maximize the utilization of its washing and
blending facilities and thus improve operating margins.
For the twelve months ended April 30, 1998, electrical power utilities and
IPPs accounted for approximately 56% and 21% of Lodestar's coal sales and
related revenue, respectively. The balance of
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<PAGE>
Lodestar's coal sales and related revenue was attributable to brokers and
industrial customers. Accordingly, Lodestar believes that it is well positioned
to benefit from favorable trends in the electricity generation industry. From
1973 to 1996, coal consumption experienced a CAGR of 2.6%, reaching
approximately 1.01 billion tons of consumption in 1996. This growth in coal
consumption is directly related to the growth in electricity consumption in the
United States. Electricity generation in 1996 accounted for approximately 89% of
the coal consumed in the United States.
In 1996, coal-fired facilities generated approximately 56% of the
electricity consumed in the United States, and the balance was generated by
nuclear, hydroelectric and gas-fired facilities, representing approximately 22%,
11% and 9%, respectively, of electricity consumption. Coal is one of the least
expensive and most abundant domestic resources for the production of
electricity. Accordingly, notwithstanding the alternative fuel sources,
management believes that coal will continue to be a major raw material for
electricity generation in the United States for the foreseeable future.
Lodestar further believes that it will benefit from increasing deregulation
among electricity producers. Since 1935, domestic electricity utilities have
operated in a regulated environment, with prices and return on investment
determined by state utility and power commissions. In April 1996, the FERC
issued orders establishing rules providing for open access to electricity
transmission systems, which are designed to initiate consumer choice in
electricity purchasing and encourage competition in the generation of
electricity. Lodestar believes that this trend toward deregulation will likely
(i) increase the desirability of coal as a raw material for electricity
generation due to its relative low cost and (ii) favor coal producers, such as
Lodestar, that have diverse reserves in addition to cost and transportation
advantages.
COMPETITIVE STRENGTHS
The Company believes its competitive strengths include the following:
PORTFOLIO OF LONG-TERM CONTRACTS
Lodestar has secured long-term coal supply contracts with a weighted average
term of approximately 8.4 years as of April 30, 1998. Lodestar's long-term
contracts have accounted for approximately 80% of its coal sales and related
revenue since 1992. Lodestar believes its strong performance history with major
customers, attributable to, among other things, its low cost structure and
customer service, will strengthen existing relationships, as well as facilitate
the development of new relationships, which will result in additional long-term
contracts.
HIGHLY EFFICIENT OPERATIONS
Lodestar has been successful in increasing productivity at both its Eastern
and Western Kentucky operations. Since 1993, Lodestar's deep mine operations
have improved production from 3.5 tons to 4.9 tons per manhour for the year
ended December 31, 1997. Over the same period, Lodestar's surface mine
operations in Kentucky have improved productivity from 83.7 cubic yards moved to
109.2 cubic yards moved per manhour. Lodestar has achieved such improvements by
developing and instituting more efficient mining techniques, altering its mine
plans and incorporating new mining technologies, such as the high efficiency,
high production longwall mining equipment used in Western Kentucky. Lodestar
also has invested in state-of-the-art surface mining equipment, such as the
Komatsu 575 dozer, the largest dozer in the world, and the DeMag 285S 25-cubic
yard hydraulic shovel, which is used on mountaintop surface mines, to further
improve its operating efficiencies.
FLEXIBLE OPERATIONS
Lodestar's coal reserves, along with its extensive processing infrastructure
and transportation capabilities, enable it to maintain a high degree of
operating flexibility to meet its customers' specific requirements. In
particular, Lodestar's washing and blending capabilities permit Lodestar to
provide coal with a
55
<PAGE>
specific Btu, sulfur and ash content. In addition, Lodestar's diverse
transportation capabilities enable it to provide delivery of coal by barge, rail
or truck in a timely manner. In response to varying market conditions, Lodestar
also has the ability, to a certain extent, to revise its mine production. By
maintaining such operating and production flexibility, management believes that
Lodestar is able to respond to changing market conditions, as well as to meet
its customers' needs.
DIVERSE PORTFOLIO OF RESERVES
Lodestar owns or operates twelve mines, four in Western Kentucky (three
underground and one surface) and eight in Eastern Kentucky (four underground and
four surface) with a total demonstrated reserve base of approximately 198.6
million recoverable tons as of January 31, 1998. As of such date, 22%, or
approximately 43.7 million recoverable tons, of its demonstrated reserves was
low sulfur coal and 78%, or 154.9 million recoverable tons, was mid to high
sulfur coal. Lodestar's demonstrated reserve life index (total demonstrated
reserves divided by production for the twelve months ended January 31, 1998) was
approximately eighteen years as of January 31, 1998. All of Lodestar's reserves
are of a quality suitable for use in the generation of electricity throughout
its market area. See "Risk Factors--Reliance on Estimates of Recoverable
Reserves" and "--Replacement of Reserves."
HIGH BARRIERS TO ENTRY
Management believes that the capital costs and environmental requirements
associated with constructing facilities comparable to those of Lodestar result
in high barriers to entry for prospective entrants. Management further believes
that its combination of mining, processing and transportation facilities
provides it significant operating flexibility that would be difficult for a
potential entrant to duplicate. In addition, management believes that the cost
and time commitment required to achieve commercial production for any new mining
or processing operation, including regulatory approvals, would be prohibitively
expensive, further heightening the barriers to entry.
EXPERIENCED MANAGEMENT
Lodestar's senior management team has an average of approximately nineteen
years of experience in coal or related industries. Lodestar believes this
experience enables it to identify and respond to important trends in the coal
industry.
BUSINESS STRATEGY
The Company's business strategy is to improve its operations and financial
performance by focusing on the following principal elements:
MAINTAIN OPERATIONAL FLEXIBILITY
Lodestar strives to maintain a high level of operational flexibility to
respond to customer requirements, as well as other market opportunities. With
its mining facilities in Eastern and Western Kentucky, Lodestar operates in two
distinct coal supply regions. In that regard, Lodestar has flexibility in
developing its mining and production plans in terms of volume and type of coal
to take advantage of prevailing market conditions and enhance its position with
customers. With its multiple mines and coal washing and blending capabilities,
Lodestar also is able to minimize the production costs associated with the
particular quality of coal produced. With respect to transportation, Lodestar
has available multiple options, including facilities and equipment controlled by
Lodestar, designed to provide effective coal transportation and delivery at
competitive costs.
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<PAGE>
IMPROVE OPERATING EFFICIENCIES AND CAPACITY UTILIZATION
Lodestar is committed to continuous improvement through focused capital
investment and the implementation of non-capital cost reduction programs
throughout its operations. Since 1993, Lodestar has completed approximately
$112.2 million of capital investments designed to, among other things, increase
capacity utilization, enhance productivity and lower production costs.
Management expects to spend approximately $10.0 million to $15.0 million
annually for capital expenditures, of which approximately $8.0 million is
required annually to maintain its current level of operations.
EXPAND NICHE MARKETS
By expanding the use of its extensive preparation and transportation
facilities, Lodestar will seek to enter new markets which generate higher
operating margins. Given its proximity to end users of coal, Lodestar seeks to
leverage its infrastructure to expand into niche markets for industrial
corporations, as well as to expand its relationships with IPPs. In addition,
Lodestar intends to expand its coal trading activities and recommence its
brokering operations which will permit Lodestar to optimize the use of its
facilities.
BUILD AND MAINTAIN STRONG RELATIONSHIPS WITH STRATEGIC CUSTOMERS
Through its ongoing customer service initiatives, Lodestar strives to build
and maintain strong relationships with its customers. Lodestar's sales,
transportation and production professionals work closely with customers to be
responsive to their needs, such as small order quantities, specialized sizing,
technical assistance, and flexible and reliable deliveries. As evidence of its
customer commitment, Lodestar has served the TVA for over twenty years and was
the recipient of the TVA's supplier of the year award in 1996.
ACHIEVE OPERATING IMPROVEMENTS FROM THE OLD NOTES OFFERING
Lodestar used a portion of the net proceeds of the Old Notes Offering to:
(i) purchase certain equipment previously financed pursuant to leases, most of
which were entered into by the Predecessor Company; (ii) buy out certain
long-term royalty agreements entered into by the Predecessor Company; and (iii)
make payments to normalize accounts payable which had been extended prior to the
Acquisition. As a result of undertaking the foregoing, Lodestar would have
increased its EBITDA by approximately $5.5 million on a pro forma basis for the
six months ended April 30, 1998, thereby improving its operating cash flow and
financial flexibility.
GROW THROUGH STRATEGIC ACQUISITIONS
To capitalize on the trend toward asset rationalization by coal mining
companies, Lodestar plans to pursue the acquisition of coal companies and
reserves that complement its existing operations or provide strategic expansion
opportunities. Based upon the breadth of Lodestar's operating capabilities in
Eastern and Western Kentucky, Lodestar believes opportunities exist to
consolidate coal reserves within its primary geographic areas. In addition,
Lodestar will consider the acquisition of mines outside its geographic areas
that are compatible with its niche marketing strategy. Although the Company has
discussions from time to time with respect to potential acquisitions of reserves
and/or coal companies, it currently has no commitments or other such
arrangements.
COAL RESERVES
As of January 31, 1998, Lodestar had an estimated demonstrated reserve base
of approximately 198.6 million recoverable tons, with approximately 22% low
sulfur coal and the remaining 78% medium to high sulfur coal. Approximately 92%
of these demonstrated reserves are classified as deep and 8% as surface minable.
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<PAGE>
Reserve estimates were prepared by engineers and geologists at Marshall
Miller & Associates, as of January 31, 1998. Reserve estimates will change from
time to time in reflection of mining activities, analysis of new engineering and
geological data, acquisition or divestment of reserve holdings, modification of
mining plans or mining methods and other factors. The following table summarizes
Lodestar's coal reserves as of January 31, 1998:
<TABLE>
<CAPTION>
DEMONSTRATED RESERVES
------------------------------------
LOCATION MEASURED(1) INDICATED(2) TOTAL
<S> <C> <C> <C>
(RECOVERABLE TONS IN THOUSANDS)
WESTERN KENTUCKY
Baker+..................................................................... 22,039 9,754 31,793
Wheatcroft+................................................................ 51,109 57,051 108,160
Smith Underground+......................................................... 9,010 3,883 12,893
Smith Surface++............................................................ 2,089 -- 2,089
------------ ----------- ---------
Total Western Kentucky................................................. 84,247 70,688 154,935
EASTERN KENTUCKY
Ivy Creek++................................................................ 1,519 22 1,541
Spradlin Branch++.......................................................... 1,228 180 1,408
Spurlock Fork++............................................................ 508 10 518
Miller Creek+.............................................................. 8,108 1,308 9,416
Other Underground.......................................................... 16,665 3,850 20,515
Other Surface.............................................................. 8,102 2,162 10,264
------------ ----------- ---------
Total Eastern Kentucky................................................. 36,130 7,532 43,662
Total Underground.......................................................... 106,930 75,846 182,776
Total Surface.............................................................. 13,447 2,374 15,821
------------ ----------- ---------
Total.................................................................. 120,377 78,220 198,597
------------ ----------- ---------
------------ ----------- ---------
</TABLE>
- ------------------------
+ Underground
++ Surface
(1) Reserve estimates in this category have the highest degree of geologic
assurance. Measured coal lies within 0.25 mile of a valid point of
measurement or point of observation (such as previously mined areas)
supporting such measurements. The sites for thickness measurement are so
closely spaced, and the geologic character is so well defined, that the
average thickness, areal extent, size, shape and depth of coal beds are well
established.
(2) Reserve estimates in this category have a moderate degree of geologic
assurance. There are no sample and measurement sites in areas of indicated
coal. However, a single measurement can be used to classify coal lying
beyond measured as indicated. Indicated coal lies more than 0.25 mile, but
less than 0.75 mile, from a point of thickness measurement. Further
exploration is necessary to place indicated coal into the measured category.
Lodestar leases most of its total demonstrated reserves from third parties.
Lodestar's reserve leases generally have terms of between five and 30 years,
although they typically allow Lodestar the right to renew the lease for a stated
period or to maintain the lease in force until the exhaustion of coal reserves.
These leases provide for royalties to be paid to the lessor either as a fixed
amount per ton or as a percentage of the sales prices. Certain leases may also
require payment of a lease bonus or minimum royalties, payable either at the
time of the execution of the lease or in periodic installments. In most cases,
the minimum royalty payments are applied to reduce future production royalties.
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<PAGE>
Consistent with industry practices, Lodestar conducts limited investigation
of title to third party coal properties prior to Lodestar's leasing of such
properties. The title of the lessors or grantors and the boundaries of
Lodestar's leased properties are not fully verified until such time as Lodestar
prepares to mine such reserves.
MINING OPERATIONS
COAL PRODUCTION
Lodestar currently conducts mining operations at seven deep mines and five
surface mines in Kentucky. Approximately 65% of Lodestar's production originates
from its seven deep mines and the remaining production originates from its five
surface mines. For certain of its mines, Lodestar utilized the services of
contract miners, representing less than 10% of Lodestar's production for the
twelve months ended April 30, 1998. Contract miners provide Lodestar the
flexibility to alter mining plans and lower operating costs, particularly at
Lodestar's smaller operations, in response to market conditions. The following
table presents, for each of Lodestar's currently operating mines, the production
volume for the five-year period ended December 31, 1997:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------
LOCATION 1993 1994 1995 1996 1997
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
WESTERN KENTUCKY
Baker+................................................................. 3,222 2,722 4,275 3,986 4,142
Wheatcroft+............................................................ 3,867 3,120 1,141 -- 146
Smith Underground+..................................................... -- 76 662 989 987
Smith Surface++........................................................ 1,221 1,052 147 357 594
EASTERN KENTUCKY
Ivy Creek++............................................................ -- -- 94 769 1,037
Spradlin Branch++...................................................... -- 146 618 751 493
Spurlock Fork++........................................................ -- -- 68 565 543
Shop Branch++.......................................................... -- -- -- -- 491
Miller Creek+.......................................................... 398 521 666 694 752
Three Eastern Kentucky Contract Mines+................................. -- -- -- 33 145
--------- --------- --------- --------- ---------
Total.............................................................. 8,708 7,637 7,671 8,144 9,330
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
+ Underground
++ Surface
The mines in Western Kentucky, which produce mid to high sulfur coal, are
advantageously located near Lodestar's barge loading facility at the Caseyville
Dock, the southernmost dock on the Ohio River. See "--Coal Transportation." The
Eastern Kentucky mines, located within Central Appalachia, produce coal
typically low in sulfur content. Approximately 63% of Lodestar's production
originates from its Western Kentucky mines and the remaining production
originates from its Eastern Kentucky mines.
Lodestar's underground mines in Western Kentucky have substantial
demonstrated reserves, whereas its surface mines in Eastern Kentucky typically
have demonstrated reserves sufficient for two to four years of production.
However, Lodestar continually pursues development of new mines to replace the
production from a completed operation. In this manner, Lodestar's overall
production from its Eastern Kentucky surface mining operations has remained
relatively constant. Summarized below are descriptions of the mines Lodestar
currently operates.
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<PAGE>
BAKER MINE. Lodestar produced approximately 4.1 million tons of coal in
1997 from the Baker mine, the largest coal mine in Kentucky. For the twelve
months ended April 30, 1998, Lodestar sold 65% of the Baker mine production to
the TVA. Lodestar has operated this mine utilizing the longwall method of
underground mining, a highly efficient production technique since February 1995.
The longwall is supported by two continuous miner units. Coal from the Baker
mine averages 2.22% sulfur, 9.35% ash, 12,438 Btus per pound and 7% moisture on
a fully-washed basis. Lodestar controls approximately 31.8 million recoverable
tons of demonstrated reserves associated with the Baker mine.
Lodestar owns and operates a computer-controlled, 1,050-tons per hour,
modern preparation plant (the "Pyro Preparation Plant") located in close
proximity to the Baker mine. Coal from the Baker mine is transported to the Pyro
Preparation Plant by rail. This facility, which is capable of loading or
unloading a 9,000-ton unit train in four hours, has a storage capacity of
200,000 tons for raw coal and 359,000 tons for saleable coal. From this
facility, Lodestar has access to both the Paducah & Louisville Railway, Inc. and
the CSX rail line, as well as to the Caseyville Dock.
Lodestar's modern laboratory located at the Pyro Preparation Plant tests the
quality of coal to facilitate the precise blending of the coals from any
combination of the Baker, Wheatcroft and Smith mines. This facility, which is
operated by a third party, provides Lodestar the flexibility to offer various
coal qualities to meet specific contractual quality requirements.
As of October 31, 1997, the total cost of Lodestar's plant and equipment
associated with the Baker mine, not including the Pyro Preparation Plant, was
approximately $17.2 million, with a net book value of approximately $13.7
million. The total cost of Lodestar's Pyro Preparation Plant was approximately
$3.7 million, with a net book value of $3.4 million as of October 31, 1997.
WHEATCROFT MINE. The Wheatcroft mine produced 146,000 tons in 1997 of which
approximately 42% was sold to a coal brokerage firm for export for the twelve
months ended April 30, 1998. Prior to July 1995, Lodestar operated this mine
utilizing a longwall mining system. In July 1995, Lodestar suspended production
from this mine until July 1997 due to termination of a long-term coal supply
agreement and adverse geologic conditions. Since July 1997, a contract mining
company has provided the labor, equipment, supplies and other materials needed
to mine the Wheatcroft coal. Lodestar pays the contract mining company a fixed
price per ton for its mining services. Lodestar incurred capital costs of $.6
million during the reopening of the mine, with a remaining book value of $.5
million as of October 31, 1997.
The coal from the Wheatcroft mine averages 3.08% sulfur, 9.35% ash, 12,563
Btus per pound and 7% moisture on a fully washed basis. Lodestar controls
approximately 108.2 million recoverable tons of demonstrated reserves associated
with the Wheatcroft mine.
The Pyro Preparation Plant, which is in close proximity to the Wheatcroft
mine, provides Lodestar significant marketing flexibility for coal from the
Wheatcroft mine. The Pyro Preparation Plant's capabilities as discussed above
permit Lodestar to provide coal of specific qualities to meet customer needs.
SMITH UNDERGROUND. Lodestar produced 987,000 tons of coal from its Smith
Underground mine in 1997. For the twelve months ended April 30, 1998, Lodestar
sold approximately 75% of the Smith Underground mine production to Big Rivers.
The Smith Underground mine began production in late 1994, and presently utilizes
two continuous miners. The coal from the Smith Underground mine averages 3.23%
sulfur, 9.99% ash, 11,854 Btus per pound and 9% moisture on a fully washed
basis. Lodestar controls approximately 12.9 million recoverable tons of
demonstrated reserves at the Smith Underground mine.
The raw coal produced from the Smith Underground mine is transported by
overland belt to an on-site, computer controlled, 550-tons per hour, modern
preparation plant (the "Smith Preparation Plant") where the coal is washed,
blended or both. The Smith Preparation Plant has rail and truck loading
capabilities, as well as access to the Caseyville Dock.
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<PAGE>
Beginning in mid-June 1998, production temporarily was suspended at the
Smith Underground mine due to an abnormal build up of coal inventory, primarily
as a result of a reduction in shipments to Big Rivers. See "--Long-Term Coal
Supply Contracts." Lodestar expects to resume production from the mine by the
end of July 1998, regardless of its negotiations with Big Rivers.
The total cost of Lodestar's plant and equipment associated with the Smith
Underground mine, not including the Smith Preparation Plant, was approximately
$2.0 million as of October 31, 1997, and the net book value was approximately
$1.6 million as of such date. The total cost of Lodestar's plant and equipment
associated with the Smith Preparation Plant was approximately $1.7 million as of
October 31, 1997, and its net book value was approximately $1.5 million as of
such date.
SMITH SURFACE. The Smith Surface mine produced approximately 594,000 tons
of coal in 1997. For the twelve months ended April 30, 1998, Lodestar sold
approximately 75% of the Smith Surface mine production to Big Rivers. Since
October 1995, a contract mining company has operated this mine by the open pit
method of surface mining, utilizing a large dragline. As a result, Lodestar does
not maintain any plant and equipment associated with the Smith Surface mine.
The coal from the Smith Surface mine averages 4.04% sulfur, 9.48% ash,
12,135 Btus per pound and 8% moisture on a fully washed basis. This coal is
hauled by truck to the Smith Preparation Plant, where it is processed and loaded
for delivery to the customer. Lodestar controls approximately 2.1 million
recoverable tons of demonstrated reserves associated with the Smith Surface
mine.
The reduction in shipments to Big Rivers has resulted in suspension of
production from the Smith Surface mine as well, beginning in mid-June 1998.
Lodestar believes that it will resume production from the mine only if its
negotiations with Big Rivers are successful. See "--Long-Term Coal Supply
Contracts." Otherwise, it expects the operation to be idled for several months,
possibly indefinitely.
IVY CREEK. Lodestar produced approximately 1.0 million tons of low sulfur
coal in 1997 from the Ivy Creek mine and controls approximately 1.5 million
recoverable tons of demonstrated reserves associated with this mine. The
operation at Ivy Creek utilizes various surface mining techniques and employs
shovel, loader, and dozer spreads, including a Komatsu 575 dozer, the largest
dozer in the world. Coal from the Ivy Creek mine averages 0.9% sulfur, 10.0%
ash, 12,300 Btus per pound and 7% moisture.
Approximately 59% of the coal from this mine is transported by truck to
Lodestar's Transcontinental Loadout near Ivel, Kentucky (the "Transcontinental
Loadout") for shipment to customers. This facility, which is capable of loading
a 10,000-ton unit train in less than four hours, is located on the CSX rail
line, and has throughput capacity of 4.0 million tons per year. The
Transcontinental Loadout has modern crushing, screening and blending equipment,
as well as quality control and automated sampling systems. Coal from Lodestar's
other mines in Eastern Kentucky is also shipped through the Transcontinental
Loadout. Approximately 80% of Lodestar's coal shipped through the
Transcontinental Loadout is sold to affiliates of U.S. Gen. Lodestar generates
additional revenue from the Transcontinental Loadout by loading coal for
non-affiliated enterprises. In addition, Lodestar has the ability to purchase
coal from smaller producers and blend it through the Transcontinental Loadout.
In addition, approximately 13% of the coal from the Ivy Creek mine is
shipped through Lodestar's Stone Coal Loadout located near Pikeville, Kentucky
(the "Stone Coal Loadout"), and the balance is shipped directly to customers via
the Big Sandy River. At the Stone Coal Loadout, Lodestar has the capability of
crushing, sizing, and loading 360,000 tons per year. The Stone Coal Loadout has
capacity for a 9,000-ton unit train with a loading rate of 1,200 tons per hour
and a stockpile capacity of 40,000 tons.
The total cost of Lodestar's plant and equipment associated with the Ivy
Creek mine, not including the Transcontinental and Stone Coal Loadouts, was
approximately $3.6 million as of October 31, 1997, with a net book value of
approximately $3.1 million. The total cost of Lodestar's plant and equipment
associated with the Transcontinental Loadout was approximately $9.0 million as
of October 31, 1997, and its net book value was approximately $8.6 million as of
such date. The total cost of Lodestar's plant and
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<PAGE>
equipment associated with the Stone Coal Loadout was approximately $.6 million
as of October 31, 1997, and its net book value was approximately $.4 million as
of such date.
SPRADLIN BRANCH. Lodestar produced approximately 493,000 tons of low sulfur
coal in 1997 from the Spradlin Branch mine, utilizing the mountaintop and
contour surface mining methods. As of January 31, 1998, Lodestar controls
approximately 1.4 million recoverable tons of demonstrated reserves associated
with this mine. The coal from the Spradlin Branch mine averages 0.7% sulfur, 11%
ash, 12,000 Btus per pound and 7% moisture.
Approximately 36% of the coal from this mine is hauled by truck to several
barge loading facilities located on the Big Sandy River for shipment to various
customers. Lodestar maintains a stockpile near these docks, which allows
Lodestar to blend its product as necessary to meet a particular customer's
needs. The balance of Spradlin Branch mine's production is shipped to the
Transcontinental Loadout for shipment by rail to various customers.
The total cost of Lodestar's plant and equipment associated with the
Spradlin Branch mine was approximately $2.6 million as of October 31, 1997, with
a net book value of approximately $2.3 million.
SPURLOCK FORK. The Spurlock Fork mine produced approximately 543,000 tons
of low sulfur coal in 1997 by the mountaintop removal method of surface mining.
As of January 31, 1998, Lodestar controls approximately 0.5 million recoverable
tons of demonstrated reserves in connection with this mine. The coal from the
Spurlock Fork mine averages 0.9%, sulfur, 11% ash, 12,200 Btus per pound and 7%
moisture.
Approximately 63% of the coal produced from this mine is shipped for
truck-direct or river sales. The balance is hauled by truck to the Stone Coal
Loadout or Transcontinental Loadout. The total cost of Lodestar's plant and
equipment associated with the Spurlock Fork mine was approximately $1.7 million
as of October 31, 1997, with a net book value of approximately $1.5 million.
SHOP BRANCH. Lodestar operates the Shop Branch mine, which began production
in early 1997, as a contractor for the owner of the mine's coal and mining
rights. Lodestar has a contract to mine up to 1.8 million tons of low sulfur
coal of which 491,000 tons were mined in 1997, with approximately 900,000 tons
remaining as of April 30, 1998. Lodestar provides the labor, equipment, supplies
and other materials needed to mine the coal and is paid a fixed price per ton
for its mining services. The mining is accomplished through the mountaintop
removal method of surface mining. The coal averages 0.8% sulfur, 12.0% ash,
12,000 Btus per pound and 7% moisture.
In addition to mining services, Lodestar has agreed to purchase 750,000 tons
per year of coal from the Shop Branch mine through May 1999 and 500,000 tons per
year from June 1999 through May 2001. Pursuant to this contract, Lodestar
purchased approximately 432,000 tons from June 1, 1997 to December 31, 1997,
which were shipped through the Transcontinental Loadout. The total cost of
Lodestar's plant and equipment associated with the Shop Branch mine was
approximately $2.3 million as of October 31, 1997, and its net book value was
approximately $2.1 million as of such date.
MILLER CREEK. Lodestar produced approximately 752,000 tons of low sulfur
coal in 1997 from the Miller Creek mine and as of January 31, 1998 has
approximately 9.4 million recoverable tons of demonstrated reserves associated
with this mine. Lodestar utilizes two continuous miner units at the Miller Creek
mine. This coal averages 0.9% sulfur, 4.0% ash, 13,100 Btus per pound and 5%
moisture on a fully-washed basis.
The coal from the Miller Creek mine is hauled by truck to Lodestar's
Chapperal Preparation Plant in Pikeville, Kentucky (the "Chapperal Preparation
Plant"), a 700-ton per hour modern preparation plant with stockpile capacity of
40,000 tons. The Chapperal Preparation Plant is equipped with train and truck
loadouts and produces a specially sized stoker coal, as well as high quality nut
and slack coal. The coal shipped from the Chapperal Preparation Plant is sold to
a variety of customers.
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As of October 31, 1997, the total cost of Lodestar's plant and equipment
associated with the Miller Creek mine, not including the Chapperal Preparation
Plant, was approximately $2.6 million, with a net book value of approximately
$2.2 million. The total cost of Lodestar's plant and equipment associated with
the Chapperal Preparation Plant was approximately $1.8 million as of October 31,
1997, and its net book value was approximately $1.6 million as of such date.
THREE EASTERN KENTUCKY CONTRACT MINES. Lodestar controls the coal and
mining rights at three deep mines in Eastern Kentucky, which produced
approximately 145,000 tons in 1997. Lodestar uses contract mining companies at
each of these mines to provide the labor, equipment, supplies and other
materials needed to mine the coal and deliver it to either the Chapperal
Preparation Plant or the Transcontinental Loadout, as instructed by Lodestar.
Lodestar pays each contract mining company a fixed price per ton for its mining
services. These mines produce coal which averages 1.2% sulfur, 8.0% ash, 13,000
Btus per pound and 5% moisture on a fully washed basis. Because Lodestar
utilizes the services of a contract mining company at each of these mines,
Lodestar does not maintain any plant and equipment associated with these mines.
LONG-TERM COAL SUPPLY CONTRACTS
Lodestar supplies a substantial portion of its coal to customers pursuant to
long-term contracts. Customers enter into such long-term contracts principally
to secure a reliable source of coal at predictable prices. Lodestar enters into
such contracts to obtain stable revenue sources required to support the large
expenditures needed to open, expand and maintain the mines servicing such
contracts.
Presently, Lodestar supplies coal to more than 30 customers on an ongoing
basis. For the twelve months ended April 30, 1998, approximately 72% of
Lodestar's coal sales and related revenue were made under long-term contracts.
Five long-term contracts with three customers accounted for approximately 56% of
coal sales and related revenue for the twelve months ended April 30, 1998. As of
April 30, 1998, Lodestar's long-term contracts had a weighted average term of
approximately 8.4 years. The following table sets forth information regarding
Lodestar's long-term supply contracts as of April 30, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
CONTINUOUS EXPIRATION CURRENT CURRENT ANNUAL
SERVICE DATE OF CURRENT CONTRACT TERM(1) CONTRACT TONNAGE
CUSTOMER (NUMBER OF YEARS) CONTRACT (NUMBER OF YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Alabama Power Company................. 2 December 1999 3 400
City of Lansing (2)................... 10 December 1999 3 85
Abbott Laboratories................... 4 March 2000 6 75
Big Rivers(3)......................... 15 June 2001 41/2 1,277
TVA--Colbert/Gallatin(4).............. 21 June 2003 6 2,000
TVA--Johnsonville(4).................. 3 June 2003 6 1,000
Tondu Energy Systems, Inc.(2)......... 9 December 2004 16 200
U.S. Gen--Cedar Bay(2)(5)............. 5 August 2013 20 1,000
U.S. Gen--Indiantown(2)............... 3 December 2025 30 700
</TABLE>
- ------------------------
(1) Reflects stated term of contract including any options to extend and does
not assume early termination due to any price reopeners which may exist.
(2) Reflects shipments under total requirements contracts.
(3) The annual tonnage under contract was reduced effective July 1, 1998, to a
maximum of 750,000 tons, with 375,000 tons to each of two separate Big
Rivers plants. Pursuant to the price reopener provision of the contract, Big
Rivers obtained bids for replacement coal to the plants, and Lodestar was
given an opportunity to match the bid prices, with new prices effective July
1, 1998. The process resulted in a higher contract price for 375,000 tons to
one plant. The bid price for replacement tonnage to the other
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plant was lower than the contract price and was not accepted by Lodestar.
Although Big Rivers has taken the position that the contract has therefore
terminated with respect to that plant as of July 1, 1998, Lodestar has
asserted that the bid received by Big Rivers was not bona fide, as required
by the contract, and that Lodestar was entitled to "match" the next lowest
bid, which was a price acceptable to Lodestar. Although the contract
provides for arbitration, Lodestar continues negotiations with Big Rivers.
Lodestar believes it will reach an agreement with Big Rivers which will
allow it to ship more than 375,000 tons to Big Rivers during this contract
year, at a price acceptable to Lodestar.
(4) Provides for up to a 20% increase or decrease of coal supplied at the
customer's discretion.
(5) This contract accounted for approximately 10% of the Company's coal sales
and related revenue for the twelve months ended April 30, 1998. Cedar Bay
currently is involved in litigation with its principal customer whereby
Cedar Bay is alleging underpayment on the part of this customer pursuant to
their power purchase agreement. Cedar Bay's ability to meet its financial
obligations, including those under this contract with the Company, may be
adversely affected to the extent that Cedar Bay is not successful in its
litigation. If Cedar Bay is unable to fulfill its obligations under its
contract with the Company, including its commitments with respect to ash
disposal, it would have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Other Services."
Lodestar's long-term contracts with the TVA and U.S. Gen accounted for
approximately 27% and 17%, respectively, of Lodestar's coal sales and related
revenue for the twelve months ended October 31, 1997. The TVA contracts and the
U.S. Gen contracts are expected to represent approximately 26% and 18%,
respectively, of coal sales and related revenue in fiscal 1998. No other single
customer accounted for more than 10% of Lodestar's coal sales and related
revenue for the twelve months ended October 31, 1997.
The terms of long-term contracts entered into by Lodestar are the result of
specific bidding procedures set forth by a prospective customer followed by
extensive negotiations between the customer and Lodestar. The terms and
conditions of such contracts vary from customer to customer in many respects. In
particular, long-term contracts specify the characteristics of the coal to be
shipped to a customer, including, without limitation, the Btu, sulfur, ash and
moisture of the coal. Moreover, most of Lodestar's contracts specify the agreed
upon seams and/or locations from which the coal for a customer is to be sourced.
Certain coal supply agreements to which Lodestar is a party are
"requirements" contracts whereby the customer is obligated to purchase only that
quantity of coal required for its operations. Lodestar thus is exposed to
certain risks associated with its customers. In particular, the customer's
limited purchase obligation is directly related to the demand for the customer's
electricity produced from a particular facility with such coal. Demand for
electricity from these facilities, and therefore the demand for Lodestar's coal,
is affected by a number of factors beyond the control of Lodestar. For the
twelve months ended April 30, 1998, 25% of Lodestar's coal sales and related
revenue were derived from such requirements contracts.
In addition to the quantity, quality and source of coal, Lodestar's
contracts contain numerous other terms and conditions, including, without
limitation, the following: (i) price adjustment and/or reopener features; (ii)
extension, assignment and/or termination provisions; and (iii) force majeure
provisions to permit suspension of performance under a contract by Lodestar
and/or a customer due to certain events beyond the control of the affected
party, including labor disputes and changes in government regulation.
Certain of Lodestar's long-term coal supply contracts are subject to price
adjustment provisions which provide for increases or decreases in price, as
determined by specific conditions set forth in the contracts. Price conditions
in a contract might specify an economic index or other market pricing mechanism
on which a contract price is based. Certain contracts contain limitations on the
magnitude of price changes
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that may result from the reopener provisions of a contract. Price reopener
provisions provide for the renegotiation of the price terms of a long-term
contract.
Although Lodestar currently has no ongoing contract disputes other than the
continuing negotiations with Big Rivers, Lodestar has become involved in such
disputes from time to time relating to, among other things, coal quality,
pricing and quantity. While customer disputes, if unresolved, could result in
the termination or cancellation of the applicable contract, Lodestar works
closely with its customers to resolve any differences. Nonetheless, there can be
no assurance that future disputes, if any, will be resolved in a mutually
satisfactory manner.
Operating profit margins realized by Lodestar under its long-term contracts
vary from contract to contract and depend upon a variety of factors, including
the type of customer (electrical power utility, IPP or industrial), base price
and adjustment provisions, as well as Lodestar's production and transportation
costs. Termination or suspension of deliveries under contracts could have a
material adverse effect on Lodestar's financial condition and results of
operation.
COAL TRANSPORTATION
Customers typically incur the transportation costs from the loadout point
(E.G. where loaded onto truck or barge) to the place of use (E.G. a customers'
power plant). Consequently, the availability and cost of transportation
constitute important factors for the marketability of coal. Transportation costs
are dependent primarily on the proximity of the customer to the coal source.
For the twelve months ended April 30, 1998, approximately 45% of Lodestar's
tonnage was shipped by inland waterway barges, 40% by rail on CSX and 15% by
direct truck deliveries. Although CSX dominates Lodestar's access to rail lines,
Lodestar believes that the freight charges it pays are competitive with the
charges paid by other coal producers served by multiple railroads. The practices
and rates set by the railroad serving a particular mine might affect, either
adversely or favorably, Lodestar's marketing efforts with respect to coal
produced from that mine. In addition, Lodestar believes its use of non-rail
delivery systems is advantageous because it provides both competitive
alternatives and transportation diversification.
WESTERN KENTUCKY OPERATIONS
The Caseyville Dock located on the Ohio River in Western Kentucky plays an
important role in the transportation of Lodestar's Western Kentucky products.
Accessible by truck from Lodestar's Pyro and Smith Preparation Plants, the
Caseyville Dock handled 41% of Lodestar's total coal shipments for the twelve
months ended April 30, 1998. The Caseyville Dock provides Lodestar with a
competitive advantage over other coal producers because it (a) is under the
control of Lodestar and (b) is located farther south on the Ohio River than any
comparable facility, providing a cost advantage in delivering coal to customers
in the Southern United States. In addition, the large number of barge companies
on the Ohio River ensures competitive barging rates. As of October 31, 1997, the
total cost of plant and equipment associated with the Caseyville Dock was
approximately $.7 million, with a net book value of $.7 million.
For the twelve months ended April 30, 1998, 72% of Lodestar's Western
Kentucky coal shipments traveled by truck to the Caseyville Dock to be loaded
onto barges. The current operations depend upon a single trucking company to
transport coal from the Pyro Preparation Plant to the Caseyville Dock. In the
event that this trucking company is unable to continue this service, Lodestar
may experience a disruption in coal deliveries and may incur higher
transportation charges in the future. Subsequent to April 30, 1998, Lodestar has
reached agreement with TVA to ship by rail an increased portion of the coal
supplied to it. This agreement will lessen Lodestar's dependence on this single
trucking company.
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EASTERN KENTUCKY OPERATIONS
For the twelve months ended April 30, 1998, 76% of Lodestar's Eastern
Kentucky coal shipments traveled by CSX rail. The remaining 24% of coal
shipments traveled by truck directly to the customer or by truck to river docks.
Lodestar's Eastern Kentucky operations utilize numerous independent trucking
companies and thus are not dependent on any single trucking company.
MARKETING AND SALES
Lodestar currently conducts its marketing and sales throughout the Eastern,
South Central and Great Lakes regions of the United States, covering most areas
east of the Mississippi River and, through brokers, internationally. Shipments
of coal for the twelve months ended April 30, 1998 were 10.9 million tons,
including 6.5 million tons under contracts with utilities, 1.9 million tons
under long-term contracts with IPPs, 2.3 million tons to brokers and 0.2 million
tons to industrial customers.
Lodestar has recently increased its marketing staff to expand Lodestar's
industrial sales in the Midwest and its utility and industrial sales in the
Southern United States. New marketing initiatives are expected to increase total
coal sales as well as improve average price realizations. In addition, Lodestar
intends to restart its coal brokering operations to identify smaller producers
that may benefit from Lodestar's marketing resources and experience in certain
niche markets.
OTHER SERVICES
Lodestar operates an ash disposal facility adjacent to the Transcontinental
Loadout, which has approximately twenty years of capacity at current disposal
rates. This facility has the capability of accepting ash from both open-top
hopper railcars and pneumatic railcars. Presently, the ash disposed of at this
facility is received by Lodestar pursuant to its coal supply agreements with
Indiantown Cogeneration, L.P. ("Indiantown") and Cedar Bay Generating, L.P.
("Cedar Bay"), both affiliates of U.S. Gen.
Lodestar is paid a fee for disposal of the ash at this facility. For the
twelve months ended April 30, 1998, Lodestar disposed of approximately 289,000
tons of ash for which it was paid approximately $5.2 million. Cedar Bay
accounted for approximately 70% of the tons and approximately 75% of the revenue
associated with ash disposal for the twelve months ended April 30, 1998. The
total cost, including capitalized development expenditures, of Lodestar's plant
and equipment associated with this facility was $8.7 million as of October 31,
1997, and its net book value was approximately $8.3 million as of such date. See
"--Long-Term Coal Supply Contracts."
DEVELOPMENT AND EXPLORATION
As part of its ongoing mining operations, Lodestar develops certain of its
existing coal reserves. In particular, as part of its mine planning, Lodestar
surveys and drills geographic regions to determine, among other things, the
grade and depth of reserves to be mined. The objective of Lodestar's development
efforts is to identify the specific coal reserves with which to meet customer
requirements cost effectively.
With regard to exploration, Lodestar's business strategy encompasses the
acquisition of coal reserves that complement its existing operations or provide
expansion opportunities. The object of Lodestar's exploration activity is to
maintain and expand its coal reserves, offsetting the annual depletion resulting
from ongoing mining operations. Given the breadth of Lodestar's operating
capabilities in Eastern and Western Kentucky, Lodestar believes that
opportunities exist to consolidate coal reserves within its primary geographic
areas. Historically, the Predecessor Company, due to its strategic objectives,
did not undertake significant exploration activities. Lodestar, however, intends
to pursue exploration activities which are consistent with its business
strategy.
For the twelve months ended April 30, 1998, Lodestar capitalized in
accordance with generally accepted accounting principles $0.7 million associated
with its development and exploration efforts.
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COMPETITION
The United States coal industry is highly competitive, with numerous
producers in all coal producing regions. Lodestar competes with other large
producers and many small producers in the United States and abroad. Many of
Lodestar's customers are also customers of Lodestar's competitors. The markets
in which Lodestar sells its coal are highly competitive and affected by factors
beyond Lodestar's control. Continued demand for Lodestar's coal and the prices
that Lodestar will be able to obtain will depend primarily on coal consumption
patterns of the domestic electric utility industry, which in turn are affected
by the demand for electricity, coal transportation costs, environmental and
other governmental regulations and orders, technological developments and the
availability and price of competing coal and alternative fuel supply sources
such as oil, natural gas, nuclear energy and hydroelectric energy.
EMPLOYEES
As of April 30, 1998, Lodestar had 949 employees. The following table
presents Lodestar's employees by location:
<TABLE>
<CAPTION>
LOCATION HOURLY SALARY TOTAL
<S> <C> <C> <C>
Western Kentucky(1)....................................................................... 471 79 550
Eastern Kentucky(2)....................................................................... 300 51 351
West Virginia(3).......................................................................... 9 2 11
Corporate Office--Lexington, Kentucky..................................................... 10 27 37
--- --- ---
Total................................................................................. 790 159 949
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(1) In August 1997, the UMWA was certified by the NLRB following a
representation election to represent 446 employees at Lodestar's Western
Kentucky operations. Lodestar has entered into a collective bargaining
agreement with the UMWA, which either party may terminate on or after May
13, 2000, and that Lodestar believes will contribute to the long-term
success of these operations. Lodestar considers its relationship with these
employees generally to be good and has not experienced significant labor
relations problems as a result of the UMWA representation.
(2) Lodestar's employees at its Eastern Kentucky operations are not represented
by a union, and Lodestar believes its relations with these employees are
good. However, there can be no assurance that Lodestar's workforce in
Eastern Kentucky will not unionize in the future.
(3) Following the idling of production in the first quarter of fiscal 1998, the
employees at Lodestar's West Virginia operations are performing final
reclamation work.
LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to the
ordinary course of its business that are not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
Lodestar and Webster County Coal Corporation ("WCCC") are parties to an
agreement relating to Lodestar's mining at its Smith Surface mine. The agreement
resolved various disputes that arose in 1992 when WCCC objected to Lodestar's
renewal of its mining permit, claiming that Lodestar's operations could damage
WCCC's nearby underground mine. The agreement requires Lodestar to maintain a
minimum net worth of $70.0 million or, in the alternative, to procure a payment
and performance bond in the amount of $20.0 million, a requirement Lodestar has
not met since late 1996. In early June 1998, representatives of WCCC notified
Lodestar that it would take legal action to enforce its rights under this
provision of the agreement, if Lodestar did not fully comply with this provision
or propose a resolution acceptable to WCCC on or before June 30, 1998. Lodestar
has proposed an alternative resolution, and
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although negotiations with WCCC continue, there can be no assurance that WCCC
will not take such legal action. If WCCC were to take such legal action,
Lodestar could be required to stop mining prematurely at the Smith Surface mine,
currently scheduled to be closed in fiscal 1999. Although the Company cannot
predict what actions WCCC will take, the Company does not believe the outcome of
any such action would have a material adverse effect on the financial condition
and results of operations of the Company.
The Predecessor Company initiated a claim on June 16, 1990 against its
insurance carriers in COSTAIN COAL INC. V. NATIONAL UNION FIRE INSURANCE CO., ET
AL., Civil Action No. 90-CI-2075, Fayette Circuit Court, Third Division, for
denial of coverage on claims related to a 1989 accident at a former mine. The
insurance carriers ultimately funded the settlement but are seeking to recoup
from Lodestar a majority of the monies paid. A settlement was reached between
the Predecessor Company and one carrier, resulting in a remaining recoupment
claim of approximately $7.5 million. One of the carriers has been allowed to
file an amended complaint naming the Company as a party. The Predecessor Company
had asserted claims for damages alleging bad faith on the carriers' part in
refusing to fund the claims. In September 1994, the court issued an order
holding that some of the payments by the insurance carriers were made under
policies which did not provide coverage to the actual Predecessor Company entity
involved. The Predecessor Company has asserted that the court's ruling does not
eliminate its bad faith claims or establish the carriers' rights to recoupment.
Pursuant to the Acquisition, the Predecessor's Parent contractually retained
liability and agreed to indemnify Lodestar for the NATIONAL UNION action.
Accordingly, the Predecessor's Parent is defending the NATIONAL UNION action.
Discovery is substantially complete, but no trial date has been set. Although
the Company believes a court would recognize the contractual arrangement between
the Predecessor's Parent and Lodestar regarding the allocation of liability for
this litigation, there can be no assurance that the court will do so. Moreover,
there can be no assurance that the Predecessor's Parent will be able to fulfill
its indemnification obligations. See "Risk Factors--Predecessor Company Risk." A
ruling by the court that the insurance carriers are owed recoupment and that
liability for this matter attaches to Lodestar or the Company despite the
contractual allocation of liability to the Predecessor's Parent, could have a
material adverse effect on the Company's financial condition and results of
operations.
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GOVERNMENTAL REGULATION
OVERVIEW
The coal mining industry is subject to regulation by federal, state and
local authorities on matters such as employee health and safety, permitting and
licensing requirements, air and water pollution, the reclamation and restoration
of mining properties after mining is completed, the discharge of hazardous
materials into the environment, surface subsidence from underground mining and
the effects that mining has on groundwater quality and availability. In
addition, the industry is affected by significant legislation mandating certain
benefits for current and retired coal miners. Various permits (primarily from
state agencies) must be obtained before mining operations are commenced.
Lodestar believes that all permits currently required to conduct its present
mining operations have been obtained. Lodestar may be required to prepare and
present to federal, state or local authorities data pertaining to the effect
that a proposed exploration for or production of coal may have on the
environment. Such requirements could prove costly and time-consuming, and could
delay commencement or continuation of exploration or production operations.
Future legislation and administrative regulations may emphasize the protection
of the environment, and as a consequence, the activities of Lodestar may be more
closely regulated. Such legislation and regulations, as well as future
interpretations and more rigorous enforcement of existing laws, may require
substantial increases in equipment and operating costs to Lodestar and delays,
interruptions or a termination of operations, the extent of which cannot be
predicted.
The remainder of this section provides a brief description of the general
purpose and impact of the principal federal, state and local laws and
regulations that affect the coal mining industry. These descriptions do not
address every material aspect or possible impact of the applicable law or
regulation.
HEALTH AND SAFETY
MINE HEALTH AND SAFETY STANDARDS
The Federal Coal Mine Health and Safety Act of 1969 (the "1969 Act") has
resulted in important health and safety benefits to coal miners while increasing
operating costs and reducing productivity for the coal industry as a whole. The
Federal Mine Safety and Health Act of 1977 (the "1977 Act") significantly
expanded the enforcement of health and safety standards. Regulations are
comprehensive and affect numerous aspects of mining operations, including
training of mine personnel, mining procedures, blasting and the equipment used
in mining operations. In addition to the federal framework, most states
(including Kentucky) impose regulatory and legal parameters for mine safety and
health.
Lodestar seeks to continue to improve its health and safety performance by,
among other measures: training employees in safe work practices; openly
communicating with employees regarding safety procedures; establishing,
following and improving safety standards through Lodestar's loss prevention
system; involving employees in establishing safety standards; and recording,
reporting and investigating all accidents, incidents and losses to avoid
reoccurrence. As evidence of the effectiveness of Lodestar's commitment to
health and safety, Lodestar's Spurlock mine received the Sentinels of Safety
Award in 1996 from MSHA for achieving 80,432 hours without a lost time accident.
BLACK LUNG
The Black Lung Reform Act of 1977 requires each coal mine operator to secure
payment of federal and state black lung claims to its employees through
insurance, bonds, qualified self-insurance or contributions to a
state-controlled fund. This Act also establishes a trust fund for the payment of
benefits and medical expenses to employees who cannot receive these benefits
from their employer. The trust fund is financed by a tax on coal sales. Lodestar
is self-insured for its workers' compensation liability, including obligations
under state and federal black lung claims. Accordingly, as of April 30, 1998,
Lodestar had $19.8
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million of performance bonds outstanding related to such workers' compensation
liability. These performance bonds and other performance bonds including those
related to reclamation are supported by $17.8 million in letters of credit as of
April 30, 1998 and are secured by a third priority security interest (to become
a second priority security interest upon consummation of the Transactions) in
substantially all the property and other assets of Lodestar.
HEALTH BENEFITS ACT
The Coal Industry Retiree Health Benefit Act of 1992 (the "Health Benefits
Act") provides for the funding of health benefits for UMWA retirees. It requires
"signatory operators" to pay annual premiums to a trust fund benefiting those
retirees. Lodestar has been assigned a small number of beneficiaries based on
its former relationship with signatory operators. Lodestar is indemnified
contractually on this obligation by both the Predecessor's Parent and the
purchaser of its former operations in Alabama. Lodestar currently expects no
material liability in this regard. See "Risk Factors--Predecessor Company Risk."
ENVIRONMENTAL MATTERS
Lodestar is subject to regulation by various environmental laws, including
SMCRA, the Clean Air Act, the Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("CERCLA"), the Federal Water Pollution Control Act
(the "Clean Water Act") and the Resource Conservation and Recovery Act of 1976
("RCRA"), as well as state laws of similar scope. These laws require
governmental approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit Lodestar's mines and other
facilities in order to assure compliance.
SURFACE MINING CONTROL AND RECLAMATION ACT
SMCRA establishes mining and reclamation standards for all aspects of
surface mining, as well as many aspects of deep mining. SMCRA and similar state
statutes require, among other things, that mined property be restored in
accordance with specified standards and an approved reclamation plan. In
addition, the Abandoned Mine Lands Act, which is part of SMCRA, imposes a tax on
all current mining operations the proceeds of which are used to restore mines
closed before 1977 and not reclaimed. The maximum tax is $.35 per ton on
surface-mined coal and $.15 per ton on underground-mined coal.
SMCRA also requires that comprehensive environmental protection and
reclamation standards be met during the course of and upon completion of mining
activities. For example, SMCRA requires Lodestar to restore a surface mine to
approximate original contour as contemporaneously as practicable with surface
coal mining operations. The mine operator must submit a bond or otherwise secure
the performance of these reclamation obligations. Lodestar accrues the liability
associated with all end of mine reclamation on a ratable basis as the coal
reserve is being mined. The estimated cost of reclamation, and the corresponding
accrual on Lodestar's financial statements, is updated periodically.
As part of its reclamation activities in the ordinary course of its
business, Lodestar had approximately $42.4 million of performance bonds
outstanding as of April 30, 1998. Lodestar's obligations under these performance
bonds and other performance bonds including those related to workers'
compensation are supported by $17.8 million in outstanding letters of credit as
of April 30, 1998 and are secured by a third priority security interest (to
become a second priority security interest upon consummation of the
Transactions) in substantially all the property and other assets of Lodestar.
See "Risk Factors--Reclamation and Closure Liabilities."
CLEAN AIR ACT
The Clean Air Act and corresponding state laws which regulate the emissions
of pollutants into the air, affect coal mining operations both directly and
indirectly. Coal mining and processing operations may be directly affected by
Clean Air Act permitting requirements and/or emissions control requirements.
Coal
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mining and processing may also be impacted by future regulation of fine
particulate matter measuring 2.5 micrometers in diameter or smaller. For
example, new regulations relating to fugitive dust and coal emissions may
restrict Lodestar's ability to develop new mines or require Lodestar to modify
its existing operations.
The Clean Air Act indirectly affects coal mining operations by extensively
regulating the air emissions from coal-fueled electric power generation plants.
Reductions in emissions are occurring in two phases: Phase I began in 1995
(applicable to certain identified facilities) and Phase II will begin in 2000
(applicable to all facilities, including those subject to the 1995
restrictions). The affected utilities may be able to meet these requirements by,
among other things, switching to lower sulfur fuels, installing pollution
control devices such as scrubbers, reducing electricity generating levels, or by
purchasing or trading emissions allowance credits. Specific emissions sources
will receive these credits, which utilities and industrial concerns can trade or
sell to allow other units to emit higher levels of sulfur dioxide.
Lodestar believes that its presence in two distinct major coal supply
regions will minimize any adverse effects from the transition from Phase I to
Phase II of the Clean Air Act. The Clean Air Act, while limiting sulfur dioxide
(SO(2)) emissions, provides for certain alternatives to allow existing power
plants to continue to operate. In Eastern Kentucky, Lodestar's coal reserve base
consists of low sulfur coal for which a widespread market is expected to
continue to exist. In Lodestar's Western Kentucky operations, while the coal
reserve base consists of mid to high sulfur coals, Lodestar believes that it has
certain strengths with which to manage the effects of stricter emissions limits.
Specifically, higher sulfur coals with higher Btu content, such as Lodestar's
coal, will continue to be economical fuel supplies for plants equipped with
scrubbers. In addition, high sulfur coals can be blended with Western coals
containing low levels of sulfur to take advantage of the superior Btu content of
Lodestar's Western Kentucky coal. The emission allowance trading system also
will permit plants that over-comply with emission limits (including those with
scrubbers) to offset the emissions from higher emitting plants.
The Clean Air Act also requires that existing major sources of nitrogen
oxides in moderate or higher ozone non-attainment areas install Reasonably
Available Control Technology ("RACT") for nitrogen oxides, which are precursors
of ozone. In addition, stricter ozone standards are expected to be implemented
by the EPA by 2003. On October 10, 1997, the EPA unveiled an anti-smog plan
calling for steep reductions in nitrogen oxide emissions in 22 states, and cited
power plants as the preferred way to meet the goal. The states have a year to
respond to the proposal. Any new requirements will make it more costly to
operate coal-fired power plants and could make coal a less attractive fuel
alternative in the planning and building of power plants in the future. The
effect such legislation or other legislation that may be enacted in the future
could have on the coal industry in general and on Lodestar in particular cannot
be predicted with certainty. Such legislation limits the ability of some of
Lodestar's customers to burn higher sulfur coals unless these customers have or
are willing to install scrubbers, to blend coal or to bear the cost of acquiring
emission credits which permit them to burn higher sulfur coal. If the use of
coal as a raw material for power generating were to be reduced, a material
adverse effect on Lodestar's financial condition and results of operations could
result.
In addition, the international community met in Kyoto, Japan in December
1997 and reached an agreement on the Kyoto Protocol establishing binding targets
and timetables for reduction of greenhouse gases. Among other things, the United
States committed to reducing U.S. carbon dioxide (CO(2)) emissions by 7% from
1990 levels by the 2008 to 2012 time frame, which could reduce reliance on
fossil fuels, including coal. Whether the United States will ratify this treaty
is uncertain and will likely be the subject of heavy debate. The Company cannot
predict the outcome of the events or their effects on the Company's operating
performance.
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<PAGE>
CERCLA
Lodestar is one of over 150 parties to a consent decree in U.S. V. UNION
ELECTRIC COMPANY, ET AL., 92 CV 00078 (E.D. Mo.), settling claims under CERCLA
of the United States and State of Missouri for cleanup of the Missouri Electric
Works, Inc. Superfund Site located in Cape Girardeau, Missouri. Lodestar's
allocated share of costs is 1.13%, which Lodestar estimates will equal
approximately $113,000. The consent decree has not yet been entered by the Court
because of pending objections by certain non-settling parties.
Except for reclamation costs, amounts spent by Lodestar in 1997 for
environmental matters were not material and are not expected to be material in
1998 or 1999.
COMPLIANCE
Lodestar endeavors to conduct mining operations in compliance with all
applicable federal, state and local laws and regulations. However, because of
extensive and comprehensive regulatory requirements, violations during mining
operations occur from time to time in the industry. Notwithstanding compliance
efforts, Lodestar does not believe such violations can be completely eliminated.
None of the violations to date or the monetary penalties assessed upon Lodestar
have been material.
While it is not possible to quantify the costs of compliance with all
applicable federal and state laws, those costs have been and are expected to
continue to be significant. However, Lodestar believes the cost of compliance
with regulatory standards will not substantially affect its ability to compete
with similarly situated coal companies.
72
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company and the Guarantors:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Ira Leon Rennert..................................... 64 Chairman, Chief Executive Officer and Director of the
Company and Chairman and Director of Lodestar,
Eastern Resources and Industrial Fuels
John W. Hughes....................................... 57 President and Chief Operating Officer of the Company
and Lodestar and President of Eastern Resources and
Industrial Fuels
Eugene C. Holdaway................................... 51 Senior Vice President of the Company and Lodestar
R. Eberley Davis..................................... 41 Vice President and General Counsel of Lodestar
Michael E. Donohue................................... 47 Chief Financial Officer of the Company and Vice
President and Chief Financial Officer of Lodestar,
Eastern Resources and Industrial Fuels
Mike Francisco....................................... 42 Vice President--East Kentucky Operations of Lodestar
and Vice President of Industrial Fuels
William M. Potter.................................... 46 Vice President--West Kentucky Operations of Lodestar
</TABLE>
IRA LEON RENNERT has been Chairman, Chief Executive Officer, Director and
principal shareholder of Renco (including predecessors) since Renco's first
acquisition in 1975, Chief Executive Officer of the Company since April 1998,
Chairman and Director of the Company since its establishment in August 1996 and
Chairman and Director of Lodestar, Eastern Resources and Industrial Fuels since
March 1997. Renco holds controlling interests in a number of manufacturing and
distribution concerns operating in businesses not competing with Lodestar,
including WCI Steel, Inc., The Doe Run Resources Corporation, Renco Metals, Inc.
and AM General Corporation.
JOHN W. HUGHES has been President and Chief Operating Officer of the Company
since April 1998 and of the Predecessor Company and Lodestar since August 1996.
Mr. Hughes joined the Predecessor Company in July 1995 as Executive Vice
President and Chief Operating Officer. From May 1993 until joining the
Predecessor Company, Mr. Hughes was a consultant and pursued personal interests
outside the coal industry. From November 1992 to May 1993, Mr. Hughes was the
Manager--Operations, Safety and Environmental and the President of Shell Mining
Company. Mr. Hughes has over 30 years of experience in the coal mining and the
oil and gas industries.
EUGENE C. HOLDAWAY has been Senior Vice President of the Company since April
1998 and of the Predecessor Company and Lodestar since September 1995. Mr.
Holdaway joined the Predecessor Company in March 1993 as Vice President--Sales
and Marketing. From June 1987 to March 1993, Mr. Holdaway served as Vice
President--Midwest and Western Sales at Arch Coal Sales Company. Mr. Holdaway
has over 22 years of experience in the coal mining industry.
R. EBERLEY DAVIS has been Vice President and General Counsel of the
Predecessor Company and Lodestar since November 1995. Mr. Davis previously
served as Director of Legal Affairs and Corporate Counsel of the Predecessor
Company from July 1995 to November 1995 and as Director of Legal Affairs
73
<PAGE>
for the Western Division of the Predecessor Company from January 1993 to July
1995. Mr. Davis is a member of the Kentucky bar.
MICHAEL E. DONOHUE has been Chief Financial Officer of the Company and Vice
President and Chief Financial Officer of Lodestar, Eastern Resources and
Industrial Fuels since April 1998 and Treasurer of Industrial Fuels since
October 1994. From October 1997 to April 1998, Mr. Donohue was a consultant to
Lodestar. From November 1995 to September 1997, Mr. Donohue served as Vice
President and Treasurer of Lodestar and the Predecessor Company, and from March
1993 to November 1995, Mr. Donohue served as Assistant Treasurer of the
Predecessor Company. Mr. Donohue has held various positions with the Predecessor
Company and its subsidiaries since 1981.
MIKE FRANCISCO has been Vice President--East Kentucky Operations of the
Predecessor Company and Lodestar since July 1995 and Vice President of
Industrial Fuels since August 1995. Since joining the Predecessor Company in
June 1985, Mr. Francisco has held positions as, among others, Chief Engineer--
East Kentucky and Senior Production Engineer. Mr. Francisco has over eighteen
years experience in civil and mining engineering and is a registered
Professional Engineer.
WILLIAM M. POTTER has been Vice President--West Kentucky Operations of the
Predecessor Company and Lodestar since July 1995. Mr. Potter was Mine
Superintendent of Southard Coal from 1987 until it was acquired by the
Predecessor Company in 1989, and Mr. Potter remained in that position at the
Predecessor Company until 1990 when he became Superintendent of the Baker and
Wheatcroft mines. In 1993, Mr. Potter became General Manager of certain
underground operations in Western Kentucky. Mr. Potter has over 22 years of
experience in the mining industry.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the named executive officers by Lodestar and the Predecessor Company for
services rendered in all capacities for the twelve months ended October 31,
1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION(2)
<S> <C> <C> <C>
John W. Hughes.......................................................... $ 220,000 $ 330,000 $ 7,176
President and Chief Operating Officer
Eugene C. Holdaway...................................................... 180,250 -- 17,875
Senior Vice President
R. Eberley Davis........................................................ 155,000 35,000 6,511
Vice President and General Counsel
Mike Francisco.......................................................... 115,000 -- 4,543
Vice President--East Kentucky Operations
William M. Potter....................................................... 111,838 189 2,937
Vice President--West Kentucky Operations
</TABLE>
- ------------------------
(1) Value of perquisites and other personal benefits did not exceed the lesser
of $50,000 or 10% of total salary and bonus per named executive officer.
(2) The amounts shown as "All Other Compensation" in the table for each named
executive officer represent contributions to Messrs. Hughes, Holdaway,
Davis, Francisco and Potter under Lodestar's 401(k) plan of $6,000, $6,000,
$5,600, $3,807 and $2,280 respectively, and payments of life insurance
premiums of $1,176, $1,060, $911, $676 and $657, respectively. In addition,
Mr. Holdaway received a payment of $10,815 in lieu of a pension. See
"--Benefits."
74
<PAGE>
Ira Leon Rennert, the Chairman of the Board of Lodestar, receives no
compensation directly from Lodestar. Mr. Rennert is Chairman of the Board and
the principal stockholder of Renco, which is entitled to receive a management
fee from Lodestar pursuant to the Management Consultant Agreement (as defined).
The management consultant fee was waived for March 15, 1997 through October 31,
1997. See "Certain Relationships and Transactions."
No executive officer of the Company receives any compensation from the
Company except pursuant to his net worth appreciation agreement.
NET WORTH APPRECIATION AGREEMENTS
The named executive officers and Mr. Donohue are each parties to net worth
appreciation agreements with Lodestar, pursuant to which, upon termination of
each person's employment with Lodestar, he is entitled to receive an amount
equal to a fixed percentage of the cumulative net income of the Company, as
defined, from a base date until the end of the fiscal quarter preceding the date
of his termination. Such amount is payable without interest in 40 equal
quarterly installments, commencing three months after later of (i) the
termination of each person's employment or (ii) attaining age 62.
The base date for each of the named executive officers under their
respective net worth appreciation agreement is March 14, 1997, the date of the
Acquisition. Mr. Hughes has a net worth percentage of 2.5% that vests as to 1.5%
on April 30, 2000 and 0.5% on each of April 30, 2001 and 2002, PROVIDED that in
each case Mr. Hughes remains in the employ of Lodestar until the applicable
vesting date. Mr. Holdaway has a net worth percentage of 1.75% that vests as to
1.05% on April 30, 2000 and 0.035% on each of April 30, 2001 and 2002, PROVIDED
that in each case Mr. Holdaway remains in the employ of Lodestar until the
applicable vesting date. Messrs. Davis, Francisco, Potter and Donohue each has a
net worth percentage of 1.25% that vests as to 0.75% on April 30, 2000 and 0.25%
on each of April 30, 2001 and 2002, PROVIDED that in each case Messrs. Davis,
Francisco, Potter and Donohue each remains in the employ of Lodestar until the
applicable vesting date. As of October 31, 1997, none of the named executive
officers had earned any amounts under his respective net worth appreciation
agreement.
The net worth appreciation agreements also provide that, in the event of
payment of a dividend or a sale of Lodestar, the active participants will be
entitled to receive an amount equal to a percentage of the dividend or the net
proceeds of the sale equal to their maximum percentages under the agreements.
Upon consummation of the Old Notes Offering, approximately $2.8 million was paid
to certain employees of Lodestar, including each named executive officer,
pursuant to the net worth appreciation agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company had no compensation committee during fiscal 1997. Ira Leon
Rennert is the sole member of the Board of Directors. The compensation for the
executive officers is fixed by negotiations between such executive officers and
Mr. Rennert on behalf of Renco.
EMPLOYMENT AGREEMENTS
The named executive officers are parties to employment agreements with
Lodestar. Set forth below is a brief description of each such agreement.
JOHN W. HUGHES entered into an Employment Agreement with Lodestar, effective
as of April 1, 1997, with an initial term continuing until April 1, 2002 and
automatically renewable thereafter for additional one-year terms. Pursuant to
the terms of his agreement, Mr. Hughes' compensation is composed of (a) a base
annual salary of $220,000 and (b) an annual bonus of $75,000, provided that (i)
Mr. Hughes achieves certain performance objectives established by Lodestar, (ii)
Mr. Hughes is in active employment of Lodestar at the close of each fiscal year
and (iii) Lodestar's financial statements for such fiscal year, as prepared by
its independent public accountants, show a positive net income.
75
<PAGE>
EUGENE C. HOLDAWAY entered into an Employment Agreement with Lodestar,
effective as of April 1, 1997, with an initial term continuing until April 1,
2002 and automatically renewable thereafter for additional one-year terms.
Pursuant to the terms of his agreement, Mr. Holdaway's compensation is composed
of (a) a base annual salary of $180,250 and (b) an annual bonus of $40,000,
provided that (i) Mr. Holdaway achieves certain performance objectives
established by Lodestar, (ii) Mr. Holdaway is in active employment of Lodestar
at the close of each fiscal year and (iii) Lodestar's financial statements for
such fiscal year, as prepared by its independent public accountants, show a
positive net income.
R. EBERLEY DAVIS entered into an Employment Agreement with Lodestar,
effective as of April 1, 1997, with an initial term continuing until April 1,
2002 and automatically renewable thereafter for additional one-year terms.
Pursuant to the terms of his agreement, Mr. Davis' compensation is composed of
(a) a base annual salary of $155,000 and (b) an annual bonus of $25,000,
provided that (i) Mr. Davis achieves certain performance objectives established
by Lodestar, (ii) Mr. Davis is in active employment of Lodestar at the close of
each fiscal year and (iii) Lodestar's financial statements for such fiscal year,
as prepared by its independent public accountants, show a positive net income.
MIKE FRANCISCO entered into an Employment Agreement with Lodestar, effective
as of April 1, 1997, with an initial term continuing until April 1, 2002 and
automatically renewable thereafter for additional one-year terms. Pursuant to
the terms of his agreement, Mr. Francisco's compensation is composed of (a) a
base annual salary of $130,000 and (b) an annual bonus of $25,000, provided that
(i) Mr. Francisco achieves certain performance objectives established by
Lodestar, (ii) Mr. Francisco is in active employment of Lodestar at the close of
each fiscal year and (iii) Lodestar's financial statements for such fiscal year,
as prepared by its independent public accountants, show a positive net income.
WILLIAM M. POTTER entered into an Employment Agreement with Lodestar,
effective as of April 1, 1997, with an initial term continuing until April 1,
2002 and automatically renewable thereafter for additional one-year terms.
Pursuant to the terms of his agreement, Mr. Potter's compensation is composed of
(a) a base annual salary of $111,550 and (b) an annual bonus of $25,000,
provided that (i) Mr. Potter achieves certain performance objectives established
by Lodestar, (ii) Mr. Potter is in active employment of Lodestar at the close of
each fiscal year and (iii) Lodestar's financial statements for such fiscal year,
as prepared by its independent public accountants, show a positive net income.
MICHAEL E. DONOHUE entered into an Employment Agreement with Lodestar,
effective as of July 1, 1998 with an initial term continuing until April 1, 2002
and automatically renewable thereafter for additional one-year terms. Pursuant
to the terms of his agreement, Mr. Donohue's compensation is composed of (a) a
base annual salary of $150,000 and (b) an annual bonus of $35,000, provided that
(i) Mr. Donohue achieves certain performance objectives established by Lodestar,
(ii) Mr. Donohue is in active employment of Lodestar at the close of each fiscal
year and (iii) Lodestar's financial statement for such fiscal year, as prepared
by its independent public accountants, show a positive net income.
Each of the above described employment agreements requires that, until April
1, 2002 or the termination of their employment, whichever is later, each of the
above executive officers not, directly or indirectly, engage in any aspect of
the business of coal mining as an officer, director, partner, proprietor,
investor, associate, employee or consultant. In addition, each of the above
executive officers has agreed to maintain the confidentiality of information
obtained during their employment with Lodestar.
BENEFITS
Lodestar has a 401(k) defined contribution plan that covers all employees.
Employees can defer up to 15% of their income, and Lodestar contributes $1.00
for each $1.00 deferred up to 4% of an employee's salary (except for certain
employees of the Western Kentucky mining operations) and $.50 for each $1.00
deferred up to 4% of an employees' salary for such Western Kentucky employees.
Amounts deferred vest after five years.
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<PAGE>
Lodestar has a defined benefit plan for certain employees of the Western
Kentucky mining operations who do not receive full 401(k) matching from
Lodestar. Eligible employees receive, subject to certain limitations, a monthly
benefit equal to the sum of $17.08875 for each year of service up to ten years,
$17.64 for each year of service in excess of ten years up to twenty years,
$18.19125 for each year of service in excess of twenty years up to 30 years and
$18.7425 for each year of service in excess of 30 years up to 40 years. Benefits
begin on or before the 60th day after the end of the calendar year in which the
latest of the following occur: (i) the eligible employee attains the age of 65,
(ii) the tenth anniversary of the eligible employee's participation in the plan
or (iii) the date the eligible employee ceased to be an employee. William M.
Potter, the only named executive officer who participates in this plan, based on
his service to date, would receive benefits upon retirement at the age of 62
estimated to be $170.89 per month.
Industry legislation mandates certain benefits for current and retired coal
miners. See "Government Regulation--Health and Safety."
STOCK OWNERSHIP
The following table sets forth certain information as of the date hereof
regarding the beneficial ownership of common stock of the Company by each
beneficial owner of 5% or more of the common stock of the Company, each director
and each named executive officer of the Company and Lodestar during the last
fiscal year, and by all directors and executive officers of the Company and
Lodestar as a group. Except as otherwise noted, the persons named in the table
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
<S> <C> <C>
SHARES OF
NAME OF BENEFICIAL OWNERS COMMON STOCK PERCENT
The Renco Group, Inc.(1)................................................................. 1,000 100.0%
Ira Leon Rennert(1)(2)................................................................... 1,000 100.0%
John W. Hughes........................................................................... -- --
Eugene C. Holdaway....................................................................... -- --
R. Eberley Davis......................................................................... -- --
Mike Francisco........................................................................... -- --
William M. Potter........................................................................ -- --
All directors and executive officers as a group (7 persons).............................. 1,000 100.0%
</TABLE>
- ------------------------
(1) The address of this beneficial owner is c/o The Renco Group, Inc., 30
Rockefeller Plaza, 42nd Floor, New York, New York 10112.
(2) Mr. Rennert is deemed to beneficially own the Common Stock of the Company
owned by Renco due to the ownership by himself and trusts established by him
(but of which he is not a trustee) for himself and members of his family of
a total of 97.9% of the outstanding Common Stock of Renco.
By virtue of Renco's ownership of all the outstanding shares of Common
Stock, and Mr. Rennert's ownership of a majority of the stock of Renco, Mr.
Rennert is in position to control actions that require the consent of a majority
of the holders of the Company's outstanding shares of Common Stock, including
the election of the Board of Directors.
77
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Under a Management Consultant Agreement, effective March 14, 1997, as
amended (the "Management Consultant Agreement"), between Renco and Lodestar,
Lodestar pays annual fees of $1,200,000 to Renco. The Management Consultant
Agreement provides that Lodestar shall not make any payment thereunder which
would violate any of its agreements with respect to any of its outstanding
indebtedness. The Management Consultant Agreement extends to October 31, 2005,
and thereafter shall continue for additional terms of three years each unless
sooner terminated by either party by giving six months prior written notice. For
the period March 15, 1997 to October 31, 1997, Lodestar's management fees were
waived by Renco. The management fees to Renco for the period from November 1,
1997 to the closing date of the Old Notes Offering were paid with the net
proceeds from the Old Notes Offering. Lodestar believes that the cost of
obtaining the type and quality of services rendered by Renco under the
Management Consultant Agreement was, and continues to be, no less favorable than
that at which Lodestar could obtain such services from unaffiliated entities.
The Company is included in the consolidated federal income tax return of
Renco. Under the terms of the Company's tax sharing agreement with Renco, income
taxes are allocated by Renco to the Company on a separate return basis except
that transactions between the Company and Renco and its other subsidiaries are
accounted for on a cash basis and not on an accrual basis. The Company is not
entitled to the benefit of net tax loss carryforwards, unless such tax losses
were a result of timing differences between its respective accounting for tax
and financial reporting purposes.
To obtain the advantages of volume, Renco purchases certain insurance
coverages for its subsidiaries, including the Company and Lodestar, and the
actual cost of such insurance, without markup, is reimbursed by the covered
subsidiaries. The major areas of Lodestar's insurance coverage obtained under
the Renco programs are property and business interruption. The premiums for
property and business interruption are allocated by Renco substantially as
indicated in the underlying policies. Renco also purchases and administers
certain insurance policies exclusively for Lodestar, including general and
product liability, automobile liability, casualty umbrella, excess workers'
compensation, marine liability, fiduciary and fidelity. Workers' compensation is
self-insured. The cost of such insurance, without markup, is reimbursed by
Lodestar as incurred. The total insurance cost under the Renco insurance
programs incurred in fiscal 1997 by Lodestar was approximately $.9 million. The
policies purchased by Renco were effective for less than a full year during
fiscal 1997; the annual cost of these policies was approximately $2.3 million.
Lodestar believes that its insurance costs under this program were less than it
would have incurred if it had obtained its insurance directly.
In connection with the Acquisition, Renco loaned $2.0 million to the
Company. In addition, Renco loaned $3.0 million to Lodestar in October 1997 to
provide working capital. These loans were repaid in full, including accrued
interest thereon, with the net proceeds of the Old Notes Offering.
Upon consummation of the Old Notes Offering, the Company paid a dividend to
Renco of $27.8 million.
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<PAGE>
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes are issued under the Indenture. The following summary of
the material provisions of the Indenture does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. A
copy of the Indenture is filed as an exhibit to the Registration Statement. The
definitions of certain capitalized terms used in the following summary are set
forth below under "--Certain Definitions." For purposes of this section,
references to the "Company" include only Lodestar Holdings, Inc. and not its
Subsidiaries.
GENERAL
The Senior Notes are general unsecured obligations of the Company limited to
$235.0 million in aggregate principal amount, of which $150.0 million were
issued in the Old Notes Offering. Additional amounts of Senior Notes in an
aggregate principal amount of $85.0 million may be issued under the Indenture in
one or more series from time to time, subject to the limitations set forth under
"--Certain Covenants--Limitation on Indebtedness."
The Senior Notes will mature on May 15, 2005. Each Note bears interest at
the rate set forth on the cover page hereof from the date of issuance or from
the most recent interest payment date to which interest has been paid, payable
semiannually in arrears on each May 15, and November 15, commencing November 15,
1998, to the person in whose name the Senior Note (or any predecessor Senior
Note) is registered at the close of business on the May 1 or November 1
immediately preceding such interest payment date.
Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the Senior Notes will be exchangeable and transferable, at the
office or agency of the Company in New York City maintained for such purposes
(which initially will be the Trustee or its agent); PROVIDED that payment of
interest may be made at the option of the Company by check mailed to the
registered holders of the Senior Notes ("Holders") at their registered
addresses. The Senior Notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer, exchange or
redemption of Senior Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
OPTIONAL REDEMPTION
The Senior Notes will be subject to redemption, in whole or in part, at the
option of the Company, at any time on or after May 15, 2002, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued interest to the redemption date, if redeemed during the twelve month
period beginning on May 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002............................................................................. 105.750%
2003............................................................................. 102.875%
2004 and thereafter.............................................................. 100.000%
</TABLE>
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS
In addition, at any time prior to May 15, 2001, the Company may redeem up to
35% of the sum of (x) the aggregate principal amount of the Senior Notes issued
in the Offering plus (y) any additional Senior Notes issued after the Issue Date
pursuant to the Indenture, with the proceeds of one or more Equity
79
<PAGE>
Offerings at a redemption price (expressed as a percentage of principal amount)
of 111.5% plus accrued interest to the redemption date; PROVIDED that at least
65% of the sum of (x) the aggregate principal amount of Senior Notes issued in
the Old Notes Offering plus (y) any additional Senior Notes issued after the
Issue Date pursuant to the Indenture remains outstanding immediately after any
such redemption. In order to effect the foregoing redemption with the proceeds
of any Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Equity Offering. "Equity Offering" means
an offering of Qualified Capital Stock of the Company (other than to any
Subsidiary of the Company).
SINKING FUND
There will be no mandatory sinking fund payments for the Senior Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Senior Notes are to be redeemed at
any time, selection of such Senior Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange or quotation system, if any, on which such Senior Notes are listed or,
if such Senior Notes are not then listed on a national securities exchange or
quotation system, on a PRO RATA basis, by lot or by such method as the Trustee
shall deem fair and appropriate; PROVIDED, HOWEVER, that (i) no Senior Notes of
a principal amount of $1,000 or less shall be redeemed in part and (ii) a
redemption with the net cash proceeds of an Equity Offering shall be made on a
PRO RATA basis unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Senior Notes to be redeemed at its
registered address. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in a principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Senior Note. On and after the
redemption date, interest will cease to accrue on Senior Notes or portions
thereof called for redemption.
GUARANTEES
The Company's obligations under the Senior Notes were guaranteed on the
Issue Date in the manner described below by the Company's existing Subsidiaries,
Lodestar Energy, Inc., Eastern Resources, Inc. and Industrial Fuels Minerals
Company, and, in the future, may be guaranteed by certain of the Company's
Restricted Subsidiaries. See "--Certain Covenants--Future Guarantees."
Each Guarantor unconditionally guarantees, on a senior basis, jointly and
severally, to each Holder and the Trustee, the full and prompt performance of
the Company's obligations under the Indenture and the Senior Notes, including
the payment of principal of and interest on the Senior Notes. The obligations of
each Guarantor are limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount PRO RATA,
based on the net assets of each Guarantor determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or to another Guarantor that is a Restricted Subsidiary without
limitation, or with other persons upon the terms and conditions set forth in the
Indenture. See "--Merger, Consolidation, Etc." In the event that either all of
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the Capital Stock of a Guarantor is sold by the Company or one of the Restricted
Subsidiaries (whether by merger, stock purchase or otherwise) or all or
substantially all of the assets of a Guarantor are sold by such Guarantor and
such sale complies with the provisions set forth in "--Certain
Covenants--Limitation on Sale of Assets" and "--Certain Covenants--Change of
Control" and any other applicable provisions in the Indenture, the Guarantor's
Guarantee will be released.
RANKING
The indebtedness of the Company and the Guarantors evidenced by the Senior
Notes and the Guarantees rank senior in right of payment to all future senior
subordinated and subordinated indebtedness of the Company and the Guarantors,
respectively, and PARI PASSU with all other existing and future unsubordinated
indebtedness of the Company and the Guarantors, respectively. However, holders
of secured indebtedness and other secured obligations of the Company and the
Guarantors, such as the lenders under the New Senior Credit Facility and the
surety of the Performance Bonds, will have claims that effectively rank prior to
those of the Holders with respect to the assets securing such indebtedness.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
become liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness; PROVIDED
that the Company and the Guarantors may incur Indebtedness (including Acquired
Indebtedness) if: (A) no Default or Event of Default shall have occurred and be
continuing at the time of the proposed incurrence thereof or shall occur as a
result of such proposed incurrence, and (B) after giving pro forma effect to
such proposed incurrence (and the application of the net proceeds therefrom),
the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to
2.0 to 1.0. Notwithstanding the foregoing, a Restricted Subsidiary that is not a
Guarantor may incur Acquired Indebtedness to the extent such Indebtedness could
have been incurred by the Company and the Guarantors pursuant to the proviso in
the immediately preceding sentence.
(b) The Company and the Guarantors shall not, directly or indirectly, in any
event incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated to any other Indebtedness
of the Company or such Guarantor unless such Indebtedness is also by its terms
(or by the terms of any agreement governing such Indebtedness) made expressly
subordinated to the Senior Notes or the Guarantee of such Guarantor, as the case
may be, to the same extent and in the same manner as such Indebtedness is
subordinated to such other Indebtedness of the Company or such Guarantor.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, after the Issue Date (a) declare or pay any dividend
or make any distribution on the Company's Capital Stock or make any payment to
holders of such Capital Stock (other than dividends or distributions payable in
Qualified Capital Stock of the Company or repayment of Indebtedness except as
provided in clause (c)), (b) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock, (c) purchase,
redeem, prepay, defease or otherwise acquire or retire for value, prior to any
scheduled maturity, scheduled repayment or scheduled sinking fund payment,
Indebtedness of the Company or any of the
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Guarantors that is expressly subordinate in right of payment to the Senior Notes
or the Guarantee of such Guarantor, as the case may be, or (d) make any
Investment (excluding any Permitted Investment) (each of the foregoing actions
set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) Restricted Payments made subsequent to the Issue Date (the
amount expended for such purposes, if other than in cash, shall be the Fair
Market Value of such property proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment)
shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and prior to the date the
Restricted Payment occurs (treating such period as a single accounting
period);
(x) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by the Company from any person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to
the Issue Date of Qualified Capital Stock of the Company (excluding (A)
Qualified Capital Stock paid as a dividend on any Capital Stock or as
interest on any Indebtedness, (B) any net proceeds from issuances and sales
financed directly or indirectly using funds borrowed from the Company or any
Subsidiary of the Company, until and to the extent such borrowing is repaid
and (C) any net proceeds from any Equity Offering which are used to redeem
the Senior Notes pursuant to, and in accordance with, the provisions
described under the caption "--Optional Redemption--Optional Redemption upon
Equity Offerings" above);
(y) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by the Company from any person (other
than a Subsidiary of the Company) from the issuance and sale of Disqualified
Capital Stock and/or Indebtedness, in each case that has been converted into
or exchanged for, pursuant to the terms of such Indebtedness, Qualified
Capital Stock of the Company after the Issue Date; and
(z) without duplication, the sum of (1) the aggregate amount returned in
cash on or with respect to Investments (other than Permitted Investments)
made subsequent to the Issue Date whether through interest payments,
principal payments, dividends or other distributions or payments, (2) the
net cash proceeds received by the Company or any Restricted Subsidiary from
the disposition of all or any portion of such Investments (other than to a
Subsidiary of the Company) and (3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the Fair Market Value of such
Subsidiary; PROVIDED, HOWEVER, that the sum of clauses (1), (2) and (3)
above shall not exceed the aggregate amount of all such Investments made
subsequent to the Issue Date.
The foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration;
(2) the acquisition of Capital Stock of the Company or Indebtedness of
the Company or any Guarantor either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of
net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company;
(3) the acquisition of Indebtedness of the Company or any Guarantor that
is expressly subordinate in right of payment to the Senior Notes or such
Guarantor's Guarantee, as the case may be, either (i) solely in exchange for
Indebtedness of the Company or such Guarantor which is expressly subordinate
in right of payment to the Senior Notes or such Guarantor's Guarantee, as
the case may be, at least to the extent that the Indebtedness being acquired
is subordinated to the Senior Notes or such Guarantor's Guarantee, as the
case may be, and has no scheduled principal prepayment
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dates prior to the scheduled final maturity date of the Indebtedness being
exchanged or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
Indebtedness of the Company or such Guarantor which is expressly subordinate
in right of payment to the Senior Notes or such Guarantor's Guarantee, as
the case may be, at least to the extent that the Indebtedness being acquired
is subordinated to the Senior Notes or such Guarantor's Guarantee, as the
case may be, and has no scheduled principal prepayment dates prior to the
scheduled final maturity date of the Indebtedness being refinanced;
(4) the making of payments by the Company or any of the Restricted
Subsidiaries to Renco (A) no earlier than ten days prior to the date on
which Renco is required to make its payments to the Internal Revenue Service
or the applicable state taxing authority, as the case may be, pursuant to a
tax sharing agreement (which tax sharing agreement provides that the
payments thereunder shall not exceed the amount the Company and its
Subsidiaries would have been required to pay for taxes on a stand-alone
basis, except that the Company and its Subsidiaries will not have the
benefit of any of its tax loss carryforwards unless such tax losses were a
result of timing differences between the Company's and its Subsidiaries'
accounting for tax and financial reporting purposes, and which tax sharing
agreement also provides that transactions between the Company and Renco and
Renco's other Subsidiaries are accounted for on a cash basis and not on an
accrual basis) and (B) to reimburse Renco for out of pocket insurance or
surety bond payments made by Renco on behalf of the Company and its
Subsidiaries;
(5) the payment by the Company or any of the Restricted Subsidiaries of
a management fee to Renco in an amount not to exceed $1.2 million in any
fiscal year; and
(6) the payment by the Company of (i) a dividend to Renco on the Issue
Date in the aggregate amount not to exceed $28.0 million and (ii) accrued
and unpaid management fees to Renco on the Issue Date in an aggregate amount
not to exceed $700,000;
PROVIDED that in the case of clauses (2), (3) and (5), no Default or Event of
Default shall have occurred and be continuing at the time of such payment or as
a result thereof.
In determining the aggregate amount of Restricted Payments permissible under
clause (ii) of the first paragraph of this section, amounts expended, incurred
or outstanding pursuant to clauses (1) and (2) (but not pursuant to clauses (3),
(4), (5) or (6)) of the second paragraph of this section shall be included as
Restricted Payments; PROVIDED that any proceeds received from the issuance of
Qualified Capital Stock pursuant to clause (2) of the second paragraph of this
section shall be included in calculating the amount referred to in clause (x) or
clause (y), as the case may be, of the first paragraph of this section.
LIMITATION ON SALE OF ASSETS
The Company will not, and will not permit any of the Restricted Subsidiaries
to, consummate any Asset Sale unless (i) such Asset Sale is for at least Fair
Market Value, (ii) at least 80% of the consideration therefrom received by the
Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents
and (iii) the Company or such Restricted Subsidiary shall apply the Net Cash
Proceeds of such Asset Sale within 270 days of receipt thereof, as follows:
(a) first, to repay (and, in the case of any revolving credit facility,
to the extent required by such revolving credit facility, effect a permanent
reduction in the commitment thereunder) any Indebtedness secured by the
assets involved in such Asset Sale or otherwise required to be repaid with
the proceeds thereof; and
(b) second, with respect to any Net Cash Proceeds remaining after
application pursuant to the preceding paragraph (a) (the "Available
Amount"), the Company shall make an offer to purchase (the
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"Asset Sale Offer") from all Holders of Senior Notes, up to a maximum
principal amount (expressed as a multiple of $1,000) of Senior Notes equal
to the Available Amount at a purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date
of purchase; PROVIDED, HOWEVER, that the Company will not be required to
apply pursuant to this paragraph (b) Net Cash Proceeds received from any
Asset Sale if, and only to the extent that, such Net Cash Proceeds are
applied to a Related Business Investment within 270 days of such Asset Sale;
PROVIDED, FURTHER, that if at any time any non-cash consideration received
by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash, then such conversion or disposition shall be deemed to
constitute an Asset Sale under the Indenture and the Net Cash Proceeds
thereof shall be applied in accordance with this "Limitation on Sale of
Assets" covenant; and PROVIDED, FURTHER, that the Company may defer the
Asset Sale Offer until there is an aggregate unutilized Available Amount
equal to or in excess of $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Available Amount, and not just
the amount in excess of $10.0 million, shall be applied as required pursuant
to this paragraph). To the extent the Asset Sale Offer is not fully
subscribed to by Holders of the Senior Notes, the Company and the Restricted
Subsidiaries may retain such unutilized portion of the Available Amount and
use it for any purpose not prohibited by the Indenture.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a person in a transaction permitted under "--Merger, Consolidation,
Etc." below, the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the Fair Market Value of such properties and assets of the Company
or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notice of an Asset Sale Offer will be mailed to the record Holders as shown
on the register of Holders not less than 30 days nor more than 60 days before
the payment date for the Asset Sale Offer, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Asset Sale Offer, Holders may elect to tender their Senior Notes in whole or
in part in integral multiples of $1,000 principal amount at maturity in exchange
for cash. To the extent Holders properly tender Senior Notes in an amount
exceeding the Available Amount, Senior Notes of tendering Holders will be
repurchased on a PRO RATA basis (based on amounts tendered). An Asset Sale Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale
Offer, the Company will comply with all tender offer rules under state and
Federal securities laws, including, but not limited to, Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), and shall, subject
to the provisions described below, purchase, on a business day (the "Change of
Control Purchase Date") not more than 60 nor less than 45 days following the
occurrence of the Change of Control, all of the then outstanding Senior Notes at
a purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount of the Senior Notes plus accrued and unpaid interest thereon to
the date of purchase. The Company shall, subject to the provisions described
below, be required to purchase all Senior Notes validly tendered into the Change
of Control Offer and not withdrawn. The Change of Control Offer is required to
remain open for at least 20 business days and until the close of business on the
Change of Control Purchase Date.
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In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Holder of
Senior Notes notice of the Change of Control Offer, which notice shall govern
the terms of the Change of Control Offer and shall state, among other things,
the procedures that Holders of Senior Notes must follow to accept the Change of
Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Senior Notes that might be delivered by Holders of
Senior Notes seeking to accept the Change of Control Offer. The Company shall
not be required to make a Change of Control Offer upon a Change of Control if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Senior Notes validly tendered and
not withdrawn under such Change of Control Offer.
In the event that a Change of Control occurs and the Company is required to
purchase the Senior Notes as described above, the Company will comply with all
tender offer rules under state and Federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
LIMITATION ON LIENS
The Company will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Liens
upon any properties or assets of the Company (including, without limitation, any
Capital Stock of a Restricted Subsidiary) or any of the Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or on any
income or profits therefrom, or assign or otherwise convey any right to receive
income or profits thereon other than (i) Liens existing on the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date, (ii) Liens
on properties and assets of the Company and the Restricted Subsidiaries existing
from time to time securing Indebtedness of the Company and the Restricted
Subsidiaries under the New Senior Credit Facility and securing obligations of
the Company and the Restricted Subsidiaries from time to time under performance
bonds, surety bonds or appeal bonds or other obligations of a like nature
incurred in the ordinary course of business and (iii) Permitted Liens.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to: (a) pay dividends or make any other distributions on its Capital
Stock, or any other interest or participation in, or measured by, its profits,
owned by the Company or by any Restricted Subsidiary, or pay any Indebtedness
owed to the Company or any Restricted Subsidiary; (b) make loans or advances to
the Company or any Restricted Subsidiary; or (c) transfer any of its properties
or assets to the Company or to any Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of: (i) applicable law;
(ii) the Indenture; (iii) customary non-assignment provisions of any lease
governing a leasehold interest of the Company or any Restricted Subsidiary; (iv)
any instrument governing Indebtedness of a person acquired by the Company or any
Restricted Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of any
person, other than the person or its Subsidiaries so acquired; (v) any written
agreement existing on the Issue Date or amendments or modifications thereto;
PROVIDED that no such agreement shall be modified or amended in such a manner as
to make the encumbrance or restriction more restrictive than as in effect on the
Issue Date; (vi) Indebtedness existing and as in effect on the Issue Date,
including, without limitation, the New Senior Credit Facility or any
refinancing, refunding, replacement or extensions thereof, PROVIDED that any
such encumbrance or restriction contained in any refinancing, refunding,
replacement or extension of the New Senior Credit Facility shall be no more
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restrictive than such encumbrance or restriction contained in the New Senior
Credit Facility as in effect on the Issue Date; and (vii) Indebtedness incurred
in accordance with the Indenture; PROVIDED that such encumbrance or restriction
shall be no more restrictive than any encumbrance or restriction contained in
the New Senior Credit Facility as in effect on the Issue Date.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of an Affiliate of the Company or any Restricted Subsidiary (other than
transactions between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries) (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under (b) below and (y) Affiliate Transactions (including
lease transactions) on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary in the aggregate than those that might reasonably
have been obtained in a comparable transaction by the Company or such Restricted
Subsidiary on an arm's-length basis (as determined in good faith by the Board of
Directors of the Company, as evidenced by a Board Resolution) from a person that
is not an Affiliate; PROVIDED that except as otherwise provided under (b) below,
neither the Company nor any of the Restricted Subsidiaries shall enter into an
Affiliate Transaction or series of related Affiliate Transactions involving or
having a value of more than $5.0 million unless the Company or such Restricted
Subsidiary, as the case may be, has received an opinion from an Independent
Financial Advisor, with a copy thereof to the Trustee, to the effect that the
financial terms of such Affiliate Transaction are fair and reasonable to the
Company or such Restricted Subsidiary, as the case may be, and such terms are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could be obtained in a comparable transaction on an arm's-length
basis with a person that is not an Affiliate.
(b) The foregoing provisions shall not apply to (i) any Restricted Payment
that is made in compliance with the covenant entitled "Limitation on Restricted
Payments," (ii) payments by the Company or any of the Restricted Subsidiaries to
Renco of the amounts set forth in clauses (4), (5) and (6) of the second
paragraph of the covenant entitled "Limitation on Restricted Payments," (iii)
repayment of Indebtedness, including accrued interest thereon, owing to Renco as
of the Issue Date with the net proceeds of the Old Notes Offering, (iv)
repayment of Indebtedness owing to Renco incurred after the Issue Date in
accordance with its terms, and (v) reasonable and customary regular fees to
directors of the Company and the Restricted Subsidiaries who are not employees
of the Company and the Restricted Subsidiaries.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary to issue any Preferred
Stock (except to the Company or a Restricted Subsidiary), nor will the Company
permit any person (other than the Company or a Restricted Subsidiary) to hold
any Preferred Stock of a Restricted Subsidiary.
FUTURE GUARANTEES
If the Company or any of the Restricted Subsidiaries transfers or causes to
be transferred, in one transaction or a series of related transactions, any
property to any domestic Restricted Subsidiary that is not a Guarantor, or if
the Company or any of the Restricted Subsidiaries shall organize, acquire or
otherwise invest in another Restricted Subsidiary, in each case having total
assets with a book value in excess of $1.0 million, then such transferee or
acquired or other Restricted Subsidiary shall (i) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Senior Notes and the Indenture on the
terms set forth in the Indenture and (ii) deliver to the Trustee an Opinion of
Counsel that such supplemental indenture has been duly authorized, executed and
delivered
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by such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
CONDUCT OF BUSINESS
The Company and the Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or reasonably related to the
businesses in which the Company and the Restricted Subsidiaries are engaged on
the Issue Date.
REPORTS
So long as any Senior Note is outstanding, the Company will file with the
Commission and, within 15 days after it files them with the Commission, file
with the Trustee and mail or cause the Trustee to mail to the Holders at their
addresses as set forth in the register of the Senior Notes copies of the annual
reports on Form 10-K and of the information, documents and other reports which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act or which the Company would be required to file with
the Commission if the Company then had a class of securities registered under
the Exchange Act. Such financial information shall include annual reports
containing consolidated financial statements and notes thereto, together with an
opinion thereon expressed by an independent public accounting firm, management's
discussion and analysis of financial condition and results of operations as well
as quarterly reports containing unaudited condensed consolidated financial
statements for the first three quarters of every fiscal year.
MERGER, CONSOLIDATION, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any person or adopt a Plan of Liquidation unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the person (if other
than the Company) formed by such consolidation or the person into which the
Company is merged or the person which acquires by sale, assignment, transfer,
conveyance or otherwise all or substantially all of the assets of the Company or
in the case of a Plan of Liquidation, the person to which assets of the Company
have been transferred (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on, all of the Senior Notes, and the performance of every covenant of
the Indenture, the Senior Notes and the Registration Rights Agreement on the
part of the Company to be performed or observed; (ii) immediately after giving
effect to such transaction and the assumption contemplated by clause (y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company (in the case of clause (1) of the foregoing clause
(i)) or such person (in the case of clause (2) thereof) shall be able to incur
(assuming a market rate of interest with respect thereto) at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) as if it were the
Company under paragraph (a) of "--Certain Covenants--Limitation on Indebtedness"
above; (iii) immediately before and after giving effect to such transaction and
the assumption contemplated by clause (y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; (iv) the Company or such person
shall have delivered to the Trustee (A) an Officers' Certificate and an Opinion
of Counsel (which counsel shall not be in-house counsel of the Company) each
stating that such consolidation, merger, conveyance, transfer or lease or Plan
of Liquidation and, if a supplemental indenture is
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required in connection with such transaction, such supplemental indenture,
comply with this provision of the Indenture and that all conditions precedent in
the Indenture relating to such transaction have been satisfied and (B) a
certificate from the Company's independent certified public accountants stating
that the Company has made the calculations required by clause (ii) above in
accordance with the terms of the Indenture; and (v) neither the Company nor any
Restricted Subsidiary nor such person, as the case may be, would thereupon
become obligated with respect to any Indebtedness (including Acquired
Indebtedness), nor any of its property or assets subject to any Lien, unless the
Company or such Restricted Subsidiary or such person, as the case may be, could
incur such Indebtedness (including Acquired Indebtedness) or create such Lien
under the Indenture (giving effect to such person being bound by all the terms
of the Indenture).
Notwithstanding the foregoing, (i) the merger of the Company with an
Affiliate incorporated solely for the purpose of incorporating the Company in
another U.S. jurisdiction shall be permitted and (ii) the merger of the Company
and any Restricted Subsidiary shall be permitted.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Certain
Covenants--Limitation on Sale of Assets") will not, and the Company will not
cause or permit any Guarantor to, consolidate with or merge with or into or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to any person (other than a merger of the
Company with any Guarantor or a merger of Guarantors or a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of a Guarantor to the Company or to any other Guarantor) unless: (i)
the entity formed by or surviving any such consolidation or merger (if other
than the Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia; (ii) such entity assumes by supplemental indenture all of the
obligations of such Guarantor under such Guarantee; and (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor person formed by such consolidation
or into which the Company or any Guarantor is merged or to which such
conveyance, lease or transfer is made will succeed to, and be substituted for,
and may exercise every right and power of, the Company or such Guarantor, as the
case may be, under the Indenture with the same effect as if such successor had
been named as the Company or such Guarantor, as the case may be, therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved of
all further obligations and covenants under the Indenture and the Senior Notes,
in the case of the Company, or its Guarantee, in the case of a Guarantor.
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EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(a) the Company defaults in the payment of interest on the Senior Notes
when the same becomes due and payable and the Default continues for a period
of 30 days;
(b) the Company defaults in the payment of the stated principal amount
of the Senior Notes when the same becomes due and payable at maturity, upon
acceleration or redemption pursuant to an offer to purchase required under
the Indenture or otherwise;
(c) the Company or any of the Guarantors fails to comply in all material
respects with any of their other agreements contained in the Senior Notes or
the Indenture (including, without limitation, under the provisions of
"--Certain Covenants--Change of Control," "--Certain Covenants--Limitation
on Sale of Assets" and "--Merger, Consolidation, Etc."), and the Default
continues for the period and after the notice specified below;
(d) there shall be any default or defaults in the payment of principal
or interest under one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness under which the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5
million, individually or in the aggregate;
(e) there shall be any default or defaults under one or more agreements,
instruments, mortgages, bonds, debentures or other evidences of Indebtedness
under which the Company or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $7.5 million, individually or in the aggregate,
and such default or defaults have resulted in the acceleration of the
maturity of such Indebtedness;
(f) the Company or any of the Restricted Subsidiaries fails to perform
(after giving effect to any applicable grace periods) any term, covenant,
condition or provision of one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of Indebtedness under which the Company
or any of the Restricted Subsidiaries then has outstanding Indebtedness in
excess of $7.5 million, individually or in the aggregate, and such failure
to perform results in the commencement of judicial proceedings to foreclose
upon any assets of the Company or any of the Restricted Subsidiaries
securing such Indebtedness or the holders of such Indebtedness shall have
exercised any right under applicable law or applicable security documents to
take ownership of any such assets in lieu of foreclosure;
(g) one or more judgments, orders or decrees for the payment of money
which either individually or in the aggregate at any one time exceed $7.5
million shall be rendered against the Company or any of the Restricted
Subsidiaries by a court of competent jurisdiction and shall remain
undischarged and unbonded for a period (during which execution shall not be
effectively stayed) of 60 consecutive days after such judgment, order or
decree becomes final and nonappealable;
(h) the Company or any Significant Subsidiary (1) admits in writing its
inability to pay its debts generally as they become due, (2) commences a
voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (3) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law,
(4) consents to the appointment of a Custodian of it or for substantially
all of its property, (5) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (6) makes a general
assignment for the benefit of its creditors or (7) takes any corporate
action to authorize or effect any of the foregoing;
(i) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Company or any Significant Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law which shall (1)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any Significant
Subsidiary, (2) appoint a
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Custodian of the Company or any Significant Subsidiary or for substantially
all of its property or (3) order the winding-up or liquidation of its
affairs, and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(j) any of the Guarantees of a Significant Subsidiary ceases to be in
full force and effect or any of such Guarantees is declared to be null and
void and unenforceable or any of such Guarantees is found to be invalid, or
any such Guarantor denies its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture).
A Default under clause (c) above (other than in the case of any Default
under the provisions of "--Certain Covenants--Limitation on Sale of Assets,"
"--Certain Covenants--Change of Control" or "--Merger, Consolidation, Etc.,"
which Defaults shall be Events of Default without the notice and without the
passage of time specified in this paragraph) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the outstanding Senior Notes notify the Company and the Trustee, of
the Default and the Company does not cure the Default within 30 days after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default." Such notice shall
be given by the Trustee if so requested by the Holders of at least 25% in
principal amount of the Senior Notes then outstanding.
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
then outstanding Senior Notes may declare the unpaid principal of, premium, if
any, and accrued and unpaid interest on, all the Senior Notes then outstanding
to be due and payable, by a notice in writing to the Company (and to the
Trustee, if given by Holders) and upon such declaration such principal amount,
premium, if any, and accrued and unpaid interest will become immediately due and
payable, notwithstanding anything contained in the Indenture or the Senior Notes
to the contrary. If an Event of Default specified in clause (h) or (i) above
occurs, all unpaid principal of, and premium, if any, and accrued and unpaid
interest on, the Senior Notes then outstanding will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Senior Notes have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. The Trustee
may withhold from Holders notice of any continuing Default or Event of Default
(except a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Senior Notes or that resulted from the failure to
comply with the provisions of "-- Certain Covenants--Change of Control" or
"--Merger, Consolidation, Etc.") if it determines that withholding notice is in
their interest. The Holders of a majority in aggregate principal amount of the
Senior Notes then outstanding by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and premium, if any, and interest on the Senior
Notes which has become due solely by virtue of such acceleration) have been
cured or waived and if the rescission would not conflict with any judgment or
decree. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may, on behalf of the Holders of all the Senior Notes, waive
any past Default or Event of Default under the Indenture and its consequences,
except a Default in the payment of principal of or premium, if any, or interest
on the Senior Notes or in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of all Holders.
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Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (PROVIDED that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof. In addition, for each fiscal year, the
Company's independent certified public accountants are required to certify to
the Trustee that they have reviewed the terms of the Indenture and the Senior
Notes as they relate to accounting matters and whether, during the course of
their audit examination, any Default or Event of Default has come to their
attention, and specifying the nature and period of existence of any such Default
or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of the Holders, amend, waive or supplement the Indenture or the
Senior Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, maintaining the qualification of
the Indenture under the TIA or making any change that does not adversely affect
the rights of any Holder. In addition, the Indenture contains provisions
permitting the Company, the Guarantors and the Trustee, with the consent of the
Holders of not less than a majority in aggregate principal amount of the then
outstanding Senior Notes, to enter into any supplemental indenture for the
purpose of adding, changing or eliminating any of the provisions of the
Indenture or of modifying in any manner the rights of the Holders under the
Indenture; PROVIDED that no such supplemental indenture may without the consent
of the Holder of each outstanding Senior Note affected thereby: (i) reduce the
amount of Senior Notes whose Holders must consent to an amendment or waiver;
(ii) reduce the rate of, or extend the time for payment of, interest, including
defaulted interest, on any Senior Note; (iii) reduce the principal of or premium
on or change the fixed maturity of any Senior Note; (iv) make the principal of,
or interest on, any Senior Note payable in money other than as provided for in
the Indenture and the Senior Notes; (v) make any change in provisions relating
to waivers of defaults, the ability of Holders to enforce their right under the
Indenture or in the matters discussed in these clauses (i) through (ix); (vi)
waive a default in the payment of principal of or interest on, or redemption or
repurchase payment with respect to, any Senior Notes, other than a payment
required under the "Limitation on Sale of Assets" covenant and the "Change of
Control" covenant; (vii) adversely affect the ranking of the Senior Notes or the
Guarantees; (viii) change the Maturity Date or alter the redemption or
repurchase provisions in a manner adverse to Holders other than a redemption or
repurchase pursuant to the "Limitation on Sale of Assets" covenant and the
"Change of Control" covenant; or (ix) release the Guarantee of any Significant
Subsidiary.
DISCHARGE; DEFEASANCE
The Indenture provides that the Company and the Guarantors may terminate
their obligations under the Senior Notes, the Guarantees and the Indenture if:
(i) all Senior Notes previously authenticated and delivered have been delivered
to the Trustee for cancellation or the Company and the Guarantors have paid all
sums payable by them thereunder, or (ii) the Company has irrevocably deposited
or caused to be deposited with the Trustee or the Paying Agent and conveyed all
right, title and interest for the benefit of the Holders of such Senior Notes,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit of
the Holders for that purpose, money or U.S. government obligations maturing as
to principal and interest in such amounts and at such times as are sufficient
without consideration of any reinvestment of such interest to pay principal of,
premium, if any, and interest on such outstanding Senior Notes to maturity;
PROVIDED that, among other things, the Company shall have delivered to the
Trustee (i) either (a) in the case of a legal defeasance, a ruling directed to
the Trustee received from the Internal Revenue Service to the effect that the
Holders of such Senior Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of the Company's exercise of its option under
the defeasance provision of the Indenture and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have
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been the case if such option had not been exercised or (b) an Opinion of Counsel
to the same effect as the ruling described in clause (a) above and, in the case
of a legal defeasance, accompanied by a ruling to that effect published by the
Internal Revenue Service, unless there has been a change in the applicable
Federal income tax since the date of the Indenture such that a ruling from the
Internal Revenue Service is no longer required, and (ii) an Opinion of Counsel
to the effect that, assuming no intervening bankruptcy of the Company between
the date of deposit and the 91st day following the date of deposit and that no
Holder is an insider of the Company, after the passage of 90 days following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally. Certain obligations of the Company and the Guarantors under
the Indenture or the Senior Notes, including the payment of interest and
principal, shall remain in full force and effect until such Senior Notes have
been paid in full. Notwithstanding the foregoing, the ruling of the Internal
Revenue Service and the Opinion of Counsel required by clause (i) above with
respect to a legal defeasance need not be delivered if all Senior Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable on the maturity date within one year or
(z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
GOVERNING LAW
The Indenture provides that it, the Senior Notes and the Guarantees are
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
State Street Bank and Trust Company serves as Trustee under the Indenture.
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or the
Guarantors, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustee will be permitted to engage in other
transactions; PROVIDED that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary (Restricted
Subsidiary, in the case of the Company) or assumed in connection with the
acquisition of assets from such person, including, without limitation,
Indebtedness incurred by such person in connection with, or in anticipation or
contemplation of, such person becoming a Subsidiary (Restricted Subsidiary, in
the case of the Company) or such acquisition.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by
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contract or otherwise; and the terms "affiliated", "controlling" and
"controlled" have meanings correlative of the foregoing. For purposes of
"--Certain Covenants--Limitation on Transactions with Affiliates," the term
"Affiliate" shall include any person who, as a result of any transaction
described therein, would become an Affiliate.
"Asset Acquisition" means (i) an Investment by the Company or any Restricted
Subsidiary in any other person pursuant to which such person shall become a
Restricted Subsidiary or a Subsidiary of a Restricted Subsidiary or shall be
merged with the Company or any Restricted Subsidiary or (ii) the acquisition by
the Company or any Restricted Subsidiary of the assets of any person which
constitute all or substantially all of the assets of such person or any division
or line of business of such person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including, without limitation, any Sale/leaseback)
to any person, in one transaction or a series of related transactions, of (i)
any Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of
the properties and assets of any division or line of business of the Company or
any Restricted Subsidiary; or (iii) other than in the ordinary course of
business, any other properties or assets of the Company or any Restricted
Subsidiary in excess of $1.0 million. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is consummated
in accordance with the provisions of "--Merger, Consolidation, Etc." above and
(ii) the sale of inventory in the ordinary course of business.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Capital Expenditures" shall mean payments for any assets, or improvements,
replacements, substitutions or additions thereto, that have a useful life of
more than one year and which, in accordance with GAAP consistently applied, are
required to be capitalized (as opposed to expensed in the period in which the
payment occurred).
"Capital Lease," as applied to any person, means any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such person as lessee which, in conformity with GAAP, is required to
be accounted for as a capital lease on the balance sheet of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's capital stock, whether outstanding at the Issue Date or issued after
the Issue Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock (but excluding any debt security that is
exchangeable for or convertible into such capital stock).
"Capitalized Lease Obligation" means, as to any person, the obligations of
such person under a Capital Lease and, for purposes of the Indenture, the amount
of such obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within two years from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within two years from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than two years from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or
bankers' acceptances maturing within two years from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
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States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $500,000,000; (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above. Notwithstanding the foregoing,
for purposes of clause (i) of the definition of "Permitted Investment," 20% of
the Cash Equivalents may include securities having a rating of at least BBB by
S&P and Baa by Moody's.
"Change of Control" means the occurrence of one or more of the following
events: (i) any direct or indirect sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or substantially all
of the assets of the Company or Renco to any person or group of related persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (other than a
Permitted Holder or a Group controlled by a Permitted Holder), together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of the Indenture); (ii) the approval by the holders of Capital Stock of the
Company or Renco, as the case may be, of any plan or proposal for the
liquidation or dissolution of the Company, or Renco, as the case may be (whether
or not otherwise in compliance with the provisions of the Indenture); (iii) the
acquisition in one or more transactions of "beneficial ownership" (within the
meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time) by any person, entity or Group (other than a
Permitted Holder or a Group controlled by any Permitted Holder) of any Capital
Stock of the Company or Renco such that, as a result of such acquisition, such
person, entity or Group either (A) beneficially owns (within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, more than
50% of the Company's or Renco's then outstanding voting securities entitled to
vote on a regular basis in an election for a majority of the Board of Directors
of the Company or Renco or (B) otherwise has the ability to elect, directly or
indirectly, a majority of the members of the Company's or Renco's Board of
Directors; or (iv) the shareholders of Renco as of the Issue Date and the
Permitted Holders shall cease to own at least 50% of the equity of Renco owned
by such shareholders on the Issue Date.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any person, for any period, the
sum (without duplication) of (i) Consolidated Net Income, (ii) to the extent
Consolidated Net Income has been reduced thereby, all income taxes of such
person and its Subsidiaries (Restricted Subsidiaries, in the case of the
Company) paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or non-recurring gains or
losses), Consolidated Interest Expense, amortization expense (including
amortization of deferred financing costs) and depletion and depreciation expense
and (iii) other non-cash items (other than non-cash interest) reducing
Consolidated Net Income (including, without limitation, any non-cash charges in
respect of post-employment benefits for health care, life insurance and
long-term disability benefits required in accordance with GAAP) less other
non-cash items increasing Consolidated Net Income, all as determined on a
consolidated basis for such person and its Subsidiaries (Restricted
Subsidiaries, in the case of the Company) in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such person for the Four Quarter Period. For purposes of this definition, if the
Transaction Date occurs prior to the date on which four full fiscal quarters
have elapsed subsequent to the Issue Date and financial statements with respect
thereto are available, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated, in the case of the Company, after giving effect on a pro
forma basis to the issuance of the Senior Notes and the application of the net
proceeds therefrom as if the Senior Notes were issued on the
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first day of the Four Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence of any
Indebtedness (and the application of the net proceeds therefrom) of such person
or any of its Subsidiaries (Restricted Subsidiaries, in the case of the Company)
giving rise to the need to make such calculation and any incurrence of other
Indebtedness at any time on or after the first day of the Four Quarter Period
and on or prior to the Transaction Date (the "Reference Period"), as if such
incurrence occurred on the first day of the Reference Period and (ii) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
person or one of its Subsidiaries (Restricted Subsidiaries, in the case of the
Company) (including any person who becomes a Subsidiary (Restricted Subsidiary,
in the case of the Company) as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the Reference Period, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness) occurred on the first day of the Reference Period. If such person
or any of its Subsidiaries (Restricted Subsidiaries, in the case of the Company)
directly or indirectly guarantees Indebtedness of a third person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such person or any Subsidiary (Restricted Subsidiary, in the case of the
Company) of such person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date, and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (i) Consolidated Interest Expense of such person
(net of any interest income) less non-cash amortization of deferred financing
costs and (ii) the product of (x) the amount of all dividends declared and paid
on Preferred Stock of such person during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated Federal, state, local and foreign tax rate
(expressed as a decimal number between 1 and 0) of such person during such
period (as reflected in the audited consolidated financial statements of such
person for the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such person
and its Subsidiaries (Restricted Subsidiaries, in the case of the Company) for
such period as determined on a consolidated basis in accordance with GAAP
consistently applied, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation and (d) all accrued interest, and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such person and its Subsidiaries (Restricted Subsidiaries, in
the case of the Company) during such period as determined on a consolidated
basis in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Subsidiaries (Restricted
Subsidiaries, in the case of the Company), on a consolidated basis for such
period determined in accordance with GAAP; PROVIDED that (i) the net income of
any person in which such person or any Subsidiary (Restricted Subsidiary, in the
case of the Company) of such person has an ownership interest with a third party
(other than a person that meets the definition of a Wholly-Owned Subsidiary
(Wholly-Owned Restricted Subsidiary, in the case of the Company)) shall be
included
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only to the extent of the amount that has actually been received by such person
or its Wholly-Owned Subsidiaries (Wholly-Owned Restricted Subsidiaries, in the
case of the Company) in the form of dividends or other distributions during such
period (subject to, in the case of any dividend or distribution received by a
Wholly-Owned Subsidiary) (Wholly-Owned Restricted Subsidiary, in the case of the
Company) of such person, the restrictions set forth in clause (ii) below) and
(ii) the net income of any Subsidiary (Restricted Subsidiary, in the case of the
Company) of such person that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions shall be excluded to
the extent of such restriction or limitation; PROVIDED, FURTHER, that there
shall be excluded (a) the net income (or loss) of any person (acquired in a
pooling of interests transaction) accrued prior to the date it becomes a
Subsidiary (Restricted Subsidiary, in the case of the Company) of such person or
is merged into or consolidated with such person or any Subsidiary (Restricted
Subsidiary, in the case of the Company) of such person, (b) any gain (or loss)
(and related tax effects) resulting from an Asset Sale by such person or any of
its Subsidiaries (Restricted Subsidiaries, in the case of the Company), (c) any
extraordinary, unusual or nonrecurring gains or losses (and related tax effects)
in accordance with GAAP and (d) any compensation--related expenses arising as a
result of the application of the net proceeds from the issuance of the Senior
Notes. For purposes of the "Limitation on Restricted Payments" covenant, the
amortization of deferred financing costs relating to the issuance of the Senior
Notes shall be excluded from this definition of "Consolidated Net Income."
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Capital Stock" means any class of Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event (other than a Change of
Control), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Maturity Date.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value of any asset of the
Company or the Restricted Subsidiaries shall be determined by the Board of
Directors of the Company acting in good faith and shall be evidenced by a Board
Resolution thereof delivered to the Trustee; PROVIDED that with respect to any
Asset Sale which involves in excess of $5.0 million, the Fair Market Value of
any such asset or assets shall be determined by an Independent Financial
Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantors" means collectively each of Lodestar Energy, Inc., Eastern
Resources, Inc., Industrial Funds Minerals Company and any Restricted Subsidiary
that in the future executes a supplemental indenture pursuant to the covenant
entitled "Future Guarantees" or otherwise in which any such Restricted
Subsidiary agrees to be bound by the terms of the Indenture; PROVIDED that any
person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of the Indenture.
"Indebtedness" means with respect to any person, without duplication, (i)
all obligations of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or
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other similar instruments, (iii) all Capitalized Lease Obligations (but not
obligations under Operating Leases) of such person, (iv) all obligations of such
person issued or assumed as the deferred purchase price of property or services,
all conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable, accrued expenses and deferred
taxes arising in the ordinary course of business), (v) all obligations of such
person for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction entered into in the ordinary course of
business, (vi) all obligations of any other person of the type referred to in
clauses (i) through (v) which are secured by any Lien on any property or asset
of such first person and the amount of such obligation shall be the lesser of
the value of such property or asset or the amount of the obligation so secured,
(vii) all guarantees of Indebtedness by such person, (viii) Disqualified Capital
Stock valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (ix) all obligations under
interest rate agreements or hedging agreements of such person and (x) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
Board of Directors of the person issuing such Disqualified Capital Stock.
Notwithstanding anything to the contrary contained herein or in the Indenture,
Indebtedness shall not include (i) the purchase of coal reserves requiring the
payment of royalty fees on an installment basis in the ordinary course of
business consistent with past practice, (ii) obligations under performance
bonds, surety bonds or appeal bonds, letters of credit (other than reimbursement
obligations) or similar obligations, in each case incurred in the ordinary
course of business and (iii) any obligation of the Company or any Restricted
Subsidiary in the form of an earn-out arrangement undertaken in connection with
any acquisition of property or assets by the Company or such Restricted
Subsidiary, which obligation shall be based upon increases in coal prices above
price levels existing on the date of such acquisition, shall not constitute
Indebtedness under the Indenture.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any arrangement with any other person, whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others or otherwise), or any
purchase or acquisition by such person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
person. Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices. For the purposes of
the "Limitation on Restricted Payments" covenant, the amount of any Investment
(other than an Investment covered by clause (z) of the first paragraph thereof)
shall be the original cost of such Investment plus the cost of all additional
Investments by the Company or any of the Restricted Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such
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Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment.
"Issue Date" means the date on which the Senior Notes offered hereby are
originally issued under the Indenture.
"Lien" means (x) any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute and (y) any agreement to enter into any of the foregoing.
"Maturity Date" means May 15, 2005.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a direct result of such Asset Sale and (iii) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve required in accordance with GAAP consistently applied
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee.
"New Senior Credit Facility" means the Amended and Restated Loan and
Security Agreement dated as of the Issue Date among the Company, Lodestar, the
financial institutions named therein, Congress Financial Corporation and The CIT
Group/Business Credit, Inc., as the same may be amended, restated, supplemented
or otherwise modified from time to time, and includes any agreement renewing,
refinancing or replacing all or any portion of the Indebtedness under such
agreement.
"Operating Lease" means, as applied to any person, any lease (including,
without limitation, leases that may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) that is not a Capital Lease other
than any such lease under which that person is the lessor.
"Permitted Holders" means Ira Leon Rennert and his Affiliates, estate, heirs
and legatees, and the legal representatives of any of the foregoing, including,
without limitation, the trustee of any trust of which one or more of the
foregoing are the sole beneficiaries.
"Permitted Indebtedness" means (i) any Indebtedness of the Company and the
Restricted Subsidiaries under the New Senior Credit Facility consisting of (A) a
borrowing facility in an aggregate amount not to exceed $90.0 million in
aggregate principal amount at any time outstanding plus (B) a $30.0 million
letter of credit facility, in each case plus any interest, fees and expenses
from time to time owed thereunder, (ii) the Senior Notes issued in the Old Notes
Offering in an aggregate principal amount not to exceed $150.0 million and the
related Guarantees, (iii) any other Indebtedness of the Company and the
Restricted Subsidiaries outstanding on the Issue Date, (iv) purchase money
Indebtedness and any Indebtedness incurred for Capitalized Lease Obligations of
the Company and the Restricted Subsidiaries not to exceed $20.0 million in the
aggregate at any time outstanding, (v) Interest Rate Protection Obligations to
the extent the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to which
such Interest Rate Protection Obligations relate entered into in the ordinary
course of business, (vi) additional Indebtedness of the Company and the
Restricted Subsidiaries not to exceed $30.0 million in the aggregate at any time
outstanding, (vii) Indebtedness owed by the Company or any of the Restricted
Subsidiaries to the Company or any
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Restricted Subsidiary; PROVIDED that in the case of Indebtedness owed by the
Company to any Restricted Subsidiary, such Indebtedness is contractually
subordinated in right of payment to the Senior Notes, (viii) any renewals,
extensions, substitutions, refundings, refinancings or replacements of any
Indebtedness described in the preceding clauses (i), (ii) and (iii) above and
this clause (viii), so long as such renewal, extension, substitution, refunding,
refinancing or replacement does not result in an increase in the aggregate
principal amount of the outstanding Indebtedness represented thereby (except if
such Indebtedness refinances Indebtedness under the New Senior Credit Facility
or any other agreement providing for subsequent borrowings, does not result in
an increase in the commitment available under the New Senior Credit Facility or
such other agreement), (ix) any indebtedness of the Company or the Guarantors to
Renco in an aggregate principal amount not to exceed $15.0 million at any time
outstanding; PROVIDED that any such Indebtedness is contractually subordinated
in right of payment to the Company's obligations under the Senior Notes or such
Guarantor's obligations under its Guarantee, as the case may be; PROVIDED,
FURTHER, that if as of any date any person other than Renco or one of its
Wholly-Owned Subsidiaries owns or holds any such Indebtedness or holds a Lien on
the instrument held by Renco or one of its Wholly-Owned Subsidiaries governing
such Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness pursuant to this clause (ix) and (x) any
guarantees of the foregoing.
"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment by the Company or any of the Restricted Subsidiaries in the Company
or any Restricted Subsidiary, (iii) Related Business Investments by the Company
or any of the Restricted Subsidiaries in joint ventures, partnerships or persons
(including Unrestricted Subsidiaries) that are not Restricted Subsidiaries in an
amount not to exceed $25.0 million in the aggregate at any one time outstanding,
(iv) Investments by the Company or any Restricted Subsidiary in another person,
if as a result of such Investment (a) such other person becomes a Restricted
Subsidiary or (b) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company or a
Restricted Subsidiary, (v) Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers, in
each case arising in the ordinary course of business, (vi) the non-cash proceeds
of any Asset Sale, (vii) Investments under or pursuant to Interest Rate
Protection Obligations in the ordinary course of business and (viii) loans and
advances to employees of the Company and the Restricted Subsidiaries made in the
ordinary course of business.
"Permitted Liens" means (i) pledges or deposits by such person under
worker's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such person is a party, or
deposits to secure public statutory obligations of such person or deposits to
secure surety or appeal bonds to which such person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, (ii)
Liens imposed by law, such as landlords', carriers', warehousemen's and
mechanics' Liens or bankers' Liens incurred in the ordinary course of business
for sums which are not yet due or are being contested in good faith and for
which adequate provision has been made, (iii) Liens for taxes not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings, if adequate reserve, as may be required by GAAP, shall
have been made therefor, (iv) Liens in favor of issuers of performance bonds,
surety bonds or appeal bonds issued pursuant to the request of and for the
account of such person in the ordinary course of its business, (v) Liens to
support trade letters of credit issued in the ordinary course of business, (vi)
survey exceptions, encumbrances, easements or reservations of, or rights of
others for, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions on the use of real
property, (vii) Liens securing Indebtedness permitted under clause (iv) of the
definition of Permitted Indebtedness; PROVIDED that the Fair Market Value of the
asset at the time of the incurrence of the Indebtedness subject to the Lien
shall not exceed the principal amount of the Indebtedness secured, (viii) Liens
with respect to Acquired Indebtedness permitted to be incurred in accordance
with the provisions of "--Certain Covenants-- Limitation on Indebtedness" above;
PROVIDED that such Liens secured such Acquired Indebtedness at the
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time of the incurrence of such Acquired Indebtedness by the Company or any of
the Restricted Subsidiaries and were not incurred in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the Company or
any of the Restricted Subsidiaries; PROVIDED, FURTHER, that such Liens do not
extend to or cover any property or assets of the Company or any of the
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or any of the Restricted Subsidiaries and are no
more favorable to the lienholders than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or any of
the Restricted Subsidiaries, (ix) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default, (x) Liens on
assets or property (including any real property upon which such assets or
property are or will be located) securing Indebtedness incurred to purchase or
construct such assets or property, which Indebtedness is permitted to be
incurred under the Indenture, (xi) Liens securing Indebtedness which is incurred
to refinance or replace Indebtedness which has been secured by a Lien permitted
under the Indenture and is permitted to be refinanced or replaced under the
Indenture, PROVIDED that such Liens do not extend to or cover any property or
assets of the Company or any of the Restricted Subsidiaries not securing the
Indebtedness so refinanced or replaced, and (xii) Liens securing reimbursement
obligations under letters of credit but only in or upon the goods the purchase
of which was financed by such letters of credit. "person" means any individual,
corporation, partnership, joint venture, trust, estate, unincorporated
organization or government or any agency or political subdivision thereof or any
similar entities.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the Issue Date or
issued thereafter, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Exchange Act.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock or convertible into
or exchangeable or exercisable for Disqualified Capital Stock.
"Related Business Investment" means any Investment, Capital Expenditure or
other expenditure by the Company or any Restricted Subsidiary which is related
to the business of the Company and the Restricted Subsidiaries as it is
conducted on the Issue Date or any business which is the same, similar or
reasonably related to such business.
"Renco" means The Renco Group, Inc., a New York corporation, which is the
parent of the Company, or any successor thereto.
"Restricted Subsidiary" means any Subsidiary of the Company which at the
time of determination is not an Unrestricted Subsidiary. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if, immediately after giving effect to such designation, the
Company and the Guarantors could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness"
covenant, on a pro forma basis taking into account such designation.
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"Sale/leaseback" means any lease whereby the Company or any of the
Restricted Subsidiaries, directly or indirectly, becomes or remains liable as
lessee or as guarantor or other surety, of any property (whether real or
personal or mixed) whether now owned or hereafter acquired, (i) that the Company
or the Restricted Subsidiaries, as the case may be, has sold or transferred or
is to sell or transfer to any other person (other than the Company or any
Restricted Subsidiary), or (ii) that the Company or any of the Restricted
Subsidiaries, as the case may be, intends to use for substantially the same
purpose as any other property that has been or is to be sold or transferred by
the Company or any such Restricted Subsidiary to any person (other than the
Company or any Restricted Subsidiary) in connection with such lease.
"Significant Subsidiary" means any Restricted Subsidiary that satisfies the
criteria for a "significant subsidiary" set forth in Rule 1-02(w) of Regulation
S-X under the Exchange Act.
"Subsidiary" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time owned, directly or indirectly, by such person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary, unless such Subsidiary owns any
Capital Stock of, or owns, or holds any Lien on, any property of, any Restricted
Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED that (a) the Company certifies that such designation
complies with the "Limitation on Restricted Payments" covenant and (b) each
Subsidiary to be so designated and each of its Subsidiaries has not at the time
of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of the Restricted Subsidiaries. The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary
only if, immediately after giving effect to such designation, the Company and
the Guarantors could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant,
on a pro forma basis taking into account such designation.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary which
is a Wholly-Owned Subsidiary of the Company.
"Wholly-Owned Subsidiary" means any Subsidiary of such person to the extent
all of the Capital Stock or other ownership interests in such Subsidiary (other
than (x) directors' qualifying shares and (y) an immaterial interest owned by
other persons solely to comply with applicable law) is owned directly or
indirectly by such person or a Wholly-Owned Subsidiary of such person.
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DESCRIPTION OF NEW SENIOR CREDIT FACILITY
The following description of the New Senior Credit Facility does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the loan and security agreement relating to the New
Senior Credit Facility, a copy of which is filed as an exhibit to the
Registration Statement. Capitalized terms used herein and not otherwise defined
have the meaning ascribed to such terms in the agreement.
GENERAL
As of June 30, 1998, the New Senior Credit Facility was undrawn, and
approximately $22.0 million of letters of credit were outstanding. Under the New
Senior Credit Facility, the revolving credit lenders (the "Revolving Credit
Lenders") will, in their discretion, lend and relend to Lodestar up to not more
than the sum of (i) 90% of the Net Amount of Eligible Accounts plus (ii) 60% of
the Value of Eligible Inventory plus (iii) 25% of the Value of Eligible Stores
Inventory (but not more than a loan value of $5.0 million), (whereby the sum of
(ii) and (iii) shall not exceed $25.0 million) up to a limit of $90.0 million.
Lodestar's collections from accounts are applied to reduce the loan balance,
which may be reborrowed up to the aforesaid limits.
In addition, the Revolving Credit Lenders may extend up to $30.0 million of
letter of credit accommodations The available letter of credit accommodations
will decrease by $4.0 million per year. The annual amortization may be waived at
the lenders' discretion, subject to the results of asset values determined by
appraisal.
INTEREST
Interest on Lodestar's revolving loan balances is payable monthly at the
prime rate plus 0.75% per annum. The interest rate on June 30, 1998 was 9.25%.
In the event of a default by Lodestar under the New Senior Credit Facility, the
interest rate will be 2.75% per annum in excess of the prime rate.
LETTER OF CREDIT FEES
In addition to customary charges, fees and expenses, Lodestar pays the agent
a letter of credit fee equal to 1.5% per annum on the daily outstanding balance
of the letter of credit accommodations for the immediately preceding month,
except that the agent may require Lodestar to pay the agent such letter of
credit fee at a rate equal to 3.5% per annum on such outstanding balance for (i)
the period on and after the date of termination of the New Senior Credit
Facility or (ii) the period from and after the date of the occurrence of an
event of default thereunder.
SECURITY
As security for the indebtedness of the New Senior Credit Facility, Lodestar
has granted the Revolving Credit Lenders a first priority security interest in
substantially all property and assets of Lodestar.
TERM
The New Senior Credit Facility will continue until May 2001 and from year to
year thereafter, provided that either Lodestar or the Revolving Credit Lenders
may terminate the agreement at any expiration date upon 60 days' advance written
notice. Lodestar has paid the Revolving Credit Lenders a customary fee in
connection with the execution of the New Senior Credit Facility.
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CERTAIN COVENANTS
In addition to customary covenants, the New Senior Credit Facility requires
that Lodestar be subject to certain covenants, including, without limitation: a
restriction on the incurrence of additional indebtedness; a restriction on the
creation of additional liens; compliance with certain financial covenants;
certain restrictions on dividends, loans and investments; and restrictions on
mergers and sales of assets.
EVENTS OF DEFAULT
The New Senior Credit Facility contains certain events of default,
including, without limitation, the following: (i) the failure of Lodestar to pay
any of its obligations under the New Senior Credit Facility within three days
after the due date; (ii) certain defaults by Lodestar under various other
indebtedness after any applicable grace period; (iii) any default by Lodestar in
the performance or observance of the conditions and covenants of the New Senior
Credit Facility or related agreements, beyond any applicable cure period; (iv)
any representation or warranty made by Lodestar to the Revolving Credit Lenders
proving to be false in any material respect; (v) certain judgments against
Lodestar; (vi) certain events of bankruptcy or insolvency of Lodestar; or (vii)
the occurrence of any change in the control or ownership of Lodestar.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary is based on the tax laws of the United States in
effect on the date of this Prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. The foregoing laws and interpretations thereof are subject to change,
which could apply retroactively.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax purposes. A holder's holding
period for Exchange Notes will include the holding period for Old Notes. HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Old Notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from the Company or any
affiliate of the Company) may exchange such Old Notes for Exchange Notes
pursuant to the Exchange Offer; PROVIDED, that each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of 180 days
after consummation of the Exchange Offer, it will make this Prospectus, as it
may be amended or supplemented from time to time, available to any broker-dealer
for use in connection with any such resale. In addition, until , 1998,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other holder of Exchange Notes. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the Exchange Offer, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer and to the Company's performance of, or
compliance with, the Registration Rights Agreement (other than commissions or
concessions of any brokers or dealers) and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
104
<PAGE>
LEGAL MATTERS
Certain legal matters related to the Exchange Notes being offered hereby are
being passed upon for the Company and the Guarantors by Cadwalader, Wickersham &
Taft, New York, New York.
EXPERTS
The consolidated financial statements of Lodestar Holdings, Inc. and its
subsidiaries as of October 31, 1997 and for the period March 15, 1997 to October
31, 1997 and the consolidated financial statements of the Predecessor Company
and its subsidiaries as of December 31, 1996 and for each of the years in the
two-year period ended December 31, 1996 and the period January 1, 1997 to March
14, 1997, have been included herein in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
ENGINEERS
The information appearing in this Offering Memorandum concerning estimates
of Lodestar's demonstrated reserves have been audited by Marshall Miller &
Associates, Bluefield, Virginia, as stated in their report with respect thereto
included herein as Annex A upon the authority of that firm as experts.
105
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COSTAIN COAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheet as of December 31, 1996......................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995....................... F-4
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1996 and 1995............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSOR
Independent Auditors' Report............................................................................... F-19
Consolidated Balance Sheet as of October 31, 1997.......................................................... F-20
Consolidated Statements of Operations for the period March 15, 1997 to October 31, 1997 and the period
January 1, 1997 to March 14, 1997........................................................................ F-21
Consolidated Statements of Stockholder's Equity for the period January 1, 1997 to March 14, 1997 and the
period March 15, 1997 to October 31, 1997................................................................ F-22
Consolidated Statements of Cash Flows for the period March 15, 1997 to October 31, 1997 and the period
January 1, 1997 to March 14, 1997........................................................................ F-23
Notes to Consolidated Financial Statements................................................................. F-24
Condensed Consolidated Balance Sheet as of April 30, 1998.................................................. F-33
Condensed Consolidated Statements of Operations for the six months ended April 30, 1998, the period March
15, 1997 to April 30, 1997, the period January 1, 1997 to March 14, 1997 and the period November 1, 1996
to December 31, 1996..................................................................................... F-34
Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 1998, the period March
15, 1997 to April 30, 1997, the period January 1, 1997 to March 14, 1997 and the period November 1, 1996
to December 31, 1996..................................................................................... F-35
Notes to Condensed Consolidated Financial Statements....................................................... F-36
</TABLE>
Lodestar Holdings, Inc. is a holding company whose subsidiaries include
Lodestar Energy, Inc., Eastern Resources, Inc. and Industrial Fuels Minerals
Company. These subsidiaries serve as guarantors of the Exchange Notes. The
assets, equity, income and cash flows of other non-guarantor subsidiaries are
inconsequential (I.E. individually and combined less than 3% of the Lodestar
Holdings, Inc. totals). Lodestar Holdings, Inc. has no operations or assets
separate from its investment in its subsidiaries. Accordingly, separate
financial information of the subsidiaries is not considered necessary to
include, as in management's opinion, it would not be material to investors.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Costain Coal Inc.:
We have audited the accompanying consolidated balance sheet of Costain Coal
Inc. and subsidiaries (a wholly-owned subsidiary of Costain America Inc. and the
predecessor to Lodestar Energy, Inc.) as of December 31, 1996, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the years ended December 31, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Costain Coal
Inc. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995
in conformity with generally accepted accounting principles.
As described further in note 1 to the consolidated financial statements, the
common stock of Costain Coal Inc. and subsidiaries was acquired by Lodestar
Holdings, Inc. (formerly Rencoal, Inc.) on March 14, 1997.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
April 24, 1997
F-2
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(IN
THOUSANDS,
EXCEPT
SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 8,314
Accounts receivable.............................................................................. 23,798
Due from affiliates.............................................................................. 10,687
Inventories...................................................................................... 10,980
Prepaid expenses and other current assets........................................................ 5,471
-------------
Total current assets........................................................................... 59,250
Property, plant and equipment, net................................................................. 116,094
Long-term due from Parent.......................................................................... 28,198
Other assets....................................................................................... 4,816
-------------
$ 208,358
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term notes payable......................................................................... $ 116
Current installments of long-term debt........................................................... 102
Current installments of capital lease obligations................................................ 5,755
Accounts payable................................................................................. 45,955
Accrued expenses................................................................................. 40,573
-------------
Total current liabilities...................................................................... 92,501
Long-term obligations, excluding current installments.............................................. 16,820
Other non-current liabilities...................................................................... 65,371
-------------
Total liabilities.............................................................................. 174,692
-------------
Stockholder's equity:
Common stock, $.01 par value. Authorized 1,000 shares, issued and outstanding 100 shares......... 1
Additional paid-in capital....................................................................... 271,011
Accumulated deficit.............................................................................. (236,693)
Pension liability adjustment..................................................................... (653)
-------------
Total stockholder's equity..................................................................... 33,666
Commitments and contingencies......................................................................
-------------
$ 208,358
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1995
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Coal sales and related revenue.......................................................... $ 255,386 $ 308,370
Operating costs:
Cost of revenues...................................................................... 257,269 255,859
Depreciation, depletion and amortization.............................................. 22,714 30,832
General and administrative............................................................ 14,270 11,677
---------- ----------
294,253 298,368
---------- ----------
Operating income (loss)............................................................. (38,867) 10,002
Other income (deductions):
Interest income....................................................................... 2,101 --
Interest expense...................................................................... (4,902) (4,436)
Minority interest in net earnings..................................................... -- (658)
Asset write-downs and provisions...................................................... -- (39,642)
Profit on disposal of Dolet Hills..................................................... -- 44,008
---------- ----------
(2,801) (728)
---------- ----------
Income (loss) before income taxes................................................... (41,668) 9,274
Income taxes............................................................................ -- 3,279
---------- ----------
Net income (loss)................................................................... $ (41,668) $ 5,995
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFICIT PENSION TOTAL
COMMON PAID-IN (IN LIABILITY STOCKHOLDER'S
STOCK CAPITAL THOUSANDS) ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995..................... $ 1 $ 271,011 $ (201,020) $ -- $ 69,992
Net income...................................... -- -- 5,995 -- 5,995
Pension adjustment.............................. -- -- -- (287) (287)
--- ---------- ------------- ----- ------------
Balances at December 31, 1995................... 1 271,011 (195,025) (287) 75,700
Net loss........................................ -- -- (41,668) -- (41,668)
Pension adjustment.............................. -- -- -- (366) (366)
--- ---------- ------------- ----- ------------
Balances at December 31, 1996................... $ 1 $ 271,011 $ (236,693) $ (653) $ 33,666
--- ---------- ------------- ----- ------------
--- ---------- ------------- ----- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1995
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used in) operating activities:
Net income (loss)....................................................................... $ (41,668) $ 5,995
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Asset write-downs and provisions...................................................... -- 39,642
Depreciation, depletion and amortization.............................................. 22,714 30,832
(Gain) loss on sale/disposal of property, plant and equipment, net.................... 2,665 (1,290)
Profit on disposal of DHMV............................................................ -- (44,008)
Minority interest in net earnings..................................................... -- 658
Changes in working capital accounts..................................................... 20,965 (25,927)
(Increase) decrease in other assets..................................................... 505 (2,273)
Increase (decrease) in non-current liabilities.......................................... 7,791 (9,920)
----------- ----------
Net cash provided by (used in) operating activities................................. 12,972 (6,291)
----------- ----------
----------- ----------
Cash flows from investing activities:
Capital expenditures.................................................................. (10,705) (5,785)
Proceeds from sale of businesses...................................................... -- 61,176
Proceeds from sales of property, plant and equipment.................................. 305 4,180
----------- ----------
Net cash provided by (used in) investing activities................................. (10,400) 59,571
----------- ----------
Cash flows from financing activities:
Principal payments on long-term obligations........................................... (5,400) (5,415)
Proceeds from short-term notes payable................................................ 116 --
Distributions to minority interest.................................................... -- (640)
Net change in long-term due from Parent............................................... (6,780) (47,254)
----------- ----------
Net cash used in financing activities............................................... (12,064) (53,309)
----------- ----------
Net decrease in cash.................................................................... (9,492) (29)
Cash at beginning of year............................................................... 17,806 17,835
----------- ----------
Cash at end of year..................................................................... $ 8,314 $ 17,806
----------- ----------
----------- ----------
Supplemental cash flow disclosures:
Interest paid......................................................................... $ 4,962 $ 4,450
----------- ----------
----------- ----------
Income taxes paid..................................................................... $ 2,089 $ 2,058
----------- ----------
----------- ----------
Minimum pension liability increase.................................................... $ 366 $ 287
----------- ----------
----------- ----------
Equipment acquired through capital lease.............................................. $ -- $ 14,709
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Costain Coal Inc. and its subsidiaries (the Company) consist of a number of
coal mining operations in Kentucky and West Virginia. Operations in Alabama and
Louisiana were sold in 1995.
(b) OWNERSHIP, PRINCIPLES OF CONSOLIDATION AND VALUATION
At December 31, 1996, the Company was a wholly-owned subsidiary of Costain
America Inc. (CAI). CAI is a wholly-owned subsidiary of Costain USA Inc. (CUSA),
a holding company owned 100% by Costain Group PLC (Group). All significant
intercompany accounts and transactions have been eliminated in consolidation.
All dollar amounts are presented in thousands unless otherwise noted.
In 1994, the Company decided to sell all of its coal mining business.
Following detailed negotiations, the Company reached agreement on January 18,
1995 on the sale of its 80% interest in Dolet Hills Mining Venture (DHMV) to its
joint venture partner for a total consideration of approximately $61.0 million,
subject to certain adjustments. The 1995 consolidated financial statements
include the Company's 80% interest in DHMV through March 24, 1995, the closing
date of its sale.
Apart from DHMV, however, no satisfactory offer was received for the
remainder of the coal mining business at that point in time. Accordingly, CAI
decided that, for the time being, it would be in CAI's best interest to retain
and operate the Company.
In December 1995, the Company sold its Alabama coal operations for $2.0
million with $1 million payable in 24 monthly installments commencing January
31, 1996.
Following a significant improvement in operating performance, the successful
sales of DHMV and the Alabama operations, and in response to inquiries from
potential purchasers, CAI again entered into discussions during 1996 with
potential buyers for the coal mining business. Following extensive negotiations
and due diligence by prospective buyers, further write-downs and provisions of
$39,642 at December 31, 1995 were made to recognize management's estimate of the
ultimate realization from the sale of the Company. These write-downs and
provisions are more fully described in note 9.
Pursuant to the Stock Purchase Agreement between Costain America Inc. and
Lodestar Holdings, Inc. (formerly Rencoal, Inc.) dated November 8, 1996, as
amended by the Supplemental Agreement dated February 13, 1997, the Company's
common stock was acquired by Lodestar Holdings, Inc. on March 14, 1997. Certain
liabilities of the Company were not acquired in the transaction and were
transferred to CAI.
(c) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
an average basis for coal and on the first-in, first-out basis for materials and
supplies.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and, where appropriate,
written down to realizable value. Equipment under capital leases is stated at
the present value of minimum lease payments at the
F-7
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
inception of the lease. In addition, the Company capitalizes expenditures
incurred during the acquisition, exploration, and development phase of mining
operations. As part of the overall asset write-downs at December 31, 1995 (see
note 9), the value of certain property, plant and equipment was reduced.
Depreciation of property, plant and equipment is provided using the
straight-line method over their estimated useful lives. Depletion and
amortization of land and mineral rights and deferred exploration and development
costs are provided using the units-of-production method based on the estimated
recoverable reserves. Equipment held under capital leases is amortized
straight-line over the shorter of the lease term or estimated useful life of the
asset.
The Company adopted the provisions of Statement of Financial Accounting
Standard (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1, 1996. This Statement
required that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Company's financial position, results of operations, or
liquidity.
(e) INCOME TAXES
Results of operations of the Company have been included in the consolidated
Federal income tax return of CUSA.
The Company's consolidated provision and actual cash payments for U.S.
federal income taxes are allocated between CUSA and all of its subsidiaries in
accordance with the Company's tax allocation policy and have been reflected in
the Company's consolidated financial statements. In general, the consolidated
tax provision and related tax payments or refunds are allocated between the
companies, for financial statement purposes, based principally upon the
financial income, taxable income, credits and other amounts directly related to
the respective company as calculated on a separate return basis.
(f) WORKERS' COMPENSATION AND BLACK LUNG EXPENSE
The cost of workers' compensation and black lung expense is based on
historical claims experience and periodic actuarial studies of workers'
compensation and black lung claims incurred and reported and incurred but not
reported.
(g) RECLAMATION
The cost of final reclamation of active mining areas is accrued over the
life of the mine based on the units-of-production method. Reclamation performed
during mining operations is expensed as incurred.
(h) BENEFIT PLANS
The Company sponsors a defined benefit pension plan covering certain
employees and a defined contribution benefit plan covering substantially all of
its employees (see note 8).
F-8
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(2) INVENTORIES
Inventories consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Coal....................................................................... $ 4,782
Materials and supplies..................................................... 6,198
---------
$ 10,980
---------
---------
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows at December 31,
1996:
<TABLE>
<S> <C>
Land and mineral rights................................................... $ 45,772
Buildings and improvements................................................ 45,757
Machinery and equipment................................................... 132,249
Deferred development costs................................................ 10,044
Transportation equipment and other........................................ 3,803
---------
237,625
Less accumulated depreciation, depletion and amortization................. 121,531
---------
Property, plant and equipment, net.................................... $ 116,094
---------
---------
</TABLE>
(4) LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Miscellaneous notes payable maturing through 2002, at interest rates ranging
from 0% to 10%............................................................. $ 182
Less current installments.................................................... 102
---------
Long-term debt, excluding current installments............................... $ 80
---------
---------
</TABLE>
F-9
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996, and thereafter, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1997............................................................................................ $ 102
1998............................................................................................ 25
1999............................................................................................ 15
2000............................................................................................ 15
2001............................................................................................ 15
Thereafter...................................................................................... 10
---------
$ 182
---------
---------
</TABLE>
(5) LEASES
The Company is obligated under various capital leases for equipment that
expire at various dates through 2001.
Amortization of assets held under capital leases is included in
depreciation, depletion, and amortization.
The Company also has several noncancelable operating leases, primarily for
mining and transportation equipment, administrative facilities, and office
equipment. These leases expire at various dates through 2011. Rental expense for
operating leases (except those with lease terms of one year or less that were
not renewed) during 1996 and 1995 was $10,791 and $9,120, respectively.
Future minimum lease payments under noncancelable operating leases and the
present value of net minimum capital lease payments as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
<S> <C> <C>
1997.............................................................................. $ 7,822 $ 10,791
1998.............................................................................. 7,822 9,982
1999.............................................................................. 7,673 5,824
2000.............................................................................. 3,109 3,173
2001.............................................................................. 822 1,816
Thereafter........................................................................ -- 12,573
--------- -----------
Total minimum lease payments...................................................... 27,248 $ 44,159
-----------
-----------
Less amount representing interest (at rates ranging from 8.4% to 11.8%)........... 4,753
---------
Present value of net minimum capital lease payments............................... 22,495
Less current installments of capital lease obligations............................ 5,755
---------
Capital lease obligations, excluding current installments......................... $ 16,740
---------
---------
</TABLE>
F-10
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996 and 1995
consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C>
1996 1995
Current........................................................................ $ -- $ 4,916
Deferred....................................................................... -- (1,637)
---------- ---------
$ -- $ 3,279
---------- ---------
---------- ---------
</TABLE>
Total income tax expense differs from the amount computed by applying the
Federal income tax rate of 35% to income (loss) before income taxes as a result
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C>
1996 1995
Computed "expected" tax expense (benefit)...................................... $ (14,584) $ 3,246
Increase (reduction) in income taxes resulting from:
Excess of statutory over cost depletion........................................ -- (599)
State income taxes, net of Federal income tax benefit.......................... (295) 3,164
Increase (decrease) in valuation allowance..................................... 22,978 (7,033)
Change in operating loss carryforward.......................................... (4,077) 4,006
Other, net..................................................................... (4,022) 495
---------- ---------
Total income tax expense....................................................... $ -- $ 3,279
---------- ---------
---------- ---------
</TABLE>
The significant components of deferred income tax expense (benefit) for the
years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C>
1996 1995
Deferred tax expense (benefit) (exclusive of the effects of other components
listed below)................................................................ $ (22,978) $ 5,396
Increase (decrease) in beginning-of-the-year balance of the valuation allowance
for deferred tax assets...................................................... 22,978 (7,033)
---------- ---------
$ -- $ (1,637)
---------- ---------
---------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards........................................... $ 37,730
Accrued reclamation liabilities............................................ 5,634
Other accrued liabilities.................................................. 31,174
Depreciation and depletion................................................. 20,087
---------
Total gross deferred tax assets............................................ 94,625
Less valuation allowance................................................... (94,625)
---------
Net deferred tax assets.................................................... $ --
---------
---------
</TABLE>
F-11
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets as of January 1, 1996 was
$71,647. The increase in the total valuation allowance for the year ended
December 31, 1996 was $22,978. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible.
Management considers projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of those deductible differences, net
of the existing valuation allowance at December 31, 1996.
At December 31, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $218,795 as calculated on a
consolidated return basis. The Company has net operating loss carryforwards for
Federal income tax purposes of approximately $107,800 on a separate return
basis. The net operating loss carryforwards expire at various times from
1997-2010.
During 1996 the Company experienced a change of ownership as defined in
Internal Revenue Code section 382. This resulted in significant restrictions on
the Company's ability to use tax attribute carryforwards.
(7) MINORITY INTEREST
The Company's 80% interest in DHMV was sold in March 1995. The minority
interest share of net earnings of DHMV was $658 for the year ended December 31,
1995.
(8) BENEFIT PLAN
The Company maintains a defined benefit pension plan at one of its
operations which covers substantially all the employees at that location. The
plan provides specified pension benefits based on the employees' years of
service. Contributions to the plan are actuarially determined to provide the
plan with sufficient assets to meet future benefit payment requirements. The
plan has approximately 1,100 participants at December 31, 1996.
F-12
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) BENEFIT PLAN (CONTINUED)
The funded status of the plan and the amounts recognized in the Company's
consolidated balance sheet at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................................ $ (9,144)
---------
---------
Accumulated benefit obligation........................................... $ (9,364)
---------
---------
Projected benefit obligation............................................. $ (9,364)
Plan assets at fair value................................................ 7,306
---------
Projected benefit obligation in excess of plan assets.................. (2,058)
Unrecognized net (gain) loss........................................... 653
Prior service cost not yet recognized in net periodic pension cost..... 54
Unrecognized net obligation at July 31, 1989 being recognized over 15
years................................................................ 309
---------
Pension liability included in accrued expenses......................... (1,042)
Adjustment required to recognize minimum liability....................... (1,016)
---------
Total pension liability recognized in consolidated balance sheet......... $ (2,058)
---------
---------
</TABLE>
Net pension costs for the plan for 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Service costs--benefits earned during the period.................................................. $ 463 $ 387
Interest cost on projected benefit obligation..................................................... 505 656
Actual return on plan assets...................................................................... (486) (749)
Net amortization and deferral..................................................................... 15 263
--------- ---------
Net pension plan expense...................................................................... $ 497 $ 557
--------- ---------
--------- ---------
</TABLE>
The weighted-average discount rates used to determine the actuarial present
value of the projected benefit obligations were 7.5% for 1996 and 6.0% for 1995.
The expected long-term rate of return on assets was 7.5% for 1996 and 1995.
In 1996 and 1995, as required by SFAS No. 87, the Company recorded
adjustments to the pension liability adjustment to reflect the changes in
accumulated benefits over the fair value of pension assets for the defined
benefit plan. To the extent that the accumulated benefits exceed related
unrecognized prior service cost and the transition obligation, the net change in
the liability is charged directly to stockholder's equity. The maximum
intangible asset to offset the $1,016 and $704 additional liability in 1996 and
1995, respectively, is $363 and $417. The difference of $653 and $287 is charged
to stockholder's equity for 1996 and 1995, respectively.
The Company also maintains a defined contribution plan which covers all
employees meeting certain eligibility requirements. Contributions to plan
expensed in 1996 and 1995 were $1,680 and $1,216 respectively.
F-13
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) ASSET WRITE-DOWNS
In 1994, the Company recorded write-downs of certain assets and
reassessments of certain liabilities resulting from the Company's reassessment
of anticipated business activity in light of the economic environment in the
coal industry (see note 1). The provision in 1995 recognized management's
estimate at July 31, 1996, of the ultimate realization from the sale of the
Company. These amounts consisted of the following:
<TABLE>
<S> <C>
Property, plant and equipment:
Land and mineral rights............................................................ $ 1,400
Machinery and equipment............................................................ 29,842
---------
31,242
Other noncurrent liabilities....................................................... 8,400
---------
$ 39,642
---------
---------
</TABLE>
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996, the carrying amounts of accounts receivable, due from
affiliates, accounts payable, and accrued expenses approximate fair value
because of the short maturity of these instruments.
The fair value of long-term due from Parent approximates its carrying value.
The fair value of long-term obligations, using current rates available to
the Company, approximates their carrying value.
(11) RELATED PARTY TRANSACTIONS
Following the sale of the Company's 80% interest in DHMV in March 1995, the
Company repaid its intercompany loan with CAI and advanced that company
operating funds in the normal course of business. The long-term amount due from
CAI at December 31, 1996 was $28,198. This amount bears interest at 8%. There is
no specified maturity date on the loan to CAI. Due from affiliates consists of
net amounts due from CAI of $3,287, and amounts due from CUSA of $7,400 at
December 31, 1996.
F-14
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have future minimum royalty payments which
represent advance royalty obligations; these are generally recoupable against
royalty payments otherwise due based on production. The future minimum royalty
payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1997......................................................................................... $ 2,946
1998......................................................................................... 2,760
1999......................................................................................... 2,350
2000......................................................................................... 2,067
2001......................................................................................... 1,760
Thereafter................................................................................... 8,805
---------
$ 20,688
---------
---------
</TABLE>
The Company and certain subsidiaries are involved in a number of legal
actions, which, if adverse judgments are ultimately awarded, may individually or
in the aggregate have a material adverse effect on the Company's consolidated
financial position and results of operations. With respect to each of these
proceedings, based on the advice of outside counsel and consideration of the
facts at hand, it is the opinion of the Company's management that the ultimate
disposition of the litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
(13) SIGNIFICANT CUSTOMERS
The Company makes a significant portion of its sales to three customers.
Sales to these three customers totaled approximately $74,000, or 29% (11%, 10%
and 8% respectively) of total sales in 1996. Accounts receivable from these
customers totaled $7,955 at December 31, 1996.
The Company made a significant portion of its sales to two customers in
1995. Sales to these two customers totaled approximately $68,000 or 22% (15% and
7% respectively) of total sales in 1995.
F-15
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
<TABLE>
<S> <C>
Accrued expenses consist of the following at December 31, 1996:
Accrued royalties........................................................ $ 9,577
Accrued taxes............................................................ 6,006
Workers' compensation and black lung liability........................... 4,741
Other.................................................................... 20,249
---------
$ 40,573
---------
---------
Other non-current liabilities consist of the following at December 31,
1996:
Accrued royalties........................................................ $ 16,268
Accrued reclamation costs................................................ 18,039
Workers' compensation and black lung liability........................... 19,453
Other.................................................................... 11,611
---------
$ 65,371
---------
---------
</TABLE>
(15) SUMMARIZED FINANCIAL INFORMATION
The following provides the Company's unaudited condensed financial
information as of and for the ten months ended October 31, 1996:
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
1996
(IN
THOUSANDS)
(UNAUDITED)
<S> <C>
ASSETS
Cash..................................................................................... $ 4,865
Accounts receivable...................................................................... 29,759
Due from related parties................................................................. 39,379
Inventories.............................................................................. 12,155
Other assets............................................................................. 128,298
-------------
Total assets......................................................................... $ 214,456
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable......................................................................... $ 38,891
Accounts expenses........................................................................ 46,355
Long-term obligations.................................................................... 23,806
Other non-current liabilities............................................................ 65,753
Stockholder's equity..................................................................... 39,651
-------------
Total liabilities and stockholder's equity........................................... $ 214,456
-------------
-------------
</TABLE>
F-16
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31,
1996
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Coal sales and related revenue......................................................... $ 218,476
---------------
Operating costs:
Cost of revenues..................................................................... 220,891
Depreciation, depletion and amortization............................................. 19,420
General and administrative........................................................... 11,963
---------------
252,274
---------------
Operating loss..................................................................... (33,798)
Interest expense, net.................................................................. (2,251)
---------------
Net loss............................................................................... $ (36,049)
---------------
---------------
</TABLE>
F-17
<PAGE>
COSTAIN COAL INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF COSTAIN AMERICA INC.
AND THE PREDECESSOR TO LODESTAR ENERGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31,
1996
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Net cash provided by operating activities:
Net loss............................................................................... $ (36,049)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization............................................. 19,420
Changes in working capital accounts.................................................... 15,436
Decrease in other assets............................................................... 4,320
Increase in other non-current liabilities.............................................. 8,539
---------------
Net cash provided by operating activities.......................................... 11,666
---------------
Cash flows from investing activities:
Capital expenditures................................................................. (8,885)
---------------
Net cash used in investing activities.............................................. (8,885)
---------------
Cash flows from financing activities:
Principal payments on long-term obligations.......................................... (4,387)
Proceeds from notes payable.......................................................... 116
Net change in due from related parties............................................... (11,451)
---------------
Net cash used in financing activities.............................................. (15,722)
---------------
Net decrease in cash................................................................... (12,941)
Cash at beginning of period............................................................ 17,806
---------------
Cash at end of period.................................................................. $ 4,865
---------------
---------------
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lodestar Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Lodestar
Holdings, Inc. and subsidiaries (the Company) as of October 31, 1997 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the period from March 15, 1997 to October 31, 1997 (Successor Period),
and the consolidated statements of operations, stockholder's equity, and cash
flows for the period from January 1, 1997 to March 14, 1997 (Predecessor Period)
of Costain Coal Inc. and subsidiaries (the Predecessor). These consolidated
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned Company consolidated financial statements
present fairly, in all material respects, the financial position of Lodestar
Holdings, Inc. and subsidiaries as of October 31, 1997 and the results of their
operations and their cash flows for the Successor Period, in conformity with
generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor consolidated financial statements present fairly, in
all material respects, the results of operations, and cash flows of Costain Coal
Inc. and subsidiaries for the Predecessor Period, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
March 15, 1997, Lodestar Holdings, Inc. (formerly Rencoal, Inc.) acquired all of
the outstanding stock of Costain Coal Inc. in a business combination accounted
for as a purchase. As a result of the acquisition, the consolidated financial
information for the period after the acquisition is presented on a different
cost basis than that for the period before the acquisition and, therefore, is
not comparable.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
January 14, 1998
F-19
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-------------
<S> <C>
(IN
THOUSANDS,
EXCEPT SHARE
DATA)
ASSETS
Current assets:
Cash............................................................................................. $ 3,055
Accounts receivable.............................................................................. 37,412
Inventories...................................................................................... 11,604
Prepaid expenses and other current assets........................................................ 4,859
-------------
Total current assets......................................................................... 56,930
Property, plant and equipment, net................................................................. 84,541
Coal and ash disposal contracts in excess of market, net of accumulated amortization of $1,945..... 44,856
Other assets....................................................................................... 14,121
-------------
$ 200,448
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt........................................................... $ 4,000
Current installments of capital lease obligations................................................ 6,603
Due to related party............................................................................. 3,000
Accounts payable................................................................................. 43,062
Accrued expenses................................................................................. 31,689
-------------
Total current liabilities.................................................................... 88,354
Long-term obligations, excluding current installments.............................................. 47,953
Due to related party............................................................................... 2,000
Other non-current liabilities...................................................................... 61,078
-------------
Total liabilities............................................................................ 199,385
-------------
Stockholder's equity:
Common stock, $1.00 par value. Authorized, issued and outstanding 1,000 shares................... 1
Additional paid-in capital....................................................................... 5,000
Accumulated deficit.............................................................................. (3,938)
-------------
Total stockholder's equity................................................................... 1,063
Commitments and contingencies......................................................................
-------------
$ 200,448
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE THE
COMPANY PREDECESSOR
<S> <C> <C>
<CAPTION>
MARCH 15, JANUARY 1,
1997 TO 1997 TO
OCTOBER 31, MARCH 14,
1997 1997
<S> <C> <C>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Coal sales and related revenue.......................................................... $ 173,881 $ 46,486
Operating costs:
Cost of revenues...................................................................... 150,716 44,676
Depreciation, depletion and amortization.............................................. 14,276 4,749
General and administrative............................................................ 6,823 2,190
----------- -----------
171,815 51,615
----------- -----------
Operating income (loss)............................................................. 2,066 (5,129)
Interest expense, net................................................................. (6,004) (809)
----------- -----------
Loss before income taxes............................................................ (3,938) (5,938)
Income taxes............................................................................ -- --
----------- -----------
Net loss............................................................................ $ (3,938) $ (5,938)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL PENSION TOTAL
COMMON PAID-IN ACCUMULATED LIABILITY STOCKHOLDER'S
STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
THE PREDECESSOR
Balance at January 1, 1997........................ $ 1 $ 271,011 $ (236,693) $ (653) $ 33,666
Net loss.......................................... -- -- (5,938) -- (5,938)
--- ---------- ------------ ----- ------------
Balance at March 14, 1997......................... $ 1 $ 271,011 $ (242,631) $ (653) $ 27,728
--- ---------- ------------ ----- ------------
--- ---------- ------------ ----- ------------
- ----------------------------------------------------------------------------------------------------------------------
THE COMPANY
Balance at March 15, 1997......................... $ -- $ -- $ -- $ -- $ --
Initial Company capitalization.................... 1 5,000 -- -- 5,001
Net loss.......................................... -- -- (3,938) -- (3,938)
--- ---------- ------------ ----- ------------
Balance at October 31, 1997....................... $ 1 $ 5,000 $ (3,938) $ -- $ 1,063
--- ---------- ------------ ----- ------------
--- ---------- ------------ ----- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE THE
COMPANY PREDECESSOR
<S> <C> <C>
<CAPTION>
MARCH 15, JANUARY 1,
1997 TO 1997 TO
OCTOBER 31, MARCH 14,
1997 1997
<S> <C> <C>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net cash used in operating activities:
Net loss................................................................................ $ (3,938) $ (5,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization.............................................. 14,276 4,749
Amortization of deferred financing fees............................................... 396 --
Inputed interest...................................................................... 1,406 --
Changes in operating assets and liabilities:
Accounts receivable................................................................. (18,865) 5,311
Due from affiliates................................................................. -- 2,679
Inventories......................................................................... 849 (2,979)
Prepaid expenses and other current assets........................................... 753 (655)
Other assets........................................................................ (1,170) (148)
Accounts payable.................................................................... 2,857 (5,212)
Accrued expenses.................................................................... (6,613) 3,225
Other non-current liabilities....................................................... (4,945) (2,770)
----------- -----------
Net cash used in operating activities............................................. (14,994) (1,738)
----------- -----------
Cash flows from investing activities:
Payment for Stock Purchase, net of cash acquired...................................... (22,830) --
Capital expenditures.................................................................. (3,771) (1,149)
Proceeds from sales of property, plant and equipment.................................. 252 --
----------- -----------
Net cash used in investing activities............................................. (26,349) (1,149)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt.......................................................... 41,152 --
Net change in long-term due from Costain America Inc.................................. -- 210
Principal payments on long-term obligations........................................... (4,852) (1,698)
Payments on short-term notes payable.................................................. -- (87)
Proceeds from related party borrowings................................................ 5,000 --
Initial company capitalization........................................................ 5,001 --
Financing fees paid................................................................... (1,903) --
----------- -----------
Net cash provided by (used in) financing activities............................... 44,398 (1,575)
----------- -----------
Net increase (decrease) in cash......................................................... 3,055 (4,462)
Cash at beginning of year............................................................... -- 8,314
----------- -----------
Cash at end of year..................................................................... $ 3,055 $ 3,852
----------- -----------
----------- -----------
Supplemental cash flow disclosures:
Interest paid......................................................................... $ 4,086 $ 587
----------- -----------
----------- -----------
Income taxes paid..................................................................... $ -- $ 1,500
----------- -----------
----------- -----------
Equipment acquired with note payable.................................................. $ -- $ 1,818
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
(a) THE BUSINESS
Lodestar Holdings, Inc. (formerly Rencoal, Inc.) and its subsidiaries (the
Company), a wholly owned subsidiary of The Renco Group, Inc. (Renco), began
operations on March 15, 1997. The Company's principal operations consist of a
number of coal mining operations in Kentucky and West Virginia. Coal shipments
are made to a wide variety of utilities throughout the United States.
(b) STOCK PURCHASE
Pursuant to the Stock Purchase Agreement between Costain America Inc. and
the Company dated November 8, 1996, as amended by the Supplemental Agreement
dated February 13, 1997 (the Stock Purchase), the common stock of Costain Coal
Inc. and its subsidiaries (the Predecessor) was acquired by the Company for a
purchase price of $23,753 on March 14, 1997. Certain liabilities of the
Predecessor were not acquired in the transaction and were transferred to Costain
America Inc. The Company was also indemnified by Costain America Inc. with
regards to the outcome of certain Predecessor litigation. The acquisition of the
Predecessor was accounted for using the purchase method of accounting as
prescribed under Accounting Principles Board Opinion No. 16, "Business
Combinations". All debt and equity and operations acquired have been "pushed
down" to the Company, from the date of acquisition in the consolidated financial
statements.
(c) BASIS OF PRESENTATION
The accompanying consolidated financial statements present the Company's
consolidated financial position as of October 31, 1997 and its consolidated
results of operations and cash flows from the acquisition date of March 15, 1997
through October 31, 1997, and the consolidated operations and cash flows of the
Predecessor for the period January 1, 1997 through March 14, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for the period from March 15, 1997
through October 31, 1997 include the accounts of the Company. The consolidated
financial statements for the period from January 1, 1997 through March 14, 1997
include the accounts of Costain Coal Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
an average basis for coal and on the first-in, first-out basis for materials and
supplies.
F-24
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost or allocated cost for those
assets acquired in the Stock Purchase. Equipment under capital leases is stated
at the present value of minimum lease payments at the inception of the lease. In
addition, the Company capitalizes expenditures incurred during the acquisition,
exploration, and development phase of mining operations.
Depreciation of property, plant and equipment is provided using the
straight-line method over their estimated useful lives. Depletion and
amortization of land and mineral rights and deferred exploration and development
costs are provided using the units-of-production method based on the estimated
recoverable reserves. Equipment held under capital leases is amortized
straight-line over the shorter of the lease term or estimated useful life of the
asset.
(d) INTANGIBLE ASSETS
The Company has certain contracts to sell coal and dispose of coal ash at
prices in excess of current market prices. These contracts, which were acquired
as part of the Stock Purchase, are for varying periods of time, with the last
contract expiring in the year 2025. These contracts were valued at the
acquisition date at the present value of expected profits from sales under these
contracts in excess of those that would be earned if sales were made at the then
prevailing market prices. These contracts are being amortized using the
straight-line method over the lives of the contracts.
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the expected
period to be benefited of 15 years. Goodwill net of accumulated amortization,
was $7,308 at October 31, 1997 and is included in other assets.
The Company assesses the recoverability of intangible assets by a comparison
of the carrying amounts of such assets to future net cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. No impairment losses were
recorded in the period from March 15, 1997 through October 31, 1997.
(e) INCOME TAXES
The Company is included in the consolidated federal income tax return of
Renco. Under the terms of the tax sharing agreement among Renco and its
subsidiaries, income taxes are allocated to the Company on a separate return
basis, except that transactions between the Company, Renco and Renco's other
subsidiaries are accounted for on a cash basis and the Company does not receive
the benefit of net operating loss carryforwards, unless such loss carryforwards
were a result of temporary differences between the Company's accounting for tax
and financial reporting purposes.
The results of operations of the Predecessor were included in the
consolidated federal income tax return of Costain USA Inc. (the 100% owner of
Costain America Inc.).
Income taxes are determined under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
F-25
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(f) WORKERS' COMPENSATION AND BLACK LUNG EXPENSE
The cost of workers' compensation and black lung expense is based on
historical claims experience and periodic actuarial studies of workers'
compensation and black lung claims incurred and reported and incurred but not
reported.
(g) RECLAMATION
The cost of final reclamation of active mining areas is accrued over the
life of the respective mines based on the units-of-production method.
Reclamation performed during mining operations is expensed as incurred.
(h) BENEFIT PLANS
The Company retained the Predecessor's defined benefit pension plan covering
certain employees and defined contribution benefit plan covering substantially
all of its employees (see note 8).
(i) USE OF ESTIMATES
Management of the Company and the Predecessor have made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INVENTORIES
Inventories consist of the following at October 31, 1997:
<TABLE>
<S> <C>
Coal............................................................... $ 8,360
Materials and supplies............................................. 3,244
---------
$ 11,604
---------
---------
</TABLE>
F-26
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows at October 31:
<TABLE>
<S> <C>
Land and mineral rights............................................ $ 26,142
Buildings and improvements......................................... 873
Machinery and equipment............................................ 57,241
Deferred development costs......................................... 7,303
Transportation equipment and other................................. 4,890
---------
96,449
Less accumulated depreciation, depletion and amortization.......... 11,908
---------
Property, plant and equipment, net........................... $ 84,541
---------
---------
</TABLE>
(5) LONG-TERM DEBT
Long-term debt at October 31, 1997 consists of the following:
<TABLE>
<S> <C>
Revolving credit agreement, interest payable monthly at 3/4% above
prime (9.25% at October 31, 1997)................................ $ 13,495
Term loan payable in monthly installments of $292 plus interest at
1 3/4% above prime (10.25% at October 31, 1997).................. 22,657
Note payable in quarterly installments of $125 (final payment due
February, 2001) plus interest at the greater of 12.5% or an
indexed rate (12.5% at October 31, 1997)......................... 4,750
---------
Total long-term debt............................................... 40,902
Less current installments.......................................... 4,000
---------
Long-term debt, excluding current installments............... $ 36,902
---------
---------
</TABLE>
The aggregate maturities of long-term debt for each of the four years
subsequent to October 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31:
<S> <C>
1998............................................................................... $ 4,000
1999............................................................................... 4,000
2000............................................................................... 29,652
2001............................................................................... 3,250
---------
$ 40,902
---------
---------
</TABLE>
The revolving credit agreement and term loan payable are provided through a
single lending agreement. This lending agreement allows for aggregate borrowings
of up to $60,000 and is available through March 14, 2000. The amount available
under the revolving credit agreement at any one time is determined based upon
inventory and accounts receivable levels, and the balance of the term loan and
letters of credit outstanding. The unborrowed portion available under the
revolving credit agreement as of
F-27
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT (CONTINUED)
October 31, 1997 was approximately $5,000. A commitment fee of .5% of the
average daily unborrowed portion is due monthly. On December 6, 1997 the Company
amended this credit agreement, increasing the maximum aggregate borrowings
available to $70,000.
The note payable, the revolving credit agreement and the term loan payable
are secured by substantially all assets of the Company.
The debt agreements include covenants as to maintenance of minimum working
capital, minimum net worth, the incurrence of other indebtedness, and
limitations on capital expenditures. The Company is in compliance with all debt
covenants at October 31, 1997.
(6) LEASES
The Company is obligated under various capital leases for equipment that
expire at various dates through 2001.
Amortization of assets held under capital leases is included in
depreciation, depletion, and amortization.
The Company also has several noncancelable operating leases, primarily for
mining and transportation equipment, administrative facilities, and office
equipment. These leases expire at various dates through 2012. Rental expense for
operating leases during the periods March 15, 1997 through October 31, 1997 and
January 1, 1997 through March 14, 1997 was $7,121 and $1,933, respectively.
Future minimum lease payments under noncancelable operating leases and the
present value of net minimum capital lease payments as of October 31, 1997 are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING OCTOBER 31: LEASES LEASES
<S> <C> <C>
1998.................................................................... $ 8,165 $ 10,111
1999.................................................................... 7,562 6,657
2000.................................................................... 3,765 3,530
2001.................................................................... 861 2,155
2002.................................................................... -- 1,535
Thereafter.............................................................. -- 11,438
--------- -----------
Total minimum lease payments............................................ 20,353 $ 35,426
-----------
-----------
Less amount representing interest (at rates ranging from 8.4% to
11.8%).................................................................. 2,699
---------
Present value of net minimum capital lease payments..................... 17,654
Less current installments of capital lease obligations 6,603
---------
Capital lease obligations, excluding current installments............... $ 11,051
---------
---------
</TABLE>
F-28
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
There was no current or deferred income tax expense (benefit) for the
periods from March 15, 1997 through October 31, 1997 and January 1, 1997 through
March 14, 1997.
Total income tax expense (benefit) differs from the amount computed by
applying the Federal income tax rate of 35% to loss before income taxes as a
result of the following:
<TABLE>
<CAPTION>
THE THE
COMPANY PREDECESSOR
<S> <C> <C>
--------------------------------
<CAPTION>
MARCH 15, JANUARY 1,
1997 TO 1997 TO
OCTOBER 31, MARCH 14,
1997 1997
<S> <C> <C>
Computed "expected" tax benefit............................. $ (1,378) $ (2,078)
Increase (reduction) in income taxes resulting from:
State income taxes, net of Federal income tax benefit....... (197) 774
Increase in valuation allowance............................. -- 1,304
Net operating loss for which no benefit is available........ 1,575 --
------- -------
Total income tax expense.................................... $ -- $ --
------- -------
------- -------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 31, 1997 are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued reclamation............................................. $ 4,887
Other accrued liabilities....................................... 9,790
Depreciation and depletion...................................... 6,830
---------
Total gross deferred tax assets............................. 21,507
Less valuation allowance.................................... 5,562
---------
Net deferred tax assets..................................... 15,945
---------
Deferred tax liabilities:
Coal and ash disposal contracts................................. (17,945)
---------
Net deferred tax liability (included in other non-current
liabilities).............................................. $ (2,000)
---------
---------
</TABLE>
There was no change in the valuation allowance for the periods March 15,
1997 to October 31, 1997 and January 1, 1997 to March 14, 1997. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible.
Management considers the reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
F-29
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
management believes it is more likely than not the Company will realize the
benefits of those deductible differences, net of the existing valuation
allowance at October 31, 1997.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of October 31, 1997 will be allocated to goodwill.
(8) BENEFIT PLANS
The Company's defined benefit pension plan provides specified pension
benefits based on the employees' years of service. Contributions to the plan are
actuarially determined to provide the plan with sufficient assets to meet future
benefit payment requirements. The plan has approximately 1,100 participants at
October 31, 1997.
The funded status of the plan and the amounts recognized in the Company's
consolidated balance sheet at October 31, 1997 are as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................................ $ (9,612)
---------
---------
Accumulated benefit obligation................................... $ (9,613)
---------
---------
Projected benefit obligation..................................... $ (9,613)
Plan assets at fair value........................................ 8,089
---------
Projected benefit obligation in excess of plan assets.......... (1,524)
Unrecognized net gain.......................................... (432)
---------
Pension liability included in accrued expenses................. $ (1,956)
---------
---------
</TABLE>
Net pension costs for the plan for the periods March 15, 1997 through
October 31, 1997 and January 1, 1997 through March 14, 1997 consist of the
following:
<TABLE>
<CAPTION>
THE THE
COMPANY PREDECESSOR
<S> <C> <C>
----------------------------
<CAPTION>
MARCH 15, JANUARY 1,
1997 TO 1997 TO
OCTOBER 31, MARCH 14,
1997 1997
<S> <C> <C>
Service costs--benefits earned during the period.................... $ 226 $ 71
Interest cost on projected benefit obligation....................... 442 140
Actual return on plan assets........................................ (445) (141)
Net amortization and deferral....................................... 122 39
----- ---
Net pension plan expense............................................ $ 345 $ 109
----- ---
----- ---
</TABLE>
The weighted-average discount rate used to determine the actuarial present
value of the projected obligations was 7.5% at October 31, 1997. The expected
long-term rate of return on assets was 7.5% at October 31, 1997.
F-30
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) BENEFIT PLANS (CONTINUED)
The Company also retained a defined contribution plan of the Predecessor
which covers all employees meeting certain eligibility requirements.
Contributions expensed to this plan were $760 for the period March 15, 1997
through October 31, 1997 and $236 for the period January 1, 1997 through March
14, 1997.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
At October 31, 1997, the carrying amounts of accounts receivable, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these instruments.
The fair value of long-term obligations, using current rates available to
the Company, approximates their carrying value.
(10) RELATED PARTY TRANSACTIONS
The Company has a $3,000 non-interest bearing note payable to Renco for cash
provided during the period from March 15, 1997 through October 31, 1997. This
note is payable upon demand.
The Company also has a note payable in the amount of $2,000 to Renco. This
note is payable in full on March 1, 2001, and bears interest at a rate of
8 1/4%. Interest charges through October 31, 1997 were waived by Renco.
Renco provides certain management services to the Company as provided for
under a management agreement. All charges with respect to this management
agreement were waived during the period from March 15, 1997 through October 31,
1997.
(11) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have future minimum royalty payments which
represent advance royalty obligations; these are generally recoupable against
royalty payments otherwise due based on production. The future minimum royalty
payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31:
<S> <C>
1998............................................................................... $ 2,904
1999............................................................................... 2,678
2000............................................................................... 2,399
2001............................................................................... 1,847
2002............................................................................... 1,686
Thereafter......................................................................... 6,669
---------
$ 18,183
---------
---------
</TABLE>
The Company and certain subsidiaries are involved in a number of legal
actions, which, if adverse judgments are ultimately awarded, may individually or
in the aggregate have a material adverse effect on the Company's consolidated
financial position and results of operations. With respect to each of these
proceedings, based on the advice of outside counsel and consideration of the
facts at hand, it is the opinion
F-31
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
of the Company's management that the ultimate disposition of the litigation will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company is required by certain third parties which have contractual
agreements with the Company, primarily governmental agencies that provide mining
permits, to maintain bonds. The Company has a bonding line of $85,000, of which
$17,000 was available at October 31, 1997. In support of the bonding line,
letters of credit in the amount of $16,000 were outstanding at October 31, 1997.
In addition, the bonding agent has a third priority security interest in
substantially all assets of the Company.
The Company has various other letters of credit outstanding in the amount of
approximately $3,000 at October 31, 1997.
(12) SIGNIFICANT CUSTOMERS
The Company makes a significant portion of its sales to four customers.
Sales to these customers totaled approximately $53,000, or 30% (9%, 8%, 7% and
6% respectively) of total sales, for the period March 15, 1997 through October
31, 1997. Accounts receivable from these customers totaled $8,844 at October 31,
1997.
Likewise, the Predecessor made a significant portion of its sales to these
four customers. Sales to these customers totaled approximately $15,000 or 32%
(10%, 8%, 7% and 7% respectively) of total sales, for the period January 1, 1997
through March 14, 1997.
(13) ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
Accrued expenses consist of the following at October 31, 1997:
<TABLE>
<S> <C>
Royalties.......................................................... $ 9,352
Taxes, other than income........................................... 4,444
Payroll and benefits............................................... 4,162
Workers' compensation and black lung............................... 3,717
Reclamation costs.................................................. 1,799
Other.............................................................. 8,215
---------
$ 31,689
---------
---------
</TABLE>
Other non-current liabilities consist of the following at October 31, 1997:
<TABLE>
<S> <C>
Royalties.......................................................... $ 15,991
Reclamation costs.................................................. 18,379
Workers' compensation and black lung............................... 19,929
Other.............................................................. 6,779
---------
$ 61,078
---------
---------
</TABLE>
F-32
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30,
1998
(IN
THOUSANDS)
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 5,404
Accounts receivable.............................................................................. 28,831
Inventories...................................................................................... 11,994
Prepaid expenses and other current assets........................................................ 5,772
-------------
Total current assets........................................................................... 52,001
Property, plant and equipment, net................................................................. 77,668
Coal and ash disposal contracts in excess of market, net of accumulated
amortization of $3,494........................................................................... 43,307
Other assets....................................................................................... 14,534
-------------
$ 187,510
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt........................................................... $ 4,000
Current installments of capital lease obligations................................................ 6,059
Due to related party............................................................................. 3,682
Accounts payable................................................................................. 39,841
Accrued expenses................................................................................. 30,511
-------------
Total current liabilities...................................................................... 84,093
Long-term obligations, excluding current installments.............................................. 40,026
Due to related party............................................................................... 2,000
Other non-current liabilities...................................................................... 60,248
-------------
Total liabilities.............................................................................. 186,367
-------------
Stockholder's equity:
Common stock, $1.00 par value. Authorized, issued and outstanding 1,000 shares................... 1
Additional paid-in capital....................................................................... 5,000
Accumulated deficit.............................................................................. (3,858)
-------------
Total stockholder's equity..................................................................... 1,143
-------------
$ 187,510
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR COMPANY
SIX PERIOD NOVEMBER 1,
MONTHS MARCH 15, JANUARY 1, 1996 TO
ENDED 1997 TO 1997 TO DECEMBER
APRIL 30, APRIL 30, MARCH 14, 31,
1998 1997 1997 1996
--------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Coal sales and related revenue................. $ 136,238 $ 31,387 $ 46,486 $ 36,910
Operating costs:
Cost of revenues............................. 113,635 28,602 44,676 36,378
Depreciation, depletion and amortization..... 11,829 2,879 4,749 3,294
General and administrative................... 5,883 889 2,190 2,307
--------- ----------- ------------- -----------
131,347 32,370 51,615 41,979
--------- ----------- ------------- -----------
Operating income (loss).................... 4,891 (983) (5,129) (5,069)
Interest expense, net........................ 4,757 1,020 809 550
--------- ----------- ------------- -----------
Income (loss) before income taxes.......... 134 (2,003) (5,938) (5,619)
Income taxes................................. 54 -- -- --
--------- ----------- ------------- -----------
Net income (loss).......................... $ 80 $ (2,003) $ (5,938) $ (5,619)
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR COMPANY
NOVEMBER 1,
SIX MONTHS MARCH 15, JANUARY 1, 1996 TO
ENDED 1997 TO 1997 TO DECEMBER
APRIL 30, APRIL 30 MARCH 14, 31,
1998 1997 1997 1996
----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities:
Net income (loss)................................. 80 (2,003) (5,938) (5,619)
Adjustment to reconcile net income (loss) to net
cash used in operational activities:
Depreciation, depletion and amortization........ 11,829 2,879 4,749 3,294
(Gain) loss on sale of property, plant and
equipment..................................... (75) 42 2,665
Changes in working capital accounts............. 2,956 (8,155) 2,369 5,529
Increase in other assets........................ (413) (2,093) (148) (3,815)
Decrease in non-current liabilities............. (830) (4,004) (2,770) (748)
----------- --------- ----------- -----------
Net cash provided by (used in) operating
activities:............................... 13,547 (13,334) (1,738) 1,306
----------- --------- ----------- -----------
Cash flows from investing activities
Capital expenditures............................ (2,917) (833) (1,149) (1,820)
Proceeds from sales of property, plant and
equipment..................................... 190 305
----------- --------- ----------- -----------
Net cash provided by (used in) investing
activities:............................... (2,727) (833) (1,149) (1,515)
----------- --------- ----------- -----------
Cash flows from financing activities:
Change in long-term obligations................. (8,471) 17,365 (1,698) (1,013)
Payments on notes payable....................... -- -- (87) --
Net change in due from related parties.......... -- -- 210 4,671
----------- --------- ----------- -----------
Net cash provided by (used in) financing
activities:............................... (8,471) 17,365 (1,575) 3,658
----------- --------- ----------- -----------
Net increase (decrease) in cash................... 2,349 3,198 (4,462) 3,449
Cash at beginning of period....................... 3,055 3,852 8,314 4,865
----------- --------- ----------- -----------
Cash at end of period............................. 5,404 7,050 3,852 8,314
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(IN THOUSANDS)
(1) ACCOUNTING POLICIES
Reference is made elsewhere in the document which includes additional
information about the Company, its operations and its consolidated financial
statements, and contains a summary of major accounting policies followed by the
Company in preparation of its consolidated financial statements. These policies
were also followed in preparing the quarterly condensed consolidated financial
statements included herein.
The management of the Company believes that all adjustment necessary to make
a fair statement of the results in these interim periods have been made. All
adjustments reflected in the financial statements are of a normal recurring
nature except as described in the Notes to Condensed Consolidated Financial
Statements. Net results for the six month periods ended April 30, 1998 and 1997
are not necessarily indicative of the results to be expected for the full year.
(2) INCOME TAX
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year.
F-36
<PAGE>
GLOSSARY OF SELECTED TERMS
ANTHRACITE COAL. A "hard" coal with a Btu content that can be as high as
15,000 Btus per pound. Anthracite deposits are located primarily in the
Appalachian region of Pennsylvania, and are used primarily for industrial and
home heating purposes.
ASH. Small particles of inert material found in coal. The percentage of ash
affects the heating value of coal, The higher the percentage of ash, the lower
the heating value of the coal.
AUGER. A corkscrew-like machine used in highwall mining to bore into the
side of a hill and extract coal by "twisting" it out. Lodestar is engaged in
some highwall mining in its Eastern Kentucky operations using the auger methods.
BITUMINOUS COAL. A "soft" black coal with a Btu content that ranges from
10,500 to 14,000 Btus per pound. This coal is located primarily in Appalachia
(including Kentucky), the Midwest, Colorado and Utah, and is the type most
commonly used for electric power generation in the United States. Bituminous
coal is used for utility and industrial steam purposes, and as a feedstock for
coke, which is used in steel production. All of Lodestar's reserves are
bituminous coal.
BRITISH THERMAL UNIT (BTU). A measure of the energy required to raise the
temperature of one pound of water one degree Fahrenheit.
COAL SEAM. Coal deposits occur in layers. Each such layer is called a
"seam."
COMPLIANCE COAL. Coal which, when burned, emits less than 1.2 pounds of
sulfur dioxide per million Btu.
CONTINUOUS MINER. Deep mining machines used in room and pillar mining that
cut out a block of coal (the length of each cut ranging from fifteen to 34
feet), cutting 20-foot wide passages as high as the coal seam. Roof bolting
machines are utilized to secure the immediate strata above the coal, and pillars
(50 to 100 feet squared) are left to provide overall roof support. Room and
pillar mining using continuous mining machines is the most common method of deep
mining.
CONTOUR MINING. A type of mining conducted on coal seams where mountaintop
removal is not economical because of the amount of overburden on the coal seam.
Mining proceeds laterally around a hillside, using equipment such as dozers and
hydraulic shovels, at essentially the same elevation following the coal seam.
The contour cut in a coal seam provides a flat surface that can be used to
facilitate highwall mining. Once the coal has been removed, the overburden is
replaced, leaving the mined property with approximately the same contour as
before mining. This is a common surface mining method on the steeper slopes of
the Appalachian bituminous coal fields. Lodestar practices contour mining in
Eastern Kentucky when other mining methods are not economically feasible.
DEEP MINE. An underground coal mine.
DEMONSTRATED RESERVES. The total of measured reserves and indicated
reserves.
DRAGLINE. A type of excavating equipment which casts a cable-hung bucket a
considerable distance, collects the dug material by pulling the bucket toward
itself on the ground with a second cable, elevates the bucket and dumps the
material on a spoil bank, in a hopper or on a pile.
HIGHWALL MINING. A method of deep mining whereby a system bores into the
face of a coal seam, usually left accessible from contour mining, which has
ceased to be economically viable because of excessive overburden. Highwall
mining can be accomplished by a variety of methods, including relatively simple
auger mining where a corkscrew-like machine, or auger, bores into the side of a
hill and extracts coal by "twisting" it out or by combinations of other mining
equipment, including the use of modified
G-1
<PAGE>
continuous miners. Lodestar is engaged in some highwall mining in its Eastern
Kentucky operations using the continuous and auger methods
HYDRAULIC SHOVEL. A machine used in mountaintop removal mining to remove
the top of a hill down to the coal seam, leaving a level plateau in place of the
hilltop.
INDICATED RESERVES. Reserve estimates in this category have a moderate
degree of geologic assurance. There are no sample and measurement sites in areas
of indicated coal. However, a single measurement can be used to classify coal
lying beyond measured as indicated. Indicated coal lies more than 0.25 mile, but
less than 0.75 mile, from a point of thickness measurement. Further exploration
is necessary to place indicated coal into the measured category.
LIGNITE COAL. A brownish-black coal with a Btu content that generally
ranges from 6,500 to 8,300 Btus per pound. Major lignite operations are located
in Texas, North Dakota, Montana and Louisiana. Lignite coal is used almost
exclusively in power plants located adjacent to such mines because any
transportation costs, coupled with the mining costs, would exceed the price a
customer would pay for such low-Btu coal.
LONGWALL MINING SYSTEM. A deep mining method that uses hydraulic jacks,
varying from five to twelve feet in height, to support the roof of the mine
while a large shearing machine extracts the coal. A chain line then moves the
coal to a deep mine belt system for delivery to the surface. Longwall mining
equipment generally cuts blocks of coal, referred to as longwall panels, that
have a width of approximately 650 to 1,000 feet and a length ranging from
approximately 7,000 to 18,000 feet. Longwall panels can contain more than 2.0
million tons of coal. Longwall mining is a low-cost, high-output method of deep
mining that results in the highest coal recovery percentage for underground
mining. In addition, longwall mining is a much faster method of mining coal than
room and pillar mining. After a longwall panel is cut, the longwall mining
equipment must be disassembled and moved to the next panel location, a process
which generally takes one to two weeks. Lodestar presently utilizes a longwall
mining system at its Baker mine in Western Kentucky.
MEASURED RESERVES. Reserve estimates in this category have the highest
degree of geological assurance. Measured coal lies within 0.25 mile of a valid
point of measurement or point of observation (such as previously mined areas)
supporting such measurements. The sites for thickness measurement are so closely
spaced, and the geologic character is so well defined, that the average
thickness, areal extent, size, shape and depth of coal beds are well
established.
MOISTURE. One of the primary factors considered in determining the value
and marketability of coal. The percentage of moisture is important because the
higher the moisture, the lower the heating value of the coal. Also, if the
percentage of moisture is too high, customers may experience handling problems
with the coal.
MOUNTAINTOP REMOVAL MINING. A method of mining similar to open pit mining,
except that the top of a hill is removed down to the coal seam, using large
earth-moving machines, such as dozers and hydraulic shovels, leaving a level
plateau in place of the hilltop. A more complete recovery of the coal is
accomplished through this method as compared to contour mining. However, its
feasibility depends on the amount of overburden in relation to the coal to be
removed. The site then is backfilled with the overburden and otherwise restored
to its approximate original contour, and vegetation is replaced. The site is
often returned to higher value uses, as the land will now be improved and more
suitable for development and use. The majority of Lodestar's Eastern Kentucky
mining consists of mountaintop removal mining.
OPEN PIT MINING. A method of mining which is essentially a large-scale
earth moving operation, whereby the rock and soil overlying a coal deposit (the
"overburden") is excavated by equipment, such as dozers, hydraulic shovels and
draglines. The exposed coal is then fractured by blasting and loaded onto haul
trucks or overland conveyors for transportation to processing and loading
facilities. The site then is backfilled with the overburden and otherwise
restored to its approximate original contour, and vegetation
G-2
<PAGE>
is replaced. One of Lodestar's contractors practices open pit surface mining at
the Smith Surface mine in Western Kentucky.
OVERBURDEN. Layers of earth and rock covering a coal seam. In surface
mining operations, overburden is removed prior to coal extraction.
PREPARATION PLANT. Usually located on a mine site, although one plant may
serve several mines. A preparation plant is a facility for crushing, sizing and
washing coal to prepare it for use by a particular customer. The washing process
improves the quality of coal by reducing ash and sulfur content and improving
Btu content.
RAW COAL. Coal that has not been washed or treated at a preparation plant.
RECLAMATION. The restoration of land and environmental values to a mining
site after the coal is extracted. Reclamation operations are usually underway
where the coal already has been taken from a mine, even as mining operations are
taking place elsewhere at the site. The process commonly includes "recontouring"
or reshaping the land to its approximate original appearance, restoring topsoil
and planting native grass and ground covers. Reclamation is closely regulated by
both state and federal law.
RECOVERABLE RESERVES. The amount of coal that can be recovered from the
reserve base. The average recovery factor for underground mines is about 57%,
and about 80% from surface mines. Using these percentages, there are about 300.0
billion tons of recoverable reserves in the United States, enough to last more
than 300 years at current consumption levels.
ROOM AND PILLAR MINING. A method of deep mining which uses
remote-controlled continuous miners that cut out a block of coal (the length of
each cut ranging from fifteen to 34 feet), cutting 20-foot wide passages as high
as the coal seam. Roof bolting machines are utilized to secure the immediate
strata above the coal, and pillars (50 to 100 feet squared) are left to provide
overall roof support. In some instances, it is possible to also remove the
pillars of coal, retreating from the back of the mine moving toward the mouth of
the mine, allowing the rock roof to fall in the mined out areas. Room and pillar
mining using continuous mining machines is the most common method of deep
mining. Lodestar and its contractors utilize the room and pillar method of
underground mining at its Smith Underground, Wheatcroft, Miller Creek and the
three Eastern Kentucky contract mines.
SALEABLE COAL. Saleable coal includes any coal that is sold or that is
suitable for sale, including raw coal plus coal which has been washed in a
preparation plant.
SCRUBBER. Any of several forms of chemical/physical devices which operate
to neutralize sulfur compounds formed during coal combustion. These devices
combine the sulfur in gaseous emissions with other chemicals to form inert
compounds, such as gypsum, which must then be removed for disposal.
SPOT MARKET. Sales of coal pursuant to an agreement for shipments over a
period of one year or less. Spot market sales are generally obtained by a
competitive bidding process.
STEAM COAL. Coal used by power plant and industrial steam boilers to
produce electricity or process steam. It generally is lower in Btu content and
higher in volatile matter than metallurgical coal.
STOKER COAL. A specially sized coal of high Btu content specifically for
use in automatic firing equipment.
SUBBITUMINOUS COAL. A black coal with a Btu content that ranges from
approximately 7,900 to 9,500 Btus per pound. Most subbituminous reserves are
located in Montana, Wyoming, Colorado, New Mexico, Washington and Alaska.
Subbituminous coal is used almost exclusively by electric utilities and some
industrial consumers.
G-3
<PAGE>
SULFUR CONTENT. Coal is commonly described by its sulfur content due to the
importance of sulfur in environmental regulations. Compliance coal, when burned,
emits no more than 1.2 pounds of sulfur dioxide per million Btu. This term
originated as a description of coal as it related to the Clean Air Act. "Low
sulfur" coal has a variety of definitions but typically is used to describe
coals consisting of 1.0% (or usually 1.6 pounds per million Btu) or less sulfur.
Lodestar's reserves in Eastern Kentucky are of low sulfur grades. "Mid to high
sulfur" coal describes coals consisting of 1.8% or more sulfur. Lodestar's
reserves in Western Kentucky are mid to high sulfur grades.
SURFACE MINE. A mine in which coal lies near the surface and can be
extracted by removing the covering layer of overburden. About 60% of total U.S.
coal production comes from surface mines.
TONS. A short ton is equal to 2,000 pounds as compared to a metric ton,
which is approximately 2,205 pounds.
UNDERGROUND MINE. Also known as a "deep" mine. Usually located several
hundred feet below the earth's surface, an underground mine's coal is removed
mechanically and transferred by shuttle car or conveyor to the surface. Most
underground mines are located east of the Mississippi River and account for
about 40% of annual U.S. coal production.
UNIT TRAIN. A long train of usually 90 to 100 cars, carrying only coal. A
typical unit train can carry at least 9,000 to 10,000 tons of coal in a single
shipment and is nearly a mile long.
G-4
<PAGE>
ANNEX A
REPORT OF ENGINEERS
March 24, 1998
The Board of Directors
LODESTAR ENERGY, INC.
333 West Vine Street, Suite 1700
Lexington, KY 40507
Ladies and Gentlemen:
As requested and authorized, MARSHALL MILLER & ASSOCIATES (MM&A) has
completed an audit of reserves presently controlled by LODESTAR ENERGY, INC.
(LEI). As you are aware, this audit is primarily based on an update of five
previous, comprehensive reports prepared by MM&A, which include the following:
- "EVALUATION OF RESERVES CONTROLLED BY COSTAIN COAL INC. -- EAST KENTUCKY
OPERATIONS -- CHAPPERAL COAL CORP. - FEBRUARY 1996"
- "EVALUATION OF RESERVES CONTROLLED BY COSTAIN COAL INC. -- EAST KENTUCKY
OPERATIONS -- TRANSCONTINENTAL COAL CORP. - FEBRUARY 1996"
- "EVALUATION OF RESERVES CONTROLLED BY COSTAIN COAL INC. -- EAST KENTUCKY
OPERATIONS -- PRATER CREEK PROCESSING PLANT - FEBRUARY 1996"
- "EVALUATION OF RESERVES CONTROLLED BY COSTAIN COAL INC. -- EAST KENTUCKY
OPERATIONS -- SPRADLIN BRANCH MINE - FEBRUARY 1996"
- "EVALUATION OF RESERVES CONTROLLED BY COSTAIN COAL INC. -- WEST KENTUCKY
OPERATIONS -- SMITH AND BAKER AREAS - FEBRUARY 1996"
The 1996 reserve reports were made current by incorporating updates and
revisions to fully account for additional mining and exploration, revised mine
plans, and modifications in property control. It should be understood that
post-1995 property acquisitions include four reserve areas not previously
evaluated by MM&A in 1996, which are the Carr Creek and Tram Area mountaintop
removal reserves; the Tram Area deep mineable reserves (all three in the East
Kentucky Operations); and the No. 13 seam surface mineable reserves at the Smith
Area (in the West Kentucky Operations). These new areas were thus thoroughly
mapped and evaluated by MM&A using the same methodologies employed in the 1996
reports. This letter/ document, "AUDIT OF DEMONSTRATED RESERVES CONTROLLED BY
LODESTAR ENERGY, INC. - MARCH 1998," provides a summary of the audited and
updated reserve base with reserves classified as either DEMONSTRATED RESERVES or
as RESOURCES.
CONCLUSIONS
This audit of the subject coal properties has confirmed that LEI controls a
total demonstrated reserve base of 198.6 million tons of recoverable coal. Of
this total, 43.7 million recoverable tons are located at LEI's East Kentucky
Operations and 154.9 million recoverable tons are located at the West Kentucky
Operations. TABLE 1, which follows this letter, provides a grand total summary
of the LEI reserve base.
A-1
<PAGE>
In addition to the demonstrated reserves, LEI affiliates control an
additional 47.0 million recoverable tons of product coal, which are presently
classified in the resource category. These resources have certain limitations or
hindrances that, under current market conditions, are judged to be subeconomic.
It is emphasized, however, that with favorable results of future exploration,
possible property acquisition, or with more favorable future market conditions,
some of the identified coal resources may ultimately achieve economic reserve
status.
DEFINITIONS
Definitions(1) of key terms and criteria applied in our audit are as
follows:
- RESOURCES -- Resources are defined as naturally occurring concentrations
or deposits of coal in the earth's crust, in such forms and amounts that
economic extraction is currently or potentially feasible. IDENTIFIED
RESOURCES are those resources whose location, rank, quality, and quantity
are known or estimated from specific geologic evidence. Identified coal
resources include economic, marginally economic, and subeconomic
components. To reflect varying distances from points of control or
reliability, these subdivisions can be divided into demonstrated and
inferred, or preferably into measured, indicated, and inferred.
- RESERVE BASE -- The reserve base is defined as those parts of identified
resources that meet specified minimum physical and chemical criteria
related to current mining and production practices, including those for
quality, depth, thickness, rank, and distance from point of measurement.
The RESERVE BASE is the in-place demonstrated (measured plus indicated)
resource from which reserves are estimated.
- RESERVE -- Reserve is defined as virgin and/or accessed parts of a coal
reserve base that could be economically extracted or produced at the time
of determination considering environmental, legal, and technological
constraints. DEMONSTRATED RESERVES are the sum of coal reserves
classified as measured and indicated as explained below.
- RESERVE RELIABILITY CATEGORIES -- The reliability categories are related
to the level of geologic assurance for the existence of a quantity of
resources. Assurance is based on the distance from points where coal is
measured or sampled and on the abundance and quality of geologic data as
related to thickness of overburden, rank, quality, thickness of coal,
areal extent, geologic history, structure, and correlation of coal beds
and enclosing rocks. The degree of assurance increases as the proximity
to points of control, abundance, and quality of geologic data increase.
The reserve reliability categories include:
-- MEASURED COAL -- Reserve estimates in this category have the highest
degree of geologic assurance. Measured coal lies within 1/4 mile of a
valid point of measurement or point of observation (such as
previously mined areas) supporting such measurements. The sites for
thickness measurement are so closely spaced, and the geologic
character is so well defined, that the average thickness, areal
extent, size, shape, and depth of coal beds are well established.
-- INDICATED COAL -- Reserve estimates in this category have a moderate
degree of geologic assurance. There are no sample and measurement
sites in areas of indicated coal. However, a single measurement can
be used to classify coal lying beyond measured as INDICATED.
Indicated coal lies more than 1/4 mile, but less than 3/4 mile, from
a point of thickness measurement. Further exploration is necessary to
place indicated coal into the measured category.
- ------------------------
1 Source: U.S. Geological Survey Circular 891, "COAL RESOURCE CLASSIFICATION
OF THE U.S. GEOLOGICAL SURVEY," 1983.
A-2
<PAGE>
METHODOLOGY AND QUALIFICATIONS
This audit of the LEI reserves was planned and performed to obtain
reasonable assurance on the subject coal properties. The audit included
examination by certified professional geologists and professional engineers of
all supplied maps and supporting data using industry-accepted standards.
Although the audit methodology is inherently not as exhaustive as a detailed
reserve evaluation, it is our opinion that the audit was conducted in sufficient
detail and with independent verification on a test basis of the available
information to provide reasonable assurance of the stated reserves and
resources. It should be understood that the reserve audit did not include
independent verification of property ownership and that we have relied on
property information supplied by LEI, which we assumed to be correct.
We appreciate the opportunity to provide you with this audit of reserves. If
we can assist you further or if you have any questions, please do not hesitate
to contact us.
Sincerely,
MARSHALL MILLER & ASSOCIATES
<TABLE>
<S> <C>
Marshall S. Miller, J. Scott Nelson,
C.P.G. C.P.G.
PRESIDENT VICE PRESIDENT
</TABLE>
A-3
<PAGE>
LODESTAR ENERGY, INC.
SUMMARY OF RESERVES AND RESOURCES
(RECOVERABLE PRODUCT TONS)
Table 1
<TABLE>
<CAPTION>
MINING METHOD--COAL SEAM DEMONSTRATED RESERVES
(MTR=MOUNTAINTOP REMOVAL, ---------------------------------- GRAND
AREA TSM = THIN SEAM MINER) TOTAL MEASURED INDICATED RESOURCES TOTAL
- ------------------------------- ------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
EAST KENTUCKY OPERATIONS
TRANSCONTINENTAL COAL
PROCESSING
Broadbottom Quadrangle....... Deep--Fireclay Seam 851,387 78,279 773,108 851,387
Broadbottom Quadrangle....... Deep--Upper Elkhorn No. 3 Seam 4,775,957 3,463,613 1,312,344 4,775,957
Broadbottom Quadrangle....... Deep--Upper Elkhorn No. 2 Seam 1,567,005 1,567,005
Broadbottom Quadrangle....... Deep--Upper Elkhorn No. 3
(Subleased) 237,770 237,770 237,770
Broadbottom Quadrangle....... Deep--Upper Elkhorn No. 2
(Subleased) 1,582,122 1,407,016 175,106 1,582,122
Tram Area.................... MTR/Contour--Multi-seam 1,916,351 457,862 1,458,489 1,916,351
Tram Area.................... Deep--Elkhorn No. 2 Seam 447,539 391,660 55,879 447,539
Ivy Creek.................... MTR--Multi-seam 1,540,935 1,519,069 21,866 1,540,935
---------- ---------- ---------- ---------- ----------
Total Transcontinental Coal Processing: 11,352,061 7,555,269 3,796,792 1,567,005 12,919,066
SPRADLIN BRANCH
MTR 610,942 565,859 45,083 610,942
Contour Strip 797,675 662,459 135,216 797,675
---------- ---------- ---------- ---------- ----------
Total Spradlin Branch: 1,408,617 1,228,318 180,299 1,408,617
CHAPPERAL COAL CORP.
Chapperal Coal Corp.......... Deep--Elkhorn No. 3 Seam 488,070 459,106 28,964 406,919 894,989
Chapperal Coal Corp.......... Deep--Elkhorn No. 2 Seam 5,670,304 5,378,184 292,120 5,670,304
Chapperal Coal Corp./ESI..... Deep--Fireclay Seam 2,923,804 2,288,741 635,063 2,923,804
Chapperal Coal Corp./ESI..... Deep--Elkhorn No. 3 Seam 9,415,844 8,107,345 1,308,499 9,415,844
Marion Branch................ MTR--Multi-seam 4,323,355 3,738,416 584,939 4,323,355
Robinson Creek............... Contour/Auger/TSM 703,929 703,929 703,929
Island Creek................. Contour/Auger/TSM 508,662 508,662 508,662
Sugar Camp Creek............. Contour/Auger/TSM 376,630 376,630 376,630
---------- ---------- ---------- ---------- ----------
Total Chapperal Coal Corp.: 24,410,598 21,561,013 2,849,585 406,919 24,817,517
PRATER CREEK
Spurlock..................... MTR/Contour--Multi-seam 518,032 508,154 9,878 518,032
Harold Quadrangle............ Deep--Fireclay Seam 546,940 476,167 70,773 807,715 1,354,655
Harold Quadrangle............ Deep--Upper Elkhorn No. 3 Seam 633,792 633,792
Harold Quadrangle............ Deep--Upper Elkhorn No. 1 Seam 2,991,182 2,484,376 506,806 114,082 3,105,264
---------- ---------- ---------- ---------- ----------
Total Prater Creek: 4,056,154 3,468,697 587,457 1,555,589 5,611,743
CARR CREEK
Hindman & Kite Quadrangles... MTR--Multi-seam 2,435,154 2,316,961 118,193 156,261 2,591,415
---------- ---------- ---------- ---------- ----------
Total East Kentucky Operations: 43,662,584 36,130,258 7,532,326 3,685,774 47,348,358
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
WEST KENTUCKY OPERATIONS
SMITH AREA
Deep, 13 Seam....................... 12,892,876 9,009,918 3,882,958 12,892,876
Surface, 13 Seam.................... 2,088,917 2,088,917 2,088,917
---------- ---------- ---------- ---------- ----------
Total Smith Area: 14,981,793 11,098,835 3,882,958 14,981,793
BAKER AREA
*Deep, 13 Seam...................... 31,793,183 22,038,758 9,754,425 6,748,385 38,541,568
**Deep, 9 Seam--Alcoa Lease 42,667,540 30,057,776 12,609,764 3,893,482 46,561,022
***Deep, 9 Seam--Alcoa Option 65,492,141 21,051,310 44,440,831 32,820,026 98,312,167
---------- ---------- ---------- ---------- ----------
Total Baker Area: 139,952,864 73,147,844 66,805,020 43,461,893 183,414,757
---------- ---------- ---------- ---------- ----------
Total West Kentucky Operations: 154,934,657 84,246,679 70,687,978 43,461,893 198,396,550
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Grand Total, East & West Kentucky Operations: 198,597,241 120,376,937 78,220,304 47,147,667 245,744,908
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- ------------------------
* Does not include 3.10 million product tons (MPT) of currently uncontrolled
but potentially obtainable demonstrated reserve or 1.12 MPT of uncontrolled
but potentially obtainable reserves.
** Does not include 1.85 MPT of demonstrated reserves on potentially obtainable
but currently uncontrolled tracts and Alcoa partial interest tracts. Also
does not include 0.12 MPT of uncontrolled resources within overall Alcoa
Lease area.
*** LEI has a sole option to lease these reserves; they are therefore considered
as controlled.
A-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTORS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information........................... 2
Forward Looking Statements...................... 2
Prospectus Summary.............................. 3
Risk Factors.................................... 15
Use of Proceeds................................. 22
Capitalization.................................. 23
Unaudited Pro Forma Consolidated Financial
Data.......................................... 24
Selected Consolidated Financial Data............ 31
The Exchange Offer.............................. 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 40
Industry........................................ 48
Business........................................ 54
Governmental Regulation......................... 69
Management...................................... 73
Stock Ownership................................. 77
Certain Relationships and Transactions.......... 78
Description of the Senior Notes................. 79
Description of New Senior Credit Facility....... 102
Certain U.S. Federal Income Tax
Considerations................................ 104
Plan of Distribution............................ 104
Legal Matters................................... 105
Experts......................................... 105
Engineers....................................... 105
Index to Consolidated Financial Statements...... F-1
Glossary of Selected Terms...................... G-1
Report of Engineers............................. A-1
</TABLE>
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
LODESTAR
HOLDINGS, INC.
OFFER TO EXCHANGE ITS
11 1/2% SENIOR NOTES
DUE 2005, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SENIOR NOTES
DUE 2005, SERIES A
--------------
PROSPECTUS
--------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of Delaware
(the "DGCL") empowers the Lodestar Holdings, Inc. (the "Company") and Lodestar
Energy, Inc., both Delaware corporations, to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or advancement of expenses
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the power to indemnify him against such liabilities
under Section 145.
The Certificate of Incorporation for the Company provides that no director
of the Company shall be personally liable to the Company or its stockholders for
monetary damage for breach of fiduciary duty as a director, except as otherwise
provided by the DGCL.
The Bylaws of the Company provide, in effect, that the Company shall provide
indemnification consistent with Subsections (a) and (b) of Section 145 of the
DGCL to any current or former officer or director of the Company, and that the
Company may provide such indemnification to any current or former employee or
agent of the Company.
The Certificate of Incorporation of Lodestar Energy, Inc., a Delaware
corporation ("Lodestar") provides that a director of Lodestar shall not be
personally liable to Lodestar or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability (i) for any breach
of the director's duty of loyalty to Lodestar or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or
II-1
<PAGE>
(iv) for any transaction from which the director derives an improper personal
benefit, and provides, in effect, that Lodestar shall provide indemnity
consistent with the Sections of the DGCL referred to above.
The Bylaws of Lodestar provide, in effect, that Lodestar shall indemnify
every person who was or is a party, or is or was threatened to be made a party,
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he or she is or was a director,
officer, employee, or agent of Lodestar, or is or was serving at the request of
Lodestar as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceedings, to the fullest extent permitted by applicable law.
Such indemnifications may, in the discretion of the board of directors, include
advances of the person's expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provisions of any applicable
statute. Lodestar is empowered to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of Lodestar, or
is or was serving at the request of Lodestar as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise, against any liability incurred by such person in such capacity, or
arising out of such person's capacity.
Section 561 of the Michigan Business Corporation Act (the "MBCA") empowers
Industrial Fuels Minerals Company, a Michigan corporation, ("Industrial Fuels")
to indemnify a person who was or is a party or is threatened to be made a party
to a threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and whether formal or
informal, other than an action by or in the right of the corporation, by reason
of the fact that he or she is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit, or
proceeding, if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to a criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful.
Section 562 of the MBCA empowers a corporation to indemnify a person who was
or is a party or is threatened to be made a party to a threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, whether for profit or not, against expenses,
including attorneys' fees, and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action or suit, if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation or its shareholders,
and except that no indemnification shall be made for a claim, issue, or matter
in which the person has been found liable to the corporation except to the
extent that the court conducting the proceeding or another court of competent
jurisdiction determines that, in view of all the relevant circumstances, the
person is fairly and reasonably entitled to indemnity for reasonable expenses
incurred.
The MBCA further provides that to the extent a director, officer, employee
or agent of a corporation has been successful in the defense of any action, suit
or proceeding referred to in sections 561 and 562 or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against actual
and reasonable expenses, including attorneys' fees, incurred by him or her in
connection therewith; that indemnification or advancement of expenses provided
under sections 561 and 562 is not exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any
II-2
<PAGE>
liability asserted against him or her and incurred by him or her in any such
capacity or arising out of his or her status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under sections 561 and 562.
The Certificate of Incorporation of Industrial Fuels does not address
indemnification of directors and officers.
The By-Laws of Industrial Fuels provide, in effect, that it shall provide
indemnity pursuant to the above described sections of the MBCA.
Section 8 of the Kentucky Business Corporation Act (the "KCBA") empowers
Eastern Resources, Inc., a Kentucky corporation, to indemnify an individual made
a party to a proceeding because he is or was a director, officer, employee, or
agent of the corporation, against the obligation to pay a judgment, settlement,
penalty, fine, or reasonable expenses incurred with respect to the proceeding
(except that indemnity in connection with a proceeding by or in the right of the
corporation shall be limited to reasonable expenses incurred in connection with
the proceeding) if (1) he conducted himself in good faith, (2) he reasonably
believed, in the case of conduct in his official capacity with the corporation,
that his conduct was in its best interest and, in all other cases, that his
conduct was at least not opposed to its best interest, and (3) in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful, except that no indemnification may be made in connection with a
proceeding by or in the right of the corporation in which the person was
adjudged liable to the corporation, or in connection with any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
Section 8 of the KCBA authorizes the court conducting the proceeding or
another court of competent jurisdiction to order indemnification if it shall
determine the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not he met
the standard of conduct or was adjudged liable as described above, but if he
were adjudged so liable, the indemnification shall be limited to reasonable
expenses incurred.
Section 8 of the KCBA further provides that a corporation shall indemnify a
director or officer who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director or officer of the corporation against reasonable expenses incurred by
him in connection with the proceeding; that indemnification and advancement of
expenses provided for by Section 8 shall not be deemed exclusive of any other
right to which the indemnified party may be entitled; empowers the corporation
to purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against liability asserted against or incurred by him
in that capacity or arising from his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 8; and empowers the corporation to indemnify and advance expenses to an
officer, employee, or agent who is not a director to the extent, consistent with
public policy, that may be provided by its articles of incorporation, by-laws,
general or specific action of its board of directors, or contract.
The Certificate of Incorporation of Eastern Resources, Inc. ("Eastern
Resources") does not address indemnification of directors and officers.
The By-Laws of Eastern Resources provides that, in effect, it shall provide
indemnity consistent with the provisions of the DGCL set out above, and also
that it shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (i) arising
under the Employee Retirement Income Security Act of 1974 or regulations
promulgated thereunder, or under any other law or regulation of the United
States or any agency or instrumentality thereof or law or regulation of any
state or political subdivision or any agency or instrumentality of either, or
under the common law of any of the foregoing, against expenses (including
attorneys' fees), judgments, fines, penalties, taxes and amounts paid in
II-3
<PAGE>
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding by reason of the fact that he is or was a fiduciary,
disqualified person or party in interest with respect to an employee benefit
plan covering employees of Eastern Resources or of a subsidiary corporation, or
is or was serving in any other capacity with respect to such plan, or has or had
any obligations or duties with respect to such plan by reason of such laws or
regulations, provided that any person was or is a director, officer, employee or
agent of Eastern Resources, or (ii) in connection with any matter arising under
federal, state or local revenue or taxation laws or regulations, against
expenses (including attorneys' fees), judgments, fines, penalties, taxes,
amounts paid in settlement and amounts paid as penalties or fines necessary to
contest the imposition of such penalties or fines, actually and reasonably
incurred by him in connection with such action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of Eastern
Resources, or is a director, officer, employee or agent of Eastern Resources, or
is or was serving at the request of Eastern Resources as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise and had responsibility for or participated in activities
relating to compliance with such revenue or taxation laws and regulations;
provided, however, that such person did not act dishonestly or in willful or
reckless violation of the provisions of the law or regulation under which such
suit or proceeding arises. Unless the Board of Directors determines that under
the circumstances then existing, it is probable that such director, officer,
employee or agent will not be entitled to be indemnified by Eastern Resources
under this section, expenses incurred in defending such suit or proceeding,
including the amount of any penalties or fines necessary to be paid to contest
the imposition of such penalties or fines, shall be paid by Eastern Resources in
advance of the final disposition of such suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employer or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Eastern Resources under the By-Laws.
II-4
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Lodestar Holdings, Inc.
3.2 -- Bylaws of Lodestar Holdings, Inc..
3.3 -- Certificate of Incorporation of Lodestar Energy, Inc.
3.4 -- Bylaws of Lodestar Energy, Inc.
3.5 -- Certificate of Incorporation of Eastern Resources, Inc.
3.6 -- By-laws of Eastern Resources, Inc.
3.7 -- Certificate of Incorporation of Industrial Fuels Minerals Company.
3.8 -- By-laws of Industrial Fuels Minerals Company
4.1 -- Indenture, dated as of May 15, 1998, by and among the Registrants and State Street Bank and Trust
Company, as trustee, relating to the 11 1/2% Senior Notes due 2005, Series A and 11 1/2% Senior
Notes due 2005, Series B and the Guarantees thereof (containing, as exhibits, specimens of the Notes
and the Guarantees).
4.2 -- Purchase Agreement, dated May 12, 1998, among the Registrants and Donaldson, Lufkin and Jenrette
Securities Corporation, relating to the 11 1/2% Senior Notes due 2005.
4.3 -- Registration Rights Agreement, dated as of May 15, 1998, by and among the Registrants and Donaldson,
Lufkin & Jenrette Securities Corporation, relating to the 11 1/2% Senior Notes due 2005.
4.4 -- Form Letter of Transmittal.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
10.1.1 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and John W. Hughes.
10.1.2 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and Eugene C. Holdaway.
10.1.3 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and R. Eberley Davis.
10.1.4 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and Mike Francisco.
10.1.5 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and William M. Potter.
10.1.6 -- Employment Agreement, dated as of July 1, 1998, between Costain Coal, Inc. and Michael E. Donohue.
10.2.1 -- Net Worth Appreciation Agreement, dated as of May 14, 1998, between Lodestar Energy, Inc. and John
W. Hughes.
10.2.2 -- Net Worth Appreciation Agreement, dated as of May 14, 1998, between Lodestar Energy, Inc. and Eugene
C. Holdaway.
10.2.3 -- Net Worth Appreciation Agreement, dated as of May 14, 1998, between Lodestar Energy, Inc. and R.
Eberley Davis.
10.2.4 -- Net Worth Appreciation Agreement, dated as of May 14, 1998, between Lodestar Energy, Inc. and Mike
Francisco.
10.2.5 -- Net Worth Appreciation Agreement, dated as of May 14, 1998, between Lodestar Energy, Inc. and
William M. Potter.
10.2.6 -- Net Worth Appreciation Agreement, dated as of June 1, 1998 between Lodestar Energy, Inc. and Michael
E. Donohue.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 -- Amended and Restated Loan and Security Agreement, dated May 15, 1998, by and among Lodestar Energy,
Inc. Lodestar Holdings, Inc., Congress Financial Corporation and The CIT Group/Business Credit, Inc.
10.4.1 -- Contract for Purchase and Sale of Coal, dated September 20, 1996, between Tennessee Valley Authority
and Costain Coal Inc., as amended and supplemented (3.7 lbs of sulfur dioxide per million Btu).
10.4.2 -- Contract for Purchase and Sale of Coal per Purchase Order No. 97PO1-198918, dated September 20,
1996, between Tennessee Valley Authority and Costain Coal Inc., as amended and supplemented.
10.5.1 -- Coal Purchase Agreement, dated as of August 4, 1992, between Costain Coal Inc. and Indiantown
Cogeneration, L.P., as amended and supplemented.
10.5.2 -- Fuel Supply and Waste Disposal Services Agreement, dated as of April 21, 1989, between AES Cedar
Bay, Inc. and Costain Coal Inc., as amended and supplemented.
12 -- Statement regarding computation of ratios.
21 -- List of Subsidiaries of Registrant.
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Marshall Miller & Associates.
24 -- Power of Attorney (included on the signature page).
25 -- Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust Company.
</TABLE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling any
Registrant pursuant to the foregoing provisions, each Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of a Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
II-6
<PAGE>
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lexington,
State of Kentucky, on July 14, 1998.
<TABLE>
<S> <C> <C>
LODESTAR HOLDINGS, INC.
By: /s/ JOHN W. HUGHES
-----------------------------------------
JOHN W. HUGHES
President and Chief Operating Officer
LODESTAR ENERGY, INC
By: /s/ JOHN W. HUGHES
-----------------------------------------
JOHN W. HUGHES
President and Chief Operating Officer
EASTERN RESOURCES, INC.
By: /s/ JOHN W. HUGHES
-----------------------------------------
JOHN W. HUGHES
President
INDUSTRIAL FUELS MINERALS COMPANY
By: /s/ JOHN W. HUGHES
-----------------------------------------
JOHN W. HUGHES
President
</TABLE>
II-8
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John W. Hughes and Michael E. Donohue and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform such and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 14, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ----------------------------------------------
<C> <S>
LODESTAR HOLDINGS, INC.
/s/ IRA LEON RENNERT Chairman of the Board, Chief Executive Officer
- ------------------------------ and Director (Principal Executive Officer)
IRA LEON RENNERT
/s/ MICHAEL E. DONOHUE Chief Financial Officer (Principal Financial
- ------------------------------ and Accounting Officer)
MICHAEL E. DONOHUE
LODESTAR ENERGY, INC.
/s/ IRA LEON RENNERT Chairman of the Board and Director
- ------------------------------
IRA LEON RENNERT
/s/ JOHN W. HUGHES President and Chief Operating Officer
- ------------------------------ (Principal Executive Officer)
JOHN W. HUGHES
/s/ MICHAEL E. DONOHUE Vice President and Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
MICHAEL E. DONOHUE
EASTERN RESOURCES, INC.
/s/ IRA LEON RENNERT Chairman of the Board and Director
- ------------------------------
IRA LEON RENNERT
/s/ JOHN W. HUGHES President (Principal Executive Officer)
- ------------------------------
JOHN W. HUGHES
/s/ MICHAEL E. DONOHUE Vice President and Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
MICHAEL E. DONOHUE
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ----------------------------------------------
INDUSTRIAL FUELS MINERALS COMPANY
<C> <S>
/s/ IRA LEON RENNERT Chairman of the Board and Director
- ------------------------------
IRA LEON RENNERT
/s/ JOHN W. HUGHES President (Principal Executive Officer)
- ------------------------------
JOHN W. HUGHES
/s/ MICHAEL E. DONOHUE Vice President and Chief Financial
- ------------------------------ Officer(Principal Financial and Accounting
MICHAEL E. DONOHUE Officer)
</TABLE>
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Lodestar Holdings, Inc.
3.2 -- Bylaws of Lodestar Holdings, Inc..
3.3 -- Certificate of Incorporation of Lodestar Energy, Inc.
3.4 -- Bylaws of Lodestar Energy, Inc.
3.5 -- Certificate of Incorporation of Eastern Resources, Inc.
3.6 -- By-Laws of Eastern Resources, Inc.
3.7 -- Certificate of Incorporation of Industrial Fuels Minerals Company.
3.8 -- By-Laws of Industrial Fuels Minerals Company
4.1 -- Indenture, dated as of May 15, 1998, by and among the Registrants and State Street Bank and Trust
Company, as trustee, relating to the 11 1/2% Senior Notes due 2005, Series A and 11 1/2% Senior
Notes due 2005, Series B and the Guarantees thereof (containing, as exhibits, specimens of the
Notes and the Guarantees).
4.2 -- Purchase Agreement, dated May 12, 1998, among the Registrants and Donaldson, Lufkin and Jenrette
Securities Corporation, relating to the 11 1/2% Senior Notes due 2005.
4.3 -- Registration Rights Agreement, dated as of May 15, 1998, by and among the Registrants and
Donaldson, Lufkin & Jenrette Securities Corporation, relating to the 11 1/2% Senior Notes due
2005.
4.4 -- Form Letter of Transmittal.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
10.1.1 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and John W. Hughes.
10.1.2 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and Eugene C.
Holdaway.
10.1.3 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and R. Eberley Davis.
10.1.4 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and Mike Francisco.
10.1.5 -- Employment Agreement, dated as of April 1, 1997, between Costain Coal, Inc. and William M. Potter.
10.1.6 -- Employment Agreement, dated as of July 1, 1998, between Lodestar Energy, Inc. and Michael E.
Donohue.
10.2.1 -- Net Worth Appreciation Agreement, dated May 14, 1998, between Lodestar Energy, Inc. and John W.
Hughes.
10.2.2 -- Net Worth Appreciation Agreement, dated May 14, 1998, between Lodestar Energy, Inc. and Eugene C.
Holdaway.
10.2.3 -- Net Worth Appreciation Agreement, dated May 14, 1998, between Lodestar Energy, Inc. and R. Eberley
Davis.
10.2.4 -- Net Worth Appreciation Agreement, dated May 14, 1998, between Lodestar Energy, Inc. and Mike
Francisco.
10.2.5 -- Net Worth Appreciation Agreement, dated May 14, 1998, between Lodestar Energy, Inc. and William M.
Potter.
10.2.6 -- Net Worth Appreciation Agreement, dated June 1, 1998, between Lodestar Energy, Inc. and Michael E.
Donohue.
10.3 -- Amended and Restated Loan and Security Agreement, dated May 15, 1998, by and among Lodestar
Energy, Inc. Lodestar Holdings, Inc., Congress Financial Corporation and The CIT Group/Business
Credit, Inc.
10.4.1 -- Contract for Purchase and Sale of Coal, dated September 20, 1996, between Tennessee Valley
Authority and Costain Coal Inc., as amended and supplemented (3.7 lbs of sulfur dioxide per
million Btu).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
10.4.2 -- Contract for Purchase and Sale of Coal, dated September 20, 1996, between Tennessee Valley
Authority and Costain Coal Inc., as amended and supplemented (3.2 lbs. of sulfur dioxide per
million Btu).
10.5.1 -- Coal Purchase Agreement, dated as of August 4, 1992, between Costain Coal Inc. and Indiantown
Cogeneration, L.P., as amended and supplemented.
10.5.2 -- Fuel Supply and Waste Disposal Services Agreement, dated as of April 21, 1989, between AES Cedar
Bay, Inc. and Costain Coal Inc., as amended and supplemented.
12 -- Statement regarding computation of ratios.
21 -- List of Subsidiaries of Registrant.
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
3.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Marshall Miller & Associates.
24 -- Power of Attorney (included on the signature page).
25 -- Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust Company.
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
RENCOAL, INC.
The undersigned, in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), hereby certifies
that:
First. The name of the Corporation is Rencoal, Inc. (the
"Corporation").
Second. The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
Third. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
Fourth. The Corporation shall have all powers that may now or hereafter
be lawful for a corporation to exercise under the DGCL.
Fifth. The total number of shares of stock which the Corporation is
authorized to issue is One Thousand (1,000) shares of Common Stock, par value
$1.00 per share.
Sixth. The name and mailing address of the incorporator of the
Corporation is:
Michael C. Ryan, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038.
Seventh. The number of directors of the Board of Directors shall be
fixed by the Bylaws of the Corporation.
Eighth. Unless and to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
Ninth. In furtherance and not in limitation of the powers conferred by
the DGCL, the Board of Directors of the Corporation shall be authorized to
make, alter, or repeal by the Bylaws of the Corporation as and to the extent
permitted therein.
Tenth. Except as otherwise provided by the DGCL as the same exists or
may hereafter be amended, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a
<PAGE>
director. Any repeal or modification of this Article Tenth by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on August 15, 1996.
/s/ Michael C. Ryan
-------------------------
Michael C. Ryan
Sole Incorporator
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RENCOAL, INC.
------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
------------------------------------------
Rencoal, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The Certificate of Incorporation of the Corporation was filed in the
office of the Secretary of State of Delaware on August 15, 1996.
2. Article Fifth of the Certificate of Incorporation is amended to read in
full as follows:
"Fifth. The total number of shares of stock which the Corporation is
authorized to issue is One Thousand (1,000) shares of Common Stock,
par value $1.00 per share, and Five Million shares of Preferred Stock,
par value $1.00 per share.
To the full extent permitted by Delaware General Corporation Law, as
the same exists or may hereafter be amended, the Board of Directors is
hereby authorized by resolution to divide and issue the shares of
Preferred Stock in classes or series and to fix the voting powers and
any designations, preferences, and relative, participating, optional
or other special rights of any such class or series of Preferred Stock
and any qualifications or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the issue of
such stock adopted by the Board of Directors."
<PAGE>
3. The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware and by the written consent of the sole stockholder of the Corporation
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate to be signed by a Vice President and
attested by an Assistant Secretary this ____ day of March, 1997.
RENCOAL, INC.
By: /s/ Dennis A. Sadlowski
--------------------------------
Dennis A. Sadlowski
Assistant Secretary
[Corporate Seal]
Attest:
By: /s/ Michael C. Ryan
----------------------------------
Michael C. Ryan
Assistant Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RENCOAL, INC.
-------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------------------------
Rencoal, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The Certificate of Incorporation of the Corporation was filed in the
office of the Secretary of State of Delaware on August 15, 1996.
2. Article First of the Certificate of Incorporation is amended to read as
follows:
"First: The name of the Corporation is Lodestar Holdings, Inc. (the
"Corporation")."
3. The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware and by the written consent of the sole stockholder of the Corporation
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware.
<PAGE>
In Witness Whereof, the Corporation has caused its corporate seal to be
affixed hereto and this certificate to be signed by its Vice President and
attested by its Assistant Secretary this ____ day of April, 1998.
RENCOAL, INC.
By: /s/ Roger L. Fay
------------------------------
Roger L. Fay
Vice President
[Corporate Seal]
Attest:
By: /s/ Michael C. Ryan
-------------------------------
Michael C. Ryan
Assistant Secretary
2
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
RENCOAL, INC.
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at the principal place of business in
such state of the corporation or individual acting as the Corporation's
registered agent in Delaware.
Section 1.2. Other Offices. In addition to its registered office in the
State of Delaware, the Corporation may have an office or offices in such other
places as the Board of Directors may from time to time designate or the business
of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.1. Time and Place. All meetings of the stockholders of the
Corporation shall be held at such time and place, either within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2.2. Annual Meeting. The annual meeting of stockholders of the
Corporation shall be held at such date, time and place, either within or without
the State of Delaware, as shall be determined by the Board of Directors and
stated in the notice of meeting.
Section 2.3. Special Meetings of Stockholders. Special meetings of
stockholders for any purpose or purposes if not otherwise prescribed by statute
or by the Certificate of Incorporation, may be called by the Board of Directors,
the President, or the Secretary. Such request shall state the purpose or
purposes of the proposed meeting. The time
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of any such special meeting shall be fixed by the officer calling the meeting
and shall be stated in the notice of such meeting, which notice shall specify
the purpose or purposes thereof. Business transacted at any special meeting
shall be confined to the purposes stated in the notice of meeting and matters
germane thereto.
Section 2.4. Notice of Meetings. Notice of the time and place of every
annual or special meeting of the stockholders shall be given not less than ten
nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting, in the manner prescribed by Section 6.1 of
these By-Laws, except that where the matter to be acted upon is a merger or
consolidation of the Corporation, or a sale, lease or exchange of all or
substantially all of its assets, such notice shall be given not less than twenty
nor more than sixty days prior to such meeting.
Section 2.5. Quorum and Adjournment of Meetings. The holders of a majority
of the shares of capital stock issued and outstanding and entitled to vote
thereat, present in person, or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by the Certificate of
Incorporation. If a majority shall not be present in person or represented by
proxy at any meeting of the stockholders at which action is to be taken by the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time
without notice other than announcement at the meeting, until holders of the
requisite number of shares of stock entitled to vote shall be present or
represented by proxy. At such adjourned meeting at which such holders of the
requisite number of shares of capital stock shall be present or represented by
proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
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Section 2.6. Vote Required. At any meeting of stockholders, directors shall
be elected by a plurality of votes, and all other matters shall be decided by a
majority of votes, cast by the stockholders present in person or represented by
proxy and entitled to vote, unless the matter is one for which, by express
provisions of statute, of the Certificate of Incorporation or of these By-Laws,
a different vote is required, in which case such express provision shall govern
and control the determination of such matter.
Section 2.7. Voting. At any meeting of the stockholders, each stockholder
having the right to vote shall be entitled to vote in person or by proxy. To
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date which shall be not more than sixty days nor less than ten
days before the date of such meeting. Except as otherwise provided by the
Certificate of Incorporation or by statute, each stockholder of record shall be
entitled to one vote for each outstanding share of capital stock standing in his
or her name on the books of the Corporation as of the record date. A complete
list of the stockholders entitled to vote at any meeting of stockholders
arranged in alphabetical order with the address of each and the number of shares
held by each, shall be prepared by the Secretary. Such list shall be open to the
examination of any stockholder for any purpose germane to the meeting during
ordinary business hours for a period of at least ten days prior to the meeting,
at the locations specified by the Delaware General Corporation Law. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Section 2.8. Proxies. Each proxy shall be in writing executed by the
stockholder giving the proxy or his or her duly authorized attorney. No proxy
shall be valid after the expiration of three years from its date, unless a
longer period is provided for in the proxy. Unless and until voted, every proxy
shall be revocable at the pleasure of the person who executed it or his or her
legal representatives or assigns, except in those cases where an irrevocable
proxy permitted by statute has been given.
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Section 2.9. Consents. The provision of these By-Laws covering notices and
meetings to the contrary notwithstanding, any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing setting forth the
action so taken shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would have been necessary to
authorize or take such action at a meeting at which all shares of stock entitled
to vote thereon were present and voted. Where corporate action is taken in such
manner by less than unanimous written consent, prompt written notice of the
taking of such action shall be given to all stockholders who have not consented
in writing thereto and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting.
ARTICLE III
DIRECTORS
Section 3.1. Board of Directors. The business and affairs of the
Corporation shall be managed by a Board of Directors. The Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things on its behalf as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.
Section 3.2. Number; Election and Tenure. The number of directors shall
be fixed initially by the incorporator of the Corporation and thereafter such
number may be increased from time to time by the stockholders or by the Board of
Directors or may be decreased by the stockholders; provided that no decrease in
the number of directors shall shorten the term of any incumbent director. Except
as provided by law or these By-Laws, directors shall be elected each year at the
annual meeting of stockholders. Each director shall hold office until the annual
meeting of stockholders next succeeding his or her election until his or her
successor is elected and has qualified or until his or her earlier resignation
or removal.
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Section 3.3. Resignation and Removal. A director may resign at any time by
giving written notice to the Board of Directors or to the President of the
Corporation. Such resignation shall take effect upon receipt thereof by the
Board of Directors or by the President, unless otherwise specified therein. Any
one or more of the directors may be removed, either with or without cause, at
any time by the affirmative vote of a majority of the stockholders at any
special meeting of the stockholders called for such purpose.
Section 3.4. Vacancies. A vacancy occurring for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by the vote of a majority of the directors then in
office, although less than a quorum, or by the sole remaining director, or by
the stockholders.
Section 3.5. Compensation. Each director shall receive for services
rendered as a director of the Corporation such compensation as may be fixed by
the Board of Directors. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
MEETINGS OF THE BOARD
Section 4.1. Time and Place. Meetings of the Board of Directors shall be
held at such places, within or without the State of Delaware, and within or
without the United States of America, as shall be determined in accordance with
these By-Laws.
Section 4.2. Annual Meeting. Immediately after and at the place of the
annual meeting of the stockholders, or at such other place as the Board of
Directors may designate, a meeting of the newly elected Board of Directors for
the purpose of organization and the election of officers and otherwise may be
held. Such meeting may be held without notice.
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Section 4.3. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice, at such time and place as shall, from time to time,
be determined by the Board of Directors.
Section 4.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time and place as shall be determined by the Board of
Directors upon the call of the Board of Directors, the President, or the
Secretary, on two days' notice to each director by mail or on one day's notice
personally or by telecopy, telephone or telegraph. Meetings of the Board of
Directors may be held at any time without notice if all the directors are
present, or if those not present waive notice of the meeting in writing, either
before or after the meeting.
Section 4.5. Quorum and Voting. A majority of the entire Board of Directors
shall constitute a quorum at any meeting of the Board of Directors and the act
of a majority of the directors shall be the act of the Board of Directors,
except as may otherwise be specifically provided by law, the Certificate of
Incorporation or by these By-Laws. If at any meeting of the Board of Directors
there shall be less than a quorum present, the director or directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall have been obtained.
Section 4.6. Consents. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if all members
of the Board of Directors consent to such action in writing, and such writing or
writings are filed with the minutes of the proceedings of the Board of
Directors.
Section 4.7. Telephonic Meetings of Directors. The Board of Directors may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation by such means shall constitute
presence in person at such meeting.
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ARTICLE V
COMMITTEES OF THE BOARD
Section 5.1. Designation and Powers. The Board of Directors may in its
discretion designate one or more committees. Each committee shall consist of one
or more of the directors of the Corporation. Such committee or committees shall
have duties and powers not inconsistent with the laws of the State of Delaware,
the Certificate of Incorporation, these By-Laws, and the respective resolution
or resolutions of the Board of Directors.
ARTICLE VI
NOTICES
Section 6.1. Delivery of Notices. Notices to directors and stockholders
shall be in writing and may be delivered personally or by mail. Notice by mail
shall be deemed to be given at the time when deposited in the United States
mail, postage prepaid, and addressed to directors or stockholders at their
respective addresses appearing on the books of the Corporation, unless any such
director or stockholder shall have filed with the Secretary of the Corporation a
written request that notices intended for him or her be mailed or delivered to
some other address, in which case the notice shall be mailed to or delivered at
the address designated in such request. Notice to directors may also be given by
telegram or by telecopy.
Section 6.2. Waiver of Notice. Whenever notice is required to be given by
statute, the Certificate of Incorporation or these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to such notice whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Attendance of a person at a meeting of stockholders, directors or
any committee of directors, as the case may be, shall constitute a waiver of
notice of such meeting, except where the person is attending for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the
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purpose of, any regular or special meeting of stockholders, directors or
committee of directors need be specified in any written waiver of notice.
ARTICLE VII
OFFICERS
Section 7.1. Executive Officers. At the annual meeting of directors the
Board of Directors shall elect a Chairman of the Board, President, Secretary and
Treasurer and may elect one or more Vice Presidents, Assistant Secretaries or
Assistant Treasurers and such other officers as the Board of Directors may from
time to time designate or the business of the Corporation may require. No
executive officer need be a member of the Board. Except for the offices of
Chairman of the Board, President and Secretary, any number of offices may be
held by the same person.
Section 7.2. Other Officers and Agents. The Board of Directors may also
elect such other officers and agents as the Board of Directors may at any time
or from time to time determine to be advisable, such officers and such agents to
serve for such terms and to exercise such powers and perform such duties as
shall be specified at any time or from time to time by the Board of Directors.
Section 7.3. Tenure; Resignation; Removal; Vacancies. Each officer of the
Corporation shall hold office until his or her successor is elected and
qualified, or until his or her earlier resignation or removal; provided, that if
the term of office of any officer elected or appointed pursuant to Section 7.2
of these By-Laws shall have been fixed by the Board of Directors, he or she
shall cease to hold such office no later than the date of expiration of such
term regardless of whether any other person shall have been elected or appointed
to succeed him or her. Any officer elected by the Board of Directors may be
removed at any time, with or without cause, by the Board of Directors; provided,
that any such removal shall be without prejudice to the rights, if any, of the
officer so employed under any employment contract or other agreement with the
Corporation. An officer may resign at any time upon written notice
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to the Board of Directors. If the office of any officer becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office or
otherwise, the Board of Directors may choose a successor or successors to hold
office for such term as may be specified by the Board of Directors.
Section 7.4. Compensation. Except as otherwise provided by these By-Laws,
the salaries of all officers and agents of the Corporation appointed by the
Board of Directors shall be fixed by the Board of Directors.
Section 7.5. Authority and Duties. All officers as between themselves and
the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-Laws. In addition
to the powers and duties hereinafter specifically prescribed for the respective
officers, the Board of Directors may from time to time impose or confer upon any
of the officers such additional duties and powers as the Board of Directors may
see fit, and the Board of Directors may from time to time impose or confer any
or all of the duties and powers hereinafter specifically prescribed for any
officer upon any other officer or officers.
Section 7.6. Chairman of the Board. The Chairman of the Board of Directors,
who shall be a director, shall preside at all meetings of the stockholders and
at all meetings of the Board of Directors. As director, he or she shall perform
such other duties as may be assigned from time to time by the Board of
Directors.
Section 7.7. President. The President shall be the chief executive officer
of the Corporation. He or she shall perform such duties as may be assigned to
him or her by the Board of Directors, and in the event of disability or absence
of the Chairman of the Board, perform the duties of the Chairman of the Board,
including presiding at meetings of stockholders and directors. He or she shall
from time to time report to the Board of Directors all matters within his or her
knowledge which the interest of the Corporation may require to be brought to
their notice, and shall also have such other powers and perform such other
duties as may be specifically assigned to him or her from time to time by the
Board of Directors. The
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President shall see that all resolutions and orders of the Board of Directors
are carried into effect, and in connection with the foregoing, shall be
authorized to delegate to the Vice President and the other officers such of his
or her powers and such of his or her duties as he or she may deem to be
advisable.
Section 7.8. The Vice President(s). The Vice President, or if there be more
than one, the Vice Presidents, shall perform such duties as may be assigned to
them from time to time by the Board of Directors or as may be designated by the
President. In case of the absence or disability of the President the duties of
the office shall, if the Board of Directors or the President has so authorized,
be performed by the Vice President, or if there be more than one Vice President,
by such Vice President as the Board of Directors or President shall designate.
Section 7.9. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors or by any officer of the Corporation authorized by the Board of
Directors to make such designation. The Treasurer shall exercise such powers and
perform such duties as generally pertain or are necessarily incident to his or
her office and shall perform such other duties as may be specifically assigned
to him or her from time to time by the Board of Directors or by the President or
any Vice President.
Section 7.10. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for any committee when required. He or she shall give, or
cause to be given, notice of all meetings of the stockholders and, when
necessary, of the Board of Directors. The Secretary shall exercise such powers
and perform such duties as generally pertain or are necessarily incident to his
or
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her office and he or she shall perform such other duties as may be assigned
to him or her from time to time by the Board of Directors, the President or by
any Vice President.
ARTICLE VIII
CERTIFICATES OF STOCK
Section 8.1. Form and Signature. The certificates of stock of the
Corporation shall be in such form or forms not inconsistent with the Certificate
of Incorporation as the Board of Directors shall approve. They shall be
numbered, the certificates for the shares of stock of each class to be numbered
consecutively, and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and number of shares and shall be
signed by the Chairman of the Board, the President or a Vice President and the
Treasurer (or any Assistant Treasurer) or the Secretary (or any Assistant
Secretary); provided, however, that where any such certificate is signed by a
transfer agent or an assistant transfer agent, or by a transfer clerk acting on
behalf of the Corporation, and registered by a registrar, the signature of any
such President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary, may be a facsimile. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on any such certificate or certificates, shall cease to be such officer or
officers of the Corporation, whether because of death, resignation, removal or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be such officer or officers of the Corporation.
Section 8.2. Lost or Destroyed Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making
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of an affidavit of that fact by the person claiming the certificate or stock to
be lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his or her legal representatives, to advertise
the same in such manner as it shall require, and to give a bond in such sum as
the Board of Directors may direct, indemnifying the Corporation, any transfer
agent and any registrar against any claim that may be made against them or any
of them with respect to the certificate alleged to have been lost or destroyed.
Section 8.3. Registration of Transfer. Upon surrender to the Corporation of
a certificate for shares, duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation shall issue a
new certificate to the person entitled thereto, cancel the old certificate, and
record the transaction on its books.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directions may fix, in advance,
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
Section 9.2. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such
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share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the laws of the State of
Delaware.
Section 9.3. Dividends. Dividends upon the capital stock of the Corporation
shall in the discretion of the Board of Directors from time to time be declared
by the Board of Directors out of funds legally available therefor after setting
aside of proper reserves.
Section 9.4. Checks and Notes. All checks and drafts on the bank accounts
of the Corporation, all bills of exchange and promissory notes of the
Corporation, and all acceptances, obligations and other instruments for the
payment of money drawn, signed or accepted by the Corporation, shall be signed
or accepted, as the case may be, by such officer or officers, agent or agents as
shall be thereunto authorized from time to time by the Board of Directors or by
officers of the Corporation designated by the Board of Directors to make such
authorization.
Section 9.5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by the Board of Directors.
Section 9.6. Voting of Securities of Other Corporations. In the event that
the Corporation shall at any time own and have power to vote any securities
(including but not limited to shares of stock) of any other issuer, such
securities shall be voted by such person or persons, to such extent and in such
manner, as may be determined by the Board of Directors.
Section 9.7. Transfer Agent. The Board of Directors may make such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of stock. It may appoint one or more transfer agents and one or
more registrars and may require all stock certificates to bear the signature of
either or both.
Section 9.8. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
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ARTICLE X
INDEMNIFICATION
Section 10.1. Indemnification.
(a) Actions, Suits or Proceedings Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any current or former director or
officer of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent (including trustee) of another
corporation, partnership, joint venture, trust or other enterprise (including
employee benefit plans) (funds paid or required to be paid to any person as a
result of the provisions of this Section 10.1 shall be returned to the
Corporation or reduced, as the case may be, to the extent that such person
receives funds pursuant to an indemnification from any such other corporation,
partnership, joint venture, trust or enterprise) to the fullest extent
permissible under Delaware law, as then in effect, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person seeking indemnification did not act
in good faith and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with
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respect to any criminal action or proceeding, had no reasonable cause to believe
that his or her conduct was unlawful.
(b) Actions or Suits by or in the Right of the Corporation. The Corporation
shall indemnify any current or former director or officer of the Corporation and
may, at the discretion of the Board of Directors, indemnify any current or
former employee or agent of the Corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit, by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent (including trustee) of
another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) (funds paid or required to be paid to any
person as a result of the provisions of this Section 10.1 shall be returned to
the Corporation or reduced, as the case may be, to the extent that such person
receives funds pursuant to an indemnification from any such other corporation,
partnership, joint venture, trust or enterprise) to the fullest extent permitted
under Delaware law, as then in effect, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit, if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
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(c) Indemnification for Expenses of Successful Party. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in paragraph (a) or (b) of this Section 10.1, or in defense of any claim, issue
or matter therein, such person shall be indemnified by the Corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
(d) Determination of Right to Indemnification. Any indemnification under
paragraph (a) or (b) of this Section 10.1 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in paragraphs (a) and (b) of this Section 10.1.
Such determination shall be made (1) by the Board of Directors by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon.
(e) Advancement of Expenses. Expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Section 10.1. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
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(f) Other Rights. The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section 10.1 shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) Insurance. By action of the Board of Directors, notwithstanding an
interest of the directors in the action, the Corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise (including employee
benefit plans), against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation shall have the power to indemnify such
person against such liability under the provisions of this Section 10.l.
(h) Continuation of Rights to Indemnification. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Section 10.1
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(i) Protection of Rights Existing at Time of Repeal or Modification. Any
repeal or modification of this Section 10.1 shall not adversely affect any right
or protection of an indemnified person existing at the time of such repeal or
modification.
17
<PAGE>
ARTICLE XI
AMENDMENTS
Section 11.1. By the Stockholders. These By-Laws may be altered, amended or
repealed in whole or in part, and new By-Laws may be adopted, by the affirmative
vote of the holders of a majority of the shares of capital stock issued and
outstanding and entitled to vote at any annual or special meeting of the
stockholders, if notice thereof shall be contained in the notice of the meeting.
Section 11.2. By the Board of Directors. These By-Laws may be altered,
amended or repealed by the Board of Directors at any regular or special meeting
of the Board of Directors if notice thereof shall be contained in the notice of
the meeting.
18
<PAGE>
Exhibit 3.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILLED 09:00 AM 07/07/1997
971223423 - 0797184
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
Costain Coal Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by unanimous written consent of the Board of Directors of
Costain Coal Inc., pursuant to Section 141 of the General Corporation Law of the
State of Delaware, resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and directing that such amendment be submitted to
the sole stockholder of said corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors of the Corporation hereby declare it
advisable that the Certificate of Incorporation of the Corporation be
amended, effective at 8:00 a.m. Eastern Standard Time on July 21, 1997, to
change the name of the Corporation from Costain Coal Inc., its present
name, to Lodestar Energy, Inc.: and to that end, Article 1 thereof be
changed to read as follows: "The name of this Corporation is Lodestar
Energy, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the sole stockholder of said corporation approved the amendment, by written
consent pursuant to Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, to be effective at 8:00 a.m., Eastern Standard Time, on July 21, 1997.
<PAGE>
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said Costain Coal Inc. has caused this certificate to
be signed by John W. Hughes, its President, and R. Eberley Davis, its Assistant
Secretary, on this 30th day of June, 1997.
COSTAIN COAL INC.
BY: /s/ John W. Hughes
---------------------------
John W. Hughes
ITS: President
ATTEST:
By: /s/ R. Eberley Davis
------------------------
R. Eberley Davis
Assistant Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE OF
REGISTERED AGENT OF "COSTAIN COAL INC.", FILED IN THIS OFFICE ON THE NINETEENTH
DAY OF DECEMBER, A.D. 1994, AT 10 O'CLOCK A.M.
[Seal of the Secretary of /s/ Edward J. Freel
State of the State of Delaware] ----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
9071282
DATE: 05-08-98
0797184 8100
981177800
<PAGE>
12-19-94
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
* * * * *
COSTAIN COAL INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
The present registered agent of the corporation is THE PRENTICE-HALL
CORPORATION SYSTEM, INC. and the present registered office of the corporation is
in the county of Kent
The Board of Directors of COSTAIN COAL INC. adopted the following
resolution on the 29 day of NOV., 1994.
Resolved, that the registered office of COSTAIN COAL INC. in the state of
Delaware be and it hereby is changed to Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle, and the authorization
of the present registered agent of this corporation be and the same is hereby
withdrawn, and THE CORPORATION TRUST COMPANY, shall be and is hereby constituted
and appointed the registered agent of this corporation at the address of its
registered office.
IN WITNESS WHEREOF, COSTAIN COAL INC. has caused this statement to be signed by
George Oberg, its Vice President, and attested by Stephen W. Castle, its Asst.
Sec. this 29 day of NOV., 1994.
By /s/ George E. Oberg
---------------------------
ATTEST:
By /s/ Stephen W. Castle
---------------------------
(DEL. - 264 - 5/14/90)
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:31 PM 12/31 1991
913655234 - 0797184
CERTIFICATE OF OWNERSHIP AND MERGER
OF
BTU OPERATING COMPANY
(a Delaware corporation)
INTO
COSTAIN COAL HOLDINGS INC.
(a Delaware corporation)
Pursuant to Section 253 of the General Corporation Law of the State of
Delaware, it is hereby certified that:
1. Costain Coal Holdings Inc. (hereinafter sometimes referred to as the
"Corporation") is a business corporation of the State of Delaware.
2. The Corporation is the owner of all of the outstanding shares of each
class of the stock of BTU Operating Company, which is also a business
corporation of the State of Delaware.
3. On December 27, 1991, the Board Of Directors of the corporation adopted
the following resolutions to merge BTU Operating Company into the Corporation:
RESOLVED that BTU Operating Company be merged into this Corporation,
and that all of the estate, property, rights, privileges, powers and
franchises of BTU Operating Company be vested in and held and
enjoyed by this Corporation as fully and entirely and without change
or diminution as the same were before held and enjoyed by BTU
Operating Company in its name.
RESOLVED that this Corporation shall assume all of the obligations
of BTU Operating Company.
RESOLVED that upon the effective time of this merger, this
Corporation shall change its name to "Costain Coal Inc."
RESOLVED that this Corporation shall cause to be executed and filed
and/or recorded the documents prescribed by the laws of the State of
Delaware and by the laws of any other appropriate jurisdiction and
will cause to be performed all necessary acts
<PAGE>
within the State of Delaware and within any other appropriate
jurisdiction.
4. The effective time of the merger herein provided shall be at 2:00 p.m.,
Eastern standard time, on December 31, 199l.
<PAGE>
Dated: December 30, 1991.
COSTAIN COAL HOLDINGS INC.
By: /s/ Gordon Haworth
---------------------------
Title: President
--------------------
By: /s/ Jeannie M. Skepnek
---------------------------
Title: Asst. Secy.
--------------------
Attest:
/s/ Jeannie M. Skepnek
- -------------------------
Title: Asst. Secy.
------------------
<PAGE>
FILED
10 AM
AUG 10 1989
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
PYRO ENERGY CORP., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "GCL"), DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of PYRO ENERGY CORP. acting by written
consent pursuant to Section 141(f) of the GCL, adopted resolutions setting forth
a proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and directing that the proposed
amendment be presented for the approval of the sole stockholder of said
corporation. The resolution setting forth the proposed amendment reads as
follows:
RESOLVED, that in the judgment of the Board of Directors of this
Corporation it is deemed advisable to amend the Certificate of
Incorporation of this Corporation so as to change the name of this
Corporation from Pyro Energy Corp., its present name, to Costain
Coal Holdings Inc., and to that end, to amend Article FIRST of the
Certificate of Incorporation to read as follows:
"The name of the Corporation is Costain Coal Holdings Inc."
SECOND: That the sole stockholder of said corporation, acting by written
consent pursuant to Section 228 of the GCL, adopted said amendment and the
wording of Article FIRST as amended is as set forth in the directors' resolution
in the paragraph above.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the GCL.
IN WITNESS WHEREOF, PYRO ENERGY CORP. has caused this certificate to be
signed by Charles W. Schulties, President and Chief Executive Officer, and
attested by Charles H. Arbaugh, Secretary, effective this 7 day of August, 1989.
PYRO ENERGY CORP.
By: /s/ CW Schulties
------------------------------------
Name: Charles W. Schulties
Title: President and Chief
Executive Officer
Attested:
/s/ Charles H. Arbaugh
- -----------------------------
Charles H. Arbaugh, Secretary
<PAGE>
FILED
JUL 31 1989 8:30 AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
COSTAIN INVESTMENTS, INC.
INTO
PYRO ENERGY CORP.
-------------------------
COSTAIN INVESTMENTS, INC. (the "Company"), a corporation organized and
existing under the laws of the State of Delaware, pursuant to Sections 103 and
253 of the General Corporation Law of the State of Delaware (the "GCL"),
DOES HEREBY CERTIFY:
FIRST: That the Company was incorporated on the 2nd day of June, 1989,
pursuant to the GCL.
SECOND: That the Company owns at least ninety percent of the outstanding
shares of common stock of PYRO ENERGY CORP., a Delaware corporation originally
incorporated under New York law on the 19th day of November, 1969, reorganized
under Delaware law on the 19th day of December, 1973, and renamed Pyro Energy
Corp. on the 15th day of December, 1981 ("Pyro Energy" or the "Surviving
Corporation") and Pyro Energy has no other class of stock outstanding.
THIRD: That the Board of Directors of the Company, acting pursuant to
Section 141(f) of the GCL without the formality of a meeting, consented to the
adoption of the following resolutions,
<PAGE>
and pursuant to such resolutions, determined to merge the Company with and into
Pyro Energy pursuant to Section 253 of the GCL:
RESOLVED, that Costain Investments, Inc. (the "Company") merge, and it
hereby does merge itself, with and into Pyro Energy Corp. ("Pyro Energy" or the
"Surviving Corporation"), which shall assume all of the obligations of the
Company in accordance with Section 259 of the General Corporation Law of the
State of Delaware (the "GCL"); and
FURTHER RESOLVED, that the merger shall become effective upon filing a
Certificate of Ownership and Merger with the Secretary of State of the State of
Delaware (the "Effective Time"); and
FURTHER RESOLVED, that the terms and conditions of the merger are as
follows:
(1) At the Effective Time, each share of Common Stock, par value
$.l0 per share (the "Shares") of Pyro Energy 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
the right to receive $12.00 in cash. All Shares, by virtue of the merger
and without any action on the part of the holders thereof, shall cease to
exist, and each holder of a certificate representing any such Shares shall
thereafter cease to have any rights with respect to such Shares, except
the right of holders to receive cash for any such certificate upon
surrender to the Company or the right, if any, to receive payment from the
Surviving Corporation of the "fair value" of such Shares as determined in
accordance with Section 262 of the GCL.
(2) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time and owned by the Company, Costain
Group PLC, any direct or indirect subsidiary thereof, Pyro Energy or any
direct or indirect subsidiary thereof, and each Share issued and held in
Pyro Energy's treasury immediately prior to the Effective Time, shall, by
virtue of the merger and without any action on the part of the holder
thereof, cease to be outstanding, shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
(3) At the Effective Time, each share of capital stock of the
Company issued and outstanding immediately prior to the Effective Time
shall, by virtue of the merger and without any action on the part of the
Company or the holders
-2-
<PAGE>
of such shares, be converted into one Share of the same class of capital
stock of the Surviving Corporation; and
FURTHER RESOLVED, that the Certificate of Incorporation of the Surviving
Corporation, with such amendments as are effected by the Merger, is attached to
these resolutions as Exhibit A and shall be attached to the Certificate of
Ownership and Merger setting forth a copy of these resolutions as Exhibit A, and
as so amended, shall constitute the Certificate of Incorporation, as amended, of
the Surviving Corporation; and
FURTHER RESOLVED, that the proposed merger shall be submitted to Costain
Holdings Inc., the sole stockholder of the Company, to be considered and adopted
by consent in lieu of meeting pursuant to Section 228 of the GCL; and upon the
execution of such consent in lieu of meeting by the sole stockholder of the
outstanding stock of the Company entitled to vote thereon, the merger shall be
approved; and
FURTHER RESOLVED, that, pursuant to Section 262(d) (2) of the GCL, the
proper officers of the Surviving Corporation be and they hereby are directed,
within 10 days after the Effective Time, to notify each stockholder of record
immediately prior to the merger of Pyro Energy entitled to notice, that the
merger has become effective and that appraisal rights are available for any or
all the Shares and to do all acts and things whatsoever, and to sign such
instruments, as may be necessary or proper in accordance with Section 262 of the
GCL; and
FURTHER RESOLVED, that the by-laws of the Company in effect immediately
prior to the Effective Time shall be the by-laws of the Surviving Corporation
from and after the Effective Time, until duly amended in accordance with their
terms and the GCL; and
FURTHER RESOLVED, that the directors of the Company and the officers of
Pyro Energy immediately prior to the Effective Time shall, from and after the
Effective Time, be and remain the directors and officers, respectively, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and by-laws; and
FURTHER RESOLVED, that the proper officers of the Company be and hereby
are directed to make and execute a Certificate of Ownership and Merger setting
forth a copy of the resolutions authorizing the Company to merge itself with and
into Pyro Energy and the date of adoption thereof, and to cause the same to be
filed with the Secretary of State of the State of Delaware and a
-3-
<PAGE>
certified copy recorded in the Office of the Recorder of Deeds in the County of
Delaware in which the registered offices of Pyro Energy and the Company are
located, and to do all acts and things whatsoever, and to sign such instruments,
whether within or without the State of Delaware, which may be in any way
whatsoever necessary or proper to effect said merger.
FOURTH: That the merger has been approved by the sole holder of the
outstanding stock of the Company entitled to vote thereon by unanimous written
consent in lieu of meeting pursuant to Section 228 of the GCL.
IN WITNESS WHEREOF, Costain Investments, Inc. has caused this certificate
to be signed by Gordon Haworth, its Chairman or Chester Grabowski, its
President, and attested by J. M. Skepnek, its Secretary, this 31st day of July,
1989.
COSTAIN INVESTMENTS, INC.
By: /s/ Chester Grabowski
------------------------------------
Name: Chester Grabowski
Title: President
ATTEST:
By: /s/ J. M. Skepnek
---------------------
Name: J. M. Skepnek
Title: Secretary
-4-
<PAGE>
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
PYRO ENERGY CORP.
FIRST: The name of the Corporation is Pyro Energy Corp.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 229 South State Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
THIRD: The nature of the business or purpose to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 1000. All of said shares are to be common stock and
the par value of each such share of Common Stock shall be $.0l par value per
share.
FIFTH: The name and mailing address of the incorporator is as follows:
Richard L. Burns
334 West Third Street
Suite 400
San Bernardino, California 94201
SIXTH: The name and mailing address of each person who is to serve as a
director of the Corporation from and after the date of the Certificate of
Ownership and Merger merging Costain Investments, Inc. into Pyro Energy Corp.
shall be as follows, each to serve and hold office until the earliest of (a) the
first annual meeting of stockholders, (b) his or her successor is elected and
qualified, or (c) his or her earlier death, resignation or removal:
<TABLE>
<CAPTION>
Name Mailing Address
----------------- -------------------------
<S> <C>
Gordon Haworth c/o Costain Holdings Inc.
30 South Wacker Drive
Suite 3920
Chicago, Illinois 60606
Chester Grabowski c/o Costain Holdings Inc.
30 South Wacker Drive
Suite 3920
Chicago, Illinois 60606
</TABLE>
<PAGE>
SEVENTH: The Corporation is to have perpetual existence.
EIGHTH: (1) Directors of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which a director derived an improper personal benefit.
(2) The Corporation shall indemnify any person who was or is a party or is
threatened to be a party to any threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative, or investigative,
including all appeals (other than an action, suit or proceeding by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, decrees, fines, penalties, and
amounts, paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith or in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(3) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit, including all appeals, by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed
-1-
<PAGE>
to be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been finally adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought, or any other court of competent jurisdiction, shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper.
(4) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (2) and (3) of this
article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(5) Except in a situation governed by subsection (4), any indemnification
under subsections (2) and (3) of this article (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in subsections (2) and (3) of this article. Such determination
shall be made (i) by a majority vote of directors acting at a meeting at which a
quorum consisting of directors who were not parties to such action, suit or
proceeding is present, or (ii) if such a quorum is not obtainable, or even if
obtainable and a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. The
determination required by clauses (i) and (ii) of this subsection may in either
event be made by written consent of the majority required by each clause.
(6) Expenses of each person hereunder indemnified incurred in defending a
civil or criminal action, suit or proceeding or threat thereof may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this article. Such
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this article shall not be deemed
exclusive of any other rights to which those
-2-
<PAGE>
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(8) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the Delaware General Corporation Law.
(9) For purposes of this article, the terminology defined in Section
145(i) of Title 8 of the Delaware Code shall apply to the same terminology as
used herein.
(10) If any provision hereof is invalid or unenforceable in any
jurisdiction, the other provisions hereof shall remain in full force and effect
in such jurisdiction, and the remaining provisions hereof shall be liberally
construed to effectuate the provisions hereof, and the invalidity of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
(11) No amendment to or repeal of these provisions shall apply to or have
any effect on the liability or alleged liability of any person for or with
respect to any acts or omissions of such person occurring prior to such
amendments.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, adopt, alter,
amend or repeal the by-laws of the Corporation.
TENTH: Meetings of the stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept (subject to the provisions of any law or regulation) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the Corporation. Elections of
directors need not be by written ballot unless the by-laws of the Corporation
shall so provide.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class
-3-
<PAGE>
of them, any court of equitable jurisdiction within the State of Delaware, may,
on the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders of this Corporation, as the case
may be, and also on this Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-4-
<PAGE>
727152021
FILED
JUN 1 1987
10 AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * * *
PYRO ENERGY CORP., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of PYRO ENERGY CORP.
held February 13, 1987 resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and directing that the proposed amendment be
presented at the next annual meeting of the shareholders of said corporation for
consideration thereof. The text of the amendment, which will become Article 10
of the Certificate of Incorporation, is attached hereto as Exhibit A and
incorporated herein by reference.
SECOND: That the shareholders of said corporation adopted said amendment
by the following resolution at the corporation's annual meeting of shareholders
held in Nashville, Tennessee on May 15, 1987:
RESOLVED, that the shareholders of Pyro Energy Corp. hereby approve,
confirm, ratify and adopt an amendment to the Certificate of Incorporation
of Pyro Energy Corp. eliminating liability of directors to the corporation
in certain instances and providing for corporate indemnity of officers,
directors, employees, and other persons, all as set forth on Exhibit A on
pages 15, 16 and 17 of the proxy statement for this annual meeting.
The Exhibit A hereto is the same Exhibit A referred to in the foregoing
resolution, and said resolution was approved by a
-1-
<PAGE>
vote of a majority of the issued and outstanding shares of the corporation's
common stock, $.l0 par value, the only class entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said PYRO ENERGY CORP. has caused this certificate to
be signed by C. W. Schulties, its President, and attested by C. H. Arbaugh, its
Secretary, as of the 15th day of May, 1987.
PYRO ENERGY CORP.
By: /s/ CW Schulties
-------------------------
C. W. Schulties, President
ATTEST:
By: /s/ C H Arbaugh
---------------------------
C. H. Arbaugh, Secretary
-2-
<PAGE>
(d) Rights After Successful Defense. To the extent that a director,
officer or employee, or agent has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsection 2(a) or in
the right of (but not by) the corporation under subsection 2(b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(e) Other Determination of Rights. Except in a situation governed by
subsection 2(d), any indemnification under subsections 2(a) or 2(b) (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subsections 2(a) or 2(b).
Such determination shall be made (i) by a majority vote of directors acting
at a meeting at which a quorum consisting of directors who were not parties
to such action, suit or proceeding is present, (ii) if such a quorum is not
obtainable (or even if obtainable and a majority of disinterested directors
so directs), by independent legal counsel (compensated by the corporation) in
a written opinion, or (iii) by the affirmative vote in person or by proxy of
the holders of a majority of the shares entitled to vote in the election of
directors.
(f) Advances of Expenses. Expenses of each person indemnified hereunder
incurred in defending a civil, criminal, administrative or investigative action,
suit, or proceeding (including all appeals), or threat thereof, may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding as authorized (i) by a majority vote of directors acting at a duly
constituted meeting at which a quorum consisting of directors who are not
parties to such action, suit or proceeding is present, or (ii) if such quorum is
not obtainable, by any majority vote of directors acting at a duly constituted
meeting, in either case upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee or agent, to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified under
subsections 2(a) or 2(b) or otherwise. The determination required by clauses
(i) and (ii) of this subsection may in either event be made by the written
consent of the majority required by each clause.
(g) Right of Claimant to Bring Suit. If a claim under subsections 2(a) or
2(b) is not paid in full by the corporation within thirty days after a written
claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action that the claimant has not met the standards of conduct which
make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(h) Nonexclusiveness; Heirs. The indemnification and advancement of
expenses provided by, or granted pursuant to the other subsections of these
articles shall not be deemed exclusive of any other rights to which any person
seeking indemnification may be entitled as a matter of law or under any
agreement, by-law, vote of shareholders, insurance policy purchased by the
corporation, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
(i) Continuance of Rights. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of these articles
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
(j) Purchase of Insurance. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any person who is or was a
director, officer, employee or agent, or is or was serving at the request of the
corporation as a director, trustee, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise
<PAGE>
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of the Delaware General Corporation Law.
Exhibit A
Page 2 of 3
<PAGE>
(k) Certain Definitions. For purposes of these articles, references to
"independent legal counsel" shall not include any lawyer who as a director,
officer or employee of the corporation, or a professional associate of a
director, officer or employee of the corporation; references to "director,
officer or employee" shall include only those persons who are directors,
officers, or employees of the corporation on or after the date this section is
approved by the shareholders of this corporation, and all directors, officers
and employees of the corporation who on or after such approval date serve at the
request of the corporation as a director, trustee, partner, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; and references to "agents" shall include only those persons
designated by a majority vote of the Board of Directors as (i) agents of the
corporation, (ii) persons serving at the request of the corporation as a
director, trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, or (iii) both. In
addition to the foregoing, the terminology defined in Sections l45(i) of the
Delaware General Corporation Law shall apply to the same terminology as used in
these articles.
(l) Serverability. If any provision hereof is invalid or unenforceable
in any jurisdiction, the other provisions hereof shall remain in full force
and effect in such jurisdiction, and the remaining provisions hereof shall be
liberally construed to effectuate the provisions hereof, and the invalidity
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
Exhibit A
Page 3 of 3
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
R. L. BURNS CORP. a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware. DOES HEREBY
CERTIFY:
The present registered agent of the corporation is Prentice-Hall
Corporation System, Inc. and the present registered office of the corporation is
in the county of Kent
The Board of Directors of R. L. BURNS CORP. adopted the following
resolution on the 16th day of December 1980.
Resolved, that the registered office of R. L. BURNS CORP.
in the state of Delaware be and it hereby is changed to No. 100 West Tenth
Street, in the City of Wilmington, County of New Castle, and the
authorization of the present registered agent of this corporation be and
the same is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall be
and is hereby constituted and appointed the registered agent of this
corporation at the address of its registered office.
IN WITNESS WHEREOF. R.L. BURNS CORP. has caused this statement to be
signed by Robert J. Kiechlin, its Vice President and attested by Charles
Arbaugh, its ____________ Secretary this 5th day of January, 1981.
By /s/ Robert J. Kiechlin
----------------------
Vice President
Robert J. Kiechlin
By /s/ Charles Arbaugh
----------------------
__________ Secretary
Charles Arbaugh
(DEL. 284-8/7/78)
<PAGE>
FILED
DEC 15, 1981
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
R. L. BURNS CORP., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of R. L. BURNS CORP.
held May 8, 1981 resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and directing that the proposed amendment be
presented at the next meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that in the judgment of the Board of Directors of this Company,
it is deemed advisable to amend the Certificate of Incorporation so as to
change the name of this company from R. L. Burns Corp., its present name,
to Pyro Energy Corp., and to that end, Article 1 be changed to read as
follows:
"The name of this corporation is Pyro Energy Corp."
SECOND: That the stockholders of said corporation adopted said amendment
by resolution at a meeting held in Nashville, Tennessee on December 15, 1981 and
the wording of Article 1 as amended is as set forth in the director's resolution
in the First paragraph above. The resolution in the First paragraph above was
adopted by a vote of a majority of the issued and outstanding shares of Common
Stock, the only class entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
-1
<PAGE>
IN WITNESS WHEREOF, said R. L. BURNS CORP. has caused this certificate
to be signed by C. W. Schulties, its President, and attested by C. H.
Arbaugh, its Secretary, this 15th day of December, 1981.
R.L. BURNS CORP.
By /s/ C. W. Schulties
--------------------------------
C. W. Schulties, President
ATTEST:
By /s/ C. H. Arbaugh
-------------------------
C. H. Arbaugh, Secretary
-2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Charles W. Schulties and John Cavins certify:
1. That they are the President and Assistant Secretary,
respectively, of R. L. Burns Corp., a Delaware corporation.
2. That at a meeting of the Board of Directors of said corporation
duly held at Denver, Colorado on October 23, 1979, the following resolution
solely to increase to 25,000,000 shares the number of authorized shares of
Common Stock, par value $.lO per share, of the corporation was adopted:
"BE IT RESOLVED, that Article 4 of the Company's Certificate of
Incorporation be amended in pertinent part to read as follows:
ARTICLE 4
The number of shares which this corporation shall have authority to
issue, itemized by classes, par value of shares, shares without par value,
and series, if any within a class is as follows:
<TABLE>
<CAPTION>
Par Value Per
Share or Statement
That Shares
Number of Are Without
Class Series (if any) Shares Par Value
------ --------------- ---------- ------------------
<S> <C> <C> <C>
Common None 25,000,000 $.10
</TABLE>
3. That the Stockholders of said corporation adopted said amendment
by resolution, at a meeting held at Denver, Colorado, on December 11, 1979 and
the wording of Article 4, as amended in pertinent part, is as set forth in the
directors' resolution in Paragraph 2 above. The resolution in Paragraph 2 above
was adopted by the vote of a majority of the number of issued and outstanding
shares of Common Stock, the only class of stock entitled to vote thereon.
<PAGE>
4. That the foregoing amendment was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
DATED: January 21, 1980
/s/ Charles W. Schulties
-----------------------------------
Charles W. Schulties, President
ATTEST:
/s/ John Cavins
- ----------------------------
John Cavins, Assistant
Secretary
STATE OF INDIANA )
) ss.
COUNTY OF Vanderburgh )
Before me Charlette F. Walts, a notary public, resident of the County of
Vanderburgh, Indiana, this 21st day of January, 1980, personally appeared R. L.
Burns Corp. by Charles W. Schulties and John Cavins, its President and Assistant
Secretary, respectively, and acknowledged the execution of the foregoing
instrument.
/s/ Charlette F. Walts
-------------------------
Notary Public
[SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Kenneth M. Poovey and Otto E. Sorensen certify:
1. That they are the President and Assistant Secretary,
respectively, of R. L. Burns Corp., a Delaware corporation.
2. That at a meeting of the Board of Directors of said corporation,
duly held at San Diego, California on November 23, 1977, the following
resolution was adopted:
"RESOLVED, Article 4 of the Certificate of Incorporation of this
Corporation is hereby amended to read in full as follows:
ARTICLE 4
The number of shares which this Corporation shall have authority to
issue, itemized by classes, par value of shares, shares without par value,
and series, if any within a class is as follows:
<TABLE>
<CAPTION>
Par Value
or Statement
That Shares
Number of Are Without
Class Series (if any) Shares Par Value
--------- --------------- ---------- ------------
<S> <C> <C> <C>
Preferred To be issued in 5,000,000 $.10
series
Common None 20,000,000 $.10
</TABLE>
The powers, preferences and rights, and the qualifications,
limitations or restrictions thereof relating to the Preferred Stock and the
Common Stock are:
<PAGE>
The Preferred Stock:
(1) The Preferred Stock may be issued from time to time in one or
more series and with such designation for each such series as shall be
stated and expressed in the resolution or resolutions providing for the
issue of each such series adopted by the board of directors. The board of
directors in any such resolution or resolutions is expressly authorized to
state and express for each such series:
(i) The voting rights, if any, of the holders of stock of such
series;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or noncumulative
and if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and the
manner in which the stock of such series shall be redeemable;
(iv) The right to which the holders of the shares of stock of
such series shall be entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of this corporation;
(v) The terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of
any other class or classes or of any other series of the same or any other
class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof so far as they are not inconsistent
with the provisions of this certificate of incorporation, and to the full
extent now or hereafter permitted by the laws of the State of Delaware.
-2-
<PAGE>
(2) All shares of the Preferred Stock of any one series
shall be identical to each other in all respects, except that shares of
any one series issued at different times may differ as to the dates from
which dividends thereon, if cumulative, shall be cumulative.
(3) The number of authorized shares of Preferred Stock
may be increased or decreased by the vote of a majority of the stock of
this corporation entitled to vote.
The Common Stock:
At all elections of directors of this corporation, each holder of
Common Stock shall be entitled to as many votes as shall equal the number
of votes which (except for this provision as to cumulative voting) he
would be entitled to cast for the election of directors with respect to
his shares of Common Stock multiplied by the number of directors to be
elected by him, and he may cast all of such votes for a single nominee for
director or may distribute them among the number to be voted for, or for
any two or more of them as he may see fit."
3. That the Stockholders of said corporation adopted said amendment
by resolution at a meeting held at San Diego, California, on December 16, 1977
and the wording of the amended Article 4, is as set forth in the directors'
resolution in Paragraph 2 above. The resolution in Paragraph 2 above was adopted
by the vote of a majority of the number of issued and outstanding shares of
Common Stock, the only class of stock entitled to vote thereon.
4. That the foregoing amendment was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
DATED: December 29, 1977
/s/ Kenneth M. Poovey
----------------------------------
Kenneth M. Poovey, President
ATTEST:
/s/ Otto E. Sorensen
- ---------------------------------
Otto E. Sorensen, Assistant
Secretary
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
R. L. Burns and Harriet E. Clements certify:
1. That they are the Chairman of the Board and Secretary,
respectively, of R. L. Burns Corp., a Delaware Corporation.
2. That at a meeting of the Board of Directors of said corporation,
duly held at San Bernardino, California on October 6, 1975, the following
resolution was adopted:
"RESOLVED, that Article 4 of the Certificate of Incorporation of
this corporation be amended to read as follows:
ARTICLE 4
The number of shares which this corporation shall have authority
to issue, itemized by classes, par value of shares, shares without par
value, and series, if any within a class, is as follows:
<TABLE>
<CAPTION>
Par Value
Per Share
or Statement
That Shares
Number of Are Without
Class Series (if any) Shares Par Value
--------- ---------------- --------- ------------
<S> <C> <C> <C>
Preferred To be issued in 500,000 $.10
series
Common None 10,000,000 $.10
</TABLE>
The powers, preferences and rights, and the qualifications,
limitations or restrictions thereof relating to the Preferred Stock and
the Common Stock are:
The Preferred Stock:
(1) The Preferred Stock may be issued from time to time in one or
more series and with such designation for
<PAGE>
each such series as shall be stated and expressed in the resolution or
resolutions providing for the issue of each such series adopted by the
board of directors. The board of directors in any such resolution or
resolutions is expressly authorized to state and express for each such
series:
(i) The voting rights, if any, of the holders of stock of such
series;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or noncumulative
and if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and the
manner in which the stock of such series shall be redeemable;
(iv) The right to which the holders of the shares of stock of
such series shall be entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of this corporation;
(v) The terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of
any other class or classes or of any other series of the same or any other
class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof so far as they are not inconsistent
with the provisions of this certificate of incorporation, and to the full
extent now or hereafter permitted by the laws of the State of Delaware.
(2) All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon, if cumulative, shall be cumulative.
-2-
<PAGE>
(3) The number of authorized shares of Preferred Stock may be
increased or decreased by the vote of a majority of the stock of this
corporation entitled to vote.
The Common Stock:
At all elections of directors of this corporation, each holder of
Common Stock shall be entitled to as many votes as shall equal the number
of votes which (except for this provision as to cumulative voting) he
would be entitled to cast for the election of directors with respect to
his shares of Common Stock multiplied by the number of directors to be
elected by him, and he may cast all of such votes for a single nominee for
director or may distribute them among the number to be voted for, or for
any two or more of them as he may see fit."
3. That the Stockholders of said corporation adopted said amendment
by resolution at a meeting held at San Bernardino, California, on November 21,
1975 and the wording of the amended Article 4, is as set forth in the directors'
resolution in Paragraph 2 above. The resolution in Paragraph 2 above was adopted
by the vote of a majority of the number of issued and outstanding shares of
Common Stock, the only class of stock entitled to vote thereon.
4. That the foregoing amendment was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
DATED: November 21, 1975
/s/ R.L. Burns
--------------------------------
R.L. Burns
Chairman of the Board
ATTEST:
/s/ Harriet E. Clements
- --------------------------
Harriet E. Clements
Secretary
[SEAL]
-3-
<PAGE>
CERTIFICATE OF INCORPORATION
OF
R. L. BURNS CORP.
ARTICLE 1
The name of this corporation is R. L. Burns Corp.
ARTICLE 2
The address of this corporation's registered office in the State of
Delaware is 229 South State Street, in the City of Dover, County of Kent. The
name of this corporation's registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE 3
The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE 4
The number of shares which this corporation shall have authority to
issue, itemized by classes, par value of shares, shares without par value, and
series, if any within a class, is as follws:
<TABLE>
<CAPTION>
Par Value
Per Share
or Statement
That Shares
Number of Are Without
Class Series (if any) Shares Par Value
--------- ---------------- --------- ------------
<S> <C> <C> <C>
Preferred To be issued in 500,000 $.10
series
Common None 5,000,000 $.10
</TABLE>
The powers, preferences and rights, and the qualifications,
limitations or restrictions thereof relating to the Preferred Stock and the
Common Stock are:
<PAGE>
The Preferred Stock:
(1) The Preferred Stock may be issued from time to time in one or
more series and with such designation for each such series as shall be stated
and expressed in the resolution or resolutions providing for the issue of each
such series adopted by the board of directors. The board of directors in any
such resolution or resolutions is expressly authorized to state and express for
each such series:
(i) The voting rights, if any, of the holders of stock of such
series;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or noncumulative
and if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and the
manner in which the stock of such series shall be redeemable;
(iv) The right to which the holders of the shares of stock of
such series shall be entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of this corporation;
(v) The terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of
any other class or classes or of any other series of the same or any other
class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof so far as they are not inconsistent
with the provisions of this certificate of incorporation, and to the full
extent now or hereafter permitted by the laws of the State of Delaware.
(2) All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
2
<PAGE>
(3) The number of authorized shares of Preferred Stock may be
increased or decreased by the vote of a majority of the stock of this
corporation entitled to vote.
The Common Stock:
At all elections of directors of this corporation, each holder of
Common Stock shall be entitled to as many votes as shall equal the number of
votes which (except for this provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
Common Stock multiplied by the number of directors to be elected by him, and he
may cast all of such votes for a single nominee for director or may distribute
them among the number to be voted for, or for any two or more of them as he may
see fit.
ARTICLE 5
The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
--------------- --------------------------------
<S> <C>
Richard L. Burns 334 West Third Street
Suite 400
San Bernardino, California 92401
</TABLE>
ARTICLE 6
The board of directors shall have the power, by resolution passed by
a majority of the whole board, to make, alter or repeal by-laws.
ARTICLE 7
No action shall be taken by the stockholders except at an annual or
special meeting of stockholders.
ARTICLE 8
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees
3
<PAGE>
in dissolution or of any receiver or receivers appointed for this corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ARTICLE 9
Section 1. The provision as to cumulative voting set forth in
ARTICLE 4 shall not be altered, amended or repealed except by the vote of eighty
percent or more of the outstanding Common Stock.
Section 2. By-laws shall not be made, altered or replealed by the
stockholders of this corporation except by the vote of eighty percent or more of
the stock of this corporation entitled to vote.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, does make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 18th day of December, 1973.
/s/ Richard L. Burns
---------------------------------
Richard L. Burns
4
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN BERNARDINO )
BE IT REMEMBERED THAT on this 18th day of December, 1973, personally
came before me, a Notary Public for the State of California, Richard L. Burns,
the party to the foregoing Certificate of Incorporation, known to me personally
to be such, and acknowledged the said certificate to be the act and deed of the
signer and that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
- -------------------------------------
[SEAL] WANDA R. WOLFF
NOTARY PUBLIC /s/ Wanda R. Wolff
SAN BERNARDINO COUNTY ----------------------
CALIFORNIA Notary Public
My Commission Expires July 5, 1977
- -------------------------------------
5
<PAGE>
BY-LAWS
OF
COSTAIN COAL INC.
ARTICLE I
OFFICES
Section 1. The registered office of the Corporation shall be in the City
of Dover, County of Kent, State of Delaware. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as shall be
designated by the Board of Directors. In the absence of any such designation by
the Board of Directors, each such meeting shall be held at the principal office
of the Corporation.
Section 2. Annual Meetings. An annual meeting of stockholders shall be
held for the purpose of electing Directors and transacting such other business
as may properly be brought before the meeting. The date of the annual meeting
shall be determined by the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law, may be called by the
President and shall be called by the Secretary at the direction of a majority of
the Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and time of the meeting shall be given not
less than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting. The notice of any special meeting
of
<PAGE>
stockholders shall state the purpose or purposes for which the meeting is
called.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law. If a quorum is not
present or represented, the holders of the stock present in person or
represented by proxy at the meeting and entitled to vote thereat shall have
power, by the affirmative vote of the holders of a majority of such stock, to
adjourn the meeting to another time and/or place, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 6. Voting. At all meetings of the stockholders, each stockholder
shall be entitled to vote, in person or by proxy, the shares of voting stock
owned by such stockholder of record on the record date for the meeting. When a
quorum is present or represented at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of law or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 7. Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders, or any other action which may be
taken at a meeting of the stockholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the stockholders entitled to vote with respect to the subject matter
thereof.
2
<PAGE>
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed and controlled by or under the direction of a Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law or by the Certificate of Incorporation
or by these By-Laws directed or required to be exercised or done by the
stockholders.
Section 2. Number, Qualification and Tenure. The Board of Directors shall
consist of not less than one (1) member and not more than ten (10) members.
Within the limits above specified, the number of Directors shall be determined
from time to time by resolution of the Board of Directors. The Directors shall
be elected at the annual meeting of the stockholders, except as provided in
Section 3 of this Article, and each Director elected shall hold office until
his successor is elected and qualified or until his earlier resignation
or removal. Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the number of directors may be filled by a majority of the
Directors then in office though less than a quorum, and each Director so chosen
shall hold office until his or her successor is elected and qualified or until
his earlier resignation or removal. If there are no Directors in office, then an
election of Directors may be held in the manner provided by law.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Regular Meetings. The Board of Directors shall hold a regular
meeting, to be known as the annual meeting, immediately following each annual
meeting of the stockholders. Other regular meetings of the Board of Directors
shall be held at such time and at such place as shall from time to time be
determined by the Board. No notice of regular meetings need be given.
Section 6. Special Meetings. Special meetings of the Board may be called
by the President. Special meetings shall be called by the Secretary on the
written request of any Director. No notice of special meetings need be given.
3
<PAGE>
Section 7. Quorum. At all meetings of the Board a majority of the total
number of Directors shall constitute a quorum for the transaction of business
and the act of a majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 8. Organization. The Chairman of the Board, if elected, shall act
as chairman at all meetings of the Board of Directors. If a Chairman of the
Board is not elected or, if elected, is not present, the President or, in the
absence of the President, a Vice Chairman (who is also a member of the Board
and, if more than one, in the order designated by the Board of Directors or, in
the absence of such designation, in the order of their election), if any, or if
no such Vice Chairman is present, a Director chosen by a majority of the
Directors present, shall act as chairman at meetings of the Board of Directors.
Section 9. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more Directors to
constitute an Executive Committee, to serve as such, unless the resolution
designating the Executive Committee is sooner amended or rescinded by the Board
of Directors, until the next annual meeting of the Board or until their
respective successors are designated. The Board of Directors, by resolution
adopted by a majority of the whole Board, may also designate additional
Directors as alternate members of the Executive Committee to serve as members of
the Executive Committee in the place and stead of any regular member or members
thereof who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Executive Committee. In the absence or disqualification of a
member and all alternate members who may serve in the place and stead of such
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another Director to act at the meeting in the
place of any such absent or disqualified member.
Except as expressly limited by the General Corporation Law of the State of
Delaware or the Certificate of Incorporation, the Executive Committee shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation between the meetings
of the Board of Directors. The Executive Committee shall keep a record of its
acts and proceedings, which shall form a part of the records of the Corporation
in the custody of the Secretary,
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and all actions of the Executive Committee shall be reported to the Board of
Directors at the next meeting of the Board.
Meetings of the Executive Committee may be called at any time by the
Chairman of the Board, the President or any two of its members. No notice of
meetings need be given. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business and, except as
expressly limited by this Section, the act of a majority of the members present
at any meeting at which there is a quorum shall be the act of the Executive
Committee. Except as expressly provided in this Section, the Executive Committee
shall fix its own rules of procedure.
Section 10. Other Committees. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more other
committees, each such committee to consist of one or more Directors. Except
as expressly limited by the General Corporation Law of the State of Delaware
or the Certificate of Incorporation, any such committee shall have and may
exercise such powers as the Board of Directors may determine and specify in
the resolution designating such committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, also may designate one
or more additional Directors as alternate members of any such committee to
replace any absent or disqualified member at any meeting of the committee,
and at any time may change the membership of any committee or amend or
rescind the resolution designating the committee. In the absence or
disqualification of a member or alternate member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another Director to act at the meeting in the place of any such
absent or disqualified member, provided that the Director so appointed meets
any qualifications stated in the resolution designating the committee. Each
committee shall keep a record of proceedings and report the same to the Board
of Directors to such extent and in such form as the Board of Directors may
require. Unless otherwise provided in the resolution designating a committee,
a majority of all members of any such committee may select its Chairman, fix
its rules or procedure, fix the time and place of its meetings and specify
what notice of meetings, if any, shall be given.
Section 11. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
5
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Section 12. Attendance by Telephone. Members of the Board of Directors, or
of any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at a meeting.
Section 13. Compensation. The Board of Directors shall have the
authority to fix the compensation of Directors, which may include their
expenses, if any, of attendance at each meeting of the Board of Directors or
of a committee.
ARTICLE IV
OFFICERS
Section 1. Enumeration. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President and a Secretary. The Board
of Directors may also elect a Chairman of the Board, one or more Vice
Chairmen, one or more Vice Presidents, a Treasurer, one or more Assistant
Secretaries and Assistant Treasurers and such other officers and agents as it
shall deem appropriate. Any number of offices may be held by the same person.
Section 2. Term of Office. The officers of the Corporation shall be
elected at the annual meeting of the Board of Directors and shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. Any vacancy occurring in any office of the Corporation required by
this Article shall be filled by the Board of Directors, and any vacancy in any
other office may be filled by the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board, when
elected, shall be Chief Executive Officer of the Corporation and, as such,
shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the office of the chief
executive of a business corporation or as may be prescribed by the Board of
Directors.
Section 4. President. During any period when there shall be an office of
Chairman of the Board, the President shall be the
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<PAGE>
Chief Operating Officer of the Corporation and shall have such functions,
authority and duties as may be prescribed by the Board of Directors or the
Chairman of the Board. During any period when there shall not be an office of
Chairman of the Board, the President shall be the Chief Executive Officer of the
Corporation and, as such, shall have the functions, authority and duties
provided for the Chairman of the Board when there is an office of Chairman of
the Board.
Section 5. Vice President. The Vice President shall perform such duties
and have such other powers as may from time to time be prescribed by the Board
of Directors, the Chairman of the Board or the President.
Section 6. Secretary. The Secretary shall keep a record of all proceedings
of the stockholders of the Corporation and of the Board of Directors, and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice, if any, of all meetings of the
stockholders and shall perform such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board or the President. The Secretary
shall have custody of the corporate seal of the Corporation and the Secretary,
or in the absence of the Secretary any Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and when so affixed it may be
attested by the signature of the Secretary or an Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest such affixing of the seal.
Section 7. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as may
from time to time be prescribed by the Board of Directors, the Chairman of
the Board, the President or the Secretary.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President and
the Board of Directors, at its regular meetings or when the Board of Directors
so requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall
7
<PAGE>
perform such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer.
Section 9. Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by
the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the
event of the Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, the President or the Treasurer.
Section 10. Other Officers. Any officer who is elected or appointed from
time to time by the Board of Directors and whose duties are not specified in
these By-Laws shall perform such duties and have such powers as may be
prescribed from time to time by the Board of Directors, the Chairman of the
Board or the President.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. The shares of the Corporation shall be represented by
certificates; provided, however, that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the Corporation's stock shall be uncertificated shares. Certificates of stock in
the Corporation, if any, shall be signed by or in the name of the Corporation by
the Chairman of the Board or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation. Where a certificate is countersigned by a transfer agent,
other than the Corporation or an employee of the Corporation, or by a registrar,
the signatures of the Chairman of the Board, the President or a Vice President
and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were such officer,
transfer agent or registrar at the date of its issue.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate of
stock or uncertificated
8
<PAGE>
shares in place of any certificate therefore issued by the Corporation to the
person entitled thereto, cancel the old certificate and record the transaction
on its books.
Section 3. Replacement. In case of the loss, destruction or theft of a
certificate for any stock of the Corporation, a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by the
Corporation may be issued upon satisfactory proof of such loss, destruction or
theft and upon such terms as the Board of Directors may prescribe. The Board of
Directors may in its discretion require the owner of the lost, destroyed or
stolen certificate, or his legal representative, to give the Corporation a bond,
in such sum and in sum form and with such surety or sureties as it may direct,
to indemnify the Corporation against any claim that may be made against it with
respect to a certificate alleged to have been lost, destroyed or stolen.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
9
<PAGE>
Section 3. To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2 of this Article.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable and a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the manner provided in Section 4 of this Article upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation under this Article.
Section 6. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (i) arising under the Employee Retirement Income Security Act of
1974 or regulations promulgated thereunder, or under any other law or regulation
of the United States or any agency or instrumentality thereof or law or
regulation of any state or political subdivision or any agency or
instrumentality of either, or under the common law of any of the foregoing,
against expenses (including attorneys' fees), judgments, fines, penalties, taxes
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding by reason of the fact that he is
or was a fiduciary, disqualified person or party in interest with respect to an
employee benefit plan covering employees of the Corporation or of a subsidiary
corporation, or is or was serving in any other capacity with respect to such
plan, or has or had any obligations or duties with respect to such plan by
reason of such laws or regulations, provided that any person was or is a
director, officer, employee or agent of the Corporation, or (ii) in connection
with any matter arising under federal, state or local revenue or taxation laws
or regulations, against expenses
10
<PAGE>
(including attorneys' fees), judgments, fines, penalties, taxes, amounts paid in
settlement and amounts paid as penalties or fines necessary to contest the
imposition of such penalties or fines, actually and reasonably incurred by him
in connection with such action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise and had responsibility for or participated in activities relating to
compliance with such revenue or taxation laws and regulations; provided,
however, that such person did not act dishonestly or in willful or reckless
violation of the provisions of the law or regulation under which such suit or
proceeding arises. Unless the Board of Directors determines that under the
circumstances then existing, it is probable that such director, officer,
employee or agent will not be entitled to be indemnified by the Corporation
under this section, expenses incurred in defending such suit or proceeding,
including the amount of any penalties or fines necessary to be paid to contest
the imposition of such penalties or fines, shall be paid by the Corporation in
advance of the final disposition of such suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employer or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation under this Section.
Section 7. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 8. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he would be entitled to indemnity against such liability under
the provisions of this Article.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
Section 2. Corporate Seal. The corporate seal shall be in such form as
may be approved from time to time by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
Section 3. Waiver of Notice. Whenever any notice is required to be given
under law or the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the Board of Directors. The fact that the power to amend, alter,
repeal or adopt the By-Laws has been conferred upon the Board of Directors
shall not divest the stockholders of the same powers.
11
<PAGE>
ORIGINAL COPY FILED
SECRETARY OF STATE OF KENTUCKY
[ILLEGIBLE]
APR 15 1988
$35.00
/s/[ILLEGIBLE]
SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
EASTERN RESOURCES, INC.
The undersigned, desiring to form a corporation, does hereby adopt the
following Articles of Incorporation:
ARTICLE I
The name of the Corporation shall be Eastern Resources, Inc.
ARTICLE II
The duration of this corporation is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to engage in the
transactions of any or all lawful business for which corporations may be
incorporated under the provisions of the Kentucky Revised Statutes.
ARTICLE IV
The Corporation shall have the authority to issue one thousand (1,000)
shares of no par value commons stock. Each share shall carry one (1) vote and
there will be no other class of stock.
ARTICLE V
The mailing address of the Corporation's principal office in this State
shall be Bypass 670, J. Smith Coal, Providence, Kentucky 42450, and the name of
the Corporation's registered agent and the registered office shall be CT
Corporation System, Kentucky Home Life Building, Louisville, Kentucky 40202.
<PAGE>
ARTICLE VI
The number of directors constituting the initial Board of Directors of
this Corporation shall be three (3) and the names and addresses of the persons
who are to serve as directors until the [ILLEGIBLE] annual meeting of the
shareholders or until his successor or successors are elected and qualified is
Martin M. Berliner, 1700 Lincoln Street, #4700, Denver, Colorado 80203, Larry D.
Gallegos, 1700 Lincoln Street, #4700, Denver, Colorado 80203, and Betty Neubert,
Lincoln Street, #1700, Denver, Colorado 80203.
The Board of Directors shall have authority to increase or decrease their
number by amendment to the corporate bylaws.
ARTICLE VII
The name and address of the incorporator of said Corporation shall be
Martin M. Berliner, 1700 Lincoln Street, #4700, Denver, Colorado 80203.
ARTICLE VIII
Provisions for the regulation of the internal affairs of the Corporation
are to be more fully defined by the bylaws of said Corporation and the Board of
Directors may, from time to time, by a vote of the majority of its numbers,
make, alter, amend or rescind any of the bylaws of this Corporation.
ARTICLE IX
The general officers of this Corporation shall be a President, a Secretary
and a Treasurer.
2
<PAGE>
[LETTERHEAD OF O'CONNOR & HANNAN, ATTORNEYS AT LAW]
April 12, 1988
FEDERAL EXPRESS
Kentucky Secretary of State
Corp. Dept.
State Capital Building
Frankfort, Kentucky 40601
Re: Eastern Resources, Inc.
Ladies and Gentlemen:
Enclosed are two originally executed copies of Articles of Incorporation.
Please file one and return one file stamped copy to us in the enclosed Federal
Express envelope.
If you have any questions or comments, please contact the undersigned at
the telephone number set forth above.
Sincerely,
/s/ Christopher G. Young
Christopher G. Young
Legal Assistant
CGY/sp
Enclosures
<PAGE>
ORIGINAL COPY FILED
SECRETARY OF STATE OF KENTUCKY
[ILLEGIBLE]
OCT 29 1988
$35.00
/s/[ILLEGIBLE]
SECRETARY OF STATE
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
EASTERN RESOURCES, INC.
The undersigned corporation, for the purpose of amending its Articles of
Incorporation and pursuant to the provisions of the "Kentucky Business
Corporation Act" of the Commonwealth of Kentucky, hereby executes the following
Articles of Amendment:
ARTICLE FIRST: The name of the corporation is: Eastern Resources, Inc.
ARTICLE SECOND: The following amendment or amendments were adopted in the
manner prescribed by the "Kentucky Business Corporation Act" of the Commonwealth
of Kentucky:
Article V is hereby amended by deleting the paragraph in its entirety and
substituting therefor the following new Article V:
ARTICLE V
The mailing address at the Corporation's principal and registered
office in this State shall be: P.O. Box 38, Bypass 670, Providence,
Kentucky 42450, and the registered agent for service of process shall be
determined from time to time by the Board of Directors.
<PAGE>
Article IX is hereby amended by deleting said Article in its entirety.
ARTICLE THIRD: The number of shares of the corporation outstanding at the
time of the adoption of said amendments was 1,000; and the number of shares of
each class entitled to vote as a class on the adoption of said amendments and
the designation of each such class were as follows: 1,000 shares of common
stock.
ARTICLE FOURTH: The number of shares voted for said amendments was 1,000;
and the number of shares voted against said amendments was "0".
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be executed in its name by its President, and its corporate seal
to be hereto affixed, attested by its Secretary, as of the 1st day of June,
1988.
Eastern Resources, Inc.
By: /s/ P. Ron Siler
------------------------
P. Ron Siler, President
ATTEST:
C. H. Arbaugh
- ------------------------
C. H. Arbaugh, Secretary
2
<PAGE>
STATE OF INDIANA )
)SS:
VANDERBURGH COUNTY )
I, Norma G. Richter, a Notary Public, do hereby certify that on the
[ILLEGIBLE] day of June, 1988, P. Ron Siler and C. H. Arbaugh personally
appeared before me and, being first duly sworn by me, acknowledged that he
signed the foregoing document in the capacity therein set forth and declared
that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year
before written.
/s/ Norma G. Richter
-------------------------------
Norma G. Richter, Notary Public
My Commission Expires:
10-22-89 Notary Public resides in
- --------------------- Vanderburgh County, Indiana.
3
<PAGE>
BY-LAWS
OF
EASTERN RESOURCES, INC.
ARTICLE I
OFFICES
Section 1. The registered office of the Corporation shall be at each
location determined by the Board of Directors as may be required by the laws
of its state of incorporation. The Corporation may also have offices at such
other places both within and without its state of incorporation as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without its state of incorporation, as shall be
designated by the Board of Directors. In the absence of any such designation
by the Board of Directors, each such meeting shall be held at the principal
office of the Corporation.
Section 2. Annual Meetings. An annual meeting of stockholders shall be
held for the purpose of electing Directors and transacting such other
business as may properly be brought before the meeting. The date of the
annual meeting shall be determined by the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law, may be called by
the President and shall be called by the Secretary at the direction of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and time of the meeting shall be given
not less than ten nor more than sixty days before the date of the meeting, to
each stockholder entitled to vote at such meeting. The notice of any special
meeting of stockholders shall state the purpose or purposes for which the
meeting is called.
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Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law. If a quorum is
not present or represented, the holders of the stock present in person or
represented by proxy at the meeting and entitled to vote thereat shall have
power, by the affirmative vote of the holders of a majority of such stock, to
adjourn the meeting to another time and/or place, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting, at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 6. Voting. At all meetings of the stockholders, each
stockholder shall be entitled to vote, in person or by proxy, the shares of
voting stock owned by such stockholder of record on the record date for the
meeting. When a quorum is present or represented at any meeting, the vote of
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of law
or of the certificate of incorporation, a different vote is required, in
which case such express provision shall govern and control the decision of
such question.
Section 7. Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders, or any other action which may be
taken at a meeting of the stockholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the stockholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed and controlled by or under the direction of a Board of
Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by law or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or
done by the stockholders.
Section 2. Number, Qualification and Tenure. The Board of Directors
shall consist of not less than one (1) and not more than
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ten (10) members. Within the limits above specified, the number of Directors
shall be determined from time to time by resolution of the Board of Directors
or stockholders. The Directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3 of this Article, and each
Director elected shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. Directors need not be
stockholders.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the number of directors may be filled by a
majority of the Directors then in office though less than a quorum, and each
Director so chosen shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. In the event one (1)
or more vacancies on the Board of Directors occur, the remaining directors
then in office may, by resolution, reduce the size of the Board of Directors
to a number not less than the number of directors then remaining in office.
If there are no Directors in office, then an election of Directors may be
held in the manner provided by law.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without its state of incorporation.
Section 5. Regular Meetings. The Board of Directors shall hold a
regular meeting, to be known as the annual meeting, immediately following
each annual meeting of the stockholders. Other regular meetings of the Board
of Directors shall be held at such time and at such place as shall from time
to time be determined by the Board. No notice of regular meetings need be
given.
Section 6. Special Meetings. Special meetings of the Board may be
called by the President. Special meetings shall be called by the Secretary on
the written request of any Director. No notice of special meetings need be
given.
Section 7. Quorum. At all meetings of the Board a majority of the total
number of Directors shall constitute a quorum for the transaction of business
and the act of a majority of the Directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may
be otherwise specifically provided by law. If a quorum shall not be present
at any meeting of the Board of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 8. Organization. The Chairman of the Board, if elected, shall
act as chairman at all meetings of the Board of Directors. If a Chairman of
the Board is not elected or, if elected, is not present, the President or, in
the absence of the President, a Vice Chairman (who is also a member of the
Board and,
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if more than one, in the order designated by the Board of Directors or, in
the absence of such designation, in the order of their election), if any, or
if no such Vice Chairman is present, a Director chosen by a majority of the
Directors present, shall act as chairman at meetings of the Board of
Directors.
Section 9. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more Directors
to constitute an Executive Committee, to serve as such, unless the resolution
designating the Executive Committee is sooner amended or rescinded by the
Board of Directors, until the next annual meeting of the Board or until their
respective successors are designated. The Board of Directors, by resolution
adopted by a majority of the whole Board, may also designate additional
Directors as alternate members of the Executive Committee to serve as members
of the Executive Committee in the place and stead of any regular member or
members thereof who may be unable to attend a meeting or otherwise
unavailable to act as a member of the Executive Committee. In the absence or
disqualification of a member and all alternate members who may serve in the
place and stead of such member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another Director to act
at the meeting in the place of any such absent or disqualified member.
Except as expressly limited by the laws of its state of incorporation
or the Certificate of Incorporation, the Executive Committee shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation between the
meetings of the Board of Directors. The Executive Committee shall keep a
record of its acts and proceedings, which shall form a part of the records of
the Corporation in the custody of the Secretary, and all actions of the
Executive Committee shall be reported to the Board of Directors at the next
meeting of the Board.
Meetings of the Executive Committee may be called at any time by the
Chairman of the Board, the President or any two of its members. No notice of
meetings need be given. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business and, except as
expressly limited by this Section, the act of a majority of the members
present at any meeting at which there is a quorum shall be the act of the
Executive Committee. Except as expressly provided in this Section, the
Executive Committee shall fix its own rules of procedure.
Section 10. Other Committees. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more other
committees, each such committee to consist of one or more Directors. Except
as expressly limited by the laws of its state of incorporation or the
Certificate of Incorporation, any such committee shall have and may exercise
such powers as the
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Board of Directors may determine and specify in the resolution designating
such committee. The Board of Directors, by resolution adopted by a majority
of the whole Board, also may designate one or more additional Directors as
alternate members of any such committee to replace any absent or disqualified
member at any meeting of the committee, and at any time may change the
membership of any committee or amend or rescind the resolution designating
the committee. In the absence or disqualification of a member or alternate
member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member, provided that
the Director so appointed meets any qualifications stated in the resolution
designating the committee. Each committee shall keep a record of proceedings
and report the same to the Board of Directors to such extent and such a form
as the Board of Directors may require. Unless otherwise provided in the
resolution designating a committee, a majority of all of the members of any
such committee may select its Chairman, fix its rules or procedure, fix the
time and place of its meetings and specify what notice of meetings, if any,
shall be given.
Section 11. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
Section 12. Attendance by Telephone. Members of the Board of Directors,
or of any committee designated by the Board of Directors, may participate in
a meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Compensation. The Board of Directors shall have the
authority to fix the compensation of Directors, which may include their
expenses, if any, of attendance at each meeting of the Board of Directors or
of a committee.
ARTICLE IV
OFFICERS
Section 1. Enumeration. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President and a Secretary. The Board
of Directors may also elect a Chairman
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of the Board, one or more Vice Chairmen, one or more Vice Presidents, a
Treasurer, one or more Assistant Secretaries and Assistant Treasurers and
such other officers and agents as it shall deem appropriate. Any number of
offices may be held by the same person.
Section 2. Term of Office. The officers of the Corporation shall be
elected at the annual meeting of the Board of Directors and shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. Any vacancy occurring in any office of the Corporation required
by this Article shall be filled by the Board of Directors, and any vacancy in
any other office may be filled by the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board, when
elected, shall be the Chief Executive Officer of the Corporation and, as
such, shall have general supervision, direction and control of the business
and affairs of the Corporation, subject to the control of the Board of
Directors, shall preside at meetings of stockholders and shall have such
other functions, authority and duties as customarily appertain to the office
of the chief executive of a business corporation or as may be prescribed by
the Board of Directors.
Section 4. President. During any period when there shall be an office
of Chairman of the Board, the President shall be the Chief Operating Officer
of the Corporation and shall have such functions, authority and duties as may
be prescribed by the Board of Directors or the Chairman of the Board. During
any period when there shall not be an office of Chairman of the Board, the
President shall be the Chief Executive Officer of the Corporation and, as
such, shall have the functions, authority and duties provided for the
Chairman of the Board when there is an office of Chairman of the Board.
Section 5. Vice President. The Vice President shall perform such duties
and have such other powers as may from time to time be prescribed by the
Board of Directors, the Chairman of the Board or the President.
Section 6. Secretary. The Secretary shall keep a record of all
proceedings of the stockholders of the Corporation and of the Board of
Directors, and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice, if any, of
all meetings of the stockholders and shall perform such other duties as may
be prescribed by the Board of Directors, the Chairman of the Board or the
President. The Secretary shall have custody of the corporate seal of the
Corporation and the Secretary, or in the absence of the Secretary any
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and when so affixed it may be attested by the signature of the
Secretary or an Assistant
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Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest such affixing of
the seal.
Section 7. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as may from
time to time be prescribed by the Board of Directors, the Chairman of the
Board, the President or the Secretary.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President
and the Board of Directors, at its regular meetings or when the Board of
Directors so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation. The Treasurer shall perform such
other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer.
Section 9. Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by
the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the
event of the Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, the President or the Treasurer.
Section 10. Other Officers. Any officer who is elected or appointed
from time to time by the Board of Directors and whose duties are not
specified in these By-Laws shall perform such duties and have such powers as
may be prescribed from time to time by the Board of Directors, the Chairman
of the Board or the President.
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ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. The shares of the Corporation shall be represented by
certificates; provided, however, that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the Corporation's stock shall be uncertificated shares. Certificates of stock
in the Corporation, if any, shall be signed by or in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation. Where a certificate is countersigned
by a transfer agent, other than the Corporation or an employee of the
Corporation, or by a registrar, the signatures of the Chairman of the Board,
the President or a Vice President and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were such officer, transfer agent or
registrar at the date of its issue.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
of stock or uncertificated shares in place of any certificate therefore
issued by the Corporation to the person entitled thereto, cancel the old
certificate and record the transaction on its books.
Section 3. Replacement. In case of the loss, destruction or theft of a
certificate for any stock of the Corporation, a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by the
Corporation may be issued upon satisfactory proof of such loss, destruction
or theft and upon such terms as the Board of Directors may prescribe. The
Board of Directors may in its discretion require the owner of the lost,
destroyed or stolen certificate, or his legal representative, to give the
Corporation a bond, in such sum and in sum form and with such surety or
sureties as it may direct, to indemnify the Corporation against any claim
that may be made against it with respect to a certificate alleged to have
been lost, destroyed or stolen.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only
to the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
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Section 3. To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 1
and 2 of this Article. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable and a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the manner provided in Section 4 of this Article upon receipt of
an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation under this Article.
Section 6. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (i) arising under the Employee Retirement Income Security
Act of 1974 or regulations promulgated thereunder, or under any other law or
regulation of the United States or any agency or instrumentality thereof or
law or regulation of any state or political subdivision or any agency or
instrumentality of either, or under the common law of any of the foregoing,
against expenses (including attorneys' fees), judgments, fines, penalties,
taxes and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding by reason of the fact that
he is or was a fiduciary, disqualified person or party in interest with
respect to an employee benefit plan covering employees of the Corporation or
of a subsidiary corporation, or is or was serving in any other capacity with
respect to such plan, or has or had any obligations or duties with respect to
such plan by reason of such laws or regulations, provided that any person was
or is a director, officer, employee or agent of the Corporation, or (ii) in
connection with any matter arising under federal, state or local revenue or
taxation laws or regulations, against expenses
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(including attorneys' fees), judgments, fines, penalties, taxes, amounts paid
in settlement and amounts paid as penalties or fines necessary to contest the
imposition of such penalties or fines, actually and reasonably incurred by
him in connection with such action, suit or proceeding by reason of the fact
that he is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise and had responsibility for or participated
in activities relating to compliance with such revenue or taxation laws and
regulations; provided, however, that such person did not act dishonestly or
in willful or reckless violation of the provisions of the law or regulation
under which such suit or proceeding arises. Unless the Board of Directors
determines that under the circumstances then existing, it is probable that
such director, officer, employee or agent will not be entitled to be
indemnified by the Corporation under this section, expenses incurred in
defending such suit or proceeding, including the amount of any penalties or
fines necessary to be paid to contest the imposition of such penalties or
fines, shall be paid by the Corporation in advance of the final disposition
of such suit or proceeding upon receipt of an undertaking by or on behalf of
the director, officer, employer or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation under this Section.
Section 7. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
Section 8. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not he would be entitled to indemnity against such
liability under the provisions of this Article.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
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Section 2. Corporate Seal. The corporate seal shall be in such form as
may be approved from time to time by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
Section 3. Waiver of Notice. Whenever any notice is required to be
given under law or the provisions of the Certificate of Incorporation or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent to notice.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the Board of Directors. The fact that the power to amend, alter,
repeal or adopt the By-Laws has been conferred upon the Board of Directors
shall not divest the stockholders of the same powers.
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EX-3.7
Articles of Incorporation
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MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU
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(FOR BUREAU USE ONLY) FILED Date Received
OCT 07 1983
OCT 07 1983 ----------------------
Administrator
MICHIGAN DEPT. OF COMMERCE ----------------------
Corporation & Securities Bureau
EFFECTIVE DATE:
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CORPORATION IDENTIFICATION NUMBER 326-652
ARTICLES OF INCORPORATION
For use by Domestic Profit Corporations
(Please read instructions on last page before completing form)
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended,
the undersigned corporation executes the following Articles:
Article I
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The name of the corporation is:
Industrial Fuels Minerals Company
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Article II
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The purpose or purposes for which the corporation is organized is to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
To acquire and hold real estate and minerals interests.
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Article III
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The total authorized capital stock is:
Common Shares 50,000 Par Value Per Share $1.00
1.
Preferred Shares ______________ Par Value Per Share $____
and/or shares without par value as follows:
Common Shares _________________ Stated Value Per Share $____
2.
Preferred Shares ______________ Stated Value Per Share $____
3. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
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SEAL APPEARS ONLY ON ORIGINAL
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Article IV
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1. The address of the registered office is:
3221 West Big Beaver Road, Suite 304 Troy, Michigan 48084
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(Street Address) (City) (ZIP Code)
2. The mailing address of the registered office if different than above:
Michigan
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(PO Box) (City) (ZIP Code)
3. The name of the resident agent at the registered office is: M. E. Donohue
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Article V
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The name(s) and address(es) of the incorporator(s) is (are) as follows:
Name Residence or Business Address
J. C. Nylen 122 South Michigan Avenue, Chicago, Illinois 60603
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Article VI (Optional. Delete if not applicable)
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When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
- --------------------------------------------------------------------------------
Article VII (Optional. Delete if not applicable)
- --------------------------------------------------------------------------------
Any action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
- --------------------------------------------------------------------------------
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
Use space below for additional Articles or for continuation of previous
Articles. Please identify any Article being continued or added. Attach
additional pages if needed.
I (We), the incorporator(s) sign my name this 6th day of October, 1983.
/s/ J.C. Nylen
- ----------------------------------- ----------------------------------
J.C. Nylen
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
NOTE: THE FOLLOWING ANNUAL REPORT HAS BEEN INCLUDED WITHIN THE RECORD FOR THIS
CORPORATION DUE TO THE FILING OF A CHANGE OF REGISTERED OFFICE AND/OR RESIDENT
AGENT ON THE ANNUAL REPORT. THE PRESENCE OF THIS REPORT IN NO WAY IMPLIES THAT
THE REPORT ITSELF, OTHER THAN THE INFORMATION RELATED TO THE CHANGE OF
REGISTERED OFFICE AND/OR RESIDENT AGENT, HAS BEEN ACCEPTED BY THE CORPORATION
AND SECURITIES BUREAU.
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
[ILLEGIBLE] FOR BUREAU USE ONLY
MICHIGAN DEPARTMENT
OF COMMERCE -------------------------------------------
1988 MICHIGAN ANNUAL REPORT - PROFIT CORPORATIONS
(Please read instructions before completing form)
This report shall be filed by all profit corporations before May 16, 1988
showing the corporate condition at the close of business on December 31 or upon
the date of the close of the latest fiscal year next preceding the time for
filing. The report is required in accordance with the provisions of Section 911,
Act 284, Public Acts of 1972, as amended. Penalties may be assessed under the
Act for failure to file.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
This Report Must Insert
be filed before Report of Condition on Corporation
May 16, 1988 December 31, 1987 or ______ Number 326652
- --------------------------------------------------------------------------------
</TABLE>
1. Corporate Name
- --------------------------------------------------------------------------------
INDUSTRIAL FUELS MINERALS COMPANY
3221 WEST BIG BEAVER RD., STE.304 7
TROY MI 8
48084 9
- --------------------------------------------------------------------------------
2. Resident Agent - do not enter preprinted information [ILLEGIBLE]
M.E. DONOHUE
- --------------------------------------------------------------------------------
3. Registered Office Address in Michigan - No., Street, City, Zip
3221 WEST BIG BEAVER RD., STE.304
TROY 48084
- --------------------------------------------------------------------------------
4. Federal Employer No. 36-3256999
- --------------------------------------------------------------------------------
5. Term of Existence PERPETUAL
- --------------------------------------------------------------------------------
6. Incorporation Date 10/07/1983
- --------------------------------------------------------------------------------
7. State of Incorporation MI
- --------------------------------------------------------------------------------
8. Date of Admittance (Foreign Corp.)
- --------------------------------------------------------------------------------
9. Act Under Which Incorporated (if other than 1931, P.A. 327 or 1972,
P.A. 284)
- --------------------------------------------------------------------------------
10. (DOMESTIC CORPORATIONS ONLY) COMPLETE THIS SECTION ONLY IF THE RESIDENT
AGENT IN ITEM 2 OR THE REGISTERED OFFICE IN ITEM 3 HAS CHANGED
- --------------------------------------------------------------------------------
a. The name of the successor resident agent is:
b. The address of the registered office is changed to:
1301 W. Long Lake Rd, Suite 225 Troy, Michigan 48088
--------------------------------------- -------------
(Street Address) (City) (ZIP Code)
c. The mailing address of the registered office if different than above is:
Michigan
--------------------------------------- -------------
(Address) (City) (ZIP Code)
ADD $5.00 TO THE $15.00 ANNUAL REPORT FILING FEE IF THIS SECTION IS COMPLETED
FILED BY DEPARTMENT JUN 17 '88
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. Principal business office, and, if different, principal place of business
in Michigan: 1301 W. Long Lake Rd.
<PAGE>
12. Nature and type of business in which corporation is engaged: Land Company
13. a. Name of parent corporation: Costain Coal Inc. (formerly: Industrial
Fuels Corporation)
b. List any subsidiary corporations: None
- --------------------------------------------------------------------------------
14. Corporate Stock Report - Total Authorized Capital Stock (Not merely
outstanding)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
No. of Shares Total
a. Shares With Authorized Par-Value Authorized Amount Amount
Par-Value With Par Value Per Share Capital Subscribed Paid-in
<S> <C> <C> <C> <C> <C>
COMMON 50,000 $1.000 $50000.000 $ $ 5,000
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
b. Shares No. of Shares Stated No. of Shares
Without Authorized With- Value Subscribed Amount Amount
Par Value Out Par Value Per Share or Issued Subscribed Paid-in
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
MAY 18 1988
</TABLE>
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
15. The following is a statement of assets and liabilities as shown by the
books of the corporation on December 31, 1987 or (close of
fiscal year next preceding May 15, 1988) listed separately as to property
within and without Michigan. The balance sheet of a Michigan corporation
must be the same balance sheet as furnished to shareholders.
<TABLE>
<CAPTION>
WITHIN WITHOUT
ASSETS TOTAL MICHIGAN MICHIGAN
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
000's OMITTED
Cash 3 3
Notes and Accounts Receivable 30 30
Inventories
Prepaid Expenses 589 589
Non-current Notes and
Accounts Receivable
Land 6,720 6,720
Depreciable Assets
Machinery and Equipment 15 15
Furniture and Fixtures
Buildings
Other
Less Depreciation
Net Depreciable Assets 15 15
Investments
Investments in Subsidiaries
Other Investments
Other Assets 55 55
TOTAL ASSETS 7,412 677 6,735
- --------------------------------------------------------------------------------
LIABILITIES AND EQUITY
- --------------------------------------------------------------------------------
000's OMITTED
Notes and Accounts Payable, Trade 7,229
Notes and Accounts Payable, Other
Accrued Expenses 4
Long Term indebtedness
Reserves and Contingent
Liabilities
Deferred Income Tax
Stockholders Equity
Common Stock (par value)
Preferred Stock (par value)
No Par Value Stock
(stated value)
Additional Paid-in Capital 5
Retained Earnings (deficit) 174
Other
Total Stockholders Equity 179
TOTAL LIABILITIES & EQUITY 7,412
- --------------------------------------------------------------------------------
</TABLE>
16. Corporate Officers and Directors
- --------------------------------------------------------------------------------
OFFICE NAME, STREET & NUMBER, CITY, STATE & ZIP CODE
- --------------------------------------------------------------------------------
President Al Spezia 1301 W. Long Lake Rd, Suite 225, Troy, MI 48088
- --------------------------------------------------------------------------------
If Different than President
Secretary ME Donohue " " " " "
----------------------------------------------------------------------------
Treasurer Al Spezia " " " " "
----------------------------------------------------------------------------
Vice-President
- --------------------------------------------------------------------------------
<PAGE>
If Different than Officers
Director
----------------------------------------------------------------------------
Director
----------------------------------------------------------------------------
Director
----------------------------------------------------------------------------
Director
- --------------------------------------------------------------------------------
17. Is 51% or more of this corporation owned and controlled by woman/women?
|_| Yes |_| No
(A response to this question is voluntary and will be used for statistical
purposes only).
18. The corporation states that the address of its registered office and the
address of the business office of its resident agent are identical. Any
changes were authorized by resolution duly adopted by its board of
directors. After filing, this report is open to reasonable inspection by
the public pursuant to Section 915, Act 284, Public Acts of 1972, as
amended.
Signed this 16th day of May, 1988.
By /s/ M.E. Donohue
-------------------------------------
(Signature of Authorized Officer
or Agent)
ME Donohue Vice President/Controller
-------------------------------------
(Type or Print Name and Title)
* If Item 10 has been completed, this report must be signed by the president,
vice-president, chairperson, vice-chairperson, secretary or assistant secretary
of the corporation.
- --------------------------------------------------------------------------------
Filing Fee $15.00 (without change of agent or registered office)
Filing Fee $20.00 (with change of agent or registered office in Item 10)
MAKE REMITTANCE PAYABLE TO "STATE OF MICHIGAN"
RETURN TO
DEPARTMENT OF COMMERCE
CORPORATION AND SECURITIES BUREAU
CORPORATION DIVISION
6546 MERCANTILE WAY
PO BOX 30057
LANSING, MICHIGAN 48909 [ILLEGIBLE]
- --------------------------------------------------------------------------------
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
NOTE: THE FOLLOWING ANNUAL REPORT HAS BEEN INCLUDED WITHIN THE RECORD FOR THIS
CORPORATION DUE TO THE FILING OF A CHANGE OF REGISTERED OFFICE AND/OR RESIDENT
AGENT ON THE ANNUAL REPORT. THE PRESENCE OF THIS REPORT IN NO WAY IMPLIES THAT
THE REPORT ITSELF, OTHER THAN THE INFORMATION RELATED TO THE CHANGE OF
REGISTERED OFFICE AND/OR RESIDENT AGENT, HAS BEEN ACCEPTED BY THE CORPORATION
AND SECURITIES BUREAU.
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
[ILLEGIBLE] FOR BUREAU USE ONLY
MICHIGAN DEPARTMENT
OF COMMERCE -------------------------------------------
1990 MICHIGAN ANNUAL REPORT - PROFIT CORPORATIONS
(Please read instructions before completing form)
This report shall be filed by all profit corporations no later than May
16, 1990 showing the corporate condition at the close of business on December 31
or upon the date of the close of the latest fiscal year next preceding the time
for filing. ONLY those corporations incorporated or admitted after December 31,
1989 and before May 15, 1990 are exempt from filing. The report is required in
accordance with the provisions of Section 911, Act 284, Public Acts of 1972.
Penalties may be assessed under the Act for failure to file.
- --------------------------------------------------------------------------------
This Report Must
be filed before Report of Condition on Corporation
May 16, 1990 December 31, 1989 or ______ Number 326652
- --------------------------------------------------------------------------------
1. Corporate Name -- COMPLETE 10c. IF THE PREPRINTED ADDRESS IN THIS ITEM HAS
CHANGED.
- --------------------------------------------------------------------------------
INDUSTRIAL FUELS MINERALS COMPANY
1301 W. LONG LAKE RD.
SUITE 225 7
TROY MI 8
48098 9
- --------------------------------------------------------------------------------
2. Resident Agent - do not enter preprinted information in this item or item 3
M.E. DONOHUE
- --------------------------------------------------------------------------------
3. Registered Office Address in Michigan - No., Street, City, Zip
1301 W. LONG LAKE RD.
SUITE 225
TROY 48098
- --------------------------------------------------------------------------------
4. Federal Employer No. 36-3256999
- --------------------------------------------------------------------------------
5. Term of Existence PERPETUAL
- --------------------------------------------------------------------------------
6. Incorporation Date 10/07/1983
- --------------------------------------------------------------------------------
7. State of Incorporation MI
- --------------------------------------------------------------------------------
8. Date of Admittance (Foreign Corp.)
- --------------------------------------------------------------------------------
9. Act Under Which Incorporated (if other than 1931, P.A. 327 or 1972,
P.A. 284)
- --------------------------------------------------------------------------------
10. COMPLETE THIS SECTION ONLY IF THE RESIDENT AGENT IN ITEM 2 OR THE REGISTERED
OFFICE IN ITEM 3 HAS CHANGED
- --------------------------------------------------------------------------------
a. The name of the successor resident agent is: The Prentice-Hall Corporation
System, Inc.
FILED BY DEPARTMENT JUL 20 '90
b. The address of the registered office is changed to:
501 S. Capital Ave. Lansing, Michigan 48933
--------------------------------------- -------------
(Street Address) (City) (ZIP Code)
c. The mailing address of the registered office if different than 10b. is:
Michigan
--------------------------------------- -------------
(Address) (City) (ZIP Code)
ADD $5.00 TO THE $15.00 ANNUAL REPORT FILING FEE IF THIS SECTION IS COMPLETED
- --------------------------------------------------------------------------------
<PAGE>
11. Corporate Stock Report - Total Authorized Capital Shares (not merely
outstanding).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total
Type of No. of Shares Authorized Amount Amount
Stock Authorized Capital Subscribed Paid-in
<S> <C> <C> <C> <C>
COMMON 50,000.000 $50,000 $ 1 $ 5,000
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
</TABLE>
12. The corporation states that the address of its registered office and the
address of the business office of its resident agent are identical. Any
changes were authorized by resolution duly adopted by its board of
directors, except when filed by the resident agent to change the address
of the registered office.
MAY 24 1990 Signed this 15th day of May, 1990
COMPLETE By /s/ David D. Cramer
ALL ITEMS ---------------------------------------------
(SIGNATURE OF AUTHORIZED OFFICER OR AGENT)*
David D. Cramer, Asst. Sec.
---------------------------------------------
(Type or Print Name and Title)
* If Item 10 is completed, this report must be
signed by the president, vice-president,
chairperson, vice-chairperson, secretary or
assistant secretary of the corporation. If only
the registered office address is changed, it may
be signed by the resident agent.
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
- --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
DEC 15 1994 FILED
- --------------------------- DEC 19 1994
ADMINISTRATOR
MICHIGAN DEPARTMENT OF COMMERCE
CORPORATION & SECURITIES BUREAU
- ----------------------------------------------
- ------------------------------------------
Name
- ------------------------------------------
Address
- ------------------------------------------
City State Zip Code
EFFECTIVE DATE:
- ------------------------------------------ ----------------------------------
Document will be returned to the name and
address you enter above
CERTIFICATE OF CHANGE OF REGISTERED OFFICE AND/OR CHANGE OF RESIDENT AGENT
For use by Domestic and Foreign Corporations and Limited Liability Companies
(Please read information and instructions on reverse side)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), Act 162, Public Acts of 1982 (nonprofit corporations), or Act 23,
Public Acts of 1993 (limited liability companies), the undersigned corporation
or limited liability company executes the following Certificate:
- --------------------------------------------------------------------------------
1. The name of the corporation or limited liability company is:
INDUSTRIAL FUELS MINERALS COMPANY
2. The identification number assigned by the Bureau is: 326-652
3. a. The name of the resident agent on file with the Bureau is: THE PRENTICE-
HALL CORPORATION SYSTEM, INC.
b. The location of its registered office is:
501 SOUTH CAPITOL AVENUE LANSING, Michigan 48933
------------------------------------ ----------
(Street Address) (City) (ZIP Code)
c. The mailing address of the above registered office on file with the Bureau
is:
same Michigan
------------------------------------ ----------
(P.O. Box) (City) (ZIP Code)
- --------------------------------------------------------------------------------
ENTER IN ITEM 4 THE INFORMATION AS IT SHOULD NOW APPEAR ON THE PUBLIC RECORD
- --------------------------------------------------------------------------------
4. a. The name of the resident agent is: THE CORPORATION COMPANY
b. The address of the registered office is:
30600 Telegraph Road Bingham Farms, Michigan 48025
------------------------------------ ----------
(Street Address) (City) (ZIP Code)
c. The mailing address of the registered office if different than 4B is:
same Michigan
------------------------------------ ----------
(P.O. Box) (City) (ZIP Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. The above changes were authorized by resolution duly adopted by: 1. ALL
CORPORATIONS: Its board of directors; 2. PROFIT CORPORATIONS ONLY: the
resident agent if only the address of the registered office is changed, in
<PAGE>
which case a copy of this statement has been mailed to the corporation; 3.
LIMITED LIABILITY COMPANIES: an operating agreement, affirmative vote of a
majority of the members pursuant to section 502(1), managers pursuant to
section 405, or the resident agent if only the address of the registered
office is changed. The corporation or limited liability company further
states that the address of its registered office and the address of its
resident agent, as changed, are identical.
- --------------------------------------------------------------------------------
Date Signed: 11/22/94 Signed by: /s/ Stephen W. Castle
-------- ------------------------------
(Signature)
Stephen W. Castle, Asst. Secr.
-----------------------------------------
(Type or Print Name) (Type or Print Title)
(MICH. - 54- 7/6/93)
SEAL APPEARS ONLY ON ORIGINAL
<PAGE>
EX-3.8
By-Laws
BY-LAWS
OF
INDUSTRIAL FUELS MINERALS COMPANY
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be 3221 West Big Beaver Road, Suite 304, Troy, Michigan 48084. The
Corporation may also have offices at such other places both within and without
the State of Michigan as the Board of Directors may from time to time determine
or the business of the Corporation may require.
Section 2. Registered Agent. The registered agent of the Corporation shall
be
ARTICLE II
STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Michigan, as shall be designated
by the Board of Directors. In the absence of any such designation by the Board
of Directors, each such meeting shall be held at the principal office of the
Corporation.
Section 2. Annual Meetings. An annual meeting of stockholders shall be
held for the purpose of electing Directors and transacting such other business
as may properly be brought before the meeting. The date of the annual meeting
shall be determined by the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law, may be called by the
President and shall be called by the Secretary at the direction of a majority of
the Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and time of the meeting shall be given not
less than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled
-1-
<PAGE>
to vote at such meeting. The notice of any special meeting of stockholders shall
state the purpose or purposes for which the meeting is called.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law. If a quorum is not
present or represented, the holders of the stock present in person or
represented by proxy at the meeting and entitled to vote thereat shall have
power, by the affirmative vote of the holders of a majority of such stock, to
adjourn the meeting to another time and/or place, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 6. Voting. At all meetings of the stockholders, each stockholder
shall be entitled to vote, in person or by proxy, the shares of voting stock
owned by such stockholder of record on the record date for the meeting. When a
quorum is present or represented at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of law or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 7. Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
stockholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed and controlled by or under the direction of a Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things
-2-
<PAGE>
as are not by law or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 2. Number. qualification and Tenure. The Board of Directors shall
consist of not less than one (1) and not more than ten (10) members. Within the
limits above specified, the number of Directors shall be determined from time to
time by resolution of the Board of Directors. The Directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 3 of this
Article, and each Director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the number of directors may be filled by a majority of the
Directors then in office though less than a quorum, and each Director so chosen
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal. If there are no Directors in office, then an
election of Directors may be held in the manner provided by law.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Michigan.
Section 5. Regular Meetings. The Board of Directors shall hold a regular
meeting, to be known as the annual meeting, immediately following each annual
meeting of the stockholders. Other regular meetings of the Board of Directors
shall be held at such time and at such place as shall from time to time be
determined by the Board. No notice of regular meetings need be given.
Section 6. Special Meetings. Special meetings of the Board may be called
by the President. Special meetings shall be called by the Secretary on the
written request of any Director. No notice of special meetings need be given.
Section 7. Quorum. At all meetings of the Board a majority of the total
number of Directors shall constitute a quorum for the transaction of business
and the act of a majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 8. Organization. The Chairman of the Board, if elected, shall act
as chairman at all meetings of the Board of Directors. If a Chairman of the
Board is not elected or, if
-3-
<PAGE>
elected, is not present, the President or, in the absence of the President, a
Vice Chairman (who is also a member of the Board and, if more than one, in the
order designated by the Board of Directors or, in the absence of such
designation, in the order of their election), if any, or if no such Vice
Chairman is present, a Director chosen by a majority of the Directors present,
shall act as chairman at meetings of the Board of Directors.
Section 9. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more Directors to
constitute an Executive Committee, to serve as such, unless the resolution
designating the Executive Committee is sooner amended or rescinded by the Board
of Directors, until the next annual meeting of the Board or until their
respective successors are designated. The Board of Directors, by resolution
adopted by a majority of the whole Board, may also designate additional
Directors as alternate members of the Executive Committee to serve as members of
the Executive Committee in the place and stead of any regular member or members
thereof who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Executive Committee. In the absence or disqualification of a
member and all alternate members who may serve in the place and stead of such
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another Director to act at the meeting in the
place of any such absent or disqualified member.
Except as expressly limited by the Michigan General Corporation Act or the
Certificate of Incorporation, the Executive Committee shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation between the meetings
of the Board of Directors. The Executive Committee shall keep a record of its
acts and proceedings, which shall form a part of the records of the Corporation
in the custody of the Secretary, and all actions of the Executive Committee
shall be reported to the Board of Directors at the next meeting of the Board.
Meetings of the Executive Committee may be called at any time by the
Chairman of the Board, the President or any two of its members. No notice of
meetings need be given. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business and, except as
expressly limited by this Section, the act of a majority of the members present
at any meeting at which there is a quorum shall be the act of the Executive
Committee. Except as expressly provided in this Section, the Executive Committee
shall fix its own rules of procedure.
Section 10. Other Committees. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate one or more other
committees, each such committee to consist of one or more Directors. Except as
expressly limited by the
-4-
<PAGE>
Michigan General Corporation Act or the Certificate of Incorporation, any such
committee shall have and may exercise such powers as the Board of Directors may
determine and specify in the resolution designating such committee. The Board of
Directors, by resolution adopted by a majority of the whole Board, also may
designate one or more additional Directors as alternate members of any such
committee to replace any absent or disqualified member at any meeting of the
committee, and at any time may change the membership of any committee or amend
or rescind the resolution designating the committee. In the absence or
disqualification of a member or alternate member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another Director to act at the meeting in the place of any such absent or
disqualified member, provided that the Director so appointed meets any
qualifications stated in the resolution designating the committee. Each
committee shall keep a record of proceedings and report the same to the Board of
Directors to such extent and such a form as the Board of Directors may require.
Unless otherwise provided in the resolution designating a committee, a majority
of all of the members of any such committee may select its Chairman, fix its
rules or procedure, fix the time and place of its meetings and specify what
notice of meetings, if any, shall be given.
Section 11. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 12. Attendance by Telephone. Members of the Board of Directors, or
of any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Compensation. The Board of Directors shall have the authority
to fix the compensation of Directors, which may include their expenses, if any,
of attendance at each meeting of the Board of Directors or of a committee.
-5-
<PAGE>
ARTICLE IV
OFFICERS
Section 1. Enumeration. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President and a Secretary. The Board of
Directors may also elect a Chairman of the Board, one or more Vice Chairmen,
one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and
Assistant Treasurers and such other officers and agents as it shall deem
appropriate. Any number of offices may be held by the same person.
Section 2. Term of Office. The officers of the Corporation shall be
elected at the annual meeting of the Board of Directors and shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. Any vacancy occurring in any office of the Corporation required by
this Article shall be filled by the Board of Directors, and any vacancy in any
other office may be filled by the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board, when elected,
shall be the Chief Executive Officer of the Corporation and, as such, shall have
general supervision, direction and control of the business and affairs of the
Corporation, subject to the control of the Board of Directors, shall preside at
meetings of stockholders and shall have such other functions, authority and
duties as customarily appertain to the office of the chief executive of a
business corporation or as may be prescribed by the Board of Directors.
Section 4. President. During any period when there shall be an office of
Chairman of the Board, the President shall be the Chief Operating Officer of the
Corporation and shall have such functions, authority and duties as may be
prescribed by the Board of Directors or the Chairman of the Board. During any
period when there shall not be an office of Chairman of the Board, the President
shall be the Chief Executive Officer of the Corporation and, as such, shall have
the functions, authority and duties provided for the Chairman of the Board when
there is an office of Chairman of the Board.
Section 5. Vice President. The Vice President shall perform such duties
and have such other powers as may from time to time be prescribed by the Board
of Directors, the Chairman of the Board or the President.
Section 6. Secretary. The Secretary shall keep a record of all proceedings
of the stockholders of the Corporation and of the Board of Directors, and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to
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<PAGE>
be given, notice, if any, of all meetings of the stockholders and shall perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board or the President. The Secretary shall have custody of the corporate
seal of the Corporation and the Secretary, or in the absence of the Secretary
any Assistant Secretary, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by the signature
of the Secretary or an Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest such affixing of the seal.
Section 7. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the Board, the
President or the Secretary.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President and
the Board of Directors, at its regular meetings or when the Board of Directors
so requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
may from time to time be prescribed by the Board of Directors, the Chairman of
the Board, the President or the Chief Financial Officer.
Section 9. Assistant Treasurer. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors, the
Chairman of the Board, the President or the Treasurer.
Section 10. Other Officers. Any officer who is elected or appointed from
time to time by the Board of Directors and whose duties are not specified in
these By-Laws shall perform such duties and have such powers as may be
prescribed from time to time
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<PAGE>
by the Board of Directors, the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. The shares of the Corporation shall be represented by
certificates; provided, however, that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the Corporation's stock shall be uncertificated shares. Certificates of stock in
the Corporation, if any, shall be signed by or in the name of the Corporation by
the Chairman of the Board or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation. Where a certificate is countersigned by a transfer agent,
other than the Corporation or an employee of the Corporation, or by a registrar,
the signatures of the Chairman of the Board, the President or a Vice President
and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were such officer,
transfer agent or registrar at the date of its issue.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate of
stock or uncertificated shares in place of any certificate therefore issued by
the Corporation to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
Section 3. Replacement. In case of the loss, destruction or theft of a
certificate for any stock of the Corporation, a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by the
Corporation may be issued upon satisfactory proof of such loss, destruction or
theft and upon such terms as the Board of Directors may prescribe. The Board of
Directors may in its discretion require the owner of the lost, destroyed or
stolen certificate, or his legal representative, to give the Corporation a bond,
in such sum and in sum form and with such surety or sureties as it may direct,
to indemnify the Corporation against any claim that may be made against it with
respect to a certificate alleged to have been lost, destroyed or stolen.
-8-
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. General Indemnity. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Indemnity Against Corporate Suits. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
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<PAGE>
Section 3. Scone of Indemnity. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Approval by Board. Any indemnification under Sections 1 and 2
of this Article (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable and a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5. Expenses. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the manner provided in Section 4 of this Article upon receipt of
an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the Corporation under this Article.
Section 6. Employee Benefits. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (i) arising under the Employee Retirement Income
Security Act of 1974 or regulations promulgated thereunder, or under any other
law or regulation of the United States or any agency or instrumentality thereof
or law or regulation of any state or political subdivision or any agency or
instrumentality of either, or under the common law of any of the foregoing,
against expenses (including attorneys' fees), judgments, fines, penalties, taxes
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding by reason of the fact that he is
or was a fiduciary, disqualified person or party in interest with respect to an
employee benefit plan covering employees of the Corporation or of a subsidiary
corporation, or is or was serving in any other capacity with respect to such
plan, or has or had any obligations or duties with respect to such plan by
reason of such laws or regulations, provided that any person was or is a
director, officer, employee or agent of the Corporation, or (ii) in connection
with any matter
-10-
<PAGE>
arising under federal, state or local revenue or taxation laws or regulations,
against expenses (including attorneys' fees), judgments, fines, penalties,
taxes, amounts paid in settlement and amounts paid as penalties or fines
necessary to contest the imposition of such penalties or fines, actually and
reasonably incurred by him in connection with such action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise and had responsibility for or participated in
activities relating to compliance with such revenue or taxation laws and
regulations; provided, however, that such person did not act dishonestly or in
willful or reckless violation of the provisions of the law or regulation under
which such suit or proceeding arises. Unless the Board of Directors determines
that under the circumstances then existing, it is probable that such director,
officer, employee or agent will not be entitled to be indemnified by the
Corporation under this section, expenses incurred in defending such suit or
proceeding, including the amount of any penalties or fines necessary to be paid
to contest the imposition of such penalties or fines, shall be paid by the
Corporation in advance of the final disposition of such suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, employer or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation under this Section.
Section 7. Indemnity Not Exclusive. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he would be entitled to indemnity against such liability under
the provisions of this Article.
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<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
Section 2. Corporate Seal. The corporate seal shall be in such form as may
be approved from time to time by the Board of Directors. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 3. Waiver of Notice. Whenever any notice is required to be given
under law or the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the Board of Directors. The fact that the power to amend, alter,
repeal or adopt the By-Laws has been conferred upon the Board of Directors shall
not divest the stockholders of the same powers.
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- ----------------------------------------------------------------------------
LODESTAR HOLDINGS, INC.,
as Issuer
and
the GUARANTORS named herein,
as Guarantors
STATE STREET BANK AND TRUST COMPANY
as Trustee
---------------------
INDENTURE
Dated as of May 15, 1998
---------------------
up to $235,000,000
11 1/2% Senior Notes due 2005, Series A
and
11 1/2% Senior Notes due 2005, Series B
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310 (a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.10
(b)............................................. 7.08; 7.10; 10.02
(c)............................................. N.A.
311 (a)............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a).............................................. 2.05
(b)............................................. 10.03
(c)............................................. 10.03
313 (a)............................................. 7.06
(b)(1).......................................... N.A.
(b)(2).......................................... 7.06
(c)............................................. 7.06; 10.02
(d)............................................. 7.06
314 (a)............................................. 4.07; 4.09; 10.02
(c)(1).......................................... 10.04
(c)(2).......................................... 10.04
(c)(3).......................................... N.A.
(e)............................................. 10.05
(f)............................................. N.A
315 (a)............................................. 7.01(b)
(b)............................................. 7.05; 10.02
(c)............................................. 7.01(a)
(d)............................................. 7.01(c)
(e)............................................. 6.11
316 (a)(last sentence).............................. 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07; 9.04
(c)............................................. 9.04
317(a)(1)........................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318 (a)............................................. 10.01
</TABLE>
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N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions.............................................1
SECTION 1.02. Incorporation by Reference of TIA......................23
SECTION 1.03. Rules of Construction..................................23
ARTICLE TWO THE SECURITIES
SECTION 2.01. Form and Dating........................................24
SECTION 2.02. Execution and Authentication...........................27
SECTION 2.03. Registrar and Paying Agent.............................29
SECTION 2.04. Paying Agent To Hold Assets in Trust...................29
SECTION 2.05. Securityholder Lists...................................30
SECTION 2.06. Transfer and Exchange..................................30
SECTION 2.07. Replacement Securities.................................38
SECTION 2.08. Outstanding Securities.................................39
SECTION 2.09. Treasury Securities....................................39
SECTION 2.10. Temporary Securities...................................40
SECTION 2.11. Cancellation...........................................40
SECTION 2.12. Defaulted Interest.....................................40
SECTION 2.13. CUSIP Number...........................................41
SECTION 2.14. Designation............................................41
ARTICLE THREE REDEMPTION
SECTION 3.01. Optional Redemption....................................41
SECTION 3.02. Notices to Trustee.....................................42
SECTION 3.03. Selection of Securities To Be Redeemed.................42
SECTION 3.04. Notice of Redemption...................................43
SECTION 3.05. Effect of Notice of Redemption.........................44
SECTION 3.06. Deposit of Redemption Price............................44
SECTION 3.07. Securities Redeemed in Part............................45
ARTICLE FOUR COVENANTS
SECTION 4.01. Payment of Securities..................................45
SECTION 4.02. Maintenance of Office or Agency........................45
SECTION 4.03. Limitation on Restricted Payments......................46
SECTION 4.04. Corporate Existence....................................49
SECTION 4.05. Payment of Taxes and Other Claims......................50
SECTION 4.06. Maintenance of Properties and Insurance................50
SECTION 4.07. Compliance Certificate; Notice of Default..............51
SECTION 4.08. Compliance with Laws...................................52
SECTION 4.09. SEC Reports and Other Information......................52
</TABLE>
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SECTION 4.10. Waiver of Stay, Extension or Usury Laws................53
SECTION 4.11. Limitation on Transactions with Affiliates.............54
SECTION 4.12. Limitation on Indebtedness.............................55
SECTION 4.13. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries........55
SECTION 4.14. Limitation on Liens....................................56
SECTION 4.15. Change of Control......................................57
SECTION 4.16. Limitation on Sale of Assets...........................59
SECTION 4.17. Limitation on Preferred Stock of Restricted
Subsidiaries.........................................62
SECTION 4.18. Future Guarantees......................................62
SECTION 4.19. Conduct of Business....................................62
ARTICLE FIVE SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc............................63
SECTION 5.02. Successor Corporation Substituted......................65
ARTICLE SIX DEFAULT AND REMEDIES
SECTION 6.01. Events of Default......................................65
SECTION 6.02. Acceleration...........................................68
SECTION 6.03. Other Remedies.........................................69
SECTION 6.04. Waiver of Past Defaults................................69
SECTION 6.05. Control by Majority....................................69
SECTION 6.06. Limitation on Suits....................................70
SECTION 6.07. Rights of Holders To Receive Payment...................70
SECTION 6.08. Collection Suit by Trustee.............................71
SECTION 6.09. Trustee May File Proofs of Claim.......................71
SECTION 6.10. Priorities.............................................71
SECTION 6.11. Undertaking for Costs..................................72
ARTICLE SEVEN TRUSTEE
SECTION 7.01. Duties of Trustee......................................73
SECTION 7.02. Rights of Trustee......................................74
SECTION 7.03. Individual Rights of Trustee...........................75
SECTION 7.04. Trustee's Disclaimer...................................75
SECTION 7.05. Notice of Default......................................75
SECTION 7.06. Reports by Trustee to Holders..........................76
SECTION 7.07. Compensation and Indemnity.............................76
SECTION 7.08. Replacement of Trustee.................................77
SECTION 7.09. Successor Trustee by Merger, Etc.......................78
SECTION 7.10. Eligibility; Disqualification..........................78
SECTION 7.11. Preferential Collection of Claims Against
Company..............................................79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE
<S> <C> <C>
SECTION 8.01. Termination of Company's Obligations...................79
SECTION 8.02. Legal Defeasance and Covenant Defeasance...............80
SECTION 8.03. Application of Trust Money.............................85
SECTION 8.04. Repayment to Company...................................85
SECTION 8.05. Reinstatement..........................................86
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.............................86
SECTION 9.02. With Consent of Holders................................87
SECTION 9.03. Compliance with TIA....................................88
SECTION 9.04. Revocation and Effect of Consents......................88
SECTION 9.05. Notation on or Exchange of Securities..................89
SECTION 9.06. Trustee To Sign Amendments, Etc........................89
ARTICLE TEN MISCELLANEOUS
SECTION 10.01. TIA Controls...........................................90
SECTION 10.02. Notices................................................90
SECTION 10.03. Communications by Holders with Other Holders...........91
SECTION 10.04. Certificate and Opinion as to Conditions
Precedent............................................92
SECTION 10.05. Statements Required in Certificate or
Opinion..............................................92
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar..............93
SECTION 10.07. Legal Holidays.........................................93
SECTION 10.08. Governing Law..........................................93
SECTION 10.09. No Adverse Interpretation of Other
Agreements...........................................93
SECTION 10.10. No Recourse Against Others.............................93
SECTION 10.11. Successors.............................................94
SECTION 10.12. Duplicate Originals....................................94
SECTION 10.13. Severability...........................................94
ARTICLE ELEVEN GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee................................94
SECTION 11.02. Limitations on Guarantees..............................96
SECTION 11.03. Execution and Delivery of Guarantee....................96
SECTION 11.04. Release of a Guarantor.................................97
SECTION 11.05. Waiver of Subrogation..................................98
SECTION 11.06. Immediate Payment......................................99
SECTION 11.07. No Set-Off.............................................99
SECTION 11.08. Obligations Continuing.................................99
SECTION 11.09. Obligations Reinstated.................................99
</TABLE>
<PAGE>
<TABLE>
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<S> <C> <C>
SECTION 11.10. Obligations Not Affected...............................99
SECTION 11.11. Waiver................................................100
SECTION 11.12. No Obligation To Take Action Against the
Company.............................................100
SECTION 11.13. Dealing with the Company and Others...................100
SECTION 11.14. Default and Enforcement...............................101
SECTION 11.15. Amendment, Etc........................................101
SECTION 11.16. Acknowledgment........................................101
SECTION 11.17. Costs and Expenses....................................101
SECTION 11.18. No Waiver; Cumulative Remedies........................102
SECTION 11.19. Survival of Obligations...............................102
SECTION 11.20. Guarantee in Addition to Other Obligations............102
SECTION 11.21. Severability..........................................102
SECTION 11.22. Successors and Assigns................................103
Signatures ......................................................103
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Exhibit A - Form of Series A Note
Exhibit B - Form of Series B Note
Exhibit C - Form of Legend for Book-Entry Securities
Exhibit D - Form of Transferee Letter of Representation
Exhibit E - Form of certification to be given by the holders of
beneficial interest in a temporary Regulation S global
security to Euroclear or Cedel
Exhibit F - Form of certification to be given by Euroclear operator
or Cedel Bank, Societe Anonyme
Exhibit G - Form of certification to be given by transferee of
beneficial interest in a temporary Regulation S global
security
Exhibit H - Form of certification for transfer or exchange of
restricted global security to temporary Regulation S global
security
Exhibit I - Form of certification for transfer or exchange of
restricted global security to permanent Regulation S global
security
Exhibit J - Form of certification for transfer or exchange of
temporary Regulation S global security or permanent Regulation
S global security to restricted global security
Exhibit K-1 - Form of certification for transfer or exchange of
non-global restricted security to restricted global security
Exhibit K-2 - Form of certification for transfer or exchange of
non-global restricted security to permanent Regulation S
global security or temporary Regulation S global security
Exhibit L-1 - Form of certification for transfer or exchange of
non-global permanent Regulation S security to restricted
global security
Exhibit L-2 - Form of certification for transfer or exchange of
non-global permanent Regulation S security to permanent
Regulation S global security
Exhibit M - Form of Guarantee
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
this Indenture.
<PAGE>
INDENTURE, dated as of May 15, 1998, by and among LODESTAR HOLDINGS,
INC., a Delaware corporation (the "Company"), as issuer, LODESTAR ENERGY, INC.,
a Delaware corporation, as guarantor, EASTERN RESOURCES, INC., a Kentucky
corporation, as guarantor, and INDUSTRIAL FUELS MINERALS COMPANY, a Michigan
corporation, as guarantor, and STATE STREET BANK AND TRUST COMPANY, as Trustee
(the "Trustee").
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's 11
1/2% Senior Notes due 2005, Series A, and 11 1/2% Senior Notes due 2005, Series
B, without distinction as to Series.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary (Restricted
Subsidiary, in the case of the Company) or assumed in connection with the
acquisition of assets from such person, including, without limitation,
Indebtedness incurred by such person in connection with, or in anticipation or
contemplation of, such person becoming a Subsidiary (Restricted Subsidiary, in
the case of the Company) or such acquisition.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative of the
foregoing. For purposes of Section 4.11, the term "Affiliate" shall include any
person who, as a result of any transaction described therein, would become an
Affiliate.
<PAGE>
2
"Affiliate Transaction" has the meaning provided in Section 4.11(a).
"Agent" means any Registrar or Paying Agent.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" has the meaning provided in Section 2.06(g).
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other person pursuant to which such person shall
become a Restricted Subsidiary or a Subsidiary of a Restricted Subsidiary or
shall be merged with the Company or any Restricted Subsidiary or (ii) the
acquisition by the Company or any Restricted Subsidiary of the assets of any
person which constitute all or substantially all of the assets of such person or
any division or line of business of such person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including, without limitation, any Sale/leaseback)
to any person, in one transaction or a series of related transactions, of (i)
any Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of
the properties and assets of any division or line of business of the Company or
any Restricted Subsidiary; or (iii) other than in the ordinary course of
business, any other properties or assets of the Company or any Restricted
Subsidiary in excess of $1.0 million. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is consummated
in accordance with the provisions of Article Five and (ii) the sale of inventory
in the ordinary course of business.
"Asset Sale Offer" has the meaning provided in Section 4.16(a)(ii).
"Asset Sale Offer Payment Date" means, with respect to any Available
Amount from an Asset Sale, the earlier of (x) the 180th day following receipt of
such Available Amount or (y) such earlier date on which an Asset Sale Offer
shall expire.
"Available Amount" has the meaning provided in Section 4.16(a)(ii).
<PAGE>
3
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means with respect to any person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such person
to have been duly adopted by the Board of Directors of such person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Book-Entry Security" means a Security represented by a Global Security
and registered in the name of the nominee of the Depository.
"Business Day" means any day that is not a Legal Holiday.
"Capital Expenditures" shall mean payments for any assets, or
improvements, replacements, substitutions or additions thereto, that have a
useful life of more than one year and which, in accordance with GAAP
consistently applied, are required to be capitalized (as opposed to expensed in
the period in which the payment occurred).
"Capital Lease," as applied to any person, means any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such person as lessee which, in conformity with GAAP, is required to
be accounted for as a capital lease on the balance sheet of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's capital stock, whether outstanding at the Issue Date or issued after
the Issue Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock (but excluding any debt security that is
exchangeable for or convertible into such capital stock).
<PAGE>
4
"Capitalized Lease Obligation" means, as to any person, the obligations
of such person under a Capital Lease and, for purposes of this Indenture, the
amount of such obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within two years from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within two years from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than two years from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or
bankers' acceptances maturing within two years from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $500,000,000; (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above. Notwithstanding the foregoing,
for purposes of clause (i) of the definition of "Permitted Investment," 20% of
the Cash Equivalents may include securities having a rating of at least BBB by
S&P and Baa by Moody's.
"CEDEL" means Cedel Bank, Societe Anonyme (or any successor securities
clearing agency).
"Change of Control" means the occurrence of one or more of the
following events: (i) any direct or indirect sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company or Renco to any person or group
of related persons for purposes of Section 13(d) of the Exchange
<PAGE>
5
Act (a "Group") (other than a Permitted Holder or a Group controlled by a
Permitted Holder), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of this Indenture); (ii) the
approval by the holders of Capital Stock of the Company or Renco, as the case
may be, of any plan or proposal for the liquidation or dissolution of the
Company, or Renco, as the case may be (whether or not otherwise in compliance
with the provisions of this Indenture); (iii) the acquisition in one or more
transactions of "beneficial ownership" (within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) by any person, entity or Group (other than a Permitted Holder or a
Group controlled by any Permitted Holder) of any Capital Stock of the Company or
Renco such that, as a result of such acquisition, such person, entity or Group
either (A) beneficially owns (within the meaning of Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, more than 50% of the Company's or
Renco's then outstanding voting securities entitled to vote on a regular basis
in an election for a majority of the Board of Directors of the Company or Renco
or (B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the Company's or Renco's Board of Directors; or (iv) the
shareholders of Renco as of the Issue Date and the Permitted Holders shall cease
to own at least 50% of the equity of Renco owned by such shareholders on the
Issue Date.
"Change of Control Date" has the meaning provided in Section 4.15(a).
"Change of Control Offer" has the meaning provided in Section 4.15(a).
"Change of Control Payment Date" has the meaning provided in Section
4.15(b)(2).
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Company Order" means a written order or request signed in the name of
the Company by its President or a Vice President, and by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to
the Trustee.
<PAGE>
6
"Consolidated EBITDA" means, with respect to any person, for any
period, the sum (without duplication) of (i) Consolidated Net Income, (ii) to
the extent Consolidated Net Income has been reduced thereby, all income taxes of
such person and its Subsidiaries (Restricted Subsidiaries, in the case of the
Company) paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or non-recurring gains or
losses), Consolidated Interest Expense, amortization expense (including
amortization of deferred financing costs) and depletion and depreciation expense
and (iii) other non-cash items (other than non-cash interest) reducing
Consolidated Net Income (including, without limitation, any non-cash charges in
respect of post-employment benefits for health care, life insurance and long-
term disability benefits required in accordance with GAAP) less other non-cash
items increasing Consolidated Net Income, all as determined on a consolidated
basis for such person and its Subsidiaries (Restricted Subsidiaries, in the case
of the Company) in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such person for the Four Quarter Period. For purposes of this definition, if the
Transaction Date occurs prior to the date on which four full fiscal quarters
have elapsed subsequent to the Issue Date and financial statements with respect
thereto are available, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated, in the case of the Company, after giving effect on a pro
forma basis to the issuance of the Securities and the application of the net
proceeds therefrom as if the Securities were issued on the first day of the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence of any Indebtedness (and the
application of the net proceeds therefrom) of such person or any of its
Subsidiaries (Restricted Subsidiaries, in the case of the Company) giving rise
to the need to make such calculation and any incurrence of other Indebtedness at
any time on or after the first day of the Four Quarter Period and on or prior to
the Transaction Date (the "Reference Period"), as if such incurrence occurred on
the first day of the Reference Period and (ii) any Asset Sales or
<PAGE>
7
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such person or one of
its Subsidiaries (Restricted Subsidiaries, in the case of the Company)
(including any person who becomes a Subsidiary (Restricted Subsidiary, in the
case of the Company) as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness) occurring during the
Reference Period, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness) occurred on the first day of the Reference Period. If such person
or any of its Subsidiaries (Restricted Subsidiaries, in the case of the Company)
directly or indirectly guarantees Indebtedness of a third person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such person or any Subsidiary (Restricted Subsidiary, in the case of the
Company) of such person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date, and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (i) Consolidated Interest Expense of such person
(net of any interest income) less non-cash amortization of deferred financing
costs and (ii) the product of (x) the amount of all dividends declared and paid
on Preferred Stock of such person during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated Federal, state, local and foreign tax rate
(expressed as a decimal number between 1 and 0) of such person during such
period (as reflected in the audited consolidated financial statements of such
person for the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any person for
any period, without duplication, the sum of
<PAGE>
8
(i) the interest expense of such person and its Subsidiaries (Restricted
Subsidiaries, in the case of the Company) for such period as determined on a
consolidated basis in accordance with GAAP consistently applied, including,
without limitation, (a) any amortization of debt discount, (b) the net cost
under Interest Rate Protection Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation and (d)
all accrued interest, and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such person
and its Subsidiaries (Restricted Subsidiaries, in the case of the Company)
during such period as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Subsidiaries (Restricted
Subsidiaries, in the case of the Company), on a consolidated basis for such
period determined in accordance with GAAP; provided that (i) the net income of
any person in which such person or any Subsidiary (Restricted Subsidiary, in the
case of the Company) of such person has an ownership interest with a third party
(other than a person that meets the definition of a Wholly-Owned Subsidiary
(Wholly-Owned Restricted Subsidiary, in the case of the Company)) shall be
included only to the extent of the amount that has actually been received by
such person or its Wholly-Owned Subsidiaries (Wholly-Owned Restricted
Subsidiaries, in the case of the Company) in the form of dividends or other
distributions during such period (subject to, in the case of any dividend or
distribution received by a Wholly-Owned Subsidiary) (Wholly-Owned Restricted
Subsidiary, in the case of the Company) of such person, the restrictions set
forth in clause (ii) below) and (ii) the net income of any Subsidiary
(Restricted Subsidiary, in the case of the Company) of such person that is
subject to any restriction or limitation on the payment of dividends or the
making of other distributions shall be excluded to the extent of such
restriction or limitation; provided, further that there shall be excluded (a)
the net income (or loss) of any person (acquired in a pooling of interests
transaction) accrued prior to the date it becomes a Subsidiary (Restricted
Subsidiary, in the case of the Company) of such person or is merged into or
consolidated with such person or any Subsidiary (Restricted Subsidiary, in the
case of the Company) of such person, (b) any gain (or loss) (and related tax
effects) resulting from an Asset Sale by such person or any of its Subsidiaries
(Restricted Subsidiaries, in the case of the Company), (c) any extraordinary,
unusual or nonrecurring gains or losses (and related tax effects) in accordance
with GAAP and
<PAGE>
9
(d) any compensation-related expenses arising as a result of the application of
the net proceeds from the issuance of the Securities. For purposes of Section
4.03, the amortization of deferred financing costs relating to the issuance of
the Securities shall be excluded from this definition of "Consolidated Net
Income."
"Covenant Defeasance" has the meaning provided in Section 8.02(c).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means, with respect to the Securities issued in the form
of one or more Book-Entry Securities, The Depository Trust Company or another
person designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Depository Securities Certification" has the meaning provided in
Section 2.01.
"Disqualified Capital Stock" means any class of Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event (other than a
Change of Control), matures or is mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Maturity Date.
"Eastern Resources" means Eastern Resources, Inc., a Kentucky
corporation.
"Equity Offering" means an offering of Qualified Capital Stock of the
Company (other than to any Subsidiary of the Company).
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning provided in Section 6.01.
<PAGE>
10
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the registration by the Company under the
Securities Act of all the Series B Notes pursuant to a registration statement
under which the Company offers each Holder of Series A Notes the opportunity to
exchange all Series A Notes held by such Holder for Series B Notes in an
aggregate principal amount equal to the aggregate principal amount of Series A
Notes held by such Holder, all in accordance with the terms and conditions of
the Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value of any
asset of the Company or the Restricted Subsidiaries shall be determined by the
Board of Directors of the Company acting in good faith and shall be evidenced by
a Board Resolution thereof delivered to the Trustee; provided that with respect
to any Asset Sale which involves in excess of $5.0 million, the Fair Market
Value of any such asset or assets shall be determined by an Independent
Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" means a Security evidencing all or a part of the
Securities to be issued as Book-Entry Securities, issued to the Depository in
accordance with Section 2.02 and bearing the legend or legends prescribed in
Exhibit C to this Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the
<PAGE>
11
event of non-performance) of all or any part of such obligation, including,
without limiting the foregoing, the payment of amounts drawn down by letters of
credit.
"Guarantees" means the guarantee of the Securities by the Guarantors.
"Guarantors" means collectively each of Lodestar, Eastern Resources,
Industrial Fuels and any Restricted Subsidiary that in the future executes a
supplemental indenture pursuant to Section 4.18 of this Indenture or otherwise
in which any such Restricted Subsidiary agrees to be bound by the terms of this
Indenture; provided that any person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of this Indenture.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indebtedness" means with respect to any person, without duplication,
(i) all obligations of such person for borrowed money, (ii) all obligations of
such person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations (but not obligations under Operating
Leases) of such person, (iv) all obligations of such person issued or assumed as
the deferred purchase price of property or services, all conditional sale
obligations and all obligations under any title retention agreement (but
excluding trade accounts payable, accrued expenses and deferred taxes arising in
the ordinary course of business), (v) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction entered into in the ordinary course of business, (vi)
all obligations of any other person of the type referred to in clauses (i)
through (v) which are secured by any Lien on any property or asset of such first
person and the amount of such obligation shall be the lesser of the value of
such property or asset or the amount of the obligation so secured, (vii) all
guarantees of Indebtedness by such person, (viii) Disqualified Capital Stock
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends, (ix) all obligations under interest
rate agreements or hedging agreements of such person and (x) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital
<PAGE>
12
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
Board of Directors of the person issuing such Disqualified Capital Stock.
Notwithstanding anything to the contrary contained herein or in this Indenture,
Indebtedness shall not include (i) the purchase of coal reserves requiring the
payment of royalty fees on an installment basis in the ordinary course of
business consistent with past practice, (ii) obligations under performance
bonds, surety bonds or appeal bonds, letters of credit (other than reimbursement
obligations) or similar obligations, in each case incurred in the ordinary
course of business and (iii) any obligation of the Company or any Restricted
Subsidiary in the form of an earn-out arrangement undertaken in connection with
any acquisition of property or assets by the Company or such Restricted
Subsidiary, which obligation shall be based upon increases in coal prices above
price levels existing on the date of such acquisition, shall not constitute
Indebtedness under this Indenture.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable and good faith judgment of the Board of Directors of the Company,
qualified to perform the task for which such firm has been engaged and
disinterested and independent with respect to the Company and its Affiliates.
"Industrial Fuels" means Industrial Fuels Minerals Company, a Michigan
corporation.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and BT Alex. Brown Incorporated.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means the obligations of any
person pursuant to any arrangement with any other person, whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated
<PAGE>
13
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" means, with respect to any person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others or otherwise), or any
purchase or acquisition by such person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
person. Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices. For the purposes of
Section 4.03, the amount of any Investment (other than an Investment covered by
clause (z) of Section 4.03) shall be the original cost of such Investment plus
the cost of all additional Investments by the Company or any of the Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment.
"Issue Date" means May 15, 1998.
"legal defeasance" has the meaning provided in Section 8.02(b).
"Legal Holiday" has the meaning provided in Section 10.07.
"Lien" means (x) any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute and (y) any agreement to enter into any of the foregoing.
<PAGE>
14
"Lodestar" means Lodestar Energy, Inc., a Delaware corporation.
"Maturity Date" means May 15, 2005.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a direct result of such Asset Sale and (iii) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve required in accordance with GAAP consistently applied
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee.
"New Senior Credit Facility" means the Amended and Restated Loan and
Security Agreement dated as of the Issue Date among the Company, Lodestar, the
financial institutions named therein, Congress Financial Corporation and The CIT
Group/Business Credit, Inc., as the same may be amended, restated, supplemented
or otherwise modified from time to time, and includes any agreement renewing,
refinancing or replacing all or any portion of the Indebtedness under such
agreement.
"Obligations" means any principal, interest, penalties, fees and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any person, the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, the Treasurer, the Secretary or Assistant
Secretary of such person.
"Officers' Certificate" means, with respect to any person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of
<PAGE>
15
such person and otherwise complying with the requirements of Sections 10.04 and
10.05.
"Operating Lease" means, as applied to any person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that person is the lessor.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee complying with the requirements of Sections 10.04 and
10.05. Unless otherwise required by the TIA, the legal counsel may be an
employee of or counsel to the Company.
"Owner Securities Certification" has the meaning provided in Section
2.01.
"Paying Agent" has the meaning provided in Section 2.03.
"Permanent Regulation S Global Security" has the meaning provided in
Section 2.01.
"Permitted Holders" means Ira Leon Rennert and his Affiliates, estate,
heirs and legatees, and the legal representatives of any of the foregoing,
including, without limitation, the trustee of any trust of which one or more of
the foregoing are the sole beneficiaries.
"Permitted Indebtedness" means (i) any Indebtedness of the Company and
the Restricted Subsidiaries under the New Senior Credit Facility consisting of
(A) a borrowing facility in an aggregate amount not to exceed $90.0 million in
aggregate principal amount at any time outstanding plus (B) a $30.0 million
letter of credit facility, in each case plus any interest, fees and expenses
from time to time owed thereunder, (ii) the Series A Notes issued on the Issue
Date and the Senior B Notes issued in exchange therefor after the Issue Date in
an aggregate principal amount not to exceed $150.0 million, and the related
Guarantees, (iii) any other Indebtedness of the Company and the Restricted
Subsidiaries outstanding on the Issue Date, (iv) purchase money Indebtedness and
any Indebtedness incurred for Capitalized Lease Obligations of the Company and
the Restricted Subsidiaries not to exceed $20.0 million in the aggregate at any
time outstanding, (v) Interest Rate Protection Obligations to the extent the
notional principal amount of such Interest Rate Protection Obligations does not
exceed the principal
<PAGE>
16
amount of the Indebtedness to which such Interest Rate Protection Obligations
relate entered into in the ordinary course of business, (vi) additional
Indebtedness of the Company and the Restricted Subsidiaries not to exceed $30.0
million in the aggregate at any time outstanding, (vii) Indebtedness owed by the
Company or any of the Restricted Subsidiaries to the Company or any Restricted
Subsidiary; provided that in the case of Indebtedness owed by the Company to any
Restricted Subsidiary, such Indebtedness is contractually subordinated in right
of payment to the Securities, (viii) any renewals, extensions, substitutions,
refundings, refinancings or replacements of any Indebtedness described in the
preceding clauses (i), (ii) and (iii) above and this clause (viii), so long as
such renewal, extension, substitution, refunding, refinancing or replacement
does not result in an increase in the aggregate principal amount of the
outstanding Indebtedness represented thereby (except if such Indebtedness
refinances Indebtedness under the New Senior Credit Facility or any other
agreement providing for subsequent borrowings, does not result in an increase in
the commitment available under the New Senior Credit Facility or such other
agreement), (ix) any indebtedness of the Company or the Guarantors to Renco in
an aggregate principal amount not to exceed $15.0 million at any time
outstanding; provided that any such Indebtedness is contractually subordinated
in right of payment to the Company's obligations under the Securities or such
Guarantor's obligations under its Guarantee, as the case may be; provided,
further, that if as of any date any person other than Renco or one of its
Wholly-Owned Subsidiaries owns or holds any such Indebtedness or holds a Lien on
the instrument held by Renco or one of its Wholly-Owned Subsidiaries governing
such Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness pursuant to this clause (ix) and (x) any
guarantees of the foregoing.
"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment by the Company or any of the Restricted Subsidiaries in the Company
or any Restricted Subsidiary, (iii) Related Business Investments by the Company
or any of the Restricted Subsidiaries in joint ventures, partnerships or persons
(including Unrestricted Subsidiaries) that are not Restricted Subsidiaries in an
amount not to exceed $25.0 million in the aggregate at any one time outstanding,
(iv) Investments by the Company or any Restricted Subsidiary in another person,
if as a result of such Investment (a) such other person becomes a Restricted
Subsidiary or (b) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
<PAGE>
17
or a Restricted Subsidiary, (v) Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers, in
each case arising in the ordinary course of business, (vi) the non-cash proceeds
of any Asset Sale, (vii) Investments under or pursuant to Interest Rate
Protection Obligations in the ordinary course of business and (viii) loans and
advances to employees of the Company and the Restricted Subsidiaries made in the
ordinary course of business.
"Permitted Liens" means (i) pledges or deposits by such person under
worker's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such person is a party, or
deposits to secure public statutory obligations of such person or deposits to
secure surety or appeal bonds to which such person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, (ii)
Liens imposed by law, such as landlords', carriers', warehousemen's and
mechanics' Liens or bankers' Liens incurred in the ordinary course of business
for sums which are not yet due or are being contested in good faith and for
which adequate provision has been made, (iii) Liens for taxes not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings, if adequate reserve, as may be required by GAAP, shall
have been made therefor, (iv) Liens in favor of issuers of performance bonds,
surety bonds or appeal bonds issued pursuant to the request of and for the
account of such person in the ordinary course of its business, (v) Liens to
support trade letters of credit issued in the ordinary course of business, (vi)
survey exceptions, encumbrances, easements or reservations of, or rights of
others for, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions on the use of real
property, (vii) Liens securing Indebtedness permitted under clause (iv) of the
definition of Permitted Indebtedness; provided that the Fair Market Value of the
asset at the time of the incurrence of the Indebtedness subject to the Lien
shall not exceed the principal amount of the Indebtedness secured, (viii) Liens
with respect to Acquired Indebtedness permitted to be incurred in accordance
with Section 4.12; provided that such Liens secured such Acquired Indebtedness
at the time of the incurrence of such Acquired Indebtedness by the Company or
any of the Restricted Subsidiaries and were not incurred in connection with, or
in anticipation of, the incurrence of such Acquired Indebtedness by the Company
<PAGE>
18
or any of the Restricted Subsidiaries; provided, further, that such Liens do not
extend to or cover any property or assets of the Company or any of the
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or any of the Restricted Subsidiaries and are no
more favorable to the lienholders than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or any of
the Restricted Subsidiaries, (ix) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default, (x) Liens on
assets or property (including any real property upon which such assets or
property are or will be located) securing Indebtedness incurred to purchase or
construct such assets or property, which Indebtedness is permitted to be
incurred under this Indenture, (xi) Liens securing Indebtedness which is
incurred to refinance or replace Indebtedness which has been secured by a Lien
permitted under this Indenture and is permitted to be refinanced or replaced
under this Indenture, provided that such Liens do not extend to or cover any
property or assets of the Company or any of the Restricted Subsidiaries not
securing the Indebtedness so refinanced or replaced, and (xii) Liens securing
reimbursement obligations under letters of credit but only in or upon the goods
the purchase of which was financed by such letters of credit.
"person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof or any similar entities.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all
shares, interests, participation or other equivalents (however designated) of
such person's preferred or preference stock, whether outstanding on the Issue
Date or issued
<PAGE>
19
thereafter, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"principal" of any Indebtedness (including the Securities) means the
principal of such Indebtedness plus the premium, if any, on such Indebtedness.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Exchange Act.
"Qualified Capital Stock" means, with respect to any person, any
Capital Stock of such person that is not Disqualified Capital Stock or
convertible into or exchangeable or exercisable for Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Securities.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement
by and among the Company, the Guarantors and the Initial Purchasers, dated as of
May 15, 1998, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Related Business Investment" means any Investment, Capital Expenditure
or other expenditure by the Company or any Restricted Subsidiary which is
related to the business of the
<PAGE>
20
Company and the Restricted Subsidiaries as it is conducted on the Issue Date or
any business which is the same, similar or reasonably related to such business.
"Renco" means The Renco Group, Inc., a New York corporation, which is
the parent of the Company, or any successor thereto.
"Restricted Global Security" has the meaning provided in Section 2.01.
"Restricted Payment" has the meaning provided in Section 4.03.
"Restricted Period" has the meaning provided in Section 2.01.
"Restricted Security" has the meaning provided in Rule 144(a)(3) under
the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company which at
the time of determination is not an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if, immediately after giving effect to such
designation, the Company and the Guarantors could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.12, on a pro forma basis taking into account such designation.
"Sale/leaseback" means any lease whereby the Company or any of the
Restricted Subsidiaries, directly or indirectly, becomes or remains liable as
lessee or as guarantor or other surety, of any property (whether real or
personal or mixed) whether now owned or hereafter acquired, (i) that the Company
or the Restricted Subsidiaries, as the case may be, has sold or transferred or
is to sell or transfer to any other person (other than the Company or any
Restricted Subsidiary), or (ii) that the Company or any of the Restricted
Subsidiaries, as the case may be, intends to use for substantially the same
purpose as any other property that has been or is to be sold or transferred by
the Company or any such Restricted Subsidiary to any person (other than the
Company or any Restricted Subsidiary) in connection with such lease.
"SEC" means the Securities and Exchange Commission.
<PAGE>
21
"Securities" means the Series A Notes, and the Series B Notes and any
other notes issued after the Issue Date in accordance with clause (ii) of the
fourth paragraph of Section 2.02.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Series A Notes" means the Company's 11 1/2% Senior Notes due 2005,
Series A, as amended or supplemented from time to time in accordance with the
terms hereof, that are issued pursuant to this Indenture.
"Series B Notes" means the Company's 11 1/2% Senior Notes due 2005,
Series B, as amended or supplemented from time to time in accordance with the
terms hereof, that are issued pursuant to this Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that satisfies
the criteria for a "significant subsidiary" set forth in Rule 1-02(w) of
Regulation S-X under the Exchange Act.
"Subsidiary" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time owned, directly or indirectly, by such person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
"Temporary Regulation S Global Security" has the meaning provided in
Section 2.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA.
"Transferee Certificate" means the Transferee Letter of Representation
attached as Exhibit D to this Indenture.
<PAGE>
22
"Transferee Securities Certification" has the meaning provided in
Section 2.06(g).
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"U.S. Government Obligations" has the meaning provided in Section
8.01(b).
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which
at the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary, unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on, any property of, any Restricted
Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so
designated; provided that (a) the Company certifies that such designation
complies with Section 4.03 and (b) each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of the Restricted
Subsidiaries. The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if, immediately after
giving effect to such designation, the Company and the Guarantors could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.12, on a pro forma basis taking into account such
designation.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary
which is a Wholly-Owned Subsidiary of the Company.
<PAGE>
23
"Wholly-Owned Subsidiary" means any Subsidiary of such person to the
extent all of the Capital Stock or other ownership interests in such Subsidiary
(other than (x) directors' qualifying shares and (y) an immaterial interest
owned by other persons solely to comply with applicable law) is owned directly
or indirectly by such person or a Wholly-Owned Subsidiary of such person.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on this Indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
<PAGE>
24
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication with
respect thereto shall be substantially in the form of Exhibit A or Exhibit B
hereto, as the case may be. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Securities and any notation, legend or
endorsement on them. Each Security shall be dated the date of its
authentication, shall bear interest from the applicable date and shall be
payable on the Interest Payment Dates and the Maturity Date. Each Security shall
have an executed Guarantee from each of the Guarantors endorsed thereon
substantially in the form of Exhibit M hereto.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company, the Guarantors and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
Securities offered and sold in their initial distribution in reliance
on Regulation S may be initially issued in the form of temporary Global
Securities in fully registered form without interest coupons, substantially in
the form of Exhibit A, with such applicable legends as are provided for in
Exhibit A or Exhibit C. Such temporary Global Securities may be registered in
the name of the Depository or its nominee and deposited with the Trustee, as
custodian for the Depository, duly executed by the Company and authenticated by
the Trustee as hereinafter provided (and the Guarantors shall execute the
Guarantees thereon), for credit by the Depository to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may
<PAGE>
25
direct), provided that upon such deposit all such Securities shall be credited
to or through accounts maintained at the Depository by or on behalf of Euroclear
or CEDEL. Until such time as the Restricted Period (as defined below) shall have
expired, such temporary Global Securities, together with their Successor
Securities which are Global Securities other than the Restricted Global
Security, shall be referred to herein as a "Temporary Regulation S Global
Security." After such time as the Restricted Period shall have expired and the
certifications referred to below in the next succeeding paragraph shall have
been provided, interests in such Temporary Regulation S Global Securities shall
be exchanged for interests in like Global Securities, referred to herein
collectively as the "Permanent Regulation S Global Security," substantially in
the form of Security set forth in Exhibit A, with such applicable legends as are
provided for in Exhibit A or Exhibit C. Such Permanent Regulation S Global
Securities shall be registered in the name of the Depository or its nominee and
deposited with the Trustee, as custodian for the Depository, duly executed by
the Company and authenticated by the Trustee as hereinafter provided, for credit
to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct). The aggregate
principal amount of the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security may be increased or decreased from time to time by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided. As used herein, the term "Restricted Period" means the
period of 40 days commencing on the day after the latest of (a) the day on which
the Securities are first offered to persons other than distributors (as defined
in Regulation S) in reliance on Regulation S and (b) the date of this Indenture.
Interests in a Temporary Regulation S Global Security may be exchanged
for interests in a Permanent Regulation S Global Security only after (a) the
expiration of the Restricted Period, (b) delivery by a beneficial owner of an
interest therein to Euroclear or CEDEL of a written certification (an "Owner
Securities Certification") substantially in the form of Annex E hereto, and (c)
upon delivery by Euroclear or CEDEL to the Trustee of a written certification (a
"Depository Securities Certification") substantially in the form attached hereto
as Exhibit F. Upon satisfaction of such conditions, the Trustee will exchange
the portion of the Temporary Regulation S Global Security covered by such
certification for interests in a Permanent Regulation S Global Security. The
delivery by such Holder of a beneficial interest in such Temporary Regulation S
Global Security of such certification shall constitute an
<PAGE>
26
irrevocable instruction by such holder to Euroclear or CEDEL, as the case may
be, to exchange such Holder's beneficial interest in the Temporary Regulation S
Global Security for a beneficial interest in the Permanent Regulation S Global
Security upon the expiration of the Restricted Period in accordance with the
next succeeding paragraph.
Upon:
(i) the expiration of the Restricted Period;
(ii) receipt by Euroclear or CEDEL, as the case may be, of Owner
Securities Certifications described in the preceding paragraph;
(iii) receipt by the Depository of:
(1) written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the Depository to credit or
cause to be credited to a specified Agent Member's account a beneficial
interest in a Permanent Regulation S Global Security in a principal
amount equal to that of the beneficial interest in a corresponding
Temporary Regulation S Global Security for which the necessary
certifications have been delivered; and
(2) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the Agent
Member, and the Euroclear or CEDEL account for which such Agent
Member's account is held, to be credited with, and the account of the
Agent Member to be debited for, such beneficial interest; and
(iv) receipt by the Trustee of notification from the Depository of the
transactions described in (iii) above and from Euroclear or CEDEL, as the
case may be, of Depository Securities Certifications,
the Trustee, as Registrar, shall instruct the Depository to reduce the principal
amount of such Temporary Regulation S Global Security and to increase the
principal amount of such Permanent Regulation S Global Security, by the
principal amount of the beneficial interest in such Temporary Regulation S
Global Security to be so transferred, and to credit or cause to be credited to
the account of the person specified in such instructions a beneficial interest
in such Permanent Regulation S
<PAGE>
27
Global Security having a principal amount equal to the amount by which the
principal amount of such Temporary Regulation S Global Security was reduced upon
such transfer.
Securities offered and sold in their initial distribution in reliance
on Rule 144A under the Securities Act and other than in reliance on Rule 144A
under the Securities Act or Regulation S shall be issued in the form of one or
more Global Securities (collectively, and, together with their Successor
Securities, the "Restricted Global Security") in fully registered form without
interest coupons, substantially in the form of Security set forth in Exhibit A,
with such applicable legends as are provided for in Exhibit A or Exhibit C,
except as otherwise permitted herein. Such Restricted Global Security shall be
registered in the name of the Depository or its nominee and deposited with the
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided, for credit by the
Depository to the respective accounts of beneficial owners of the Securities
represented thereby (or such other accounts as they may direct). The aggregate
principal amount of the Restricted Global Security may be increased or decreased
from time to time by adjustments made on the records of the Trustee, as
custodian for the Depository, in connection with a corresponding decrease or
increase in the aggregate principal amount of the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary for the Company
and each Guarantor (each of whom shall, in each case, have been duly authorized
by all requisite corporate actions) shall attest to, the Securities for the
Company and the Guarantees for the Guarantors by manual or facsimile signature.
If an Officer whose signature is on a Security or a Guarantee was an
Officer at the time of such execution but no longer holds that office at the
time the Trustee authenticates the Security, the Security shall nevertheless be
valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
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28
The Trustee shall authenticate (i) Series A Notes for original issue in
the aggregate principal amount not to exceed $150,000,000 and (ii) one or more
series of Securities for original issue after the Issue Date (such Securities to
be substantially in the form of Exhibit A or Exhibit B hereto) in an aggregate
principal amount not to exceed $85,000,000 (and if in the form of Exhibit A
hereto, the same principal amount of Securities in exchange therefor upon
consummation of a registered exchange offer) in each case, upon receipt of a
written order of the Company in the form of an Officers' Certificate. In each
case, the Officers' Certificate shall specify the amount of Securities to be
authenticated and the date on which the Securities are to be authenticated and
the aggregate principal amount of Securities outstanding on the date of
authentication and whether the Securities are to be Series A Notes, Series B
Notes or Securities issued under clause (ii) of the preceding sentence and shall
further specify the amount of such Securities to be issued as a Global Security
or in certificated form. The aggregate principal amount of Securities
outstanding at any time may not exceed $235,000,000, except as provided in
Section 2.07. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company.
Series B Notes may be issued only in exchange for a like principal
amount of Series A Notes pursuant to an Exchange Offer.
The principal and interest on Book-Entry Securities shall be payable to
the Depository or its nominee, as the case may be, as the sole registered owner
and the sole holder of the Book-Entry Securities represented thereby. The
principal and interest on Securities in certificated form shall be payable at
the office of the Paying Agent.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
<PAGE>
29
If the Securities are to be issued in the form of one or more Global
Securities, then the Company shall execute and the Trustee shall authenticate
and deliver one or more Global Securities that shall represent and shall be in
minimum denominations of $1,000.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. Neither
the Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent. The
Company initially appoints the Trustee as Registrar and Paying Agent until such
time as the Trustee has resigned or a successor has been appointed. The initial
office of the Company and the Trustee for purposes of this Section 2.03 shall be
State Street Bank and Trust Company, N.A., 61 Broadway, 15th Floor, NY, NY
10006.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee
<PAGE>
30
all assets held by the Paying Agent for the payment of principal of, or interest
on, the Securities (whether such assets have been distributed to it by the
Company or any other obligor on the Securities), and shall notify the Trustee of
any Default by the Company (or any other obligor on the Securities) in making
any such payment. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have been
delivered by the Company to the Paying Agent, the Paying Agent shall have no
further liability for such assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee before each Record Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of the Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
(a) Beneficial interests in a Global Security may, subject to the
restrictions on the transferability of the Securities and upon delivery of a
certificate in the form of Exhibit D, be exchanged for certificated Securities
upon request but only upon at least 20 days' prior written notice given to the
Trustee by or on behalf of the Depository (in accordance with the Depository's
customary procedures) and will bear the applicable legends set forth in Exhibit
A.
(b) If any Global Security is to be exchanged for other Securities or
canceled in whole, it shall be surrendered by or on behalf of the Depository or
its nominee to the Trustee, as Registrar, for exchange or cancellation as
provided in this Article II. If any Global Security is to be exchanged for other
Securities or canceled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, such Global
Security shall be so surrendered for exchange or cancellation as provided in
this
<PAGE>
31
Article II or, if the Trustee is acting as custodian for the Depository or its
nominee (or is party to a similar arrangement) with respect to such Global
Security, the principal amount thereof shall be reduced or increased by an
amount equal to the portion thereof to be so exchanged or canceled, or the
principal amount of such other Security to be so exchanged for a beneficial
interest therein, as the case may be, in each case by means of an appropriate
adjustment made on the records of the Trustee, whereupon the Trustee, in
accordance with the Applicable Procedures, shall instruct the Depository or its
authorized representatives to make a corresponding adjustment to its records
(including by crediting or debiting any Agent Member's account as necessary to
reflect any transfer or exchange of a beneficial interest). Upon any such
surrender or adjustment of a Global Security, the Trustee shall, subject to this
Article II, authenticate and deliver any Securities (and the Guarantors shall
execute the Guarantees thereon) issuable in exchange for such Global Security
(or any portion thereof) to or upon the order of, and registered in such names
as may be directed by, the Depository or its authorized representative and each
of the Guarantors shall execute a Guarantee thereon at the Trustee's request.
Upon the request of the Trustee in connection with the occurrence of any of the
events specified in the preceding paragraph or in paragraph (r) below, the
Company shall promptly make available to the Trustee a reasonable supply of
Securities that are not in the form of Global Securities. The Trustee shall be
entitled to rely upon any order, direction or request of the Depository or its
authorized representative which is given or made pursuant to this Article II if
such order, direction or request is given or made in accordance with the
Applicable Procedures, as certified to the Trustee by the Depository.
(c) Subject to the provisions in the legends required by this
Indenture, the registered Holder may grant proxies and otherwise authorize any
person, including Agent Members and persons who may hold interests in Agent
Members, to take any action that such Holder is entitled to take under this
Indenture.
(d) Neither Agent Members nor any other person on whose behalf Agent
Members may act shall have any rights under this Indenture with respect to any
Global Security held on their behalf by the Depository or under the Global
Security, and the Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the
<PAGE>
32
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Security. With respect to any Global Security deposited with the
Trustee as custodian for the Depository for credit to their respective accounts
(or to such other accounts as they may direct) at Euroclear or CEDEL, the
provisions of the "Operating Procedures of the Euroclear System" and the "Terms
and Conditions Governing Use of Euroclear", and the "Management Regulations" and
"Instructions to Participants" of CEDEL, respectively, shall be applicable to
such Global Security, as certifies to the Trustee by Euroclear or CEDEL, as
applicable.
(e) Upon presentation for transfer or exchange of any Security at the
office of the Trustee, as Registrar, located in The City of New York,
accompanied by a written instrument of transfer or exchange in the form approved
by the Company (it being understood that, until notice to the contrary is given
to holders of Securities, the Company shall be deemed to have approved the form
of instrument of transfer or exchange, if any, printed on any Security),
executed by the registered Holder, in person or by such Holder's attorney
thereunto duly authorized in writing, and upon compliance with this Section
2.06, such Security shall be transferred upon the Register, and a new Security
shall be authenticated and issued in the name of the transferee and the
Guarantors shall execute Guarantees thereon. Notwithstanding any provision to
the contrary herein or in the Securities, transfers of a Global Security, in
whole or in part, and transfers of interests therein of the kind described in
this Section 2.06, shall only be made in accordance with this Section 2.06.
Transfers and exchanges subject to this Section 2.06 shall also be subject to
the other provisions of this Indenture that are not inconsistent with this
Section 2.06.
(f) General. A Global Security may not be transferred, in whole or in
part, to any person other than the Depository or a nominee thereof, and no such
transfer to any such other person may be registered; provided, however, that
this clause (f) shall not prohibit any transfer of a Security that is issued in
exchange for a Global Security but is not itself a Global Security. No transfer
of a Security to any person shall be effective under this Indenture or the
Securities unless and until such Security has been registered in the name of
such person. Nothing in this clause (f) shall prohibit or render ineffective any
transfer of a beneficial interest in a Global
<PAGE>
33
Security effected in accordance with the other provisions of this Section 2.06.
(g) Temporary Regulation S Global Security. If the holder of a
beneficial interest in a Temporary Regulation S Global Security wishes at any
time to transfer such interest to a person who wishes to take delivery thereof
in the form of a beneficial interest in such Temporary Regulation S Global
Security, such transfer may be effected, subject to the rules and procedures of
the Depository, Euroclear and CEDEL, in each case to the extent applicable and
as in effect from time to time (the "Applicable Procedures"), only in accordance
with this clause (g). Upon delivery (i) by a beneficial owner of an interest in
a Temporary Regulation S Global Security to Euroclear or CEDEL, as the case may
be, of an Owner Securities Certification, (ii) by the transferee of such
beneficial interest in the Temporary Regulation S Global Security to Euroclear
or CEDEL, as the case may be, of a written certification (a "Transferee
Securities Certification") substantially in the form of Exhibit G hereto and
(iii) by Euroclear or CEDEL, as the case may be, to the Trustee, as Registrar,
of a Depository Securities Certification, the Trustee may direct either
Euroclear or CEDEL, as the case may be, to reflect on its records the transfer
of a beneficial interest in the Temporary Regulation S Global Security from the
beneficial owner providing the Owner Securities Certification to the person
providing the Transferee Securities Certification.
(h) Restricted Global Security to Temporary Regulation S Global
Security. If the holder of a beneficial interest in the Restricted Global
Security wishes at any time to transfer such interest to a person who wishes to
take delivery thereof in the form of a beneficial interest in the Temporary
Regulation S Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with the provisions of this clause (h)
and clause (n)
<PAGE>
34
below. Upon receipt by the Trustee, as Registrar, of (A) written instructions
given by or on behalf of the Depository in accordance with the Applicable
Procedures directing the Trustee to credit or cause to be credited to a
specified Agent Member's account a beneficial interest in the Temporary
Regulation S Global Security in a specified principal amount and to cause to be
debited from another specified Agent Member's account a beneficial interest in
the Restricted Global Security in an equal principal amount and (B) a
certificate in substantially the form set forth in Exhibit H signed by or on
behalf of the holder of such beneficial interest in the Restricted Global
Security, the Trustee, as Security Registrar, shall, subject to clause (n)
below, reduce the principal amount of the Restricted Global Security, and
increase the principal amount of the Temporary Regulation S Global Security by
such specified principal amount.
(i) Restricted Global Security to Permanent Regulation S Global
Security. If the holder of a beneficial interest in the Restricted Global
Security wishes at any time to transfer such interest to a person who wishes to
take delivery thereof in the form of a beneficial interest in the Permanent
Regulation S Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with this clause (i). Upon receipt by
the Trustee, as Security Registrar, of (A) written instructions given by or on
behalf of the Depository in accordance with the Applicable Procedures directing
the Trustee to credit or cause to be credited to a specified Agent Member's
account a beneficial interest in the Permanent Regulation S Global Security in a
specified principal amount and to cause to be debited from another specified
Agent Member's account a beneficial interest in the Restricted Global Security
in an equal principal amount and (B) a certificate in substantially the form set
forth in Exhibit I signed by or on behalf of the holder of such beneficial
interest in the Restricted Global Security, the Trustee, as Registrar, shall
reduce the principal amount of a Restricted Global Security, and increase the
principal amount of the Permanent Regulation S Global Security by such specified
principal amount.
(j) Temporary Regulation S Global Security or Permanent Regulation S
Global Security to Restricted Global Security. If the holder of a beneficial
interest in the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security at any time, wishes to transfer such interest to a
person who wishes to take delivery thereof in the form of a beneficial interest
in the Restricted Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with this clause (j) and clause (n)
below; provided that with respect to any transfer of a beneficial interest in a
Temporary Regulation S Global Security, the transferor and Euroclear or CEDEL,
as the case may be, must have previously delivered an Owner Securities
Certification and a Depository Securities Certification respectively, with
respect to such beneficial interest. Upon receipt by the Trustee, as Registrar,
of (A) written instructions given by or on behalf of the Depository in
accordance with the Applicable Procedures directing the Trustee to credit or
cause to be credited to a specified Agent Member's account a beneficial interest
in the Restricted Global Security in a specified principal amount and
<PAGE>
35
to cause to be debited from another specified Agent Member's account a
beneficial interest in the Temporary Regulation S Global Security or the
Permanent Regulation S Global Security, as the case may be, in an equal
principal amount and (B) a certificate in substantially the form set forth in
Exhibit J signed by or on behalf of the holder of such beneficial interest in
the Temporary Regulation S Global Security or the Permanent Regulation S Global
Security, as the case may be, the Trustee, as Security Registrar, shall, subject
to clause (n) below, reduce the principal amount of such Temporary Regulation S
Global Security or Permanent Regulation S Global Security, as the case may be,
and increase the principal amount of the Restricted Global Security by such
specified principal amount.
(k) Non-Global Restricted Security to Global Security. If the holder of
a Restricted Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a person who wishes to take
delivery thereof in the form of a beneficial interest in the Restricted Global
Security, the Temporary Regulation S Global Security or the Permanent Regulation
S Global Security, such transfer may be effected, subject to the Applicable
Procedures, only in accordance with this clause (k) and clause (n) below. Upon
receipt by the Trustee, as Registrar, of (A) such Security and written
instructions given by or on behalf of such Holder as provided in this Section
2.06 directing the Trustee to credit or cause to be credited to a specified
Agent Member's account a beneficial interest in the Restricted Global Security,
the Temporary Regulation S Global Security or the Permanent Regulation S Global
Security, as the case may be, in a specified principal amount equal to the
principal amount of the Restricted Security (or portion thereof) to be so
transferred, and (B) an appropriately completed certificate substantially in the
form set forth in Exhibit K-1 hereto, if the specified account is to be credited
with a beneficial interest in the Restricted Global Security, or Exhibit K-2
hereto, if the specified account is to be credited with a beneficial interest in
the Temporary Regulation S Global Security or the Permanent Regulation S Global
Security, signed by or on behalf of such Holder, then the Trustee, as Registrar,
shall, subject to clause (n) below, cancel such Restricted Security (and issue a
new Security in respect of any untransferred portion thereof) as provided in
this Section 2.06 and increase the principal amount of the Restricted Global
Security, Temporary Regulation S Global Security or Permanent Regulation S
Global Security, as the case may be, by the specified principal amount.
<PAGE>
36
(l) Non-Global Permanent Regulation S Security to Restricted Global
Security or Permanent Regulation S Global Security. If the Holder of a Permanent
Regulation S Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a person who wishes to take
delivery thereof in the form of a beneficial interest in the Restricted Global
Security or the Permanent Regulation S Global Security, as the case may be, such
transfer may be effected only in accordance with this clause (l) and subject to
the Applicable Procedures. Upon receipt by the Trustee, as Registrar, of (A)
such Security and instructions given by or on behalf of such Holder as provided
in this Section 2.06 directing the Trustee to credit or cause to be credited to
a specified Agent Member's account a beneficial interest in the Restricted
Global Security or the Permanent Regulation S Global Security, as the case may
be, in a principal amount equal to the principal amount of the Security (or
portion thereof) to be so transferred, and (B)(i) with respect to a transfer
which is to be delivered in the form of a beneficial interest in the Restricted
Global Security, a certificate in substantially the form set forth in Exhibit
L-1, signed by or on behalf of such Holder, and (ii) with respect to a transfer
which is to be delivered in the form of a beneficial interest in the Permanent
Regulation S Global Security, a certificate in substantially the form set forth
in Exhibit L-2, signed by or on behalf of such Holder, then the Trustee, as
Registrar, shall, subject to Clause (9) below, cancel such Security (and issue a
new Security in respect of any untransferred portion thereof) as provided in
this Section 2.06 and increase the principal amount of the Restricted Global
Security, or the Permanent Regulation S Global Security, as the case may be, by
the specified principal.
(m) Other Exchanges. Securities that are not Global Securities may be
exchanged (on transfer or otherwise) for Securities that are not Global
Securities or for beneficial interests in a Global Security (if any is then
outstanding) only in accordance with such procedures, which shall be
substantially consistent with the provisions of clauses (f) through (l) above
(including the certification requirements intended to insure that transfers of
beneficial interests in a Global Security comply with Rule 144A under the
Securities Act, Rule 144 under the Securities Act or Regulation S, as the case
may be) and any Applicable Procedures, as may be from time to time adopted by
the Company and the Trustee.
(n) Interests in Temporary Regulation S Global Security To Be Held
Through Euroclear or CEDEL. Until the later of
<PAGE>
37
the expiration of the Restricted Period and the provision of the Owner
Securities Certification and the Depository Securities Certification, beneficial
interests in any Temporary Regulation S Global Security may be held only in or
through accounts maintained at the Depository by Euroclear or CEDEL (or by Agent
Members acting for the account thereof).
(o) When Securities in certificated form are presented to the Registrar
or a co-Registrar with a request to register the transfer of such Securities or
to exchange such Securities for an equal principal amount of Securities of other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transaction are met; provided, however, that the Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities (and the
Guarantors shall execute the Guarantors thereon) at the Registrar's or
co-Registrar's request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.02, 2.10, 3.07, 4.15,
4.16 or 9.05). The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three,
except the unredeemed portion of any Security being redeemed in part.
(p) If a Series A Note is a Restricted Security in certificated form,
then as provided in this Indenture and subject to the limitations herein set
forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange
such Security for a Book-Entry Security by instructing the Trustee (by
completing the Transferee Certificate in the form of Exhibit D hereto) to
arrange for such Series A Note to be represented by a beneficial interest in a
Global Security in accordance with the customary procedures of the Depository.
<PAGE>
38
(q) Upon any exchange provided for in Section 2.06(a), the Company
shall execute and the Trustee shall authenticate and deliver to the person
specified by the Depository a new Series A Note or Series A Notes registered in
such names and in such authorized denominations as the Depository, pursuant to
the instructions of the beneficial owner of the Securities requesting the
exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of
such Global Security shown on the records maintained by the Depository or its
nominee shall be reduced by the amounts so exchanged and an appropriate
endorsement shall be made by or on behalf of the Trustee on the Global Security.
Any such exchange shall be effected through the Depository in accordance with
the procedures of the Depository therefor.
(r) Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated and delivered, whether
pursuant to this Section, Section 2.07, 2.10 or 3.07 or otherwise, in the name
of a person other than the Depository for such Global Security or its nominee
until (i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time the Depository
ceases to be a clearing agency registered under the Exchange Act, and a
successor depository is not appointed by the Company within 30 days, (ii) the
Company executes and delivers to the Trustee a Company order that all such
Global Securities shall be exchangeable or (iii) there shall have occurred and
be continuing an Event of Default. Upon the occurrence in respect of any Global
Security representing the Series A Notes of any one or more of the conditions
specified in clause (i), (ii) or (iii) of the preceding sentence, such Global
Security may be registered for transfer or exchange for Series A Notes
registered in the names of, authenticated and delivered to such persons as the
Trustee or the Depository, as the case may be, shall direct.
(s) Except as provided above, any Security authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, any Global
Security, whether pursuant to this Section, Section 2.07, 2.10 or 3.07 or
otherwise, shall also be a Global Security and bear the legend specified in
Exhibit C.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue
<PAGE>
39
and the Trustee shall authenticate a replacement Security (and the Guarantors
shall execute the Guarantees thereon) if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder must provide an indemnity
bond or other indemnity, sufficient in the judgment of the Company, the
Guarantors and the Trustee, to protect the Company, the Guarantors, the Trustee
or any Agent from any loss which any of them may suffer if a Security is
replaced. The Company may charge such Holder for its reasonable out-of-pocket
expenses in replacing a Security, including reasonable fees and expenses of
counsel. Every replacement Security shall constitute an additional obligation of
the Company and the Guarantors.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Company or any of its
Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Maturity Date the Paying Agent holds
U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Securities payable on that date, then on and
after that date such Securities cease to be outstanding and interest on them
ceases to accrue; provided, however, that to the extent the Trustee is enjoined
from making payments to the Holders, interest will continue to accrue until such
time as the Trustee is not so enjoined.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be disregarded, except that,
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent,
<PAGE>
40
only Securities that the Trustee knows are so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities (and the
Guarantors shall execute the guarantees thereon) upon receipt of a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Securities to be authenticated
and the date on which the temporary Securities are to be authenticated.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate and the Guarantors shall execute Guarantees on, upon
receipt of a written order of the Company pursuant to Section 2.02, definitive
Securities in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it
shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by the Company for the payment of
<PAGE>
41
defaulted interest or the next succeeding Business Day if such date is not a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder, with a copy to the Trustee, a notice that
states the subsequent special record date, the payment date and the amount of
defaulted interest, and interest payable on such defaulted interest, if any, to
be paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities may use a CUSIP number or
numbers, and if so, the Trustee shall use the CUSIP number or numbers in notices
of redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number or numbers printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities.
SECTION 2.14. Designation.
The Indebtedness evidenced by the Securities and the Guarantees is
hereby irrevocably designated as "senior indebtedness" or such other term
denoting seniority (i) for all purposes of the provisions defining subordination
contained in agreements that provide that the Indebtedness of the Company issued
pursuant to such agreements is subordinate to Indebtedness designated as senior
indebtedness and (ii) for the purposes of any future Indebtedness of the Company
which the Company expressly makes subordinate to any senior indebtedness or such
other term denoting seniority. In connection with the issuance of any such
future subordinated Indebtedness, the Company shall take all necessary steps to
effectuate the foregoing.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Optional Redemption.
(a) The Securities will be subject to redemption, in whole or in part,
at the option of the Company, at any time on or after May 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued
<PAGE>
42
interest to the redemption date, if redeemed during the 12 month
period beginning on May 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002...................................... 105.750%
2003...................................... 102.875%
2004 and thereafter....................... 100.000%
</TABLE>
(b) In addition, at any time prior to May 15, 2001, the Company may
redeem up to 35% of the sum of (x) the aggregate principal amount of the
Securities issued on the Issue Date plus (y) the aggregate principal amount of
any additional Securities issued after the Issue Date pursuant to this
Indenture, with the proceeds of one or more Equity Offerings at a redemption
price (expressed as a percentage of principal amount) of 111.5% plus accrued
interest to the redemption date; provided that at least 65% of the sum of (x)
the aggregate principal amount of Securities issued on the Issue Date plus (y)
the aggregate principal amount of any additional Securities issued after the
Issue Date pursuant to this Indenture remains outstanding immediately after any
such redemption. In order to effect the foregoing redemption with the proceeds
of any Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Equity Offering.
SECTION 3.02. Notices to Trustee.
If the Company elects to redeem Securities pursuant to this Indenture
and the Securities, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and the principal amount of the Securities to be redeemed
and whether it wants the Trustee to give notice of redemption to the Holders (at
the Company's expense) at least 30 days (unless a shorter notice shall be
satisfactory to the Trustee) but not more than 60 days before the Redemption
Date. Any such notice may be canceled at any time prior to notice of such
redemption being mailed to any Holder and shall thereby be void and of no
effect.
SECTION 3.03. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Securities being redeemed are listed or, if the Securities are not listed on a
national securities exchange, on a pro rata basis, by lot or
<PAGE>
43
by such other method as the Trustee shall deem fair and appropriate.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 or less may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. If a redemption is to be made with the
proceeds of an Equity Offering pursuant to Section 3.01(b), selection of the
Securities for redemption shall be made by the Trustee only on a pro rata basis
unless such method is otherwise prohibited. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption.
SECTION 3.04. Notice of Redemption.
Except as otherwise provided in Section 3.01, at least 30 days but not
more than 60 days before a Redemption Date the Company shall mail a notice of
redemption by first class mail to each Holder whose Securities are to be
redeemed, with a copy to the Trustee. At the Company's request, the Trustee
shall give the notice of redemption in the Company's name and at the Company's
expense. Each notice for redemption shall identify the Securities to be redeemed
and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that, unless the Company defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after
the Redemption Date, and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price upon surrender to
the Paying Agent of the Securities redeemed;
<PAGE>
44
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in the aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption; and
(8) the CUSIP number, if any, relating to such Securities.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.04,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price plus
accrued interest to the Redemption Date, but interest installments whose
maturity is on or prior to such Redemption Date will be payable on the relevant
Interest Payment Dates to the Holders of record at the close of business on the
relevant Record Dates referred to in the Securities.
SECTION 3.06. Deposit of Redemption Price.
On or before the Redemption Date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient and timely to pay the Redemption Price
of all Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation). The Paying Agent shall promptly return
to the Company any U.S. Legal Tender so deposited which is not required for that
purpose upon the written request of the Company, except with respect to monies
owed as obligations to the Trustee pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
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45
SECTION 3.07. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. An installment of
principal of or interest on the Securities shall be considered paid on the date
it is due if the Trustee or Paying Agent holds on that date U.S. Legal Tender
designated for and sufficient and timely to pay the installment. Interest on the
Securities will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Company shall pay interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest at a rate equal to 13 1/2%
per annum.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prior notice to the Trustee of the location, and any change in the location, of
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 10.02.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company will
give prompt written notice to
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46
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby initially designates the office of State Street Bank
and Trust Company, Goodwin Square, 225 Asylum, 23rd Floor, Hartford, CT 06103,
as such office of the Company in accordance with this Section 4.02.
SECTION 4.03. Limitation on Restricted Payments.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, after the Issue Date (a) declare or pay
any dividend or make any distribution on the Company's Capital Stock or make any
payment to holders of such Capital Stock (other than dividends or distributions
payable in Qualified Capital Stock of the Company or repayment of Indebtedness
except as provided in clause (c) below), (b) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock, (c) purchase, redeem, prepay, defease or otherwise acquire or retire for
value, prior to any scheduled maturity, scheduled repayment or scheduled sinking
fund payment, Indebtedness of the Company or any of the Guarantors that is
expressly subordinate in right of payment to the Securities or the Guarantee of
such Guarantor, as the case may be, or (d) make any Investment (excluding any
Permitted Investment) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii)
Restricted Payments made subsequent to the Issue Date (the amount expended for
such purposes, if other than in cash, shall be the Fair Market Value of such
property proposed to be transferred by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment) shall
exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and prior to the date the
Restricted Payment occurs (treating such period as a single accounting
period);
(x) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by the Company from any person (other
than a Subsidiary
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47
of the Company) from the issuance and sale subsequent to the Issue Date of
Qualified Capital Stock of the Company (excluding (A) Qualified Capital
Stock paid as a dividend on any Capital Stock or as interest on any
Indebtedness, (B) any net proceeds from issuances and sales financed
directly or indirectly using funds borrowed from the Company or any
Subsidiary of the Company, until and to the extent such borrowing is repaid
and (C) any net proceeds from any Equity Offering which are used to redeem
the Securities pursuant to, and in accordance with, the provisions under
Section 3.01(b);
(y) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by the Company from any person (other
than a Subsidiary of the Company) from the issuance and sale of Disqualified
Capital Stock and/or Indebtedness, in each case that has been converted into
or exchanged for, pursuant to the terms of such Indebtedness, Qualified
Capital Stock of the Company after the Issue Date; and
(z) without duplication, the sum of (1) the aggregate amount returned
in cash on or with respect to Investments (other than Permitted Investments)
made subsequent to the Issue Date whether through interest payments,
principal payments, dividends or other distributions or payments, (2) the
net cash proceeds received by the Company or any Restricted Subsidiary from
the disposition of all or any portion of such Investments (other than to a
Subsidiary of the Company) and (3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the Fair Market Value of such
Subsidiary; provided, however, that the sum of clauses (1),(2) and (3) above
shall not exceed the aggregate amount of all such Investments made
subsequent to the Issue Date.
The foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration;
(2) the acquisition of Capital Stock of the Company or Indebtedness of
the Company or any Guarantor either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of
net proceeds of a substantially concurrent sale for cash
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48
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company;
(3) the acquisition of Indebtedness of the Company or any Guarantor
that is expressly subordinate in right of payment to the Securities or such
Guarantor's Guarantee, as the case may be, either (i) solely in exchange for
Indebtedness of the Company or such Guarantor which is expressly subordinate
in right of payment to the Securities or such Guarantor's Guarantee, as the
case may be, at least to the extent that the Indebtedness being acquired is
subordinated to the Securities or such Guarantor's Guarantee, as the case
may be, and has no scheduled principal prepayment dates prior to the
scheduled final maturity date of the Indebtedness being exchanged or (ii)
through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of Indebtedness of the
Company or such Guarantor which is expressly subordinate in right of payment
to the Securities or such Guarantor's Guarantee, as the case may be, at
least to the extent that the Indebtedness being acquired is subordinated to
the Securities or such Guarantor's Guarantee, as the case may be, and has no
scheduled principal prepayment dates prior to the scheduled final maturity
date of the Indebtedness being refinanced;
(4) the making of payments by the Company or any of the Restricted
Subsidiaries to Renco (A) no earlier than ten days prior to the date on
which Renco is required to make its payments to the Internal Revenue Service
or the applicable state taxing authority, as the case may be, pursuant to a
tax sharing agreement (which tax sharing agreement provides that the
payments thereunder shall not exceed the amount the Company and its
Subsidiaries would have been required to pay for taxes on a stand-alone
basis, except that the Company and its Subsidiaries will not have the
benefit of any of its tax loss carryforwards unless such tax losses were a
result of timing differences between the Company's and its Subsidiaries'
accounting for tax and financial reporting purposes, and which tax sharing
agreement also provides that transactions between the Company and Renco and
Renco's other Subsidiaries are accounted for on a cash basis and not on an
accrual basis) and (B) to reimburse Renco for out of pocket insurance or
surety bond payments made by Renco on behalf of the Company and its
Subsidiaries;
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49
(5) the payment by the Company or any of the Restricted Subsidiaries of
a management fee to Renco in an amount not to exceed $1.2 million in any
fiscal year; and
(6) the payment by the Company of (i) a dividend to Renco on the Issue
Date in the aggregate amount not to exceed $28.0 million and (ii) accrued
and unpaid management fees to Renco on the Issue Date in an aggregate amount
not to exceed $700,000;
provided that in the case of clauses (2), (3) and (5), no Default or Event of
Default shall have occurred and be continuing at the time of such payment or as
a result thereof.
In determining the aggregate amount of Restricted Payments permissible
under clause (ii) of the first paragraph of this section, amounts expended,
incurred or outstanding pursuant to clauses (1) and (2) (but not pursuant to
clauses (3), (4), (5) or (6)) of the second paragraph of this section shall be
included as Restricted Payments; provided that any proceeds received from the
issuance of Qualified Capital Stock pursuant to clause (2) of the second
paragraph of this section shall be included in calculating the amount referred
to in clause (x) or clause (y), as the case may be, of the first paragraph of
this Section 4.03.
SECTION 4.04. Corporate Existence.
Except as otherwise permitted by Article Five, each of the Company and
the Guarantors shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and the corporate or other
existence of each of its Subsidiaries in accordance with the respective
organizational documents of each such Subsidiary and the rights (charter and
statutory) and franchises of each of the Company and the Guarantors and each
such Subsidiary; provided, however, that each of the Company and the Guarantors
shall not be required to preserve, with respect to itself, any right or
franchise, and with respect to any of its Subsidiaries any such existence, right
or franchise, if the Board of Directors of each of the Company and the
Guarantors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of each of the Company and the Guarantors and
will not be adverse in any material respect to the Holders.
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50
SECTION 4.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries and (ii) all lawful claims for
labor, materials and supplies that, if unpaid, might by law become a Lien upon
the property of it or any of its Subsidiaries; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim if either (a) the amount,
applicability or validity thereof is being contested in good faith by
appropriate proceedings and an adequate reserve has been established therefor to
the extent required by GAAP or (b) the failure to make such payment or effect
such discharge (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
SECTION 4.06. Maintenance of Properties and Insurance.
(a) Each of the Company and the Guarantors shall cause all
properties used or useful in the conduct of its business or the business of any
of its Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in its judgment may be necessary, so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times unless the failure to so maintain such properties (together with all other
such failures) would not have a material adverse effect on the financial
condition or results of operations of the Company and the Guarantors and their
Subsidiaries taken as a whole; provided, however, that nothing in this Section
4.06 shall prevent the Company and the Guarantors or any of their Subsidiaries
from discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the good faith judgment of the Board of
Directors of the Company or the Guarantors or the Subsidiary concerned, or of
the senior officers of the Company or the Guarantors or such Subsidiary, as the
case may be, desirable in the conduct of the business of the Company or the
Guarantors or
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51
such Subsidiary, as the case may be, or (iii) is otherwise permitted by this
Indenture.
(b) Each of the Company and the Guarantors shall provide or cause to be
provided, for itself and each of its Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of each of the Company and the Guarantors are
adequate and appropriate for the conduct of the business of the Company and the
Guarantors and such Subsidiaries in a prudent manner, with reputable insurers or
with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the reasonable, good faith opinion of each of
the Company and the Guarantors, for companies similarly situated in the
industry, unless the failure to provide such insurance (together with all other
such failures) would not have a material adverse effect on the financial
condition or results of operations of each of the Company and the Guarantors and
its Subsidiaries, taken as a whole.
SECTION 4.07. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 60 days after the
end of the Company's fiscal quarters and within 90 days after the end of the
Company's fiscal year, an Officers' Certificate stating that a review of its
activities and the activities of its Subsidiaries during the preceding fiscal
period has been made under the supervision of the signing Officers with a view
to determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge, the Company during
such preceding fiscal period has kept, observed, performed and fulfilled each
and every such covenant and no Default or Event of Default occurred during such
period and at the date of such certificate there is no Default or Event of
Default that has occurred and is continuing or, if such signers do know of such
Default or Event of Default, the certificate shall describe the Default or Event
of Default and its status with particularity. The Officers' Certificate shall
also include all calculations necessary to show covenant compliance. The
Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants,
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52
the Company shall deliver to the Trustee within 90 days after the end of each
fiscal year a written statement by its independent certified public accountants
stating (A) that its audit examination has included a review of the terms of
this Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with its audit examination, any Default or Event of
Default has come to its attention and if such a Default or Event of Default has
come to its attention, specifying the nature and period of existence thereof.
(c) The Company will deliver to the Trustee as soon as possible, and in
any event within 10 days after the Company becomes aware or should reasonably
have become aware of the occurrence of any Default or Event of Default, an
Officers' Certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect thereto.
SECTION 4.08. Compliance with Laws.
Each of the Company and the Guarantors shall comply, and shall cause
each of its Subsidiaries to comply, with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, all states
and municipalities thereof, and of any governmental department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except such as are being contested in
good faith and by appropriate proceedings and except for such noncompliances as
would not in the aggregate have a material adverse effect on the financial
condition or results of operations of each of the Company and the Guarantors and
its Subsidiaries taken as a whole.
SECTION 4.09. SEC Reports and Other Information.
(a) At all times when the Company is required or permitted voluntarily
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or this
Indenture is qualified under the TIA, the Company (at its own expense) shall
file with the SEC and shall file with the Trustee and mail or cause the Trustee
to mail to the Holders at their addresses set forth in the register of
Securities within 15 days after it files them with the SEC copies of the annual
reports, quarterly reports and the information, documents, and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) to be filed pursuant to Section 13
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53
or 15(d) of the Exchange Act. If the Company is not subject to the requirements
of such Section 13 or 15(d) of the Exchange Act and not permitted to voluntarily
file and this Indenture has not been qualified under the TIA, the Company (at
its own expense) shall file with the Trustee and mail or cause the Trustee to
mail to the Holders at their addresses set forth in the register of Securities,
within 15 days after it would have been required to file such information with
the SEC, all information and financial statements, including any notes thereto
and with respect to annual reports, quarterly reports, an auditors' report by an
accounting firm of established national reputation, and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
comparable to the disclosure that the Company would have been required to
include in such annual reports, quarterly reports, information, documents or
other reports, as if the Company was subject to the requirements of such Section
13 or 15(d) of the Exchange Act, in each case in the form that would have been
required by the SEC. Upon qualification of this Indenture under the TIA, the
Company shall also comply with the provisions of TIA ss. 314(a).
(b) At any time when the Company is not subject to Section 13 or 15(d)
of the Exchange Act, upon the request of a Holder of a Series A Note, the
Company will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser of such Series A
Note designated by such Holder, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
SECTION 4.10. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
each of Company and the Guarantors from paying all or any portion of the
principal of or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) each of the Company and the Guarantors hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit
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54
the execution of every such power as though no such law had been enacted.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of an Affiliate of the Company or any Restricted Subsidiary (other than
transactions between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries) (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under (b) below and (y) Affiliate Transactions (including
lease transactions) on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary in the aggregate than those that might reasonably
have been obtained in a comparable transaction by the Company or such Restricted
Subsidiary on an arm's-length basis (as determined in good faith by the Board of
Directors of the Company, as evidenced by a Board Resolution) from a person that
is not an Affiliate; provided that except as otherwise provided under (b) below,
neither the Company nor any of the Restricted Subsidiaries shall enter into an
Affiliate Transaction or series of related Affiliate Transactions involving or
having a value of more than $5.0 million unless the Company or such Restricted
Subsidiary, as the case may be, has received an opinion from an Independent
Financial Advisor, with a copy thereof to the Trustee, to the effect that the
financial terms of such Affiliate Transaction are fair and reasonable to the
Company or such Restricted Subsidiary, as the case may be, and such terms are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could be obtained in a comparable transaction on an arm's-length
basis with a person that is not an Affiliate.
(b) The foregoing provisions shall not apply to (i) any Restricted
Payment that is made in compliance with Section 4.03, (ii) payments by the
Company or any of the Restricted Subsidiaries to Renco of the amounts set forth
in clauses (4), (5) and (6) of the second paragraph Section 4.03, (iii)
repayment of Indebtedness, including accrued interest thereon, owing to Renco as
of the Issue Date with the net proceeds of the issuance of Securities on the
Issue Date, (iv) repayment of Indebtedness owing to Renco incurred after the
Issue Date in accordance with its terms and (v) reasonable and customary regular
fees to directors of the Company and the
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55
Restricted Subsidiaries who are not employees of the Company and the Restricted
Subsidiaries.
SECTION 4.12. Limitation on Indebtedness
(a) The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, become liable, contingently or otherwise, with respect to, or
otherwise become responsible for the payment of (collectively "incur") any
Indebtedness (including Acquired Indebtedness) other than Permitted
Indebtedness; provided that the Company and the Guarantors may incur
Indebtedness (including Acquired Indebtedness) if: (A) no Default or Event of
Default shall have occurred and be continuing at the time of the proposed
incurrence thereof or shall occur as a result of such proposed incurrence, and
(B) after giving pro forma effect to such proposed incurrence (and the
application of the net proceeds therefrom), the Consolidated Fixed Charge
Coverage Ratio of the Company is at least equal to 2.0 to 1.0. Notwithstanding
the foregoing, a Restricted Subsidiary that is not a Guarantor may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company and the Guarantors pursuant to the proviso in the immediately
preceding sentence.
(b) The Company and the Guarantors shall not, directly or indirectly,
in any event incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated to any other Indebtedness
of the Company or such Guarantor unless such Indebtedness is also by its terms
(or by the terms of any agreement governing such Indebtedness) made expressly
subordinated to the Securities or the Guarantee of such Guarantor, as the case
may be, to the same extent and in the same manner as such Indebtedness is
subordinated to such other Indebtedness of the Company or such Guarantor.
SECTION 4.13. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (a) pay dividends or make any other distributions on
its Capital Stock, or any other interest or participation in, or measured by,
its profits, owned by the Company or by any Restricted Subsidiary, or pay any
Indebtedness owed to the Company or any
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56
Restricted Subsidiary; (b) make loans or advances to the Company or any
Restricted Subsidiary; or (c) transfer any of its properties or assets to the
Company or to any Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (i) applicable law; (ii) this
Indenture; (iii) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary; (iv) any
instrument governing Indebtedness of a person acquired by the Company or any
Restricted Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of any
person, other than the person or its Subsidiaries so acquired; (v) any written
agreement existing on the Issue Date or amendments or modifications thereto;
provided that no such agreement shall be modified or amended in such a manner as
to make the encumbrance or restriction more restrictive than as in effect on the
Issue Date; (vi) Indebtedness existing and as in effect on the Issue Date,
including, without limitation, the New Senior Credit Facility or any
refinancing, refunding, replacement or extensions thereof, provided that any
such encumbrance or restriction contained in any refinancing, refunding,
replacement or extension of the New Senior Credit Facility shall be no more
restrictive than such encumbrance or restriction contained in the New Senior
Credit Facility as in effect on the Issue Date; and (vii) Indebtedness incurred
in accordance with this Indenture; provided that such encumbrance or restriction
shall be no more restrictive than any encumbrance or restriction contained in
the New Senior Credit Facility as in effect on the Issue Date.
SECTION 4.14. Limitation on Liens.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Liens upon any properties or assets of the Company (including, without
limitation, any Capital Stock of a Restricted Subsidiary) or any of the
Restricted Subsidiaries whether owned on the Issue Date or acquired after the
Issue Date, or on any income or profits therefrom, or assign or otherwise convey
any right to receive income or profits thereon other than (i) Liens existing on
the Issue Date to the extent and in the manner such Liens are in effect on the
Issue Date, (ii) Liens on properties and assets of the Company and the
Restricted Subsidiaries existing from time to time
<PAGE>
57
securing Indebtedness of the Company and the Restricted Subsidiaries under the
New Senior Credit Facility and securing obligations of the Company and the
Restricted Subsidiaries from time to time under performance bonds, surety bonds
or appeal bonds or other obligations of a like nature incurred in the ordinary
course of business and (iii) Permitted Liens.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase all outstanding Securities pursuant to
the offer described in paragraph (b), below (the "Change of Control Offer"), at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest, if any, to the date of purchase. Within 10 days after the date upon
which the Change of Control occurred (the "Change of Control Date") requiring
the Company to make a Change of Control Offer pursuant to this Section 4.15, the
Company shall so notify the Trustee.
(b) The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Change of Control Offer. Within 30 days following any Change of Control Date,
the Company shall send, by first class mail, a notice to each Holder, with
copies to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities tendered will be accepted for payment;
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 45 days nor later than 60
days following the Change of Control Date, other than as may be required by
law) (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the last page of the
Security completed, to the Paying Agent at the address
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58
specified in the notice prior to the close of business on the Business Day
prior to the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased portion
of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders new Securities equal in principal
amount to any unpurchased portion of the Securities surrendered. Any Securities
not so accepted shall be promptly mailed by the Company to the Holder thereof.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date. The Company
shall comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection
with the repurchase of securities pursuant to a Change of Control Offer. The
Change of Control Offer shall remain open for at least 20 Business Days and
until the close of business on the Change of Control Payment Date. For purposes
of this Section 4.15, the Trustee shall act as the Paying Agent.
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SECTION 4.16. Limitation on Sale of Assets.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, consummate any Asset Sale unless (i) such Asset Sale is for at
least Fair Market Value, (ii) at least 80% of the consideration therefrom
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents and (iii) the Company or such Restricted Subsidiary shall apply
the Net Cash Proceeds of such Asset Sale within 270 days of receipt thereof, as
follows:
(a) first, to repay (and, in the case of any revolving credit facility,
to the extent required by such revolving credit facility, effect a permanent
reduction in the commitment thereunder) any Indebtedness secured by the assets
involved in such Asset Sale or otherwise required to be repaid with the proceeds
thereof; and
(b) second, with respect to any Net Cash Proceeds remaining after
application pursuant to the preceding paragraph (a) (the "Available Amount"),
the Company shall make an offer to purchase (the "Asset Sale Offer") from all
Holders of Securities, up to a maximum principal amount (expressed as a multiple
of $1,000) of Securities equal to the Available Amount at a purchase price equal
to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase; provided, however, that the Company
will not be required to apply pursuant to this paragraph (b) Net Cash Proceeds
received from any Asset Sale if, and only to the extent that, such Net Cash
Proceeds are applied to a Related Business Investment within 270 days of such
Asset Sale; provided, further, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash, then such conversion or disposition shall be deemed to constitute
an Asset Sale under and the Net Cash Proceeds thereof shall be applied in
accordance with this Section 4.16; and provided, further, that the Company may
defer the Asset Sale Offer until there is an aggregate unutilized Available
Amount equal to or in excess of $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Available Amount, and not just the
amount in excess of $10.0 million, shall be applied as required pursuant to this
paragraph). To the extent the Asset Sale Offer is not fully subscribed to by
Holders of the Securities, the Company and the Restricted Subsidiaries
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may retain such unutilized portion of the Available Amount and use it for any
purpose not prohibited by this Indenture. Pending application of the Net Cash
Proceeds of an Asset Sale in compliance with this Section 4.16, the Company may
temporarily reduce amounts outstanding under any revolving credit facility,
including the New Senior Credit Facility.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a person in a transaction permitted under Article V the successor
corporation shall be deemed to have sold the properties and assets of the
Company and the Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the Fair Market Value
of such properties and assets of the Company or the Restricted Subsidiaries
deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
The notice of an Asset Sale Offer shall be sent, by first class mail,
by the Company (or caused to be mailed by the Company) with a copy to the
Trustee to all Holders of Securities not less than 30 days nor more than 60 days
before the Asset Sale Payment Date at their last registered addresses. The Asset
Sale Offer shall remain open from the time of mailing until three days before
the Asset Sale Offer Payment Date. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender Securities
pursuant to the Asset Sale Offer. Such notice shall state:
(1) that the Asset Sale Offer is being made pursuant to Section 4.16;
(2) the purchase price (including an amount of accrued interest) and
the Asset Sale Offer Payment Date;
(3) that any Security not tendered will continue to accrue interest;
(4) that unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Asset Sale Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to an
Asset Sale Offer will be required to
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surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the last page of the Security completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
Business Day prior to the Asset Sale Offer Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, no later than two Business Days prior to the Asset
Sale Offer Payment Date, a telegram, telex, facsimile transmission or letter
stating fully the name of the Holder, the principal amount of the Securities
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased;
(7) that if Securities in a principal amount in excess of the principal
amount of the Securities to be acquired pursuant to the Asset Sale Offer are
tendered and not withdrawn pursuant to the Asset Sale Offer, the Company
shall purchase Securities on a pro rata basis (with such adjustment as may
be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples of $1,000 shall be so
acquired); and
(8) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased portion
of the Securities surrendered.
On or before an Asset Sale Offer Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the Asset
Sale Offer (on a pro rata basis if required pursuant to paragraph (7) above),
(ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the
purchase price of all Securities or portions thereof so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate identifying the Securities or portions thereof accepted for payment
by the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders new
Securities equal in principal amount to any unpurchased portion of the
Securities surrendered. Any Securities not so accepted shall be promptly mailed
or delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Asset Sale Offer as promptly as practicable
following the Asset Sale Offer Payment Date. The Company shall comply, to the
extent applicable, with
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the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
an Asset Sale Offer.
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (except to the Company or a Restricted Subsidiary), nor will the
Company permit any person (other than the Company or a Restricted Subsidiary) to
hold any Preferred Stock of a Restricted Subsidiary.
SECTION 4.18. Future Guarantees.
If the Company or any of the Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of the Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Restricted Subsidiary, in each
case having total assets with a book value in excess of $1.0 million, then such
transferee or acquired or other Restricted Subsidiary shall (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Securities
and this Indenture on the terms set forth in this Indenture and (ii) deliver to
the Trustee an Opinion of Counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all
purposes of this Indenture.
SECTION 4.19. Conduct of Business.
The Company and the Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or reasonably related to the
businesses in which the Company and the Restricted Subsidiaries are engaged on
the Issue Date.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.
(a) The Company will not, in a single transaction or series of related
transactions, (i) consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to
any person or (ii) adopt a Plan of Liquidation unless:
(1) either (a) the Company shall be the surviving or continuing
corporation, or (b) the person (if other than the Company) formed by such
consolidation or the person into which the Company is merged or the person
which acquires by sale, assignment, transfer, lease, conveyance or otherwise
all or substantially all of the assets of the Company or in the case of a
Plan of Liquidation, the person to which the assets of the Company have been
transferred (i) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia and (ii) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee) executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on, all of the Securities, and the performance of every
covenant of this Indenture, the Securities and the Registration Rights
Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(ii) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company
(in the case of clause (a) of the foregoing clause (1)) or such person (in
the case of clause (1)(b) thereof) shall be able to incur (assuming a market
rate of interest with respect thereto) at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) as if it were the Company
under paragraph (a) of Section 4.12 of this Indenture;
(3) immediately before and after giving effect to such transaction and
the assumption contemplated by clause
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(1)(b)(ii) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of the transaction), no Default or Event of Default shall have
occurred and be continuing;
(4) the Company or such person shall have delivered to the Trustee (A)
an Officers' Certificate and an Opinion of Counsel (which counsel shall not
be in-house counsel of the Company), each stating that such consolidation,
merger, conveyance, transfer, lease or Plan of Liquidation and if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with this provision of this Indenture and that
all conditions precedent in this Indenture relating to such transaction have
been satisfied and (B) a certificate from the Company's independent
certified public accountants stating that the Company has made the
calculations required by clause (2) above in accordance with the terms of
this Indenture; and
(5) neither the Company nor any Restricted Subsidiary nor such person,
as the case may be, would thereupon become obligated with respect to any
Indebtedness (including Acquired Indebtedness) nor any of its property or
assets subject to any Lien, unless the Company or such Restricted Subsidiary
or such person, as the case may be, could incur such Indebtedness (including
Acquired Indebtedness) or create such Lien under this Indenture (giving
effect to such person being bound by all the terms of this Indenture).
(b) For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
(c) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.16)
will not, and the Company will not cause or permit any Guarantor to, consolidate
with or merge with or into or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all
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of its assets to any person (other than a merger of the Company with any
Guarantor or a merger of Guarantors) unless (i) the entity formed by or
surviving any such consolidation or merger (if other than the Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and validly existing under the laws of the United States
or any state thereof or the District of Columbia or an entity organized and
validly existing under the laws of the foreign jurisdiction in which such
Guarantor is organized; (ii) such entity assumes by supplemental indenture all
of the obligations of such Guarantor under such Guarantee; and (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing.
(d) Notwithstanding the foregoing, (i) the merger of the Company with
an Affiliate incorporated solely for the purpose of incorporating the Company in
another jurisdiction shall be permitted and (ii) the merger of the Company and
any Restricted Subsidiary shall be permitted.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, merger, conveyance, lease or transfer in
accordance with Section 5.01, the successor person formed by such consolidation
or into which the Company or any Guarantor, as the case may be, is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or such
Guarantor, as the case may be, under this Indenture with the same effect as if
such successor person had been named as the Company or such Guarantor, as the
case may be, herein and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under this Indenture
and the Securities, in the case of the Company, or its Guarantee, in the case of
any Guarantor.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
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(1) the Company defaults in the payment of interest on any Securities
when the same becomes due and payable and the Default continues for a period
of 30 days;
(2) the Company defaults in the payment of the stated principal amount
of any Securities when the same becomes due and payable at maturity, upon
acceleration or redemption pursuant to an offer to purchase required
hereunder or otherwise;
(3) the Company or any of the Guarantors fails to comply in all
material respects with any of their other agreements contained in the
Securities or this Indenture (including, without limitation, under Sections
4.15, 4.16 and 5.01) and the Default continues for the period and after the
notice specified below;
(4) there shall be any default or defaults in the payment of principal
or interest under one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness under which the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5
million, individually or in the aggregate;
(5) there shall be any default or defaults under one or more
agreements, instruments, mortgages, bonds, debentures or other evidences of
Indebtedness under which the Company or any Restricted Subsidiary then has
outstanding Indebtedness in excess of $7.5 million, individually or in the
aggregate, and such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness;
(6) the Company or any Restricted Subsidiary fails to perform (after
giving effect to any applicable grace periods) any term, covenant, condition
or provision of one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness under which the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5
million, individually or in the aggregate, and such failure to perform
results in the commencement of judicial proceedings to foreclose upon any
assets of the Company or any such Restricted Subsidiary securing such
Indebtedness or the holders of such Indebtedness shall have exercised any
right under applicable law or applicable security documents to take
ownership of any such assets in lieu of foreclosure;
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(7) one or more judgments, orders or decrees for the payment of money
which either individually or in the aggregate at any one time exceed $7.5
million shall be rendered against the Company or any Restricted Subsidiary
by a court of competent jurisdiction and shall remain undischarged and
unbonded for a period (during which execution shall not be effectively
stayed) of 60 consecutive days after such judgment becomes final and
nonappealable;
(8) the Company or any Significant Subsidiary (a) admits in writing its
inability to pay its debts generally as they become due, (b) commences a
voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (c) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law,
(d) consents to the appointment of a Custodian of it or for substantially
all of its property, (e) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (f) makes a general
assignment for the benefit of its creditors or (g) takes any corporate
action to authorize or effect any of the foregoing;
(9) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any Significant Subsidiary in
an involuntary case or proceeding under any Bankruptcy Law which shall (1)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any Significant
Subsidiary, (2) appoint a Custodian of the Company or any Significant
Subsidiary or for substantially all of its property or (3) order the
winding-up or liquidation of its affairs, and such judgment, decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or
(10) any of the Guarantees of any Significant Subsidiary ceases to be
in full force and effect or any of such Guarantees is declared to be null
and void and unenforceable or any of such Guarantees is found to be invalid,
or any such Guarantor denies its liability under its Guarantee (other than
by reason of release of a Guarantor in accordance with the terms of this
Indenture).
A Default under clause (3) above (other than in the case of any Default
under Sections 4.15, 4.16 and 5.01, which Defaults shall be Events of Default
without the notice and without the passage of time specified in this paragraph)
is not
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an Event of Default until the Trustee notifies the Company, or the Holders of at
least 25% in principal amount of the outstanding Securities notify the Company
and the Trustee, of the Default, and the Company does not cure the Default
within 30 days after receipt of the notice. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
Such notice shall be given by the Trustee if so requested by the Holders of at
least 25% in principal amount of the Securities then outstanding.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01(8) or 6.01(9)) occurs and is continuing, then and in every such
case the Trustee may, by notice to the Company, or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding may, by written
notice to the Company and the Trustee, and the Trustee shall, upon the request
of such Holders, declare the aggregate unpaid principal of and premium, if any,
on all of the Securities outstanding, together with accrued but unpaid interest
thereon to the date of payment, to be due and payable and, upon any such
declaration, the same shall become and be due and payable; provided, however,
that the Trustee shall be under no obligation to follow any request of any of
the Holders unless such Holders shall have offered to the Trustee, after request
by the Trustee, reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by it in compliance with such request, order
or direction. If an Event of Default specified in Section 6.01(8) or 6.01(9)
occurs, all unpaid principal, premium, if any, and accrued interest on the
Securities then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Securityholder. Upon payment of such principal amount and interest, all of the
Company's obligations under the Securities and this Indenture, other than
obligations under Section 7.07, shall terminate. The Holders of a majority in
principal amount of the Securities then outstanding by notice to the Trustee may
rescind an acceleration and its consequences if (i) all existing Events of
Default, other than the non-payment of the principal and interest on the
Securities which have become due solely by such declaration of acceleration,
have been cured or waived, (ii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, and (iii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. No
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such rescission shall affect any subsequent default or impair any right
consequent thereto. In the event that a declaration of acceleration under either
Section 6.01(4) or 6.01(5) above has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or paid or the
holders of such Indebtedness shall have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereafter and no
other Event of Default has occurred during such 60-day period which has not been
cured or waived.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of, premium, if any, or interest on any
Security as specified in clauses (1) and (2) of Section 6.01 or in respect of
any provision hereof which cannot be modified or amended without the consent of
the Holder so affected pursuant to Section 9.02. When a Default or Event of
Default is so waived, it shall be deemed cured and cease to exist.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it including,
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without limitation, any remedies provided for in Section 6.03. Subject to
Section 7.01, however, the Trustee may refuse to follow any direction that
conflicts with any law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of another Securityholder, or that may involve
the Trustee in personal liability; provided that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) Holders of at least 25% in principal amount of the outstanding
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holders offer to the Trustee reasonable indemnity against any
loss, liability or expense to be incurred in compliance with such request;
(4) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer of satisfactory indemnity; and
(5) during such 30-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction
which, in the opinion of the Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
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SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified in
clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company, the Guarantors or any other obligor on the Securities for the whole
amount of principal and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent that payment of such interest
is lawful, interest on overdue installments of interest, in each case at the
rate per annum borne by the Securities and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, the
Guarantors or any other obligor upon the Securities, any of their respective
creditors or any of their respective property and shall be entitled and
empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Securityholder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
taxes, disbursements and advances of the Trustee, its agent and counsel, and any
other amounts due the Trustee under Section 7.07. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Securityholder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money in the following order:
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First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for interest accrued on the Securities, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Securities for interest;
Third: to Holders for principal amounts owing under the Securities and
other amounts owing to the Holders with respect to the Securities, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Securities for principal and other amounts owing to the
Holders with respect to the Securities; and
Fourth: to the Company or any other obligor on the Securities, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
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SECTION 7.01. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are specifically set
forth in this Indenture and no covenants or obligations shall be implied in
this Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Sections 6.02 or 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment
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of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree with the Company. Assets held in
trust by the Trustee need not be segregated from other assets except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Sections 10.04 and 10.05. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, upon reasonable
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notice to the Company, to examine the books, records, and premises of the
Company, personally or by agent or attorney.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred by
it in compliance with such request, order or direction.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Subsidiary of the Company or their respective Affiliates with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder, as their
names and addresses appear on the Securityholder list described in Section 2.05,
notice of the uncured Default or Event of Default within 90 days after the
Trustee obtains actual knowledge that such Default or Event of Default has
occurred. Except in the case of a Default or an Event of Default in payment of
principal of, or interest on, any Security, and a Default that resulted from the
failure to comply with Sections 4.15, 4.16 or 5.01, the Trustee may withhold the
notice if and so long as its board of directors, the executive committee of its
board of directors or a committee of its directors and/or Trust Officers in good
faith determines that withholding the notice is in the interest of the
Securityholders.
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SECTION 7.06. Reports by Trustee to Holders.
This Section 7.06 shall not be operative as a part of this Indenture
until this Indenture is qualified under the TIA, and, until such qualification,
this Indenture shall be construed as if this Section 7.06 were not contained
herein.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA Section 313(a) occurred within the previous twelve
months, but not otherwise, mail to each Securityholder a brief report dated as
of such May 15 that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed on
any securities exchange.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services as the Company and the Trustee may agree. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all tax obligations imposed on the Trustee related to this Indenture
and all reasonable out-of-pocket expenses incurred or made by it. Such expenses
shall include the reasonable fees and expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee and its agents for, and hold
them harmless against, any loss, liability or expense incurred by them except
for such actions to the extent caused by any negligence or bad faith on their
part, arising out of or in connection with the administration of this trust
including the reasonable costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their rights, powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity, but the Trustee's failure to so notify the Company shall not affect
the Company's obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate
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in the defense. The Trustee may have separate counsel and the Company shall pay
the reasonable fees and expenses of such counsel; provided that the Company will
not be required to pay such fees and expenses if it assumes the Trustee's
defense and there is no conflict of interest between the Company and the Trustee
in connection with such defense as reasonably determined by the Trustee. The
Company need not pay for any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Securities may remove the
Trustee by so notifying the Company and the Trustee and may appoint a successor
trustee with the Company's consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA Sections 310(a)(1) and 310(a)(5). The Trustee (or in the case
of a corporation included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company system, the Trustee, independently of such bank holding company,
shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall
comply with TIA
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Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company or the Guarantors are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
The Company and the Guarantors may terminate their obligations under
the Securities and the Guarantees and this Indenture, except those obligations
referred to in the penultimate paragraph of this Section 8.01, if all Securities
previously authenticated and delivered (other than destroyed, lost or stolen
Securities which have been replaced or paid and Securities for whose payment
money has heretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation and the Company has paid all
sums payable by it hereunder, or if:
(a) pursuant to Article Three, the Company shall have given notice to
the Trustee and mailed a notice of redemption to each Holder of the redemption
of all of the Securities under arrangements satisfactory to the Trustee for the
giving of such notice;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds in trust solely for the benefit of the Holders for
that purpose, money or direct non-callable obligations of, or non-callable
obligations
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guaranteed by, the United States of America for the payment of which guarantee
or obligation the full faith and credit of the United States is pledged ("U.S.
Government Obligations") maturing as to principal and interest in such amounts
and at such times as are sufficient without consideration of any reinvestment of
such interest, to pay principal of, premium, if any, and interest on such
outstanding Securities to redemption as certified to the Trustee by a nationally
recognized firm of independent public accountants designated by the Company;
provided that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to the payment of said
principal, premium, if any, and interest with respect to the Securities; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligation under the
Securities, the Guarantees and this Indenture have been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 7.08, 8.04 and 8.05 shall
survive until the Securities are no longer outstanding. After the Securities are
no longer outstanding, the Company's obligations in Sections 7.07, 8.04 and 8.05
shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities, the Guarantees and this Indenture except for those surviving
obligations specified above.
SECTION 8.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities and the Guarantees on the date the conditions set forth below are
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satisfied (hereinafter, "legal defeasance"). For this purpose, such legal
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of paragraph (e)
below and the other Sections of and matters under this Indenture referred to in
(i) and (ii) below, and to have satisfied all its other obligations under such
Securities and Guarantees and this Indenture insofar as such Securities and
Guarantees are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Securities to receive solely from the trust
fund described in paragraph (d) below and as more fully set forth in such
paragraph, payments in respect of the principal of and interest on such
Securities and Guarantees when such payments are due, (ii) the Company's
obligations with respect to such Securities and Guarantees under Sections 2.05,
2.06, 2.07, 2.08, 4.02, 7.07, 7.08, 8.04 and 8.05, (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (iv) this Section
8.02. Subject to compliance with this Section 8.02, the Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) below with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article Five and in
Sections 4.03, 4.07, 4.09 and 4.11 through 4.19 with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed to be not "outstanding" for the purpose of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01, but, except as specified
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above, the remainder of this Indenture and such Securities shall be unaffected
thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (A) money in an
amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal of and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge principal of, premium, if
any, and interest on the outstanding Securities on the Maturity Date of such
principal or installment of principal or interest in accordance with the
terms of this Indenture and of such Securities; provided, however, that the
Trustee (or other qualifying trustee) shall have received an irrevocable
written order from the Company instructing the Trustee (or other qualifying
trustee) to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities;
(ii) no Default or Event of Default or event which with notice or lapse
of time or both would become a Default or an Event of Default with respect
to the Securities shall have occurred and be continuing on the date of such
deposit or, insofar as Sections 6.01(8) and (9) are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period);
(iii) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a Default or Event of Default under,
this Indenture or any other agreement or instrument to which the Company is
a party or by which it is bound;
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(iv) in the case of an election under paragraph (b) above, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date of this Indenture, there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such legal defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such legal
defeasance had not occurred;
(v) in the case of an election under paragraph (c) above, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the Holders of the outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(vi) in the case of an election under either paragraph (b) or (c)
above, an Opinion of Counsel to the effect that, assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day
following the date of deposit and that no Holder is an insider of the
Company, (x) the trust funds will not be subject to any rights of any other
holders of Indebtedness of the Company, and (y) after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable Bankruptcy Law; provided, however, that if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, no opinion needs to be given as to the effect of
such laws on the trust funds except the following: (A) assuming such trust
funds remained in the Trustee's possession prior to such court ruling to the
extent not paid to Holders of Securities, the Trustee will hold, for the
benefit of the Holders of Securities, a valid and enforceable security
interest in such trust funds that is not avoidable in bankruptcy or
otherwise, subject only to principles of equitable subordination, (B) the
Holders of Securities will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds
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are used, and (C) no property, rights in property or other interests granted
to the Trustee or the Holders of Securities in exchange for or with respect
to any of such funds will be subject to any prior rights of any other
person, subject only to prior Liens granted under Section 364 of Title 11 of
the U.S. Bankruptcy Code (or any section of any other Bankruptcy Law having
the same effect), but still subject to the foregoing clause (B); and
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (A) all conditions
precedent provided for relating to either the legal defeasance under
paragraph (b) above or the covenant defeasance under paragraph (c) above, as
the case may be, have been complied with and (B) if any other Indebtedness
of the Company shall then be outstanding, such legal defeasance or covenant
defeasance will not violate the provisions of the agreements or instruments
evidencing such Indebtedness.
Notwithstanding the foregoing, the Opinion of Counsel and a ruling from
the Internal Revenue Service required by clause (iv) above of this Section 8.02
need not be delivered if all Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, (ii) will become due and
payable on the Maturity Date within one year or (iii) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
above in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(other than the Company or any of its Affiliates) as the Trustee may determine,
to the Holders of such Securities of all sums due and to become due thereon in
respect of principal and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to
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paragraph (d) above or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of the outstanding Securities.
Anything in this Section 8.02 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Sections 8.01 and 8.02, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, premium, if any, and
interest on the Securities.
SECTION 8.04. Repayment to Company.
Subject to Sections 7.07, 8.01 and 8.02, the Trustee shall promptly pay
to the Company, upon receipt by the Trustee of an Officers' Certificate, any
excess money, determined in accordance with Sections 8.02(d)(i) and (e), held by
it at any time. The Trustee and the Paying Agent shall pay to the Company upon
receipt by the Trustee or the Paying Agent, as the case may be, of an Officers'
Certificate, any money held by it for the payment of principal or interest that
remains unclaimed for two years; provided, however, that the Trustee and the
Paying Agent before being required to make any payment may, but need not, at the
expense of the Company, cause to be published once in a newspaper of general
circulation in The City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that after a date specified
therein, which shall be at least 30 days from the date of such publication or
mailing, any unclaimed balance of such money then remaining will be repaid to
the Company. After payment to the Company, Securityholders entitled to money
must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designates another person, and
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all liability of the Trustee or Paying Agent with respect to such money shall
thereupon cease.
SECTION 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
and only then the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had been made pursuant to
this Indenture until such time as the Trustee is permitted to apply all such
money or U.S. Government Obligations in accordance with this Indenture;
provided, however, that if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
From time to time, the Company and the Guarantors when authorized by
Board Resolutions, and the Trustee, together, may amend or supplement this
Indenture or the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that such
amendment or supplement does not adversely affect the rights of any Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in place
of certificated Securities;
(4) to make any other change that does not materially adversely affect
the rights of any Securityholders hereunder, including, without limitation,
adding Restricted Subsidiaries as additional Guarantors; or
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(5) to comply with any requirements of the SEC in connection with the
qualification of this Indenture under the TIA;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by Board Resolutions, and the Trustee, together, with the written
consent of the Holder or Holders of at least a majority in aggregate principal
amount of the outstanding Securities, may amend or supplement this Indenture or
the Securities, without notice to any other Securityholders. Subject to Section
6.07, the Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may waive compliance by the Company with any provision of
this Indenture or the Securities without notice to any other Securityholder.
However, without the consent of each Securityholder, no amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, may:
(1) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Securities;
(2) reduce the rate of, or extend the time for payment of, interest,
including defaulted interest, on any Security;
(3) reduce the principal amount of any Security or any premium thereon;
(4) change the Maturity Date of any Security, or alter the redemption
provisions or the repurchase provisions in this Indenture or the Securities
in a manner adverse to any Holder other than a redemption or repurchase
under Sections 4.15 or 4.16;
(5) waive a default in the payment of the principal of, interest on, or
redemption payment or repurchase payment required hereunder with respect to,
any Security other than a payment required upon a Change of Control or after
an Asset Sale;
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88
(6) make any changes in any provisions relating to waivers of defaults,
the ability of the Holders to enforce their rights under this Indenture, the
Securities or this Section 9.02;
(7) make the principal of, or the interest on any Security payable in
money other than as provided for in this Indenture and the Securities as in
effect on the date hereof;
(8) affect the ranking of the Securities or the Guarantees in a manner
adverse to the Holders; or
(9) release the Guarantee of any Significant Subsidiary.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
From the date on which this Indenture is qualified under the TIA, every
amendment, waiver or supplement of this Indenture or the Securities shall comply
with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount
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of Securities have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver. Notwithstanding the above, nothing in this
paragraph shall impair the right of any Securityholder under ss. 316(b) of the
TIA.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those persons who were Holders
at such record date (or their duly designated proxies), and only those persons,
shall be entitled to revoke any consent previously given, whether or not such
persons continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (9) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security (and the Guarantors shall execute the
Guarantees thereon) that reflects the changed terms. Failure to make the
appropriate notation or issue a new Security shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be
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fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate each stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
SECTION 10.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, or overnight courier addressed as follows:
if to the Company or any Guarantor:
Lodestar Holdings, Inc.
30 Rockefeller Plaza,
Suite 4225
New York, New York 10112
Attention: Chairman
with copies to:
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, Kentucky 40507
Attention: R. Eberley Davis, Esq.
and
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Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Michael C. Ryan, Esq.,
if to the Trustee:
State Street Bank and Trust Company
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Each of the Company, the Guarantors and the Trustee by written notice
to each other such person may designate additional or different addresses for
notices to such person. Any notice or communication to the Company, the
Guarantors or the Trustee shall be deemed to have been given or made as of the
date so delivered, if personally delivered; when answered back, if telexed; when
receipt is acknowledged, if faxed; and five (5) calendar days after mailing, if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee).
Any notice or communication mailed to a Securityholder, including any
notice delivered in connection with TIA ss. 310(b), TIA ss. 313(c), TIA ss.
314(a) and TIA ss. 315(b), shall be mailed to him by first class mail or other
equivalent means at his address as it appears on the registration books of the
Registrar and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company,
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the Guarantors, the Trustee, the Registrar and any other person shall have the
protection of TIA ss. 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or the Guarantors to the
Trustee to take any action under this Indenture, the Company shall furnish to
the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to the
Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with.
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SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 10.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 10.08. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company, the Guarantors, or any of their Subsidiaries. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 10.10. No Recourse Against Others.
A director, officer, employee, stockholder or Affiliate, as such, of
the Company or the Guarantors shall not have any liability for any obligations
of the Company or the Guarantors under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
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SECTION 10.11. Successors.
All agreements of the Company and the Guarantors in this Indenture and
the Securities shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 10.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 10.13. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, in any respect for any reason, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee.
Subject to the provisions of this Article Eleven, each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably
guarantees, on a senior basis, (such guarantee to be referred to herein as a
"Guarantee") to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Securities or the obligations of the
Company or any other Guarantors to the Holders or the Trustee hereunder or
thereunder, that: (a) the principal of, premium, if any, and interest on the
Securities shall be duly and punctually paid in full when due, whether at
maturity, upon redemption at the option of Holders pursuant to the provisions of
the Securities relating thereto, by acceleration or otherwise, and interest on
the overdue principal and (to the extent permitted by law) interest, if any, on
the Securities and all other obligations of the Company or the Guarantors to the
Holders or the Trustee hereunder or thereunder (including amounts due the
Trustee under Section 7.07 hereof) and all other obligations shall be promptly
paid in
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95
full or performed, all in accordance with the terms hereof and thereof; and (b)
in case of any extension of time of payment or renewal of any Securities or any
of such other obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed, or failing performance of any other obligation of the Company to
the Holders under this Indenture or under the Securities, for whatever reason,
each Guarantor shall be obligated to pay, or to perform or cause the performance
of, the same immediately. An Event of Default under this Indenture or the
Securities shall constitute an event of default under this Guarantee, and shall
entitle the Holders of Securities to accelerate the obligations of the
Guarantors hereunder in the same manner and to the same extent as the
obligations of the Company.
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, any release of any other Guarantor,
the recovery of any judgment against the Company, any action to enforce the
same, whether or not a Guarantee is affixed to any particular Security, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a Guarantor. Each of the Guarantors hereby waives the
benefit of diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that its Guarantee shall not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture and this Guarantee. This Guarantee is a guarantee of payment and not
of collection. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article Eleven, the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article Six
hereof for the purposes of this Guarantee, notwithstanding any stay,
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96
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (b) in the event of any acceleration of such
obligations as provided in Article Six hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Guarantor, as such, shall have any personal liability
under this Guarantee by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
Each Guarantor that makes a payment or distribution under its Guarantee
shall be entitled to a contribution from each other Guarantor in an amount pro
rata based on the net assets of each Guarantor, determined in accordance with
GAAP.
SECTION 11.02. Limitations on Guarantees.
The obligations of each Guarantor under its Guarantee are limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, will result in the obligations of
such Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under any Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar U.S. federal or state or
other applicable law.
SECTION 11.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Guarantee, substantially in the
form of Exhibit M herein, shall be endorsed on each Security authenticated and
delivered by the Trustee. Such Guarantee shall be executed on behalf of each
Guarantor by either manual or facsimile signature of two Officers of each
Guarantor, each of whom, in each case, shall have been duly authorized to so
execute by all requisite corporate action. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
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Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Guarantee no longer holds that office at the time the Trustee authenticates the
Security on which such Guarantee is endorsed or at any time thereafter, such
Guarantor's Guarantee of such Security shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Guarantor.
SECTION 11.04. Release of a Guarantor.
(a) If no Default exists or would exist under this Indenture, upon the
sale or disposition of all of the Capital Stock of a Guarantor by the Company,
in a transaction constituting an Asset Sale the Net Cash Proceeds of which are
applied in accordance with Section 4.16, or upon the consolidation or merger of
a Guarantor with or into any person in compliance with Article Five (in each
case, other than to the Company or an Affiliate of the Company), or if any
Guarantor is dissolved or liquidated in accordance with this Indenture, such
Guarantor's Guarantee shall be released, and such Guarantor and each Subsidiary
of such Guarantor that is also a Guarantor shall be deemed released from all
obligations under this Article Eleven without any further action required on the
part of the Trustee or any Holder. Any Guarantor not so released or the entity
surviving such Guarantor, as applicable, shall remain or be liable under its
Guarantee as provided in this Article Eleven.
(b) The Trustee shall deliver an appropriate instrument evidencing the
release of a Guarantor upon receipt of a request by the Company or such
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 11.04, provided the legal
counsel delivering such Opinion of Counsel may rely as to matters of fact on one
or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested by the
Company or a Guarantor in order to evidence the release of such Guarantor from
its obligations under its
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Guarantee endorsed on the Securities and under this Article Eleven.
Except as set forth in Articles Four and Five and this Section 11.04,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or another
Guarantor.
SECTION 11.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Securities are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Securities or this Indenture
and such Guarantor's obligations under this Guarantee and this Indenture, in any
such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy of the Holders against the Company, whether
or not such claim, remedy or right arises in equity, or under contract, statute
or common law, including, without limitation, the right to take or receive from
the Company, directly or indirectly, in cash or other property or by set-off or
in any other manner, payment or security on account of such claim or other
rights. If any amount shall be paid to any Guarantor in violation of the
preceding sentence and any amounts owing to the Trustee or the Holders of
Securities under the Securities, this Indenture, or any other document or
instrument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Indenture and that the
waiver set forth in this Section 11.05 is knowingly made in contemplation of
such benefits.
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SECTION 11.06. Immediate Payment.
Each Guarantor agrees to make immediate payment to the Trustee on
behalf of the Holders of all Obligations owing or payable to the respective
Holders upon receipt of a demand for payment therefor by the Trustee to such
Guarantor in writing.
SECTION 11.07. No Set-Off.
Each payment to be made by a Guarantor hereunder in respect of the
Obligations shall be payable in the currency or currencies in which such
Obligations are denominated, and shall be made without set-off, counterclaim,
reduction or diminution of any kind or nature.
SECTION 11.08. Obligations Continuing.
The obligations of each Guarantor hereunder shall be continuing and
shall remain in full force and effect until all the obligations have been paid
and satisfied in full. Each Guarantor agrees with the Trustee that it will from
time to time deliver to the Trustee suitable acknowledgments of this continued
liability hereunder.
SECTION 11.09. Obligations Reinstated.
The obligations of each Guarantor hereunder shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
which would otherwise have reduced the obligations of any Guarantor hereunder
(whether such payment shall have been made by or on behalf of the Company or by
or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders
upon the insolvency, bankruptcy, liquidation or reorganization of the Company or
any Guarantor or otherwise, all as though such payment had not been made. If
demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Guarantor as provided herein.
SECTION 11.10. Obligations Not Affected.
The obligations of each Guarantor hereunder shall not be affected,
impaired or diminished in any way by any act, omission, matter or thing
whatsoever, occurring before, upon or
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after any demand for payment hereunder (and whether or not known or consented to
by any Guarantor or any of the Holders) which, but for this provision, might
constitute a whole or partial defense to a claim against any Guarantor hereunder
or might operate to release or otherwise exonerate any Guarantor from any of its
obligations hereunder or otherwise affect such obligations, whether occasioned
by default of any of the Holders or otherwise.
SECTION 11.11. Waiver.
Without in any way limiting the provisions of Section 11.01 hereof,
each Guarantor hereby waives notice or proof of reliance by the Holders upon the
obligations of any Guarantor hereunder, and diligence, presentment, demand for
payment on the Company, protest or notice of dishonor of any of the Obligations,
or other notice or formalities to the Company of any kind whatsoever.
SECTION 11.12. No Obligation To Take Action Against the Company.
Neither the Trustee nor any other person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Company or any other person or any
property of the Company or any other person before the Trustee is entitled to
demand payment and performance by any or all Guarantors of their liabilities and
obligations under their Guarantees or under this Indenture.
SECTION 11.13. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Guarantor
hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases, discharges and other indulgences to the Company or any other
person;
(b) take or abstain from taking security or collateral from the Company
or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or otherwise deal
with or do any act or thing in respect
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of (with or without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the obligations
or matters contemplated by this Indenture or the Securities;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or from any
security upon such part of the Obligations as the Holders may see fit or change
any such application in whole or in part from time to time as the Holders may
see fit; and
(f) otherwise deal with, or waive or modify their right to deal with,
the Company and all other persons and any security as the Holders or the Trustee
may see fit.
SECTION 11.14. Default and Enforcement.
If any Guarantor fails to pay in accordance with Section 11.06 hereof,
the Trustee may proceed in its name as trustee hereunder in the enforcement of
the Guarantee of any such Guarantor and such Guarantor's obligations thereunder
and hereunder by any remedy provided by law, whether by legal proceedings or
otherwise, and to recover from such Guarantor the obligations.
SECTION 11.15. Amendment, Etc.
No amendment, modification or waiver of any provision of this Indenture
relating to any Guarantor or consent to any departure by any Guarantor or any
other person from any such provision will in any event be effective unless it is
signed by such Guarantor and the Trustee.
SECTION 11.16. Acknowledgment.
Each Guarantor hereby acknowledges communication of the terms of this
Indenture and the Securities and consents to and approves of the same.
SECTION 11.17. Costs and Expenses.
Each Guarantor shall pay on demand by the Trustee any and all costs,
fees and expenses (including, without limitation, legal fees on a solicitor and
client basis) incurred by
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the Trustee, its agents, advisors and counsel or any of the Holders in enforcing
any of their rights under any Guarantee.
SECTION 11.18. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Trustee or the Holders, any right, remedy, power or privilege hereunder or under
this Indenture or the Securities, shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege
hereunder or under this Indenture or the Securities preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges in the Guarantee and
under this Indenture, the Securities and any other document or instrument
between a Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 11.19. Survival of Obligations.
Without prejudice to the survival of any of the other obligations of
each Guarantor hereunder, the obligations of each Guarantor under Section 11.01
and shall be enforceable against such Guarantor without regard to and without
giving effect to any right of offset or counterclaim available to or which may
be asserted by the Company or any Guarantor.
SECTION 11.20. Guarantee in Addition to Other Obligations.
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Securities (including the Purchase Agreement and the Registration Rights
Agreement).
SECTION 11.21. Severability.
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Eleven.
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SECTION 11.22. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit of each
Guarantor and the Trustee and the other Holders and their respective successors
and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
LODESTAR HOLDINGS, INC.,
as Issuer
By: /s/ Michael E. Donohue
------------------------------------
Michael E. Donohue
Chief Financial Officer
LODESTAR ENERGY, INC.,
as Guarantor
By: /s/ Michael E. Donohue
------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
EASTERN RESOURCES, INC.,
as Guarantor
By: /s/ Michael E. Donohue
------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
INDUSTRIAL FUELS MINERALS COMPANY,
as Guarantor
By: /s/ Michael E. Donohue
------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
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STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Robert L. Reynolds
------------------------------------
Robert L. Reynolds
Vice President
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EXHIBIT A
[FORM OF SERIES A NOTE]
[If a Restricted Security, then insert -- THIS SENIOR NOTE (OR ITS PREDECESSOR)
HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (A)
REPRESENTS THAT (1) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) (A "QIB") OR (2) IT HAS ACQUIRED THIS SENIOR NOTE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT; (B) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SENIOR NOTE
EXCEPT (1) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (2) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) IN
AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (4) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (5) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SENIOR NOTE (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SENIOR NOTES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (6) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (7) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (C)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SENIOR NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SENIOR NOTE IN VIOLATION OF THE FOREGOING.]
[If a Temporary Regulation S Global Security, then insert -- THIS SECURITY IS A
TEMPORARY REGULATION S GLOBAL SECURITY
A-1
<PAGE>
WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE
CIRCUMSTANCES DESCRIBED IN SECTION 2.06 OF THE INDENTURE, INTERESTS IN THIS
TEMPORARY REGULATION S GLOBAL SECURITY MAY NOT BE OFFERED OR SOLD TO A U.S.
PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF
THE RESTRICTED PERIOD (AS DEFINED IN THE INDENTURE), AND NO TRANSFER OR EXCHANGE
OF AN INTEREST IN THIS TEMPORARY REGULATION S GLOBAL SECURITY MAY BE MADE FOR AN
INTEREST IN A RESTRICTED GLOBAL SECURITY OR IN A PERMANENT REGULATION S GLOBAL
SECURITY UNTIL AFTER THE LATER OF THE DATE OF EXPIRATION OF THE RESTRICTED
PERIOD AND THE DATE ON WHICH THE OWNER SECURITIES CERTIFICATION AND THE
DEPOSITORY SECURITIES CERTIFICATION RELATING TO SUCH INTEREST HAVE BEEN PROVIDED
IN ACCORDANCE WITH THE TERMS OF THE INDENTURE, TO THE EFFECT THAT THE BENEFICIAL
OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS.]
[If a Permanent Regulation S Security, then insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON,
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
A-2
<PAGE>
LODESTAR HOLDINGS, INC.
11 1/2% Senior Note
due 2005, Series A
CUSIP No.
No. $
Lodestar Holdings, Inc., a Delaware corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
____________ or registered assigns, the principal sum of
Dollars, on May 15, 2005.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: May 15, 1998
LODESTAR HOLDINGS, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
A-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series A Senior Notes described in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY,
as Trustee
By:
------------------------------------
Authorized Signatory
A-5
<PAGE>
LODESTAR HOLDINGS, INC.
11 1/2% Senior Note
due 2005, Series A
1. Interest.
LODESTAR HOLDINGS, INC., a Delaware corporation (the "Company"),
promises to pay cash interest on the principal amount of this Security at the
rate per annum shown above. The Company will pay interest semi-annually in
arrears on May 15 and November 15 of each year (the "Interest Payment Date"),
commencing November 15, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to 13
1/2% per annum.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are canceled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities. If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or its nominee in
immediately available funds in accordance with customary procedures established
from time to time by the Depository.
3. Paying Agent and Registrar.
Initially, STATE STREET BANK AND TRUST COMPANY (the "Trustee"), will
act as Paying Agent and Registrar. The Company
A-6
<PAGE>
may change any Paying Agent or Registrar without notice to the Holders.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of May
15, 1998 (the "Indenture"), by and among the Company, the Guarantors and the
Trustee. This Security is one of a duly authorized issue of Securities of the
Company designated as its 11 1/2% Senior Notes due 2005, Series A (the "Series A
Notes"). Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
amount to $235,000,000.
5. Registration Rights.
Pursuant to the Registration Rights Agreement by and between the
Company, the Guarantors and the initial purchasers of the Series A Notes, the
Company and the Guarantors will be obligated to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for 11 1/2% Senior Notes due 2005, Series B, of the Company (the
"Series B Notes"), which have been registered under the Securities Act, in like
principal amount and having identical terms as the Series A Notes. The Holders
of Series A Notes shall be entitled to receive certain additional interest
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement. Notes and the Series B Notes are together
referred to herein as the "Securities."
6. Optional Redemption.
The Securities will be subject to redemption, in whole or in part, at
the option of the Company, at any time on or after May 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued interest to the redemption date, if redeemed during the 12-month
period beginning on May 15 of the years indicated below:
A-7
<PAGE>
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002............................................ 105.750%
2003............................................ 102.875%
2004 and thereafter............................. 100.000%
</TABLE>
In addition, at any time prior to May 15, 2001, the Company may redeem
up to 35% of (x) the aggregate principal amount of the Securities issued on the
Issue Date plus (y) any additional Securities issued after the Issue Date
pursuant to the Indenture, with the proceeds of one or more Equity Offerings at
a redemption price (expressed as a percentage of principal amount) of 111.5%
plus accrued interest to the redemption date; provided that at least 65% of the
sum of (x) the aggregate principal amount of Securities issued on the Issue Date
plus (y) any additional Securities issued after the Issue Date pursuant to the
Indenture remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Equity Offering. "Equity Offering" means an offering of Qualified
Capital Stock of the Company (other than any Subsidiary of the Company).
7. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations larger than
$1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and the only
right of the Holders of such Securities will be to receive payment of the
Redemption Price.
8. Change of Control Offer.
Upon the occurrence of a Change of Control, upon the satisfaction of
the conditions set forth in the Indenture, the Company shall be required to
offer to purchase all of the then outstanding Securities pursuant to a Change of
Control Offer at a purchase price equal to 101% of the principal amount thereof
plus accrued interest, if any, to the date of purchase. Holders of Securities
which are the subject of such an offer to repurchase shall receive an offer to
repurchase and may elect to
A-8
<PAGE>
have such Securities repurchased in accordance with the provisions of the
Indenture pursuant to and in accordance with the terms of the Indenture.
9. Limitation on Disposition of Assets.
Under certain circumstances, the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 100% of
the aggregate principal amount thereof, plus accrued interest to the date of
purchase.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption. No service
charge shall be made for any registration of transfer or exchange or redemption
of Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
With respect to Global Securities, the Depository may grant proxies and
otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder of a Security is entitled to give or take under the
Indenture.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee and the Paying Agent will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
A-9
<PAGE>
13. Discharge Prior to Redemption or Maturity.
The Company's obligations pursuant to the Indenture will be discharged,
except for obligations pursuant to certain sections thereof, subject to the
terms of the Indenture, upon the payment of all the Securities or upon the
irrevocable deposit with the Trustee of money or U.S. Government Obligations
sufficient to pay when due principal of, and premium, if any, and interest on
the Securities to maturity or redemption, as the case may be.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend, waive or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, comply with Article Five of the Indenture or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not adversely affect the
rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of certain of its properties or assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
16. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
A-10
<PAGE>
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, the Guarantors, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company or the Guarantors shall have any liability for any obligation of
the Company or the Guarantors under the Securities or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Security by accepting a Security waives and releases
all such liability. The waiver and release are part of the consideration for the
issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
21. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
A-11
<PAGE>
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Guarantees.
This Security will be entitled to the benefits of certain Guarantees
made for the benefit of the Holders. Reference is hereby made to the Indenture
for a statement of the respective rights, limitations of rights, duties and
obligations thereunder of the Guarantors, the Trustee and the Holders.
25. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
LODESTAR HOLDINGS, INC., 30 Rockefeller Plaza, Suite 4225, New York, New York
10112, Attn.: Chief Financial Officer.
26. Certain Information Obligations.
At any time when the Company is not subject to Section 13 or 15(d) of
the Securities Exchange Act of 1934, upon the request of a Holder of a Series A
Note, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security designated by such Holder, as the case may
be, in order to permit compliance by such Holder with Rule 144A under the
Securities Act.
A-12
<PAGE>
[The form of reverse of a Temporary Regulation S Global Security shall
be as set forth below --
Until this Temporary Regulation S Global Security is exchanged for a
Permanent Regulation S Global Security, the Holder hereof shall not be entitled
to receive payments of interest hereon; until so exchanged in full, this
Temporary Regulation S Global Security shall in all other respects be entitled
to the same benefits as other Securities under the Indenture.
This Temporary Regulation S Global Security is exchangeable in whole or
in part for one or more Permanent Regulation S Global Securities or Restricted
Global Securities only (i) on or after the expiration of the Restricted Period
and (ii) upon presentation of certificates (accompanied by an Opinion of
Counsel, if applicable) required by Article II of the Indenture. Upon exchange
of this Temporary Regulation S Global Security for one or more Permanent
Regulation S Global Securities or Restricted Global Securities, the Trustee
shall cancel this Temporary Regulation S Global Security.
This Temporary Regulation S Global Security shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This Temporary
Regulation S Global Security shall be governed by and construed in accordance
with the laws of the State of New York.
A-13
<PAGE>
SCHEDULE OF EXCHANGES FOR GLOBAL SECURITIES
The following exchanges of a part of this Temporary Regulation S Global
Security for other Global Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount of
decrease in increase in this Global Signature of
Principal Amount Principal Amount Security following authorized
of this Global of this Global such decrease (or officer of
Date of Exchange Security Security increase) Trustee
- ---------------- ---------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
</TABLE>
A-14
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
- ---------------------------------------
and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: Signed:
--------------------------- ------------------------------------
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee:
----------------------------------------------------------
A-15
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 / /
Section 4.16 / /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$
Dated: Signed:
--------------------------- ------------------------------------
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee:
----------------------------------------------------------
A-16
<PAGE>
EXHIBIT B
[FORM OF SERIES B NOTE]
LODESTAR HOLDINGS, INC.
11 1/2% Senior Note
due 2005, Series B
CUSIP No.
No. $
LODESTAR HOLDINGS, INC., a Delaware corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
___________________ or registered assigns, the principal sum of ____________
Dollars, on May 15, 2005.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
LODESTAR HOLDINGS, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
B-1
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series B Notes described in the within-mentioned
Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
-------------------------------------
Authorized Signatory
B-2
<PAGE>
LODESTAR HOLDINGS, INC.
11 1/2% Senior Note
due 2005, Series B
1. Interest.
LODESTAR HOLDINGS, INC., a Delaware corporation (the "Company"),
promises to pay cash interest on the principal amount of this Security at the
rate per annum shown above. The Company will pay interest semi-annually in
arrears on May 15 and November 15 of each year (the "Interest Payment Date"),
commencing November 15, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to 13
1/2% per annum.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are canceled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
Initially, STATE STREET BANK AND TRUST COMPANY (the "Trustee") will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of May
15, 1998 (the "Indenture"), by and among the Company, the Guarantors and the
Trustee. This Security is one of a duly authorized issue of Securities of the
Company designated
B-3
<PAGE>
as its 11 1/2% Senior Notes due 2005, Series B (the "Series B Notes").
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
amount to $235,000,000.
5. Exchange Offer.
The Series B Notes were issued pursuant to an exchange offer pursuant
to which 11 1/2% Senior Notes due 2005, Series A, of the Company (the "Series A
Notes"), in like principal amount and having substantially identical terms as
the Series B Notes, were exchanged for the Series B Notes. The Series A Notes
and the Series B Notes are together referred to herein as the "Securities."
6. Optional Redemption.
The Securities will be subject to redemption, in whole or in part, at
the option of the Company, at any time on or after May 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued interest to the redemption date, if redeemed during the 12-month
period beginning on May 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002............................................ 105.750%
2003............................................ 102.875%
2004 and thereafter............................. 100.000%
</TABLE>
In addition, at any time prior to May 15, 2001, the Company may redeem
up to 35% of (x) the aggregate principal amount of the Securities issued on the
Issue Date plus (y) any additional Securities issued after the Issue Date
pursuant to the Indenture, with the proceeds of one or more Equity Offerings at
a redemption price (expressed as a percentage of principal amount) of 111.5%
plus accrued interest to the redemption date; provided that at least 65% of the
sum of (x) the aggregate principal amount of Securities issued on the Issue Date
plus (y) any additional Securities issued after the Issue Date pursuant to the
Indenture remains outstanding immediately after
B-4
<PAGE>
any such redemption. In order to effect the foregoing redemption with the
proceeds of any Equity Offering, the Company shall make such redemption not more
than 120 days after the consummation of any such Equity Offering. "Equity
Offering" means an offering of Qualified Capital Stock of the Company (other
than any Subsidiary of the Company).
7. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations larger than
$1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and the only
right of the Holders of such Securities will be to receive payment of the
Redemption Price.
8. Change of Control Offer.
Upon the occurrence of a Change of Control, upon the satisfaction of
the conditions set forth in the Indenture, the Company shall be required to
offer to purchase all of the then outstanding Securities pursuant to a Change of
Control Offer at a purchase price equal to 101% of the principal amount thereof
plus accrued interest, if any, to the date of purchase. Holders of Securities
which are the subject of such an offer to repurchase shall receive an offer to
repurchase and may elect to have such Securities repurchased in accordance with
the provisions of the Indenture pursuant to and in accordance with the terms of
the Indenture.
9. Limitation on Disposition of Assets.
Under certain circumstances, the Company is required to apply the net
proceeds from Asset Sales to repurchase Securities at a price equal to 100% of
the aggregate principal amount thereof, plus accrued interest to the date of
purchase.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may
B-5
<PAGE>
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay certain transfer taxes or similar governmental
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities or
portions thereof selected for redemption. No service charge shall be made for
any registration of transfer or exchange or redemption of Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
With respect to Global Securities, the Depository may grant proxies and
otherwise authorize Holders of Book-Entry Securities to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder of a Security is entitled to give or take under the
Indenture.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee and the Paying Agent will pay the money back to the
Company at its request. After that, all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity.
The Company's obligations pursuant to the Indenture will be discharged,
except for obligations pursuant to certain sections thereof, subject to the
terms of the Indenture, upon the payment of all the Securities or upon the
irrevocable deposit with the Trustee of money or U.S. Government Obligations
sufficient to pay when due principal of, and premium, if any, and interest on
the Securities to maturity or redemption, as the case may be.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding.
B-6
<PAGE>
Without notice to or consent of any Holder, the parties thereto may amend, waive
or supplement the Indenture or the Securities to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities, comply with Article Five of
the Indenture or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that does
not adversely affect the rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of certain of its properties or assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
16. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
B-7
<PAGE>
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, the Guarantors, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company or the Guarantors shall have any liability for any obligation of
the Company or the Guarantors under the Securities or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Security by accepting a Security waives and releases
all such liability. The waiver and release are part of the consideration for the
issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
21. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
B-8
<PAGE>
24. Guarantees.
This Security will be entitled to the benefits of certain Guarantees
made for the benefit of the Holders. Reference is hereby made to the Indenture
for a statement of the respective rights, limitations of rights, duties and
obligations thereunder of the Guarantors, the Trustee and the Holders.
25. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
LODESTAR HOLDINGS, INC., 30 Rockefeller Plaza, Suite 4225, New York, New York
10112, Attn.: Chief Financial Officer.
B-9
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
- -----------------------------------------
and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: Signed:
--------------------------- ------------------------------------
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee:
----------------------------------------------------------
B-10
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 / /
Section 4.16 / /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$
Dated: Signed:
--------------------------- ------------------------------------
(Sign exactly as your name appears on
the front of this Security)
Signature Guarantee:
----------------------------------------------------------
B-11
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
Transferee Letter of Representation
Lodestar Holdings, Inc.
30 Rockefeller Plaza
Suite 4225
New York, New York 10112
Dear Sirs:
In connection with our proposed purchase of $ aggregate principal
amount of the 11 1/2% Senior Notes due 2005, Series A and 11 1/2% Senior Notes
due 2005, Series B (collectively, the "Securities") of The Lodestar Holdings,
Inc., a Delaware corporation (the "Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior
to the date which is three years after the later of the date of original issue
and the last date on which the Company or any affiliate of the Company was the
owner of such Securities (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) so
long as the Securities are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is purchasing
for his own account or for the account of such an institutional "accredited
investor," in each case in a minimum principal amount of Securities of $500,000,
(f) in an offshore transaction pursuant to Regulation S of the Securities Act or
(g) pursuant to any other available exemption from the registration requirements
of the Securities Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property or the property of such investor
account
D-1
<PAGE>
or accounts be at all times within our or their control and to compliance with
any applicable state securities laws. The foregoing restrictions on resale will
not apply subsequent to the Resale Restriction Termination Date. If any resale
or other transfer of the Securities is proposed to be made pursuant to clause
(e) above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee substantially in the form of this letter to
the Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Securities pursuant to clause (c), (d) or
(f) above to require the delivery of an opinion of counsel, certifications
and/or other information satisfactory to the Company and the Trustee.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment.
3. We are acquiring at least $500,000 principal amount of the
Securities and we are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy
D-2
<PAGE>
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
--------------------------------------
(Name of Purchaser)
By:
-----------------------------------
Date:
---------------------------------
D-3
<PAGE>
Upon transfer the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
---------------------------------
Address:
------------------------------
Taxpayer ID Number:
-------------------
D-4
<PAGE>
EXHIBIT E
[FORM OF CERTIFICATION TO BE GIVEN BY HOLDERS OF
BENEFICIAL INTEREST IN A TEMPORARY
REGULATION S GLOBAL SECURITY
TO EUROCLEAR OR CEDEL]
OWNER SECURITIES CERTIFICATION
LODESTAR HOLDINGS, INC.
11 1/2% Senior Notes due 2005
CUSIP No.______
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein, and State Street Bank and Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This is to certify that, as of the date hereof, $ of the
above-captioned Securities (the "Securities") are beneficially owned by non-U.S.
person(s). As used in this paragraph, the term "U.S. person" has the meaning
given to it by Regulation S under the Securities Act of 1933, as amended.
We undertake to advise you promptly by tested telex on or prior to the
date on which you intend to submit your certification relating to the Securities
held by you for our account in accordance with your operating procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such
E-1
<PAGE>
proceedings. This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: __________, ____
By:
--------------------------------
As, or as agent for, the bene-
ficial owner(s) of the Securi-
ties to which this certificate
relates.
E-2
<PAGE>
EXHIBIT F
[FORM OF CERTIFICATION TO BE GIVEN
BY THE EUROCLEAR OPERATOR OR
CEDEL BANK, SOCIETE ANONYME]
DEPOSITORY SECURITIES CERTIFICATION
LODESTAR HOLDINGS, INC.
11 1/2% Senior Notes due 2005
CUSIP No. ________
Reference is hereby made to the Indenture, dated as of May 15, 1998 (the
"Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation, as
issuer, the Guarantors named therein, and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This is to certify that, with respect to U.S.$ _________________ principal
amount of the above-captioned Securities (the "Securities"), except as set forth
below, we have received in writing, by tested telex or by electronic
transmission, from member organizations appearing in our records as persons
being entitled to a portion of the principal amount of the Securities (our
"Member Organizations"), certifications with respect to such portion,
substantially to the effect set forth in the Indenture.1
We further certify (i) that we are not making available herewith for exchange
(or, if relevant, exercise of any rights or collection of any interest) any
portion of the Temporary Regulation S Global Security (as defined in the
Indenture) excepted in such certifications and (ii) that as of the date hereof
we have not received any notification from any of our Member Organizations to
the effect that the statements made by such Member Organizations with respect to
any portion of the part submitted herewith for exchange (or, if relevant,
exercise of any rights or collection of any interest) are no longer true and
cannot be relied upon as of the date hereof.
- --------------------
a Unless Morgan Guaranty Trust Company of New York, London Branch is
otherwise informed by the Agent, the long form certificate set out in the
Operating Procedures will be deemed to meet the requirements of this
sentence.
F-1
<PAGE>
We understand that this certification is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification to any interested party in such proceedings. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Company and the Initial Purchasers.
Dated: ___________, ____
Yours faithfully,
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as operator of the Euro-
clear System
or
[CEDEL BANK, SOCIETE ANONYME]
By:
---------------------------------
F-2
<PAGE>
EXHIBIT G
[FORM OF CERTIFICATION TO BE GIVEN BY
TRANSFEREE OF BENEFICIAL INTEREST IN A
TEMPORARY REGULATION S GLOBAL SECURITY]
TRANSFEREE SECURITIES CERTIFICATION
LODESTAR HOLDINGS, INC.
11 1/2% Senior Notes due 2005
CUSIP No._________
Reference is hereby made to the Indenture, dated as of May 15, 1998 (the
"Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation, as
issuer, the Guarantors named therein, and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
For purposes of acquiring a beneficial interest in the Temporary Regulation S
Global Security, the undersigned certifies that it is not a U.S. person as
defined by Regulation S under the Securities Act of 1933, as amended.
We undertake to advise you promptly by tested telex on or prior to the date on
which you intend to submit your certification relating to the Securities held by
you in which we intend to acquire a beneficial interest in accordance with your
operating procedures if any applicable statement herein is not correct on such
date, and in the absence of any such notification it may be assumed that this
certification applies as of such date.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Company and the Initial Purchasers.
Dated: _____________, ____
By:
----------------------------------
As, or as agent for, the bene-
ficial acquiror of the Securi-
ties to which this certificate
relates.
G-1
<PAGE>
EXHIBIT H
FORM OF CERTIFICATION FOR TRANSFER OR
EXCHANGE OF RESTRICTED GLOBAL SECURITY
TO TEMPORARY REGULATION S GLOBAL SECURITY
State Street Bank and Trust Company
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to U.S. $_____________ aggregate principal amount
of Securities which are held in the form of the Restricted Global Security
(CUSIP No. ) with the Depository in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a person who will take delivery thereof in the
form of an equal aggregate principal amount of Securities evidenced by the
Temporary Regulation S Global Security (CUSIP No. ) to be held with the
Depository in the name of [Euroclear] [Cedel Bank, societe anonyme].
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Securities and
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and accordingly the Transferor does
hereby certify that:
(1) the offer of the Securities was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor
H-1
<PAGE>
and any person acting on its behalf reasonably believed that the transferee
was outside the United States;]
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on our behalf knows that the transaction was pre-arranged
with a buyer in the United States;]2
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903 (b) or 904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depository in the
name of [Euroclear] [Cedel Bank, societe anonyme].
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Company and the Initial Purchasers.
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
- ---------------------
a Insert one of these two provisions, which come from the definition of
"offshore transaction" in Regulation S.
H-2
<PAGE>
Dated:
-------------------
cc: Lodestar Holdings, Inc.
H-3
<PAGE>
EXHIBIT I
FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF
RESTRICTED GLOBAL SECURITY TO
PERMANENT REGULATION S GLOBAL SECURITY
State Street Bank and Trust Company,
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to U.S.$____________ aggregate principal amount of
Securities which are held in the form of the Restricted Global Security (CUSIP
No. ) with the Depository in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a person who will take delivery thereof in the
form of an equal aggregate principal amount of Securities evidenced by the
Permanent Regulation S Global Security (CUSIP No. ).
In connection with such request, and in respect of such Securities,
the Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Securities and,
(1) with respect to transfers made in reliance on Regulation S under
the Securities Act of 1933, as amended (the "Securities Act"), the
Transferor does hereby certify that:
(A) the offer of the Securities was not made to a person in the United
States;
[(B) (at the time the buy order was originated, the transferee was
outside the United States or the Transferor
I-1
<PAGE>
and any person acting on its behalf reasonably believed that the transferee
was outside the United States;]
[(C) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on our behalf knows that the transaction was pre-arranged
with a buyer in the United States;]3
(D) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and
(E) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(2) with respect to transfers made in reliance on Rule 144 under the
Securities Act, the Transferor does hereby certify that the Securities are being
transferred in a transaction permitted by Rule 144 under the Securities Act.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Company and the Initial Purchasers.
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
- ----------------------
a Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
I-2
<PAGE>
Dated:
-----------------
cc: Lodestar Holdings, Inc.
I-3
<PAGE>
EXHIBIT J
FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF
TEMPORARY REGULATION S GLOBAL SECURITY
OR PERMANENT REGULATION S GLOBAL SECURITY TO
RESTRICTED GLOBAL SECURITY
State Street Bank and Trust Company,
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to U.S.$ _________ principal amount of Securities
which are evidenced by an aggregate [Temporary Regulation S Global Security
(CUSIP No. ] [Permanent Regulation S Global Security (CUSIP No. ] and held with
the Depository through [Euroclear] [Cedel] (Common Code ______ ) in the name of
[insert name of transferor] (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in Securities to a person that will take
delivery thereof in the form of an equal principal amount of Securities
evidenced by a Restricted Global Security of the same series and of like tenor
as the Securities (CUSIP No. ).
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer is being effected pursuant to
and in accordance with Rule 144A under the Securities Act and, accordingly, the
Transferor does hereby further certify that the Securities are being transferred
to a person that the Transferor reasonably believes is purchasing the Securities
for its own account, or for one or more accounts with respect to which such
person exercises sole investment discretion, and such person and each such
account is a "qualified institutional buyer" within the meaning of Rule 144A, in
each case in a transaction meeting the requirements of
J-1
<PAGE>
Rule 144A and in accordance with any applicable securities laws of any state of
the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchaser.
[Insert Name of Transferor]
By:
------------------------------
Name:
Title:
Dated:
-------------------
cc: Lodestar Holdings, Inc.
J-2
<PAGE>
EXHIBIT K-1
FORM OF CERTIFICATION FOR TRANSFER
OR EXCHANGE OF NON-GLOBAL RESTRICTED SECURITY TO
RESTRICTED GLOBAL SECURITY
State Street Bank and Trust Company
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $ _________ principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by [insert name of transferor]
(the "Transferor"). The Transferor has requested an exchange or transfer of such
Securities.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that (i) such Securities are owned by the
Transferor and are being exchanged without transfer or (ii) such transfer has
been effected pursuant to and in accordance with Rule 144A or Rule 144 under the
United States Securities Act of 1933, as amended (the "Securities Act") and
accordingly the Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule 144A:
(A) the Securities are being transferred to a person that the
Transferor reasonably believes is purchasing the Securities for its
own account, or for one or more accounts with respect to which such
person exercises sole investment discretion;
K-1-1
<PAGE>
(B) such person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A; and
(C) the Securities have been transferred in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable
securities laws of any state of the United States; or
(2) if the transfer has been effected pursuant to Rule 144:
(A) more than two years has elapsed since the date of the closing
of the initial placement of the Securities pursuant to the Purchase
Agreement; and
(B) the Securities have been transferred in a transaction
permitted by Rule 144 and made in accordance with any applicable
securities laws of any state of the United States.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Company and the Initial Purchasers.
Dated: _____________, ____
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
cc: Lodestar Holdings, Inc.
K-1-2
<PAGE>
EXHIBIT K-2
FORM OF CERTIFICATION FOR TRANSFER
OR EXCHANGE OF NON-GLOBAL RESTRICTED SECURITY TO
PERMANENT REGULATION S GLOBAL SECURITY
OR TEMPORARY REGULATION S GLOBAL SECURITY
State Street Bank and Trust Company,
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $ _________ principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by [insert name of transferor]
(the "Transferor"). The Transferor has requested an exchange or transfer of such
Securities.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that (i) such Securities are owned by the
Transferor and are being exchanged without transfer or (ii) such transfer has
been effected pursuant to and in accordance with (a) Rule 903 or Rule 904 under
the Securities Act of 1933, as amended (the "Act"), or (b) Rule 144 under the
Act, and accordingly the Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule 903 or Rule
904:
(A) the offer of the Securities was not made to a person in the United
States;
(B) either;
(i) at the time the buy order was originated, the transferee was
outside the United States or the
K-2-1
<PAGE>
Transferor and any person acting on its behalf reasonably believed
that the transferee was outside the United States, or
(ii) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was pre-arranged with a buyer in the United States;
(C) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
(D) the transaction is not part of a plan or scheme to evade the
registration requirements of the Act; and
(E) if such transfer is to occur during the Restricted Period, upon
completion of the transaction, the beneficial interest being transferred as
described above was held with the Depository through [Euroclear] [CEDEL];
or
(2) if the transfer has been effected pursuant to Rule 144:
(A) more than two years has elapsed since the date of the closing of
the initial placement of the Securities pursuant to the Purchase Agreement;
and
(B) the Securities have been transferred in a transaction permitted by
Rule 144 and made in accordance with any applicable securities laws of any
state of the United States.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such
K-2-2
<PAGE>
proceeding. This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: ____________, ____
[Insert Name of Transferor]
By:
-----------------------------
Name:
Title:
cc: Lodestar Holdings, Inc.
K-2-3
<PAGE>
EXHIBIT L-1
FORM OF CERTIFICATION FOR TRANSFER
OR EXCHANGE OF NON-GLOBAL PERMANENT REGULATION S
SECURITY TO RESTRICTED GLOBAL SECURITY
State Street Bank and Trust Company,
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, and State Street Bank and Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
This letter relates to $ ___________ principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by [insert name of transferor]
(the "Transferor"). The Transferor has requested an exchange or transfer of such
Securities.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that (i) such Securities are owned by the
Transferor and are being exchanged without transfer or (ii) such transfer has
been effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended, and accordingly the Transferor does
hereby further certify that the Securities are being transferred to a person
that the Transferor reasonably believes is purchasing the Securities for its own
account, or for one or more accounts with respect to which such person exercises
sole investment discretion, and such person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States.
We understand that this certificate is required in connection with
certain securities laws of the United States.
L-1-1
<PAGE>
In connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certificate is or would be relevant, we
irrevocably authorize you to produce this certificate to any interested party in
such proceeding. This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers.
Dated: _______________, ____
[Insert Name of Transferor]
By:
------------------------------
Name:
Title:
cc: Lodestar Holdings, Inc.
L-1-2
<PAGE>
EXHIBIT L-2
FORM OF CERTIFICATION FOR TRANSFER
OR EXCHANGE OF NON-GLOBAL PERMANENT REGULATION S
SECURITY TO PERMANENT REGULATION S GLOBAL SECURITY
State Street Bank and Trust Company,
as Trustee
Goodwin Square
225 Asylum, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Lodestar Holdings, Inc.
11 1/2% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of May 15, 1998
(the "Indenture"), by and among Lodestar Holdings, Inc., a Delaware corporation,
as issuer, the Guarantors named therein and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $______________ principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by __________ [insert name of
transferor] (the "Transferor"). The Transferor has requested an exchange or
transfer of such Securities.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that (i) such Securities are owned by the
Transferor and are being exchanged without transfer or (ii) such transfer has
been effected pursuant to and in accordance with (a) Rule 903 or Rule 904 under
the Securities Act of 1933, as amended (the "Act"), or (b) Rule 144 under the
Act, and accordingly the Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule 903 or Rule
904:
(A) the offer of the Securities was not made to a person in the
United States;
(B) either;
L-2-1
<PAGE>
(i) at the time the buy order was originated, the transferee
was outside the United States or the Transferor and any person
acting on its behalf reasonably believed that the transferee was
outside the United States, or
(ii) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither
the Transferor nor any person acting on its behalf knows that the
transaction was pre-arranged with a buyer in the United States;
(C) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or 904 (b) of Regulation S, as
applicable;
(D) the transaction is not part of a plan or scheme to evade the
registration requirements of the Act; and
(E) if such transfer is to occur during the Restricted Period,
upon completion of the transaction, the beneficial interest being
transferred as described above was held with the Depository through
[Euroclear] [CEDEL]; or
(2) if the transfer has been effected pursuant to Rule 144:
(A) more than two years has elapsed since the date of the closing
of the initial placement of the Securities pursuant to the Purchase
Agreement; and
(B) the Securities have been transferred in a transaction
permitted by Rule 144 and made in accordance with any applicable
securities laws of any state of the United States.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained
L-2-2
<PAGE>
herein are made for your benefit and the benefit of the Company and the Initial
Purchasers.
Dated: ______________, ____
[Insert Name of Transferor]
By:
------------------------------
Name:
Title:
cc: Lodestar Holdings, Inc.
L-2-3
<PAGE>
EXHIBIT M
GUARANTEE
For value received, the undersigned hereby unconditionally guarantees,
as principal obligor and not only as a surety, to the Holder of this Security
the cash payments in United States dollars of principal of, premium, if any, and
interest on this Security in the amounts and at the times when due and interest
on the overdue principal, premium, if any, and interest, if any, of this
Security, if lawful, and the payment or performance of all other obligations of
the Company under the Indenture (as defined below) or the Securities, to the
Holder of this Security and the Trustee, all in accordance with and subject to
the terms and limitations of this Security, Article Eleven of the Indenture and
this Guarantee. This Guarantee will become effective in accordance with Article
Eleven of the Indenture and its terms shall be evidenced therein. The validity
and enforceability of any Guarantee shall not be affected by the fact that it is
not affixed to any particular Security. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Indenture dated as of May
15, 1998, by and among Lodestar Holdings, Inc., a Delaware corporation, as
issuer, the Guarantors named therein and State Street Bank and Trust Company, as
trustee, as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to this Guarantee and the Indenture are expressly set forth
in Article Eleven of the Indenture and reference is hereby made to the Indenture
for the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of
any federal or state court in the Borough of Manhattan of the City of New York
for purposes of any legal suit, action or proceeding against it arising out of
or related to this Indenture, the Securities and the Guarantees (a "Related
Proceeding"). The Company hereby consents to the jurisdiction of each such court
for the purposes of any Related Proceeding, and irrevocably waives, to the
fullest extent it may effectively do so, any objection to the laying of venue of
any Related Proceeding in any such court and the defense of an inconvenient
forum to the maintenance of any Related Proceedings in any such court.
M-1
This Guarantee is subject to release upon the terms set forth in the
Indenture.
M-2
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be
duly executed.
Date:
-----------------
LODESTAR ENERGY, INC.
as Guarantor
By:
------------------------------
Name:
Title:
EASTERN RESOURCES, INC.,
as Guarantor
By:
------------------------------
Name:
Title:
INDUSTRIAL FUELS MINERALS COMPANY,
as Guarantor
By:
------------------------------
Name:
Title:
M-3
<PAGE>
Exhibit 4.2
LODESTAR HOLDINGS, INC.,
the GUARANTORS named herein
$150,000,000
11 1/2% Senior Notes due 2005
Purchase Agreement
May 12, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
and
BT ALEX. BROWN INCORPORATED
as Initial Purchasers
<PAGE>
PURCHASE AGREEMENT
$150,000,000
11 1/2% Senior Notes due 2005
LODESTAR HOLDINGS, INC.
May 12, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
LODESTAR HOLDINGS, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation and BT Alex. Brown Incorporated (the "Initial Purchasers") an
aggregate of $150,000,000 in principal amount of its 11 1/2% Senior Notes due
2005, Series A (the "Series A Notes"), subject to the terms and conditions
set forth herein. The Series A Notes are to be issued pursuant to the
provisions of an indenture (the "Indenture"), to be dated as of the Closing
Date (as defined below), by and among the Company, the Guarantors (as defined
below) and State Street Bank and Trust Company, as trustee (the "Trustee").
The Series A Notes and the Series B Notes (as defined below) issuable in
exchange therefor are collectively referred to herein as the "Notes." The
Notes will be guaranteed (the "Subsidiary Guarantees") by the entities listed
on Schedule A hereto (the "Guarantors"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Indenture.
1. Offering Memorandum. The Series A Notes will be offered and
sold to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"Securities Act"). The Company and the Guarantors have prepared a
preliminary offering memorandum, dated April 24, 1998 (the "Preliminary
Offering Memorandum") and a final offering memorandum, dated May 12, 1998
(the "Offering Memorandum"), relating to the Series A Notes and the
Subsidiary Guarantees.
Upon original issuance thereof, and until such time as the same is
no longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
<PAGE>
THE SENIOR NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF
OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (A) REPRESENTS THAT (1) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB") OR (2) IT HAS ACQUIRED THIS SENIOR NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT; (B) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SENIOR
NOTE EXCEPT (1) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (2) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (3) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
904 OF THE SECURITIES ACT, (4) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SENIOR NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT
OF SENIOR NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (6) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (7) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (C) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SENIOR NOTE IN VIOLATION OF THE FOREGOING.
2
<PAGE>
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally, to purchase from the Company, the respective principal amount of
Series A Notes set forth opposite their name on Schedule B hereto at a
purchase price equal to 97.25% of the principal amount thereof.
3. Terms of Offering. The Initial Purchasers have advised
the Company that the Initial Purchasers will make offers (the "Exempt
Resales") of the Series A Notes purchased hereunder on the terms set forth in
the Offering Memorandum, as amended or supplemented, solely to (i) persons
whom the Initial Purchasers reasonably believe to be "qualified institutional
buyers" as defined in Rule 144A under the Securities Act ("QIBs") and (ii) to
persons permitted to purchase the Series A Notes in offshore transactions in
reliance upon Regulation S under the Securities Act (each, a "Regulation S
Purchaser") (such persons specified in clauses (i) and (ii) being referred to
herein as the "Eligible Purchasers"). The Initial Purchasers will offer the
Series A Notes to Eligible Purchasers initially at a price equal to 100.00%
of the principal amount thereof. Such price may be changed at any time
without notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "Registration Rights Agreement"), to be dated the Closing
Date, in substantially the form of Exhibit A hereto, for so long as such
Series A Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company and the Guarantors will agree to file with the
Securities and Exchange Commission (the "Commission") under the circumstances
set forth therein, (i) a registration statement under the Securities Act (the
"Exchange Offer Registration Statement") relating to the Company's 11 1/2%
Senior Notes due 2005, Series B (the "Series B Notes") to be guaranteed by
the Guarantors, to be offered in exchange for the Series A Notes (such offer
to exchange being referred to as the "Exchange Offer") and the Subsidiary
Guarantees thereof and/or (ii) a shelf registration statement pursuant to
Rule 415 under the Securities Act (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, the "Registration
Statements") relating to the resale by certain holders of the Series A Notes
and to use its reasonable efforts to cause such Registration Statements to be
declared and remain effective and usable for the periods specified in the
Registration Rights Agreement and to consummate the Exchange Offer. This
Agreement, the Indenture, the Notes, the Subsidiary Guarantees and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents."
4. Delivery and Payment.4.Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the
Series A Notes shall be made at the offices of Cahill Gordon & Reindel or
such other location as may be mutually acceptable. Such delivery and payment
shall be made at 9:00 a.m. New York City time, on May 15, 1998 or at such
other time on the same date or such other date as shall be agreed upon by the
Initial
3
<PAGE>
Purchasers and the Company in writing. The time and date of such delivery
and the payment for the Series A Notes are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global
form, registered in the name of Cede & Co., as nominee of The Depository
Trust Company ("DTC"), having an aggregate principal amount corresponding to
the aggregate principal amount of the Series A Notes (collectively, the
"Global Note"), shall be delivered by the Company to the Initial Purchasers
(or as the Initial Purchasers direct) in each case with any transfer taxes
thereon duly paid by the Company against payment by the Initial Purchasers of
the Purchase Price thereof by wire transfer in same day funds to the order of
the Company. The Global Note shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on
the business day immediately preceding the Closing Date.
5. Agreements of the Company and the Guarantors. Each of
the Company and the Guarantors hereby agrees with the Initial Purchasers as
follows:
(a) To advise you promptly and, if requested by the Initial
Purchasers, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the
qualification or exemption from qualification of any of the Series A
Notes for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by any state securities commission or
other regulatory authority, and (ii) of the happening of any event
that makes any statement of a material fact made in the Offering
Memorandum untrue or that requires the making of any additions to or
changes in the Offering Memorandum in order to make the statements
therein, in the light of the circumstances under which they are made,
not misleading. The Company and the Guarantors shall use their
reasonable efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of any of the Series A Notes
under any state securities or Blue Sky laws, and if at any time any
state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption of any of the
Series A Notes under any state securities or Blue Sky laws, the
Company and the Guarantors shall use their reasonable efforts to
obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish you, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as you may reasonably request. The
Company consents to the lawful use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and
supplements thereto, by you in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
you shall previously have been advised thereof and shall not have
objected thereto after being furnished a copy thereof. The Company
shall promptly prepare, upon your request, any amendment or supplement
to the Preliminary Offering Memorandum or the Offering Memorandum that
may be reasonably necessary or advisable in connection with Exempt
Resales.
4
<PAGE>
(d) If, after the date hereof and prior to consummation of
any Exempt Resales, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of your counsel,
it becomes necessary to amend or supplement the Offering Memorandum in
order to make the statements therein, in the light of the
circumstances when the Offering Memorandum is delivered to an Eligible
Purchaser which is a prospective purchaser, not misleading, or if it
is necessary to amend or supplement the Offering Memorandum to comply
with applicable law, forthwith to prepare an appropriate amendment or
supplement to the Offering Memorandum so that statements therein as so
amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Offering
Memorandum will comply with applicable law.
(e) To cooperate with you and your counsel in connection with
the qualification of the Series A Notes under the securities or Blue
Sky laws of such jurisdictions as you may request and to continue such
qualification in effect so long as required for the Exempt Resales;
provided, however, that neither the Company nor any of the Guarantors
shall be required in connection therewith to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits or
taxation, other than as to matters and transactions relating to the
Exempt Resales, in any jurisdiction where it is not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, to pay all costs, expenses, fees and taxes incident to and
in connection with: (i) the preparation, printing, filing and
distribution of the Preliminary Offering Memorandum and the Offering
Memorandum (including, without limitation, financial statements and
exhibits) and all amendments and supplements thereto, (ii) the
preparation (including, without limitation, word processing and
duplication costs) and delivery of this Agreement and the other
Operative Documents and all preliminary and final Blue Sky memoranda
and all other agreements, memoranda, correspondence and other
documents prepared and delivered in connection herewith and with the
Exempt Resales, (iii) the issuance and delivery by the Company of the
Notes, (iv) the qualification of the Notes for offer and sale under
the securities or Blue Sky laws of the several states (including,
without limitation, the reasonable fees and disbursements of your
counsel relating to such registration or qualification),
(v) furnishing such copies of the Preliminary Offering Memorandum and
the Offering Memorandum, and all amendments and supplements thereto,
as may be reasonably requested for use in connection with Exempt
Resales, (vi) the preparation of certificates for the Notes
(including, without limitation, printing and engraving thereof), (vii)
the fees, disbursements and expenses of the Company's counsel and
accountants, (viii) all expenses and listing fees in connection with
the application for quotation of the Series A Notes in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (ix) all fees and expenses (including fees
and expenses of counsel) of the Company in connection with approval of
the Notes by DTC, Euroclear or CEDEL for "book-entry" transfer and (x)
the performance by the Company of its other obligations under this
Agreement and the other Operative Documents.
5
<PAGE>
(g) To use the proceeds from the sale of the Series A Notes in
the manner described in the Offering Memorandum under the caption "Use
of Proceeds."
(h) Not to voluntarily claim, and to resist actively any
attempts to claim , the benef it of any usury laws again st the
holders of any Notes .
(i) To do and perform all things required to be done and
performed under this Agreement by it prior to or after the Closing
Date and to satisfy all conditions precedent on its part to the
delivery of the Series A Notes.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the
Securities Act) that would be integrated with the sale of the
Series A Notes in a manner that would require the registration
under the Securities Act of the sale to you or Eligible Purchasers
of the Series A Notes.
(k) For so long as any of the Notes remain outstanding and
during any period in which the Company and the Guarantors are not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to make available to any QIB or
beneficial owner of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Series A Notes from such QIB or
beneficial owner, the information required by Rule 144A(d)(4) under
the Securities Act.
(l) To cause the Exchange Offer to be made in the appropriate
form to permit registration of the Series B Notes and the guarantees
thereof by the Guarantors to be offered in exchange for the Series A
Notes and the Subsidiary Guarantees and to comply in all material
respects with all applicable federal and state securities laws in
connection with the Exchange Offer.
(m) To comply in all material respects with all of its
agreements set forth in the Registration Rights Agreement, and all
agreements set forth in the representation letter of the Company and
the Guarantors to DTC relating to the approval of the Notes by DTC for
"book-entry" transfer and any similar such letter, if any, with
Euroclear or CEDEL.
(n) To use reasonable efforts to effect the inclusion of the
Series A Notes in PORTAL.
(o) During a period of five years following the date of this
Agreement, to deliver to you promptly upon their becoming available,
copies of all current, regular and periodic reports filed by the
Company or the Guarantors with the Commission or any securities
exchange or with any governmental authority succeeding to any of the
Commission's functions.
6. Representations and Warranties. Each of the Company and
the Guarantors represents and warrants to you that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering
6
<PAGE>
Memorandum as of its date did not, and the Offering Memorandum does
not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties contained in this paragraph (i)
shall not apply to statements in or omissions from the Preliminary
Offering Memorandum and the Offering Memorandum (or any supplement or
amendment thereto) made in reliance upon and in conformity with
information relating to you furnished to the Company in writing by you
expressly for use therein. No stop order preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of
the transactions contemplated by this Agreement are subject to the
registration requirements of the Securities Act, has been issued.
Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Securities
Act.
(b) When the Series A Notes are issued and delivered pursuant to
this Agreement, none of the Series A Notes will be of the same class
(within the meaning of Rule 144A under the Securities Act) as
securities of the Company that are listed on a national securities
exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
(c) The Company and each of its subsidiaries has been duly
organized, is validly existing as a corporation in good standing under
the laws of its respective jurisdiction of incorporation has all
requisite power and authority to carry on its business as it is
currently being conducted and as described in the Offering Memorandum
and to own, lease and operate its properties, and is duly qualified
and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification.
(d) The entities listed on Schedule A hereto are the only
subsidiaries, direct or indirect, of the Company. The Company owns,
directly or indirectly through other subsidiaries, 100% of the
outstanding capital stock of such subsidiaries, free and clear of any
security interest, claim, lien, limitation on voting rights or other
encumbrances, except for such encumbrances contemplated in the
Offering Memorandum; and all of such capital stock have been duly
authorized, validly issued, are fully paid and nonassessable and were
not issued in violation of any preemptive or similar rights. There
are no outstanding subscriptions, rights, warrants, calls, commitments
of sale or options to acquire, or instruments convertible into or
exchangeable for, any such shares of capital stock of such
subsidiaries.
(e) The Company and the Guarantors have all requisite corporate
power and authority to execute, deliver and perform their obligations
under this Agreement, the Registration Rights Agreement and the other
Operative Documents to which they are parties and to consummate the
transactions contemplated hereby and thereby, including, without
limitation, with respect to the Company, the corporate power and
authority to issue, sell
7
<PAGE>
and deliver the Notes, and, with respect to the Guarantors, the
corporate power and authority to deliver the Subsidiary Guarantees, as
provided herein and therein.
(f) This Agreement has been duly and validly authorized,
executed and delivered by the Company and the Guarantors and is the
legally valid and binding agreement of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance with
its terms, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally, (ii) as to general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity, (iii) to the extent that a waiver of
rights under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
(g) The Indenture has been duly and validly authorized by each
of the Company and the Guarantors and, when duly executed and
delivered by the Company and the Guarantors, will be the legally valid
and binding obligation of the Company and each of the Guarantors,
enforceable against the Company and the Guarantors in accordance with
its terms, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally, (ii) as to general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity, (iii) to the extent that a waiver of
rights under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. The
Indenture, when executed and delivered, will conform to the
description thereof in the Offering Memorandum.
(h) The Series A Notes have been duly and validly authorized for
issuance and sale to you by the Company pursuant to this Agreement
and, when issued and authenticated in accordance with the terms of the
Indenture and delivered against payment therefor in accordance with
the terms hereof, will be the legally valid and binding obligations of
the Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture, except (i) as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
and remedies generally, (ii) as to general principles of equity,
regardless of whether enforcement is sought in a proceeding at law or
in equity, (iii) to the extent that a waiver of rights under any usury
laws may be unenforceable and (iv) as rights to indemnity and
contribution may be limited by federal or state securities laws or the
public policy underlying such laws. The Series A Notes, when issued,
authenticated and delivered, will conform to the description thereof
in the Offering Memorandum.
(i) The Series B Notes have been duly and validly authorized for
issuance by the Company, and when issued and authenticated in
accordance with the terms of the Indenture, the Registration Rights
Agreement and the Exchange Offer, will be the legally valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting
8
<PAGE>
creditors' rights and remedies generally, (ii) as to general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity, (iii) to the extent that a waiver of
rights under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
(j) The Subsidiary Guarantees to be endorsed on the Series A
Notes by each Guarantor have been duly authorized by the Guarantors
and, on the Closing Date, will have been duly executed and delivered
by each Guarantor. When the Series A Notes have been issued, executed
and authenticated in accordance with the Indenture and delivered to
and paid for by the Initial Purchasers in accordance with the terms of
this Agreement, the Subsidiary Guarantees will be entitled to the
benefits of the Indenture and will be the valid and binding obligation
of each Guarantor, enforceable against the Guarantors in accordance
with its terms, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally, (ii) as to general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity, (iii) to the extent that a waiver of
rights under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. On the
Closing Date, the Subsidiary Guarantees to be endorsed on the Series A
Notes will conform to the description thereof contained in the
Offering Memorandum.
(k) The Subsidiary Guarantees to be endorsed on the Series B
Notes by each Guarantor has been duly authorized by the Guarantors
and, when the Series B Notes are issued, will have been duly executed
and delivered by the Guarantors. When the Series B Notes have been
issued, executed and authenticated in accordance with the terms of the
Exchange Offer and the Indenture, the Subsidiary Guarantees will be
entitled to the benefits of the Indenture and will be the valid and
binding obligation of the Guarantors, enforceable against the
Guarantors in accordance with its terms, except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally, (ii) as to general principles of equity, regardless of
whether enforcement is sought in a proceeding at law or in equity,
(iii) to the extent that a waiver of rights under any usury laws may
be unenforceable and (iv) as rights to indemnity and contribution may
be limited by federal or state securities laws or the public policy
underlying such laws. When the Series B Notes are issued,
authenticated and delivered, the Subsidiary Guarantees to be endorsed
on the Series B Notes will conform to the description thereof in the
Offering Memorandum.
(l) The Registration Rights Agreement has been duly and validly
authorized by the Company and each of the Guarantors and, when duly
executed and delivered by the Company and each of the Guarantors, will
be the legally valid and binding obligation of the Company and each of
the Guarantors, enforceable against the Company and each of the
Guarantors in accordance with its terms, except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally, (ii) as to general principles of equity, regardless of
whether enforcement is sought in a proceeding at law or in equity,
(iii) to the extent that a waiver of
9
<PAGE>
rights under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. The
Registration Rights Agreement, when executed and delivered, will
conform to the description thereof in the Offering Memorandum.
(m) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or bylaws, is in default in the
performance of any bond, debenture, note, indenture, mortgage, deed of
trust or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, or,
other than as disclosed in the Offering Memorandum or as would not
result in a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise), affairs or
prospects of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"), is in violation of any law, statute, rule,
regulation, judgment or court decree applicable to the Company, any of
its subsidiaries or their assets or properties. There exists no
condition that, with notice, the passage of time or otherwise, would
constitute a default under any such document or instrument.
(n) The execution, delivery and performance by the Company and
each of the Guarantors of this Agreement and the other Operative
Documents to which it is a party, the issuance and sale of the Notes,
the issuance of the Subsidiary Guarantees, and the consummation of the
transactions contemplated hereby and thereby will not violate,
conflict with or constitute a breach of any of the terms or provisions
of, or a default under (or an event that with notice or the lapse of
time, or both, would constitute a default), or require consent under,
or, except as contemplated in the Offering Memorandum, result in the
imposition of a lien or encumbrance on any properties of the Company
or any of its subsidiaries, or an acceleration of indebtedness
pursuant to, (i) the charter or bylaws of the Company or any of its
subsidiaries, (ii) any bond, debenture, note, indenture, mortgage,
deed of trust or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which any of them or their
property is or may be bound, (iii) any statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of their
assets or properties, or (iv) any judgment, order or decree of any
court or governmental agency or authority having jurisdiction over the
Company, any of its subsidiaries or their assets or properties. No
consent, approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency is required for the execution,
delivery and performance of this Agreement and the other Operative
Documents and the consummation of the transactions contemplated hereby
and thereby, except such as have been obtained and made (or, in the
case of the Registration Rights Agreement, will be obtained and made)
under the Securities Act, the Trust Indenture Act, and state
securities or Blue Sky laws and regulations or such as may be required
by the NASD. No consents or waivers from any other person are
required for the execution, delivery and performance of this Agreement
and the other Operative Documents and the consummation of the
transactions contemplated hereby and thereby, other than such consents
and waivers as have been obtained (or, in the case of the Registration
Rights Agreement, will be obtained).
10
<PAGE>
(o) Other than as disclosed in the Offering Memorandum, there is
(i) no action, suit or proceeding before or by any court, arbitrator
or governmental agency, body or official, domestic or foreign, now
pending or threatened or contemplated to which the Company or any of
its subsidiaries is or may be a party or to which the business or
property of the Company or any of its subsidiaries is or may be
subject, (ii) no statute, rule, regulation, or order that has been
enacted, adopted or issued by any governmental agency or that has been
proposed by any governmental body, (iii) no injunction, restraining
order or order of any nature by a federal or state court or foreign
court of competent jurisdiction to which the Company or any of its
subsidiaries is or may be subject issued that, in the case of clauses
(i), (ii) and (iii) above, (x) might, singly or in the aggregate,
result in a Material Adverse Effect, (y) would interfere with or
adversely affect the issuance of the Notes and the Subsidiary
Guarantees or (z) in any manner draw into question the validity of
this Agreement, the Indenture, the Registration Rights Agreement or
any other Operative Document.
(p) No action has been taken and no statute, rule or regulation
or order has been enacted, adopted or issued by any governmental
agency that prevents the issuance of the Notes and the Subsidiary
Guarantees; no injunction, restraining order or order of any nature by
a federal or state court of competent jurisdiction has been issued
that prevents the issuance of the Notes and the Subsidiary Guarantees
or suspends the sale of the Notes and the Subsidiary Guarantees in any
jurisdiction referred to in Section 5(e) hereof; and no action, suit
or proceeding is pending against or affecting or, to the best
knowledge of the Company and any of its subsidiaries, threatened
against, the Company or any of its subsidiaries before any court or
arbitrator or any governmental body, agency or official which, if
adversely determined, would prohibit, interfere with or adversely
affect the issuance or marketability of the Notes and the Subsidiary
Guarantees or in any manner draw into question the validity of any
Operative Document; and every request of any securities authority or
agency of any jurisdiction for additional information has been
complied with in all material respects.
(q) Other than as disclosed in the Offering Memorandum, there is
(i) no significant unfair labor practice complaint pending against the
Company or any of its subsidiaries nor, to the best knowledge of the
Company and its subsidiaries, threatened against any of them, before
the National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the
Company or any or its subsidiaries or, to the best knowledge of the
Company and its subsidiaries, threatened against any of them, (ii) no
significant strike, labor dispute slowdown or stoppage pending against
the Company or any of its subsidiaries nor, to the best knowledge of
the Company and its subsidiaries, threatened against the Company or
any of its subsidiaries and (iii) to the best knowledge of the Company
and its subsidiaries, no union representation question existing with
respect to the employees of the Company and its subsidiaries and, to
the best knowledge of the Company and its subsidiaries, no union
organizing activities are taking place. Neither the Company nor any
of its subsidiaries has violated any federal, state or local law or
foreign law relating to discrimination in hiring, promotion or pay of
employees, nor any applicable wage or hour laws, nor any provision of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations thereunder, which might result
in a Material Adverse Effect.
11
<PAGE>
(r) In the ordinary course of its business, each of the Company
and its subsidiaries conducts periodic reviews of the effect of
Environmental Laws (as defined herein) and the handling, storage,
transport, treatment and disposal of Hazardous Materials (as defined
herein) on the business, operations and properties of the Company and
its subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, all
capital and operating expenditures required for response and
corrective actions, closure of properties and compliance with
Environmental Laws, all permits, licenses and approvals, all related
constraints on operating activities and all potential liabilities to
third parties). On the basis of such reviews, the Company has
reasonably concluded that such associated costs and liabilities would
not have a Material Adverse Effect other than as disclosed in the
Offering Memorandum. Neither the Company nor any of its subsidiaries
has violated any Environmental Law applicable to it or its business or
property, or is subject to any liability under any Environmental Law,
lacks any permit, license or other approval required of them under
applicable Environmental Laws or is violating any Environmental Law or
term or condition of such permit, license or approval which might have
a Material Adverse Effect, in each case, other than as disclosed in
the Offering Memorandum. For the purposes of this Agreement,
"Environmental Laws" shall mean any federal, state and local laws,
rules or regulations, any orders, decrees, judgments or injunctions
and the common law relating to pollution or protection of human
health, safety or the environment, including, without limitation,
ambient air, indoor air, soil, surface water, ground water, wetlands,
land or subsurface strata, including, without limitation, those
relating to releases or threatened releases of Hazardous Materials
into the environment, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. For the
purposes of this Agreement, "Hazardous Material" shall mean any
pollutant, contaminant, toxic, hazardous or extremely hazardous
substance, constituent or waste, or any other constituent, waste,
material, compound or substance, including, without limitation,
petroleum including crude oil and any fraction thereof, or any
petroleum product, subject to regulation under any Environmental Law.
(s) Each of the Company and its subsidiaries has (i) good and
marketable title to all of the properties and assets described in the
Offering Memorandum as owned by it, free and clear of all liens,
charges, encumbrances and restrictions, except such as are described
in the Offering Memorandum or as would not have a Material Adverse
Effect, (ii) peaceful and undisturbed possession under all leases to
which it is party as lessee, (iii) all licenses, certificates,
permits, authorizations, approvals, franchises and other rights from,
and has made all declarations and filings with, all federal, state and
local authorities, all self-regulatory authorities and all courts and
other tribunals (each an "Authorization") necessary to engage in the
business currently conducted by it in the manner described in the
Offering Memorandum, except where failure to hold such Authorizations
would not have a Material Adverse Effect and (iv) other than as
disclosed in the Offering Memorandum, no reason to believe that any
governmental body or agency is considering limiting, suspending or
revoking any such Authorization. All such Authorizations are valid
and in full force and effect and the Company and its subsidiaries are
in compliance in all material respects with the terms and conditions
of all such Authorizations and with the rules and regulations of the
regulatory authorities having jurisdiction with respect thereto. All
leases to which the Company or any
12
<PAGE>
of its subsidiaries is a party are valid and binding and no default by
the Company or any of its subsidiaries has occurred and is continuing
thereunder, and no material defaults by the landlord are existing
under any such lease.
(t) All tax returns required to be filed by the Company or any
of its subsidiaries, in all jurisdictions, have been so filed. All
taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such
entities or that are due and payable have been paid, other than those
being contested in good faith and for which adequate reserves have
been provided or those currently payable without penalty or interest.
Neither the Company nor any of its subsidiaries knows of any material
proposed additional tax assessments against it or any of its
subsidiaries.
(u) Neither the Company nor any of its subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), or (ii) a "holding company" or
a "subsidiary company" or an "affiliate" of a holding company within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(v) There are no holders of securities of the Company or the
Guarantors who, by reason of the execution by the Company and the
Guarantors of this Agreement or any other Operative Document to which
they are a party or the consummation of the transactions contemplated
hereby and thereby, have the right to request or demand that the
Company or the Guarantors register under the Securities Act or
analogous foreign laws and regulations securities held by them.
(w) The authorized, issued and outstanding capital stock of the
Company has been duly and validly authorized and issued, is fully paid
and nonassessable and was not issued in violation of or subject to any
preemptive or similar rights. The Company and its subsidiaries had at
January 31, 1998, an authorized and outstanding capitalization as set
forth in the Offering Memorandum.
(x) Each certificate signed by any officer of the Company or the
Guarantors and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty
by the Company or the Guarantors to the Initial Purchasers as to the
matters covered thereby.
(y) The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
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<PAGE>
(z) The Company and each of its subsidiaries maintains insurance
covering their properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and
its subsidiaries and their businesses. Neither the Company nor any of
its subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof and will
be outstanding and duly in force on the Closing Date.
(aa) Neither the Company nor any of its subsidiaries has (i)
taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any of its
subsidiaries to facilitate the sale or resale of the Notes or the
Subsidiary Guarantees or (ii) since the date of the Preliminary
Offering Memorandum (A) sold, bid for, purchased or paid any person
any compensation for soliciting purchases of, the Notes or the
Subsidiary Guarantees or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company or any of its subsidiaries.
(bb) No registration under the Securities Act of the Series A
Notes is required for the sale of the Series A Notes to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming
(i) that the purchasers who buy the Series A Notes in the Exempt
Resales are either QIBs or Regulation S Purchasers and (ii) the
accuracy of the Initial Purchasers' representations regarding the
absence of general solicitation in connection with the sale of
Series A Notes to the Initial Purchasers and the Exempt Resales
contained herein. No form of general solicitation or general
advertising was used by the Company or any of its representatives in
connection with the offer and sale of any of the Series A Notes or in
connection with Exempt Resales, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising. No securities of the
same class as the Series A Notes have been issued and sold by the
Company within the six-month period immediately prior to the date
hereof.
(cc) Set forth on Exhibit B hereto is a list of each employee
pension or benefit plan maintained by the Company or any of its
subsidiaries. The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Series A Notes to be purchased
by the Eligible Purchasers will not involve any prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended. The representation made by
the Company in the preceding sentence is made in reliance upon and
subject to the accuracy of, and compliance with, the representations
and covenants made or deemed made by the Eligible Purchasers as set
forth in the Offering Memorandum under the Section entitled "Notice to
Investors."
(dd) Subsequent to the respective dates as of which information
is given in the Offering Memorandum and up to the Closing Date, except
as set forth in the Offering Memorandum, neither the Company nor any
of its subsidiaries has incurred any liabilities
14
<PAGE>
or obligations, direct or contingent, which are material to the
Company and its subsidiaries taken as a whole, nor entered into any
transaction not in the ordinary course of business, there has not
been, singly or in the aggregate, any material adverse change, or any
development which may reasonably be expected to involve a material
adverse change, in the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the
Company and its subsidiaries, taken as a whole (a "Material Adverse
Change") and there have not been dividends or distributions of any
kind declared, paid or made by the Company or any of its subsidiaries
on any class of its capital stock.
(ee) Neither the Company nor any agent thereof acting on the
behalf of the Company has taken, and the Company will not take, any
action that might cause this Agreement or the issuance or sale of the
Notes to violate Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System or analogous foreign laws and
regulations.
(ff) The accountants who have certified or shall certify the
financial statements and supporting schedules included or to be
included as part of the Offering Memorandum are independent
accountants. The consolidated financial statements of the Company
and its subsidiaries and Costain Coal Inc. (the "Predecessor Company")
and its subsidiaries fairly present the consolidated financial
condition and results of operations of the Company and its
subsidiaries and the Predecessor Company and its subsidiaries, at the
respective dates and for the respective periods indicated, in
accordance with generally accepted accounting principles consistently
applied throughout such periods, except as stated therein. The pro
forma data has been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified
therein, and give effect to assumptions made on a reasonable basis and
present fairly the historical and proposed transactions contemplated
by this Agreement and the other Operative Documents. Other financial
and statistical information and data included in the Offering
Memorandum, historical and pro forma, are accurately presented and
prepared on a basis consistent with such financial statements and the
books and records of the Company and its subsidiaries.
(gg) The present fair saleable value of the Company's assets
exceeds the Company's stated liabilities and contingent liabilities,
and the Company can pay its debts as they become absolute and mature.
The capital of the Company is not unreasonably small for the business
in which the Company is engaged, as it is now conducted and is
proposed to be conducted. The Company does not intend to, nor does it
believe that it will, incur debts beyond its ability to pay such debts
as they mature. Upon the issuance of the Series A Notes, the present
fair saleable value of the Company's assets will exceed the Company's
stated liabilities and contingent liabilities, and the Company will be
able to pay its debts as they become absolute and mature. The
capital of the Company, upon the issuance of the Series A Notes, will
not be unreasonably small for the business in which the Company is
engaged, as it is now conducted and is proposed to be conducted.
(hh) There are no contracts, agreements or understandings
between the Company or any of its subsidiaries and any person that
would give rise to a valid claim against the
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Company, its subsidiaries or the Initial Purchasers for a brokerage
commission, finder's fee or like payment in connection with the
issuance, purchase and sale of the Notes.
The Company acknowledges that the Initial Purchasers and, for the
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consent to such reliance.
7. Initial Purchasers' Representations and Warranties. The
Initial Purchasers represent and warrant to, and agree with, the Company and the
Guarantors that:
(a) The Initial Purchasers are QIBs, with such knowledge and
experience in financial and business matters as are necessary in order
to evaluate the merits and risks of an investment in the Series A
Notes.
(b) The Initial Purchasers (A) are not acquiring the Series A
Notes with a view to any distribution thereof that would violate the
Securities Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering
and reselling the Series A Notes only to QIBs in reliance on the
exemption from the registration requirements of the Securities Act
provided by Rule 144A and in offshore transactions in compliance with
Regulation S under the Securities Act.
(c) No form of general solicitation or general advertising has
been or will be used by it or any of its representatives in connection
with the offer and sale of any of the Series A Notes, including, but
not limited to, articles, notices or other communications published in
any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising.
(d) The Initial Purchasers agree that, in connection with the
Exempt Resales, they will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, QIBs and
Regulation S Purchasers in offshore transactions in compliance with
Regulation S under the Securities Act. The Initial Purchasers further
agree (A) that they will offer to sell the Series A Notes only to, and
will solicit offers to buy the Series A Notes only from, (1) QIBs who
in purchasing such Series A Notes will be deemed to have represented
and agreed that they are purchasing the Series A Notes for their own
account or accounts with respect to which they exercise sole
investment discretion and that they or such accounts are QIBs and (2)
Regulation S Purchasers in offshore transactions in compliance with
Regulation S under the Securities Act and (B) that, in the case of
such QIBs and Regulation S Purchasers, acknowledges and agrees that
such Series A Notes will not have been registered under the Securities
Act and may be resold, pledged or otherwise transferred only (x)(I) to
a person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, (II) in a transaction meeting
the requirements of Rule 144, (III) to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities
Act or (IV) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (y) to the Company and (z)
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<PAGE>
pursuant to an effective registration statement under the Securities
Act and, in each case, in accordance with any applicable securities
laws of any state of the United States or any other applicable
jurisdiction and (C) that the holder will, and each subsequent holder
is required to, notify any purchaser from it of the security evidenced
thereby of the resale restrictions set forth in (B) above.
(e) The Initial Purchasers will comply with the applicable
provisions of Rule 144A under the Securities Act and Regulation S
under the Securities Act.
(f) The Initial Purchasers also understand that the Company and
the Guarantors and, for purposes of the opinions to be delivered to
you pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations and hereby
consents to such reliance.
8. Indemnification.8.Indemnification.
(a) The Company and each Guarantor agree, jointly and severally,
to indemnify and hold harmless the Initial Purchasers and its
directors and its officers and each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) the Initial Purchasers, from and against any and
all losses, claims, damages, liabilities and judgments (including,
without limitation, any legal or other expenses incurred in connection
with investigating or defending any matter, including any action, that
could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto) or the Preliminary Offering
Memorandum or any information provided by the Company or the
Guarantors to any prospective purchaser of Series A Notes pursuant to
Section 5(k) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any
such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Initial Purchasers
furnished in writing to the Company by the Initial Purchasers;
provided, however, that the foregoing indemnity agreement with respect
to any Preliminary Offering Memorandum shall not inure to the benefit
of the Initial Purchasers if they failed to deliver a Final Offering
Memorandum (as then amended or supplemented, provided by the Company
to the Initial Purchasers in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to
the person asserting any losses, claims, damages, liabilities and
judgments caused by any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Offering Memorandum,
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such untrue statement or
omission or alleged untrue statement or omission was cured in the
Final Offering Memorandum.
(b) The Initial Purchasers agree, severally and not jointly, to
indemnify and hold harmless the Company, and the Guarantors, and their
respective directors and officers and each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) the Company or the Guarantors, to the
same extent as the foregoing
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<PAGE>
indemnity from the Company and the Guarantors to the Initial
Purchasers but only with reference to information relating to the
Initial Purchasers furnished in writing to the Company by the Initial
Purchasers expressly for use in the Preliminary Offering Memorandum or
the Offering Memorandum.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a)
or 8(b) (the "indemnified party"), the indemnified party shall
promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing and the indemnifying party shall
assume the defense of such action, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of
all fees and expenses of such counsel, as incurred (except that in the
case of any action in respect of which indemnity may be sought
pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall
not be required to assume the defense of such action pursuant to this
Section 8(c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Initial Purchasers).
Any indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have
been specifically authorized in writing by the indemnifying party,
(ii) the indemnifying party shall have failed to assume the defense of
such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party
and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying
party shall not have the right to assume the defense of such action on
behalf of the indemnified party). In any such case, the indemnifying
party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for all indemnified
parties and all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Donaldson,
Lufkin & Jenrette Securities Corporation as representative of the
Initial Purchasers, in the case of the parties indemnified pursuant to
Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and
hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with the indemnifying party's
written consent or (ii) effected without the indemnifying party's
written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and
expenses of counsel (in any case where such fees and expenses are at
the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement
or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the
indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the
indemnified party, unless such
18
<PAGE>
settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability on claims that are
or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments
referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as
is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, from the offering of the Series A Notes
or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(d)(i)
above but also the relative fault of the Company and the Guarantors,
on the one hand, and the Initial Purchasers, on the other hand, in
connection with the untrue statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors, on the one hand, and the
Initial Purchasers, on the other hand, shall be deemed to be in the
same proportion as the total net proceeds from the offering of the
Series A Notes (after underwriting discounts and commissions, but
before deducting expenses) received by the Company, and the total
discounts and commissions received by the Initial Purchasers bear to
the total price to investors of the Series A Notes, in each case as
set forth in the table on the cover page of the Offering Memorandum.
The relative fault of the Company and the Guarantors, on the one hand,
and the Initial Purchasers, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company
or the Guarantors, on the one hand, or the Initial Purchasers, on the
other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company, the Guarantors and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to
this Section 8(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or
other expenses incurred by such indemnified party in connection with
investigating or defending any matter, including any action that could
have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, the
Initial Purchasers shall not be required to contribute any amount in
excess of the amount by which the total discounts and commissions
received by the Initial Purchasers exceeds the amount of any damages
which the Initial Purchasers have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent
19
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The
obligations of the Initial Purchasers to purchase the Series A Notes under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All of the representations and warranties of the Company and
the Guarantors contained in this Agreement shall be true and correct
on the date hereof and on the Closing Date with the same force and
effect as if made on and as of the date hereof and the Closing Date,
respectively. The Company and the Guarantors shall have performed or
complied with all of the agreements herein contained and required to
be performed or complied with by it at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Eligible Purchasers to whom the Initial Purchasers
intend to resell in Exempt Resales the Series A Notes on the Closing
Date not later than 10:00 a.m., New York City time, on the date of
this Agreement or at such later date and time as to which you may
agree, and no stop order suspending the qualification or exemption
from qualification of any of the Series A Notes in any jurisdiction
referred to in Section 5(e) shall have been issued and no proceeding
for that purpose shall have been commenced or shall be pending or
threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of any of the Series A Notes; no action, suit or proceeding
shall be pending against or affecting or, to the knowledge of the
Company, threatened against, the Company or any of its subsidiaries
before any court or arbitrator or any governmental body, agency or
official that, if adversely determined, would prohibit, interfere with
or adversely affect the issuance of the Series A Notes or would have a
Material Adverse Effect, or in any manner draw into question the
validity of any of the Operative Documents; and no stop order
preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the
registration requirements of the Securities Act shall have been
issued.
(d) Since the dates as of which information is given in the
Offering Memorandum and other than as contemplated in the Offering
Memorandum, (i) there shall not have been any material change, or any
development that is reasonably likely to result in a material change,
in the capital stock or the long-term debt, or material increase in
the short-term debt, of the Company or any of its subsidiaries from
that set forth in the Offering Memorandum, (ii) no dividend or
distribution of any kind shall have been declared, paid or made by the
Company or any of its subsidiaries on any class of its capital stock,
and (iii) neither the Company nor any of its subsidiaries shall have
incurred any liabilities or
20
<PAGE>
obligations, direct or contingent, that are material, individually or
in the aggregate, to the Company and its subsidiaries, taken as a
whole, and that are required to be disclosed on a balance sheet in
accordance with generally accepted accounting principles and are not
disclosed on the latest balance sheet included in the Offering
Memorandum. Since the date hereof and since the dates as of which
information is given in the Offering Memorandum, there shall not have
been any Material Adverse Change.
(e) You shall have received certificates, dated the Closing
Date, signed by (i) the Chairman, Chief Executive Officer, President,
Chief Operating Officer or any Vice President and (ii) a principal
financial or accounting officer of the Company and each of the
Guarantors confirming, as of the Closing Date, the matters set forth
in paragraphs (a), (b), (c) and (d) of this Section 9.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and your counsel), dated the Closing Date, of
Cadwalader, Wickersham & Taft, counsel for the Company and the
Guarantors to the effect that:
(i) each of the Company and Lodestar is organized and
validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation, has all
requisite power and authority to own, lease and operate its
properties and to conduct its business as it is currently
being conducted and as described in the Offering Memorandum,
and is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in
which the ownership, leasing and operating of its property and
the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a
Material Adverse Effect;
(ii) the entities listed on Schedule A hereto are the only
subsidiaries, direct or indirect, of the Company. The Company
owns, directly or indirectly through other subsidiaries, 100% of
the outstanding capital stock of such subsidiaries, to such
counsel's knowledge, free and clear of any security interest,
claim, lien, limitation on voting rights or other encumbrances,
except for such encumbrances contemplated in the Offering
Memorandum; and all of such capital stock has been duly
authorized, validly issued, is fully paid and nonassessable and
was not issued in violation of any preemptive or similar rights.
To such counsel's knowledge, there are no outstanding
subscriptions, rights, warrants, calls, commitments of sale or
options to acquire, or instruments convertible into or
exchangeable for, any such shares of capital stock of such
subsidiaries;
(iii) each of the Company and Lodestar has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Agreement, the Indenture, the Registration
Rights Agreement and the other Operative Documents to which it is
a party and to consummate the transactions contemplated hereby or
thereby, including, without limitation, with respect to the
Company, the corporate power and authority to issue, sell and
deliver the Notes and the Subsidiary Guarantees as provided
herein;
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(iv) this Agreement has been duly and validly authorized,
executed and delivered by the Company and Lodestar;
(v) the Indenture has been duly and validly authorized,
executed and delivered by the Company and Lodestar and (assuming
the due authorization, execution and delivery thereof by Eastern
Resources, Inc. ("Eastern Resources"), Industrial Fuels Minerals
Company ("Industrial Fuels") and the Trustee) will be the legally
valid and binding obligation of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance
with its terms, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights and remedies generally, (ii) as
to general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity, (iii)
to the extent that a waiver of rights under any usury laws may be
unenforceable and (iv) as rights to indemnity and contribution
may be limited by federal or state securities laws or the public
policy underlying such laws. The Indenture, when duly executed
and delivered, will conform to the description thereof in the
Offering Memorandum;
(vi) the Series A Notes have been duly and validly
authorized for issuance and sale to you by the Company pursuant
to this Agreement and, when issued and authenticated in
accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms hereof, will be the
legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled
to the benefits of the Indenture, except (i) as such enforcement
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and
remedies generally, (ii) as to general principles of equity,
regardless of whether enforcement is sought in a proceeding at
law or in equity, (iii) to the extent that a waiver of rights
under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. The
Series A Notes, when issued, authenticated and delivered, will
conform to the description thereof in the Offering Memorandum;
(vii) the Series B Notes have been duly and validly
authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Indenture, the
Registration Rights Agreement and the Exchange Offer, will be the
legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled
to the benefits of the Indenture, except (i) as such enforcement
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and
remedies generally, (ii) as to general principles of equity,
regardless of whether enforcement is sought in a proceeding at
law or in equity, (iii) to the extent that a waiver of rights
under any usury laws may be unenforceable and (iv) as rights to
indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws;
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(viii) the Subsidiary Guarantee of Lodestar has been duly
authorized by Lodestar and (assuming that the Subsidiary
Guarantees of Eastern Resources and Industrial Fuels have been
duly authorized, executed and delivered by Eastern Resources and
Industrial Fuels, respectively) when the Series A Notes are
executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the
Subsidiary Guarantees endorsed thereon will be entitled to the
benefits of the Indenture and will be valid and binding
obligations of the Guarantors, enforceable in accordance with
their terms except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights and remedies generally, (ii) as
to general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity, (iii)
to the extent that a waiver of rights under any usury laws may be
unenforceable and (iv) as rights to indemnity and contribution
may be limited by federal or state securities laws or the public
policy underlying such laws. The Subsidiary Guarantees, when
issued, authenticated and delivered, will conform to the
description thereof in the Offering Memorandum;
(ix) the Registration Rights Agreement has been duly and
validly authorized, executed and delivered by the Company and
Lodestar and (assuming the due authorization, execution and
delivery thereof by Eastern Resources, Industrial Fuels and the
Initial Purchasers) will be the legally valid and binding
obligation of the Company and the Guarantors , enforceable
against the Company and the Guarantors in accordance with its
terms, except (i) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights and remedies generally (ii) as
to general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity and
(iii) as rights to indemnity and contribution may be limited by
federal or state securities laws or the public policy underlying
such laws. The Registration Rights Agreement, when duly executed
and delivered, will conform to the description thereof in the
Offering Memorandum;
(x) when the Series A Notes are issued and delivered
pursuant to this Agreement, none of the Series A Notes will be of
the same class (within the meaning of Rule 144A under the
Securities Act) as securities of the Company that are listed on a
national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a United States automated
inter-dealer quotation system;
(xi) no registration under the Securities Act of any of the
Series A Notes is required for the sale of the Series A Notes to
you as contemplated hereby or for the Exempt Resales assuming (i)
that each of the Eligible Purchasers is a QIB or a Regulation S
Purchaser and (ii) the accuracy of your representations regarding
the absence of general solicitation in connection with the sale
of the Series A Notes to you and the Exempt Resales contained
herein;
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<PAGE>
(xii) neither the Company nor Lodestar is in violation of
its respective charter or bylaws or, to such counsel's knowledge,
is in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture,
mortgage or deed of trust or other material agreement to which it
is a party or by which it is bound or to which any of its
properties is subject or, other than as disclosed in the Offering
Memorandum or as would not result in a Material Adverse Effect,
is in violation of any law, statute, rule, regulation, judgment
or court decree applicable to the Company or its subsidiaries
and, to such counsel's knowledge, there exists no condition that,
with notice, the passage of time or otherwise, would constitute
such default under any such document or instrument, which any
such default or violation would result in a Material Adverse
Effect;
(xiii) the execution, delivery and performance by the
Company and Lodestar of this Agreement and the other Operative
Documents to which they are parties, the issuance and sale of the
Notes, and the consummation of the transactions contemplated
hereby and thereby will not violate, conflict with or constitute
a breach of any of the terms or provisions of, or a default under
(or an event that with notice or the lapse of time, or both,
would constitute a default), or require consent under, or, except
as contemplated in the Offering Memorandum, result in the
imposition of a lien or encumbrance on any properties of the
Company or any of its subsidiaries, or an acceleration of
indebtedness pursuant to, (i) the charter or bylaws of the
Company or any of its subsidiaries, (ii) to such counsel's
knowledge, any bond, debenture, note, indenture, mortgage, deed
of trust or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which any of them or
their property is or may be bound, (iii) any statute, rule or
regulation applicable to the Company, any of its subsidiaries or
their assets or properties (except (with respect to this clause
(iii)) such violations, conflicts, breaches or defaults as could
not reasonably be expected to have a Material Adverse Effect), or
(iv) to such counsel's knowledge, any judgment, order or decree
of any court or governmental agency or authority having
jurisdiction over the Company, any of its subsidiaries or their
assets or properties. To such counsel's knowledge, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or
governmental agency, body or administrative agency is required
for the execution, delivery and performance of this Agreement and
the other Operative Documents and the consummation of the
transactions contemplated hereby and thereby, except such as have
been obtained and made (or, in the case of the Registration
Rights Agreement, will be obtained and made) under the Securities
Act, the Trust Indenture Act and state securities or Blue Sky
laws and regulations or such as may be required by NASD. To such
counsel's knowledge, no consents or waivers from any other person
are required for the execution, delivery and performance of this
Agreement and the other Operative Documents and the consummation
of the transactions contemplated hereby and thereby, other than
such consents and waivers as have been obtained (or, in the case
of the Registration Rights Agreement, will be obtained);
24
<PAGE>
(xiv) to such counsel's knowledge, no action has been taken
and no statute, rule or regulation or order has been enacted,
adopted or issued by any governmental agency that prevents the
issuance of the Notes; no injunction, restraining order or order
of any nature by a federal or state court of competent
jurisdiction has been issued that prevents the issuance of the
Notes or suspends the sale of the Notes in any jurisdiction
referred to in Section 5(e) hereof; and no action, suit or
proceeding is pending against or affecting or, to such counsel's
knowledge, threatened against, the Company or any of its
subsidiaries before any court or arbitrator or any governmental
body, agency or official which, if adversely determined, would
prohibit, interfere with or adversely affect the issuance or
marketability of the Notes or in any manner draw into question
the validity of any Operative Document;
(xv) to such counsel's knowledge, the Company and each of
its subsidiaries has (i) good and marketable title to all of the
properties and assets described in the Offering Memorandum as
owned by it, free and clear of all liens, charges, encumbrances
and restrictions, except such as are described in the Offering
Memorandum or as would not have a Material Adverse Effect, (ii)
peaceful and undistributed possession under all leases to which
it is party as lessee, (iii) all Authorizations necessary to
engage in the business currently conducted by it in the manner
described in the Offering Memorandum, except where failure to
hold such Authorizations would not have a Material Adverse Effect
and (iv) other than as disclosed in the Offering Memorandum, no
reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such
Authorization. To such counsel's knowledge, other than as
described in the Offering Memorandum, all such Authorizations are
valid and in full force and effect and the Company and its
subsidiaries are in compliance in all material respects with the
terms and conditions of all such Authorizations and with the
rules and regulations of the regulatory authorities having
jurisdiction with respect thereto. To such counsel's knowledge,
all leases to which the Company or any of its subsidiaries is a
party are valid and binding and no default by the Company or any
of its subsidiaries has occurred and is continuing thereunder,
and no material defaults by the landlord are existing under any
such lease;
(xvi) to such counsel's knowledge, other than as disclosed
in the Offering Memorandum, neither the Company nor any of its
subsidiaries has violated any Environmental Laws, lacks any
permits, licenses or other approvals required of them under
applicable Environmental Laws or is violating any terms and
conditions of any such permit, license or approval, nor has the
Company or any of its subsidiaries violated any federal, state or
local law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable wage or hourly laws, nor any
provisions of ERISA or the rules and regulations promulgated
thereunder, which in each case would result in a Material Adverse
Effect;
(xvii) neither the Company nor any of its subsidiaries is
(i) an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company
Act of 1940, or (ii) a "holding company" or a
25
<PAGE>
"subsidiary company" or an "affiliate" of a holding company
within the meaning of the Public Utility Holding Company Act of
1935, as amended;
(xviii) prior to the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, the
Indenture is not required to be qualified under the Trust
Indenture Act of 1939;
(xix) the Offering Memorandum, as of its date, and each
amendment or supplement thereto, as of its date (except for the
financial statements, including the notes thereto, and supporting
schedules and other financial, statistical and accounting data
included therein or omitted therefrom, as to which no opinion
need be expressed), contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the
Securities Act;
In addition, such counsel shall state that it has participated
in conferences with officers and other representatives of the Company
and the Guarantors, representatives of the independent public
accountants for the Company and the Guarantors, your representatives
and your counsel in connection with the preparation of the Offering
Memorandum and has considered the matters required to be stated
therein and the statements contained therein and, although such
counsel has not independently verified the accuracy, completeness or
fairness of such statements (except as indicated above), such counsel
advises you that, on the basis of the foregoing, no facts came to its
attention that caused it to believe that the Offering Memorandum (as
amended or supplemented, if applicable), at the time such Offering
Memorandum was circulated or at the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. Without limiting the foregoing,
such counsel may further state that they assume no responsibility for,
and have not independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules and other
financial data included in the Offering Memorandum.
The opinion of such counsel described in this paragraph shall be
rendered to you at the request of the Company and shall so state
therein.
(g) You shall have received an opinion, dated the Closing Date,
of Cahill Gordon & Reindel, your counsel, in form and substance
reasonably satisfactory to you, covering such matters as are
customarily covered in such opinions.
(h) At the time this Agreement is executed and delivered by the
Company and on the Closing Date, you shall have received letters,
substantially in the form previously approved by you, from KPMG Peat
Marwick LLP, independent certified public accountants, with respect to
the financial statements and certain financial information contained
in Offering Memorandum.
(i) The Company, the Guarantors and the Trustee shall have
entered into the Indenture and you shall have received counterparts,
conformed as executed, thereof.
26
<PAGE>
(j) The Company and the Guarantors shall have entered into the
Registration Rights Agreement and you shall have received
counterparts, conformed as executed, thereof.
(k) On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received an opinion from
Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc., in form and
substance satisfactory to the Initial Purchasers and counsel for the
Initial Purchasers, with respect to the solvency of the Company upon
issuance of the Series A Notes and the Subsidiary Guarantees and the
consummation of the other transactions contemplated in this Agreement,
the other Operative Documents and the Offering Memorandum.
(l) The Company and the Guarantors shall not have failed on or
prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied
with by the Company and the Guarantors on or prior to the Closing
Date.
(m) On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received such further
certificates, documents or other information as they may have
reasonably requested from the Company and the Guarantors.
All opinions, certificates, letters and other documents required
by this Section 9 to be delivered by the Company and the Guarantors will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you. The Company and the Guarantors will furnish the
Initial Purchasers with such conformed copies of such opinions, certificates,
letters and other documents as they shall reasonably request.
10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchasers by written notice to the Company if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company or the Guarantors on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities, (vi) the taking of
any action by any federal, state or local government or
27
<PAGE>
agency in respect of its monetary or fiscal affairs which in your opinion has a
material adverse effect on the financial markets in the United States or (vii)
any securities of the Company or any of its subsidiaries shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization.
11. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company or the
Guarantors, to Lodestar Holdings, Inc., 30 Rockefeller Plaza, Suite 4225, New
York, NY 10112, telephone number: (212) 541-6000, Attention: Ira Leon Rennert,
with copies to Lodestar Energy, Inc., 333 West Vine Street, Suite 1700,
Lexington, KY 40507, telephone number: (606) 255-4006, Attention: R. Eberley
Davis, Esq., and to Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York,
New York 10038, Attention: Michael C. Ryan, Esq., and (ii) if to the Initial
Purchasers, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Ramsey Frank, with a copy to
Cahill Gordon & Reindel, 80 Pine Street, New York, New York, 10005 Attention:
William M. Hartnett, Esq., or in any case to such other address as the person to
be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Guarantors
and the Initial Purchasers set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchasers, the officers or directors of the Initial Purchasers, any person
controlling the Initial Purchasers, the Company, any Guarantor, the officers or
directors of the Company or any Guarantor, or any person controlling the Company
or the Guarantors, (ii) acceptance of the Series A Notes and payment for them
hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on
behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company and the
Guarantors agree, jointly and severally, to reimburse the Initial Purchasers for
all out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the
Company shall be liable for all expenses which it has agreed to pay pursuant to
Section 5(f) hereof.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Initial Purchasers, the Initial Purchasers' directors and
officers, any controlling persons referred to herein, the directors of the
Company and the Guarantors and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Series A Notes from the
Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Guarantors and the Initial Purchasers.
Very truly yours,
LODESTAR HOLDINGS, INC.
By: /s/ Michael E. Donohue
--------------------------
Michael E. Donohue
Chief Financial Officer
LODESTAR ENERGY, INC.
By: /s/ Michael E. Donohue
--------------------------
Michael E. Donohue
Vice President and
Chief Financial Officer
EASTERN RESOURCES, INC.
By: /s/ Michael E. Donohue
--------------------------
Michael E. Donohue
Vice President and
Chief Financial Officer
INDUSTRIAL FUELS MINERALS
COMPANY
By: /s/ Michael E. Donohue
--------------------------
Michael E. Donohue
Vice President and
Chief Financial Officer
29
<PAGE>
Accepted and agreed:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ William J.R. Wilson
--------------------------
William J.R. Wilson
Vice President
BT ALEX. BROWN INCORPORATED
By: /s/ Terence Neafsey
--------------------------
Terence Neafsey
Principal
30
<PAGE>
SCHEDULE A
Subsidiaries
Lodestar Energy, Inc.
Eastern Resources, Inc.
Industrial Fuels Minerals Company
S-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Principal Amount
of Notes to be
Initial Purchaser Purchased
- ---------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation.......................... $112,500,000
BT Alex. Brown Incorporated.............. 37,500,000
------------
Total................................... $150,000,000
------------
------------
</TABLE>
S-2
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
<PAGE>
EXHIBIT B
Employee Pension or Benefit Plan
1. Lodestar Energy, Inc. 401(k) Plan - a defined contribution plan.
2. Pyro Mining Company Employees' Pension Plan - a defined benefit plan,
for those employees working at certain operations in Western Kentucky.
3. Group Life and Disability Plan of Lodestar Energy, Inc. - including
the following types of benefits: group term life insurance; dependent
life insurance; accidental death and dismemberment insurance;
long-term disability insurance; voluntary accidental death and
dismemberment insurance; and business travel accidental insurance.
4. Short-term Disability Benefits
5. Lodestar Energy, Inc. Health Care Plan - includes medical and dental
benefits.
6. Relocation Policy
7. Tuition Reimbursement Policies
8. Special Voluntary Incentive Program - an obligation to pay set monthly
amounts to certain retirees, intended as health care premium
reimbursement.
9. Severance pay policy - for the East Kentucky operations.
<PAGE>
Exhibit 4.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of May 15, 1998
by and among
Lodestar Holdings, Inc.,
the Guarantors named herein
and
Donaldson, Lufkin & Jenrette
Securities Corporation
and
BT Alex. Brown Incorporated,
as Initial Purchasers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 15, 1998, by and among Lodestar Holdings, Inc., a
Delaware corporation (the "Company"), and Lodestar Energy, Inc., Eastern
Resources, Inc. and Industrial Fuels Minerals Company (the "Guarantors"), and
Donaldson, Lufkin & Jenrette Securities Corporation and BT Alex. Brown
Incorporated (the "Initial Purchasers"), who have agreed to purchase the
Company's 11 1/2% Senior Notes due 2005, Series A (the "Series A Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated May
12, 1998 (the "Purchase Agreement"), among the Company, the Guarantors and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers under the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Series B Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act
<PAGE>
of the Exchange Offer Registration Statement relating to the Series B Notes to
be issued in the Exchange Offer, (b) the maintenance of such Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section 3(b)
hereof and (c) the delivery by the Company to the Registrar under the Indenture
of Series B Notes in the same aggregate principal amount as the aggregate
principal amount of Series A Notes tendered by Holders thereof pursuant to the
Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and outside the United States
in compliance with Regulation S under the Act.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, by and among the
Company, the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
2
<PAGE>
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) which
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
Series B Notes: The Company's 11 1/2% Senior Notes due 2005, Series B
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon
the request of any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the --- date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
3
<PAGE>
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law, the Company and the Guarantors shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 60 days after the Closing Date, the Exchange Offer Registration Statement,
(ii) use reasonable efforts to cause such Exchange Offer Registration Statement
to become effective at the earliest possible time, but in no event later than
180 days after the Closing Date, (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Exchange Offer Registration Statement
as may be necessary in order to cause such Exchange Offer Registration Statement
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective
reasonable efforts to cause the Exchange Offer Registration Statement to be
effective continuously, and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Company and the
Guarantors shall cause the Exchange Offer to comply in all material respects
with all applicable federal and state securities laws. No securities other than
the Notes shall be included in the Exchange Offer Registration Statement. The
Company and the Guarantors shall use their respective reasonable efforts to
cause the Exchange Offer to be Consummated on the earliest practicable date
after the Exchange Offer Registration Statement has become effective, but in no
event later than 30 Business Days thereafter.
4
<PAGE>
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Series B Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company and the Guarantors shall use their respective reasonable
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) below to the extent necessary to ensure that it is available for sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, and
to ensure that such Registration Statement conforms in all material respects
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
180 days from the date on which the Exchange Offer is Consummated.
The Company and the Guarantors shall promptly provide sufficient
copies of the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request, and in no event later than one Business
Day after such request, at any time during such 180-day period in order to
facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantors are not
required to file an Exchange Offer Registration Statement with respect to the
Series B Notes because the Exchange Offer is not permitted by applicable law or
(ii) if any Holder of Transfer Restricted Securities shall notify the Company
within 20 Business Days following the Consummation of the Exchange Offer that
(A) such Holder was prohibited by law or Commission policy from participating in
the Exchange Offer or (B) such Holder may not resell the Series B Notes acquired
by it in the Exchange Offer to the public without delivering a pro-
5
<PAGE>
spectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or one of its affiliates, then the Company and the Guarantors shall
(x) cause to be filed on or prior to 30 days after the date on which the Company
determines that it is not required to file the Exchange Offer Registration
Statement pursuant to clause (i) above or 30 days after the date on which the
Company receives the notice specified in clause (ii) above a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (in either event, the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities the Holders of
which shall have provided the information required pursuant to Section 4(b)
hereof, and shall (y) use their respective reasonable efforts to cause such
Shelf Registration Statement to become effective on or prior to 90 days after
the date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company and the Guarantors shall
use their reasonable efforts to keep the Shelf Registration Statement discussed
in this Section 4(a) continuously effective, supplemented and amended as
required by and subject to the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms in all material respects with the requirements of
this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of at least three years
(as extended pursuant to Section 6(c)(i)) following the date on which such Shelf
Registration Statement first becomes effective under the Act or such shorter
period that will terminate when all the Transfer Restricted Securities covered
by the Shelf Registration Statement have been sold pursuant thereto or are, in
the written opinion of counsel to the Company, eligible for sale under Rule
144(k) under the Act.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 of Regulation S-K under the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein or Prospectus supplement. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such information. Each Holder as to
6
<PAGE>
which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guarantors hereby jointly
and severally agree to pay liquidated damages to each Holder of Transfer
Restricted Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 principal amount of Transfer Restricted Securities. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the beneficial holders
of interests in the Global Security (as defined in the Indenture) by wire
transfer of immediately available funds and to Holders of Securities (as defined
in the Indenture) in certificated form by mailing checks to their registered
addresses on each Damages Payment Date. All obligations of the Company and the
Guarantors set forth in the preceding paragraph that are outstanding
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with respect to any Transfer Restricted Security at the time such security
ceases to be a Transfer Restricted Security shall survive until such time as all
such obligations with respect to such security shall have been satisfied in
full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply in all material
respects with all applicable provisions of Section 6(c) below, shall use their
respective reasonable efforts to effect such exchange and to permit the sale of
Broker-Dealer Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply in all
material respects with all of the following provisions:
(i) As a condition to its participation in the Exchange Offer pursuant
to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
and the Guarantors (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the effect
that (A) it is not an affiliate of the Company, (B) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding
with any Person to participate in, a distribution of the Series B Notes to
be issued in the Exchange Offer and (C) it is acquiring the Series B Notes
in its ordinary course of business. Each Holder hereby acknowledges and
agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated in
Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered by
an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Series B Notes obtained by such Holder in exchange
for Series A Notes acquired by such Holder directly from the Company or an
affiliate thereof.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5,
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1991) and (B) including a representation that neither the Company nor any
Guarantor has entered into any arrangement or understanding with any Person
to distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective reasonable
efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and the Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company and
the Guarantors shall:
(i) use their respective reasonable efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file promptly an
appropriate amendment to such Registration Statement, (1) in the case of
clause (A), correcting any such misstatement or omission, and (2) in the
case of clauses (A) and (B), use their respective reasonable efforts to
cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter.
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<PAGE>
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Act, and to comply in all material respects with
Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply in all material respects with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B)
of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement thereto
or any document incorporated by reference therein untrue, or that requires
the making of any additions to or changes in the Registration Statement in
order to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantors shall use their respective reasonable
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) furnish to the Initial Purchasers, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with
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such sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the reasonable
review and comment of such Holders and underwriter(s) in connection with
such sale, if any, for a period of at least five Business Days, and the
Company will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the
selling Holders of the Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s) in connection with such sale,
if any, shall reasonably object within five Business Days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission or fails to comply in
all material respects with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's and
the Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the selling
Holders, any managing underwriter participating in any disposition pursuant
to such Registration Statement and any attorney or accountant retained by
such selling Holders or any of such underwriter(s), all pertinent financial
and other records, corporate documents and properties of the Company and
the Guarantors and cause the Company's and the Guarantors' officers,
directors and employees to supply all information reasonably requested by
any such Holder, underwriter, attorney or accountant in connection with
such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the princi-
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<PAGE>
pal amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(viii) furnish to each selling Holder and each of the underwriter(s)
in connection with such sale, if any, without charge, at least one copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all exhibits;
(ix) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) enter into such agreements (including an underwriting agreement)
and make such representations and warranties and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement, and in such connection, the Company and the
Guarantors shall:
(A) furnish (or in the case of paragraphs (2) and (3), use
reasonable efforts to furnish) to each underwriter, if any, upon the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of effectiveness of the
Shelf Registration Statement, signed on behalf of the Company and
each Guarantor by (x) the President or any Vice President and (y)
a principal financial or accounting officer of the Company and
each Guarantor confirming, as of the date thereof, the matters
set forth in paragraphs (a) through (d) of Section 9 of the
Purchase Agreement and such other similar matters as the
underwriter(s) may reasonably request;
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<PAGE>
(2) an opinion, dated the date of effectiveness of the Shelf
Registration Statement, of counsel for the Company and the
Guarantors covering matters similar to those set forth in
paragraph (f) of Section 9 of the Purchase Agreement and such
other matters as the underwriter(s) may reasonably request, and
in any event including a statement to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to a large extent upon facts provided to such
counsel by officers and other representatives of the Company and
the Guarantors and without independent check or verification), no
facts came to such counsel's attention that caused such counsel
to believe that the applicable Registration Statement, at the
time such Registration Statement or any post-effective amendment
thereto became effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement from the
Company's and the Guarantors' independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
primary underwritten offerings, and af-
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<PAGE>
firming the matters set forth in the comfort letters delivered
pursuant to Section 9 of the Purchase Agreement, without
exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance,
with respect to any underwriter(s), with clause (A) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company and the Guarantors pursuant to
this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, if any, as and to the extent required thereunder, and if
at any time the representations and warranties of the Company and the
Guarantors contemplated in (A)(1) above cease to be true and correct, the
Company and the Guarantors shall so advise the underwriter(s), if any,
promptly and if requested by such Persons, shall confirm such advice in
writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriter(s), if any, may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided,
however, that neither the Company nor any Guarantor shall be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;
(xii) issue, upon the request of any Holder of Series A Notes covered
by any Shelf Registration Statement contemplated by this Agreement, Series
B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Series B
Notes to be registered in the name of such Holder or in
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<PAGE>
the name of the purchaser(s) of such Notes, as the case may be; in return,
the Series A Notes held by such Holder shall be surrendered to the Company
for cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities in
such denominations and such names as the Holders or the underwriter(s), if
any, may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xiv) use their respective reasonable efforts to cause the disposition
of the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number or numbers for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with The Depository
Trust Company;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use their respective reasonable efforts to cause such
Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling
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Transfer Restricted Securities to consummate the disposition of such
Transfer Restricted Securities;
(xviii) otherwise use their respective reasonable efforts to comply in
all material respects with all applicable rules and regulations of the
Commission, and make generally available to its security holders with
regard to any applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158 under
the Act (which need not be audited) covering a twelve-month period
beginning after the effective date of the Registration Statement (as such
term is defined in paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use reasonable efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement and Prospectus contained therein until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xv) hereof, or until it is advised in writing by
the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus (the "Advice"). If so directed by the Company, each
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received
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the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and reasonable expenses (including filings made by the Initial Purchasers or any
Holder with the NASD (and, if applicable, the reasonable fees and expenses of
any "qualified independent underwriter") and its counsel that may be required by
the rules and regulations of the NASD); (ii) all reasonable fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all reasonable expenses of printing (including printing certificates for the
Series B Notes to be issued in the Exchange Offer and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all reasonable fees and
disbursements of counsel for the Company and the Guarantors and the Holders of
Transfer Restricted Securities (subject to the provisions of Section 7 (b)) ;
(v) all application and filing fees, if any, in connection with listing the
Notes on a national securities exchange or automated quotation system pursuant
to the requirements hereof; and (vi) all reasonable fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the reasonable expenses of any special audit and comfort letters
required by or incident to such performance).
The Company and the Guarantors will, in any event, bear their internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and/or the Shelf Registration Statement), the Company and the
Guarantors will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
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SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless (i) each Holder and (ii) each Person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) any Holder (any of the Persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any Person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders furnished in writing
to the Company by any of the Holders expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any Registration
Statement, preliminary Prospectus or Prospectus (or any amendment or supplement
thereto) shall not inure to the benefit of any Holder from whom the Person
asserting any such losses, claims, damages, liabilities, judgments, actions or
expenses purchased Series B Notes, or any Person controlling such Holder, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Holder to such Person, at or prior to the written
confirmation of the sale of the Series B Notes to such Person, and if the
Prospectus (as so amended and supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability, judgment, action or expense.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company or the Guarantors, such Indemnified Holder (or the Indemnified
Holder controlled by such controlling person) shall promptly notify the Company
and the Guarantors in writing (provided, that the failure to give such notice
shall not relieve the Company or the Guarantors of their obligations pursuant to
this Agreement unless it shall have been determined by a court of competent
jurisdiction, by a
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final judgment not subject to appeal or review, that such failure shall have
resulted in a material adverse effect upon the Company or the Guarantors). Such
Indemnified Holder shall have the right to employ its own counsel in any such
action and the reasonable fees and expenses of such counsel shall be paid, as
incurred, by the Company and the Guarantors; provided, however, that the Company
or the Guarantors shall be entitled to participate in such action or proceeding
and, to the extent that the Company or the Guarantors shall wish to assume the
defense thereof (provided that any such participation or assumption shall be
permitted only upon written notice to the Indemnified Holder which notice is
received within 10 days of the Company's or the Guarantors' actual knowledge of
such action or proceeding), with counsel satisfactory to such Indemnified Holder
(which counsel shall not, except with the consent of the Indemnified Holder, be
counsel to the Company and the Guarantors), at the Company's or the Guarantors'
expense, and after notice from the Company or the Guarantors to such Indemnified
Holder of the Company's or the Guarantors' election so to assume the defense
thereof, the Company or the Guarantors shall not be liable to such Indemnified
Holder under this Section 8(a) for any legal expenses of other counsel or any
other expenses, in such case subsequently incurred by such Indemnified Holder,
in connection with the defense thereof other than reasonable costs of
investigation; provided, further, that the Company and the Guarantors shall not
be entitled to control the defense of, or investigation by, such Indemnified
Holder if such Indemnified Holder has been advised by its counsel that there
could reasonably be expected to be a conflict of interest between the Company or
the Guarantors and such Indemnified Holder under applicable standards of
professional responsibility. The Company and the Guarantors shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company and the Guarantors shall be liable for
any settlement of any such action or proceeding effected with the Company's and
the Guarantors' prior written consent, which consent shall not be withheld
unreasonably, and the Company and the Guarantors agree to indemnify and hold
harmless each Indemnified Holder from and against any loss, claim, damage,
liability or expense by reason of any settlement of any action effected with the
written consent of the Company and the Guarantors. Neither the Company nor the
Guarantors shall, without the prior written consent of each Indemnified Holder
(which consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
19
<PAGE>
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
any Person controlling (within the meaning of Section 15 of the Act or Section
20 of the Exchange Act) the Company or any Guarantor, and their respective
officers, directors, partners, employees, representatives and agents
(collectively, "Indemnified Company Persons"), to the same extent as the
foregoing indemnity from the Company and the Guarantors to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against any Indemnified Company Person in respect of
which indemnity may be sought against a Holder of Transfer Restricted
Securities, such Holder shall have the rights and duties given the Company and
the Guarantors, and the Indemnified Company Person shall have the rights and
duties given to each Indemnified Holder by Section 8(a). In no event shall any
Holder be liable or responsible for any amount in excess of the amount by which
the total received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other hand,
from their sale of Transfer Restricted Securities or if such allocation is not
permitted by applicable law, the relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the Guarantors,
on the one hand, and of the Indemnified Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or such Guarantor
or by the Indemnified Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 8(a),
20
<PAGE>
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company, the Guarantors and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Holder or its related Indemnified Holders shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the total received by such Holder with respect to the sale of its
Transfer Restricted Securities pursuant to a Registration Statement exceeds the
sum of (A) the amount paid by such Holder for such Transfer Restricted
Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Series A Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor is not subject to Section 13 or
15(d) of the Securities Exchange Act, to make available, upon request of any
Holder of Transfer Restricted Securities, to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b)
21
<PAGE>
completes and executes all reasonable questionnaires, powers of attorney, and
other documents required under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Company and approved by the
Holders of a majority in aggregate principal amount of the Transfer Restricted
Securities included in such offering (which approval shall not be unreasonably
withheld). Such investment bankers and managers are referred to herein as the
"underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each party hereto, in addition to being entitled to
exercise all rights provided herein, in the Indenture, the Purchase Agreement or
granted by law, including recovery of liquidated or other damages, to the extent
applicable to such party, will be entitled to specific performance of its rights
under this Agreement. Each party hereto agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantors' securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor any
Guarantor will take any action, or voluntarily permit any change to occur, with
respect to the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company
22
<PAGE>
has obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer and that does not affect directly or
indirectly the rights of other Holders whose securities are not being
tendered pursuant to such Exchange Offer may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted
Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Company or the Guarantors:
Lodestar Holdings, Inc.
30 Rockefeller Plaza
Suite 4225
New York, New York 10112
Telecopier No.: (212) 541-6197
Attention: Chairman
With copies to:
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, Kentucky 40507
Telecopier No.: (606) 255-0330
Attention: R. Eberley Davis, Esq.
23
<PAGE>
and
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Telecopier No.: (212) 504-6666
Attention: Michael C. Ryan, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
24
<PAGE>
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LODESTAR HOLDINGS, INC.
By: /s/ Michael E. Donohue
------------------------------------------
Michael E. Donohue
Chief Financial Officer
LODESTAR ENERGY, INC.
By: /s/ Michael E. Donohue
------------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
EASTERN RESOURCES, INC.
By: /s/ Michael E. Donohue
------------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
INDUSTRIAL FUELS MINERALS
COMPANY
By: /s/ Michael E. Donohue
------------------------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
26
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Initial Purchaser
By: /s/ William J.R. Wilson
------------------------------------
William J.R. Wilson
Vice President
BT ALEX. BROWN INCORPORATED,
as Initial Purchaser
By: /s/ Terence Neafsey
------------------------------------
Terence Neafsey
Principal
27
<PAGE>
EXHIBIT 4.4
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 1/2% SENIOR NOTES DUE 2005, SERIES A
OF
LODESTAR HOLDINGS, INC.
PURSUANT TO
PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1998, UNLESS EXTENDED. TENDERS OF 11 1/2% SENIOR NOTES DUE 2005, SERIES A MAY
ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND
HEREIN.
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
FACSIMILE TRANSMISSION:
(860) 244-1881
CONFIRM BY TELEPHONE:
(860) 244-1846
BY MAIL: BY HAND/OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place, 4th Floor 61 Broadway, 15th Floor
Boston, Massachusetts 02110 New York, New York 10006
Attention: Clarie Young--Corporate Trust Attention: Corporate Trust Department
Department
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) (ATTACH ADDITIONAL SCHEDULE, IF
ON OLD NOTES) NECESSARY)
- --------------------------------------------------------------------------------------------
(1) (2) (3)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATE TOTAL PRINCIPAL
NUMBER(S) AMOUNT OF OLD
NOTES TENDERED
- --------------------------------------------------------------------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
TOTAL
- --------------------------------------------------------------------------------------------
</TABLE>
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE PROSPECTUS, DATED ,
1998 (THE "PROSPECTUS"), OF LODESTAR HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY"), RELATING TO THE OFFER (THE "EXCHANGE OFFER") OF THE COMPANY, UPON
THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PROSPECTUS
<PAGE>
AND HEREIN AND THE INSTRUCTIONS HERETO, TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF
ITS 11 1/2% SENIOR NOTES DUE 2005, SERIES B (THE "EXCHANGE NOTES") FOR EACH
$1,000 PRINCIPAL AMOUNT OF THE OUTSTANDING 11 1/2% SENIOR NOTES DUE 2005, SERIES
A (THE "OLD NOTES"), OF WHICH $150.0 MILLION AGGREGATE PRINCIPAL AMOUNT IS
OUTSTANDING. THE MINIMUM PERMITTED TENDER IS $1,000 PRINCIPAL AMOUNT OF OLD
NOTES, AND ALL OTHER TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION BY
FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998 (the "Expiration Date"), unless extended.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER THEIR OLD NOTES TO THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal should be used only to exchange the Old Notes,
pursuant to the Exchange Offer as set forth in the Prospectus.
This Letter of Transmittal is to be used (a) if Old Notes are to be
physically delivered to the Exchange Agent or (b) if delivery of Old Notes is to
be made by book-entry transfer to the account maintained by the Exchange Agent
at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in the Prospectus under the caption "The
Exchange Offer-- Procedures for Tendering." Delivery of documents to the
Book-Entry Transfer Facility does not constitute deliver to the Exchange Agent.
Holders whose Old Notes are not available or who cannot deliver their Old
Notes and all other documents required hereby to the Exchange Agent on or prior
to the Expiration Date nevertheless may tender their Old Notes in accordance
with the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD NOTES
FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN
WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE
WITH THE LAWS OF SUCH JURISDICTION.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Prospectus.
HOLDERS WHO WISH TO EXCHANGE THEIR OLD NOTES MUST COMPLETE THE BOX BELOW
ENTITLED "METHOD OF DELIVERY," COMPLETE COLUMNS (1) THROUGH (3) IN THE BOX ON
THE COVER ENTITLED "DESCRIPTION OF OLD NOTES TENDERED" AND SIGN IN THE
APPROPRIATE BOX(ES) BELOW.
2
<PAGE>
METHOD OF DELIVERY
/ / CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Name of Book-Entry Transfer Facility: ______________________________________
/ / The Depository Trust Company
Account Number: _________________ Transaction Code Number: ________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTIONS 1 AND 4):
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution which Guaranteed Delivery: ____________________
IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, CHECK BOX OF BOOK-ENTRY
TRANSFER FACILITY:
/ / The Depository Trust Company
Account Number: _________________ Transaction Code Number: ________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL
COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
________________________________________
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated in the box on the cover entitled "Description of Old Notes Tendered."
Subject to, and effective upon, the acceptance for exchange of the Old Notes
tendered hereby, the undersigned hereby irrevocably sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to such
Old Notes, and hereby irrevocably constitutes and appoints the Exchange Agent
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent also acts as the agent of the Company and as
Trustee under the indenture governing the Old Notes and the Exchange Notes) with
respect to such Old Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates representing such Old Notes, and to deliver all
accompanying evidences of transfer and authenticity to or upon the order of the
Company upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon the acceptance by the
Company of such Old Notes for exchange pursuant to the Exchange Offer, (b)
receive all benefits and otherwise to exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer, and (c) present such Old Notes for transfer on the register for such Old
Notes.
The undersigned acknowledges that prior to this Exchange Offer, there has
been no public market for the Old Notes or the Exchange Notes. If a market for
the Exchange Notes should develop, the Exchange Notes could trade at a discount
from their principal amount. The undersigned is aware that the Company does not
intend to list the Exchange Notes on a national securities exchange and that
there can be no assurance that an active market for the Exchange Notes will
develop.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by any person receiving such Exchange Notes whether or
not such person is the holder thereof, (other than any such holder or other
person which is (i) a broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, or (ii)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
PROVIDED that such Exchange Notes are acquired in the ordinary course of
business of such holder or other person, such holder or other person is not
engaged in or intending to engage in a distribution of the Exchange Notes, and
such holder or other person has no arrangement with any person to participate in
the distribution of such Exchange Notes. See Morgan Stanley & Co. Incorporated,
SEC No-Action Letter (available June 5, 1991) and Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988).
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes, it represents that the Old Notes to be exchanged for Exchange Notes were
acquired as a result of market-making activities or other trading activities and
it acknowledges that it will deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
4
<PAGE>
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF, HOLDERS OF THE OLD NOTES IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION OR WOULD OTHERWISE NOT BE IN COMPLIANCE WITH ANY
PROVISION OF ANY APPLICABLE SECURITY LAW.
The undersigned represents that (a) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
undersigned or other person receiving such Exchange Notes, (b) neither the
undersigned nor any such other person is engaged in or intends to engage in a
distribution of such Exchange Notes, (c) neither the undersigned nor any such
other person has any arrangement or understanding with any person to participate
in a distribution of the Exchange Notes and (d) neither the undersigned nor any
such other person is an "affiliate" as defined under Rule 405 of the Securities
Act, of the Company, its subsidiaries or The Renco Group, Inc., the parent
corporation of the Company, or if such holder is such an affiliate, that such
holder will comply with the registration and the prospectus delivery
requirements of the Securities Act in connection with the disposition of any
Exchange Notes to the extent applicable.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set forth in the
Prospectus under the caption "Conditions of the Exchange Offer," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers will differ from the terms of the Exchange
Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Exchange Offer, has full power and authority to
tender, exchange, assign and transfer the Old Notes tendered hereby, and that
when the same are accepted for exchange by the Company, the Company will acquire
good and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim or right. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. The undersigned also agrees that, except as
stated in the Prospectus, the Old Notes tendered hereby cannot be withdrawn.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering" and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Old Notes pursuant to one of
the procedures described in the Prospectus and the instructions hereto, the
tendering holder will be deemed to have waived the right to receive any payment
in respect of interest on the Old Notes accrued up to the date of issuance of
the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company may not be required to accept for exchange any of
the Old Notes tendered. Old Notes not accepted for exchange or withdrawn will be
returned to the undersigned at the address set forth below unless otherwise
indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special Issuance
Instructions" below, Exchange Notes, and Old Notes not validly tendered or
accepted for exchange, will be issued in the name
5
<PAGE>
of the undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, Exchange Notes, and Old Notes not validly
tendered or accepted for exchange, will be delivered to the undersigned at the
address shown below the signature of the undersigned. The undersigned recognizes
that the Company has no obligation pursuant to the "Special Issuance
Instructions" to transfer any Old Notes from the name of the registered holder
thereof if the Company does not accept for exchange any of the principal amount
of such Old Notes so tendered.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the Exchange Agent to the
tendering holders of Old Notes, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
6
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ON THE COVER ENTITLED "DESCRIPTION OF
OLD NOTES TENDERED" AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO
HAVE TENDERED THE OLD NOTES AND MADE CERTAIN REPRESENTATIONS (INCLUDING AS TO
FINANCIAL STATUS) DESCRIBED IN THE PROSPECTUS AND HEREIN.
SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
X ______________________________________________________________________________
X ______________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
Must be signed by the registered holder(s) of Old Notes exactly as their
name(s) appear(s) on certificate(s) for the Old Notes or by person(s) authorized
to become registered holder(s) by endorsements and documents transmitted with
this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent or
other person acting in a fiduciary or representative capacity, please provide
the following information. See Instruction 3.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title): _________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ___________________________________________________
SIGNATURE GUARANTEE
(SEE INSTRUCTION 3)
_______________________________________________________________________________
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURE(S))
_______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NO., INCLUDING AREA CODE, OF FIRM)
_______________________________________________________________________________
(AUTHORIZED SIGNATURE)
_______________________________________________________________________________
(PRINTED NAME)
_______________________________________________________________________________
(TITLE)
Date: _______________________, 1998
7
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not exchanged and/or certificates for Exchange Notes are to be issued in the
name of someone other than the undersigned, or if Old Notes are to be
returned by credit to an account maintained by the Book-Entry Transfer
Facility.
Issue (check appropriate box)
/ / Exchange Notes to:
/ / Old Notes to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
ZIP CODE
__________________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W-9 BELOW.)
Credit unaccepted Old Notes tendered by book-entry transfer to:
/ / The Depository Trust Company
account set forth below
____________________________________________________________________________
(DTC ACCOUNT NUMBER)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVER INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not exchanged and/or certificates for Exchange Notes are to be sent to
someone other than the undersigned at an address other than that shown
above.
Deliver (check appropriate box)
/ / Exchange Notes to:
/ / Old Notes to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
ZIP CODE
__________________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W-9 BELOW.)
- ------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. To be effectively tendered pursuant to the Exchange Offer,
the Old Notes, together with a properly completed Letter of Transmittal (or
facsimile thereof), duly executed by the registered holder thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth on the front page of this
Letter of Transmittal. If the beneficial owner of any Old Notes is not the
registered holder, then such person may validly tender his or her Old Notes only
by obtaining and submitting to the Exchange Agent a properly completed Letter of
Transmittal from the registered holder. OLD NOTES SHOULD BE DELIVERED ONLY TO
THE EXCHANGE AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED OR
CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT OLD NOTES BE DELIVERED BY HAND OR BY COURIER.
IF CERTIFICATES FOR OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
If a holder desires to tender Old Notes and such holder's Old Notes are not
immediately available or time will not permit such holder's Letter of
Transmittal, Old Notes or other required documents to reach the Exchange Agent
on or before the Expiration Date, such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined);
(b) on or prior to the Expiration Date, the Exchange Agent has received
a properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) from such Eligible
Institution setting forth the name and address of the holder of such Old
Notes, the certificate numbers of such Old Notes (if available) and the
principal amount of Old Notes tendered and stating that the tender is being
made thereby and guaranteeing that, within three business days after the
Expiration Date, a duly executed Letter of Transmittal, or facsimile
thereof, together with the Old Notes, and any other documents required by
this Letter of Transmittal and the instructions hereto, will be deposited by
such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal (or facsimile thereof), a Notice of
Guaranteed Delivery and Old Notes, in proper form for transfer, and all
other required documents are received by the Exchange Agent within three
business days after the date of such telegram, facsimile transmission or
letter.
2. WITHDRAWAL OF TENDERS. Tendered Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange.
To be effective, a written or facsimile transmission notice of withdrawal
must (a) be received by the Exchange Agent at one of its addresses set forth on
the first page of this Letter of Transmittal prior to 5:00 p.m., New York City
time, on the Expiration Date, unless previously accepted for exchange, (b)
specify the name of the person who tendered the Old Notes, (c) contain the
description of the Old Notes to be withdrawn, the certificate numbers shown on
the particular certificates evidencing such Old Notes and the aggregate
principal amount represented by such Old Notes and (d) be signed by the holder
of such Old Notes in the same manner as the original signature appears on this
Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the holder
withdrawing the tender. The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Old Notes have been tendered
(a) by a registered holder of Old Notes who has not completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (b) for the account of an
Eligible Institution. All questions as to the validity, form
9
<PAGE>
and eligibility (including time of receipt) of such withdrawal notices shall be
determined by the Company, whose determination shall be final and binding on all
parties. If the Old Notes to be withdrawn have been delivered or otherwise
identified to the Exchange Agent, a signed notice of withdrawal is effective
immediately upon receipt by the Exchange Agent of a written or facsimile
transmission notice of withdrawal even if physical release is not yet effected.
In addition, such notice must specify, in the case of Old Notes tendered by
delivery of certificates for such Old Notes, the name of the registered holder
(if different from that of the tendering holder) to be credited with the
withdrawn Old Notes. Withdrawals may not be rescinded, and any Old Notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. However, properly withdrawn Old Notes may be retendered by
following one of the procedures described under "The Exchange Offer--Procedures
for Tendering" in the Prospectus at any time on or prior to the applicable
Expiration Date.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this letter of Transmittal is signed by the
registered holder(s) of the Old Notes tendered hereby, the signature must
correspond exactly with the name(s) as written on the face of the certificates
without any change whatsoever.
If any Old Notes tendered hereby are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any Old Notes tendered hereby are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required unless Exchange Notes are to be issued, or
certificates for any untendered principal amount of Old Notes are to be
reissued, to a person other than the registered holder.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) specified herein such certificates(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s).
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, proper evidence satisfactory to the
Company of their authority so to act must be submitted.
Except as described below, signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by an Eligible
Institution. Signatures on this Letter of Transmittal or a notice of withdrawal,
as the case may be, need not be guaranteed if the Old Notes tendered pursuant
hereto are tendered (a) by a registered holder of Old Notes who has not
completed either the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (b)
for the account of an Eligible Institution. In the event that signatures on this
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Delivers, Inc. or by a commercial bank or trust
company having an office or correspondent in the Untied States (each as
"Eligible Institutions").
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate in the applicable box the name and address to which certificates for
Exchange Notes and/or substitute certificates evidencing Old Notes for the
principal amounts not exchanged are to be issued or sent, if different from the
name and address of the person signing this Letter of Transmittal. In the case
of issuance in a different name, the
10
<PAGE>
employer identification or social security number of the person named must also
be indicated. If no such instructions are given, any Old Notes not exchanged
will be returned to the name and address of the person signing this Letter of
Transmittal.
5. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax
law of the United States requires that a holder of Old Notes whose Old Notes are
accepted for exchange provide the Company with his correct taxpayer
identification number, which, in the case of a holder who is an individual, is
his or her social security number, or otherwise establish an exemption from
backup withholding. If the Company is not provided with the correct taxpayer
identification number, the exchanging holder of Old Notes may be subject to a
$50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
interest on the Exchange Notes acquired pursuant to the Exchange Offer may be
subject to backup withholding in an amount equal to 31% of any interest payment.
If withholding occurs and results in an overpayment of taxes, a refund may be
obtained.
To prevent backup withholding, each exchange holder of Old Notes subject to
backup withholding must provide his correct taxpayer identification number by
completing the Substitute Form W-9 provided in this Letter of Transmittal,
certifying that the taxpayer identification number provided is correct (or that
the exchanging holder of Old Notes is awaiting a taxpayer identification number)
and that either (a) the exchanging holder has not yet notified by the IRS that
such holder is subject to backup withholding as a result of failure to report
all interest or dividends or (b) the IRS has notified the exchanging holder that
such holder is no longer subject to backup withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (i.e.
corporations) should certify, in accordance with the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9," to such
exempt status on the Substitute Form W-9 provided in this Letter of Transmittal.
6. TRANSFER TAXES. Holders tendering pursuant to the Exchange Offer will
not be obligated to pay brokerage commissions or fees or to pay transfer taxes
with respect to their exchange under the Exchange Offer unless the box entitled
"Special Issuance Instructions" in this Letter of Transmittal has been
completed, or unless the Exchange Notes are to be issued to any person other
than the holder of the Old Notes tendered for exchange. The Company will pay all
other charges or expenses in connection with the Exchange Offer. If holders
tender Old Notes for exchange and the Exchange Offer is not consummated,
certificates representing the Old Notes will be returned to the holders at the
Company's expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) specified in this Letter
of Transmittal.
7. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the certificate
numbers (if available) should be listed on a separate schedule attached hereto
and separately signed by all parties required to sign this Letter of
Transmittal.
8. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If tenders are to be made with respect to less than the
entire principal amount of any Old Notes, fill in the principal amount of Old
Notes which are tendered in column (3) in the box on the cover entitled
"Description of Old Notes Tendered." In the case of partial tenders, new
certificates representing the Old Notes in fully registered form for the
remainder of the principal amount of the Old Notes will be sent to the person(s)
signing this Letter of Transmittal, unless otherwise indicated in the
appropriate place on this Letter of Transmittal, as promptly as practicable
after the expiration or termination of the Exchange Offer.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or additional copies of the Prospectus or this Letter of Transmittal may be
obtained from the Exchange Agent at its telephone number set forth on the cover.
11
<PAGE>
PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------
SUBSTITUTE Part I--PLEASE Social Security Number
FORM W-9 PROVIDE YOUR TIN IN OR ------------------------
Department of the Treasury THE BOX AT RIGHT AND Employer Identification Number
Internal Revenue Service CERTIFY BY SIGNING
AND DATING BELOW.
-------------------------------------------------------
Payer's Request for Taxpayer Part II--Awaiting TIN / /
Identification Number (TIN)
-------------------------------------------------------
Part III--Exempt / /
- -----------------------------------------------------------------------------------------
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding; or (b) I have not been notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified
by the IRS that you are subject to backup withholding because of under-reporting interest
or dividends on your tax return. However, if after being notified by the IRS that you
were subject to backup withholding you received another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out item (2). If you
are exempt from backup withholding, check the box in Part III.
Signature ------------------------------------------------------- Date
- -------------------
- -----------------------------------------------------------------------------------------
</TABLE>
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
Please fill out your name and address below:
________________________________________________________________________________
Name
________________________________________________________________________________
Address (Number and street)
________________________________________________________________________________
City, State and Zip Code
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART II OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor by the time of
payment, 31% of all reportable payments made to me will be withheld until I
provide a number and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the IRS as backup
withholding.
Signature
- ------------------------------------------------------- Date
- -------------------
12
<PAGE>
Exhibit 5.1
[Letterhead of Cadwalader, Wickersham & Taft]
July 14, 1998
Lodestar Holdings, Inc.
Lodestar Energy, Inc.
Eastern Resources, Inc.
Industrial Fuels Minerals Company
c/o Lodestar Holdings, Inc.
30 Rockefeller Plaza, Suite 4225
New York, NY 10112
Re: Registration Statement on Form S-4 related to 11 1/2% Senior Notes due
2005, Series B
--------------------------------------------------------------------------
Gentlemen:
We have acted as special counsel for Lodestar Holdings, Inc., a Delaware
corporation ("Lodestar Holdings"), Lodestar Energy, Inc., a Delaware
corporation ("Lodestar Energy"), Eastern Resources, Inc., a Kentucky
corporation ("Eastern Resources"), and Industrial Fuels Minerals Company, a
Michigan corporation ("Industrial Fuels"), (collectively, the "Issuers") in
connection with the preparation of the Issuers' Registration Statement on
Form S-4 pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), being filed with the Securities and Exchange Commission (the
"Commission") on the date hereof and to which this opinion letter is an
exhibit. The Registration Statement relates to Lodestar Holdings' offer to
exchange its 11 1/2% Senior Notes due 2005, Series B (the "Exchange Notes")
for any and all of its outstanding 11 1/2% Senior Notes due 2005, Series A
(the "Old Notes"). The Old Notes were issued, and the Exchange Notes are to
be issued, under an indenture, dated as of May 15, 1998 (the "Indenture"), by
and among Lodestar Holdings, as issuer, and Lodestar Energy, Eastern
Resources and Industrial Fuels, as guarantors (collectively, in such
capacity, the "Guarantors"), and State Street Bank and Trust Company, as
trustee.
In rendering the opinions expressed below, we have examined and relied upon,
among other things, (a) the Registration Statement, including the Prospectus
constituting a part thereof, (b) the Indenture filed as an exhibit to the
Registration Statement and (c) originals or copies, certified or otherwise
identified to our satisfaction, of such certificates, corporate, public or
other records, and other documents as we have deemed appropriate for the
purpose of rendering this opinion letter. In connection with such
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents and instruments of all documents and instruments submitted
to us as copies or specimens, and the authenticity of the originals of such
documents and instruments submitted to us as copies or specimens. We have
also made such investigations of law as we have deemed appropriate. In
addition, we
<PAGE>
Lodestar Holdings, Inc.
Lodestar Energy, Inc.
Eastern Resources, Inc.
Industrial Fuels Minerals Company
c/o Lodestar Holdings, Inc.
July 14, 1998
Page 2
have assumed that the Exchange Notes and the guarantees of the Guarantors
(the "Guarantees") will be executed and delivered in substantially the form
in which they are filed as exhibits to the Registration Statement.
Based upon
the foregoing and subject to the qualifications set forth herein, we are of
the opinion that:
1 The Exchange Notes and the Guarantees will be legally and validly issued
and binding obligations of Lodestar Holdings and the Guarantors, as the
case may be, (except to the extent enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of
equity, regardless of whether enforceability is considered in a
proceeding in equity or at law), when (a) the Registration Statement, as
finally amended, shall have become effective under the Securities Act
and the Indenture shall have been qualified under the Trust Indenture
Act of 1939, as amended, and (b) the Exchange Notes shall have been duly
executed, authenticated and delivered, and the Guarantees shall have
been duly executed and delivered, as contemplated in the Registration
Statement.
2. The statements made in the Prospectus constituting a part of the
Registration Statement under the caption "Certain U.S. Federal Income
Tax Considerations," insofar as such statements purport to summarize
certain federal income tax laws of the United States of America,
constitute a fair summary of the principal federal income tax
consequences of an investment in the Exchange Notes.
<PAGE>
Lodestar Holdings, Inc.
Lodestar Energy, Inc.
Eastern Resources, Inc.
Industrial Fuels Minerals Company
c/o Lodestar Holdings, Inc.
July 14, 1998
Page 3
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to this Firm in the Prospectus
constituting a part of the Registration Statement under the caption "Legal
Matters," without admitting that we are "experts" within the meaning of the
Securities Act or the rules and regulations of the Commission issued thereunder
with respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
<PAGE>
Exhibit 10.1.1
EMPLOYMENT AGREEMENT
(John W. Hughes)
AGREEMENT effective as of April 1, 1997 between COSTAIN COAL, INC.
("Employer"), and John W. Hughes (Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee as
its President. The Employee hereby accepts such employment and agrees to devote
all of his business time and his best efforts to the business of Employer and as
may be necessary to perform his duties in accordance with the policies and
budgets established from time to time by Employer and its Board of Directors.
During the Employment Term, the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employee shall pay to Employee
(a) a salary at the rate of Two Hundred & Twenty Thousand ($220,000) Dollars
per year (or such greater amount as Employer may from time to time determine),
payable periodically in accordance with Employer's usual executive payroll
payment procedures; plus
<PAGE>
(b) an annual bonus of Seventy Five Thousand ($75,000) Dollars for each
fiscal year (ending October 31st,) provided that
(i) Employee achieves to Employer's satisfaction the performance objectives
established by Employer.
(ii) Employee is in the active employment of Employer, and actually engaged
in performing his duties, at the close of such fiscal year, and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net income.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. In the case of Employer's fiscal year ending in 1997, such bonus
shall be Seventy Five Thousand ($75,000) Dollars. Eligibility for this executive
performance based bonus does not affect Employee's participation in the other
benefit programs available to all salaried employees.
3. Automobile.
Employer shall provide Employee with a vehicle allowance of Five Hundred
($500.00) Dollars per month.
4. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be at the principal executive office of the Employer in Lexington, Kentucky.
5. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
<PAGE>
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
6. Early Termination of Employment Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of illness or
other incapacity (including incapacity because of substance abuse) to render to
the Employer the services required of him hereunder for a period of two months
(during which the Employer shall continue the Employee's compensation at the
rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer shall
pay the Employee the Seventy Five Thousand ($75,000) Dollars annual bonus
provided for in Section 2(b) prorated for the period from the start of the
fiscal year to date of termination, provided that the requirement of
Sub-Sections 2(b)(i) and ( iii) have been met for such fiscal year.
<PAGE>
7. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal property leases, financial, engineering and marketing information
and information about costs, mining and processing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, (the "Non-Competition Period"),
the Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of coal mining. For purposes of the preceding sentence, the
Employee shall be deemed to be engaged in any business which any person for whom
he shall perform services is engaged. Nothing herein contained shall be deemed
to prohibit the Employee from owning, as a passive investment, a security of any
issuer which is not a supplier, vendor, customer or competitor of the Employer.
<PAGE>
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or duration of any limitation contained in this
paragraph 7 is too extensive to be legally enforceable, then the parties hereby
agree that the scope and duration (not greater than that provided for herein) of
such limitation shall be the maximum scope and duration which shall be legally
enforceable and the Employee hereby consents to the enforcement of such
limitation as so modified.
(d) The Employee acknowledges that any violation by him of the provisions of
this paragraph 7 could cause serious and irreparable damages to the Employer. He
further acknowledges that it might not be possible to measure such damages in
money. Accordingly, the Employee further acknowledges that, in the event of a
breach or threatened breach by him of the provisions of this paragraph 7, the
Employer may seek, in addition to any other rights or remedies, including money
damages, an injunction or restraining order, restraining the Employee from doing
or continuing to do or perform any acts constituting such breach or threatened
breach.
8. Benefits.
The Employer agrees to provide to the Employee the benefits available to all
salaried employees.
9. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right and
power to enter into this Agreement and carry out his duties hereunder, and that
same will not constitute a breach of or default under any employment,
confidentiality, non-competition or
<PAGE>
other agreement by which he may be bound.
10. Default by Employee.
If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and continue
in his failure after written notice;
then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.
11. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving
<PAGE>
corporation shall continue to be obligated to perform the provisions of this
Agreement.
12. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.
13. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
John W. Hughes Costain Coal, Inc.
249 East Main Street-Suite 200
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.
<PAGE>
14. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.
15. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
COSTAIN COAL, INC.
By /s/ Ira Leon Rennert
-----------------------
EMPLOYEE:
/s/ John W. Hughes
-------------------------
John W. Hughes
President
<PAGE>
Exhibit 10.1.2
EMPLOYMENT AGREEMENT
(Eugene Holdaway)
AGREEMENT effective as of April 1, 1997 between COSTAIN COAL, INC.
("Employer"), and Eugene Holdaway ("Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee as
its Senior Vice President Administration. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform his duties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President. During the Employment Term,
the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employee shall pay to Employee
(a) a salary at the rate of One Hundred Eighty Thousand Two Hundred Fifty
Thousand ($180,250) Dollars per year (or such greater amount as Employer may
from time to time determine), payable periodically in accordance with Employer's
usual executive
<PAGE>
payroll payment procedures; plus
(b) an annual bonus of Forty Thousand $(40,000) Dollars for each fiscal year
(ending October 31st, provided that
(i) Employee achieves to Employer's satisfaction the performance
objectives established by Employer.
(ii) Employee is in the active employment of Employer, and actually engaged
in performing his duties, at the close of such fiscal year, and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net income.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. In the case of Employer's fiscal year ending in 1997, such bonus
shall be Forty Thousand $(40,000) Dollars. Eligibility for this executive
performance based bonus does not affect Employee's participation in the other
benefit programs available to all salaried employees.
3. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be at the principal executive office of the Employer in Lexington, Kentucky.
4. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance
<PAGE>
with the policies and the budget of the Employer established from time to time)
in carrying out his duties hereunder will be reimbursed by the Employer on
presentation to it of expense accounts and appropriate documentation in
accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
5. Early Termination of Employment Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of illness or
other incapacity (including incapacity because of substance abuse) to render to
the Employer the services required of him hereunder for a period of two months
(during which the Employer shall continue the Employee's compensation at the
rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer
shall pay the Employee the Forty Thousand $(40,000) Dollars annual bonus
provided for in Section 2(b) prorated for the period from the start of the
fiscal year to date of termination, provided that the requirement of
Sub-Sections 2(b)(i) and ( iii) have been met for such fiscal year.
6. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal
<PAGE>
property leases, financial, engineering and marketing information and
information about costs, mining and processing methods, suppliers and customers)
constitute "Employer Confidential Information." Employee acknowledges that he
will have access to and knowledge of Employer Confidential Information, and that
improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, (the "Non-Competition Period"),
the Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of coal mining. For purposes of the preceding sentence, the
Employee shall be deemed to be engaged in any business which any person for whom
he shall perform services is engaged. Nothing herein contained shall be deemed
to prohibit the Employee from owning, as a passive investment, a security of any
issuer which is not a supplier, vendor, customer or competitor of the Employer.
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or
<PAGE>
duration of any limitation contained in this paragraph 7 is too extensive to be
legally enforceable, then the parties hereby agree that the scope and duration
(not greater than that provided for herein) of such limitation shall be the
maximum scope and duration which shall be legally enforceable and the Employee
hereby consents to the enforcement of such limitation as so modified.
(d) The Employee acknowledges that any violation by him of the provisions of
this paragraph 7 could cause serious and irreparable damages to the Employer. He
further acknowledges that it might not be possible to measure such damages in
money. Accordingly, the Employee further acknowledges that, in the event of a
breach or threatened breach by him of the provisions of this paragraph 7, the
Employer may seek, in addition to any other rights or remedies, including money
damages, an injunction or restraining order, restraining the Employee from doing
or continuing to do or perform any acts constituting such breach or threatened
breach.
7. Benefits.
The Employer agrees to provide to the Employee the benefits available to all
salaried employees.
8. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right and
power to enter into this Agreement and carry out his duties hereunder, and that
same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.
<PAGE>
9. Default by Employee.
If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and
continue in his failure after written notice; then, and in any such
case,
the Employer may terminate the employment of the Employee hereunder and, in the
event of any such termination, the Employee shall no longer have any right to
any of the benefits (including future salary payments) which would otherwise
have accrued after such termination.
10. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.
<PAGE>
11. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.
12. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
Eugene Holdaway Costain Coal, Inc.
249 East Main Street-Suite 200
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.
13. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms,
<PAGE>
conditions, and provisions of this Agreement shall not be construed as a waiver
or relinquishment of future compliance therewith, and said terms, conditions,
and provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of the Employer shall be effective for
any purposes whatsoever unless such waiver is in writing and signed by the
Employer.
14. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
agreement as of the day and year first above written.
EMPLOYER:
COSTAIN COAL, INC.
By /s/ Ira Leon Rennert
-------------------------
EMPLOYEE:
/s/ Eugene Holdaway
----------------------------
Eugene Holdaway
<PAGE>
Exhibit 10.1.3
EMPLOYMENT AGREEMENT
(R. Eberley Davis)
AGREEMENT effective as of April 1, 1997 between COSTAIN COAL, INC.
("Employer"), and R. Eberley Davis ("Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee as
its Vice President and General Counsel. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform his duties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President. During the Employment Term,
the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employee shall pay to Employee
(a) a salary at the rate of One Hundred & Fifty Five Thousand ($155,000)
Dollars per year (or such greater amount as Employer may from time to time
determine), payable periodically in accordance with Employer's usual executive
payroll payment procedures; plus
<PAGE>
(b) an annual bonus of Twenty Five Thousand ($25,000) Dollars for each
fiscal year (ending October 31st,) provided that
(i) Employee achieves to Employer's satisfaction the performance
objectives established by Employer.
(ii) Employee is in the active employment of Employer, and actually engaged
in performing his duties, at the close of such fiscal year, and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net income.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. In the case of Employer's fiscal year ending in 1997, such bonus
shall be Twenty Five Thousand ($25,000) Dollars. Eligibility for this executive
performance based bonus does not affect Employee's participation in the other
benefit programs available to all salaried employees.
3. Automobile.
Employer shall provide Employee with a vehicle allowance of Four Hundred &
Fifty ($450.00) Dollars per month.
4. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be at the principal executive office of the Employer in Lexington, Kentucky.
5. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
<PAGE>
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
6. Early Termination of Employment Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of illness or
other incapacity (including incapacity because of substance abuse) to render to
the Employer the services required of him hereunder for a period of two months
(during which the Employer shall continue the Employee's compensation at the
rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer shall
pay the Employee the Twenty Five Thousand ($25,000) Dollars annual bonus
provided for in Section 2(b) prorated for the period from the start of the
fiscal year to date of termination, provided that the requirement of
Sub-Sections 2(b)(i) and ( iii) have been met for such fiscal year.
<PAGE>
7. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal property leases, financial, engineering and marketing information
and information about costs, mining and processing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, (the "Non-Competition Period"),
the Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of coal mining. For purposes of the preceding sentence, the
Employee shall be deemed to be engaged in any business which any person for whom
he shall perform services is engaged. Nothing herein contained shall be deemed
to prohibit the Employee from owning, as a passive investment, a security of any
issuer which is not a supplier, vendor, customer or competitor of the Employer.
<PAGE>
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or duration of any limitation contained in this
paragraph 7 is too extensive to be legally enforceable, then the parties hereby
agree that the scope and duration (not greater than that provided for herein) of
such limitation shall be the maximum scope and duration which shall be legally
enforceable and the Employee hereby consents to the enforcement of such
limitation as so modified.
(d) The Employee acknowledges that any violation by him of the provisions of
this paragraph 7 could cause serious and irreparable damages to the Employer. He
further acknowledges that it might not be possible to measure such damages in
money. Accordingly, the Employee further acknowledges that, in the event of a
breach or threatened breach by him of the provisions of this paragraph 7, the
Employer may seek, in addition to any other rights or remedies, including money
damages, an injunction or restraining order, restraining the Employee from doing
or continuing to do or perform any acts constituting such breach or threatened
breach.
8. Benefits.
The Employer agrees to provide to the Employee the benefits available to all
salaried employees.
9. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right and
power to enter into this Agreement and carry out his duties hereunder, and that
same will not
<PAGE>
constitute a breach of or default under any employment, confidentiality,
non-competition or other agreement by which he may be bound.
10. Default by Employee.
If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and
continue in his failure after written notice;
then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.
11. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or
<PAGE>
other corporate reorganization, on condition that the assignee shall assume all
of the Employer's obligations hereunder and it is agreed that such successor or
surviving corporation shall continue to be obligated to perform the provisions
of this Agreement.
12. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.
13. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
R. Eberley Davis Costain Coal, Inc.
249 East Main Street-Suite 200
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of
<PAGE>
change of address shall be given as provided above, but shall be effective only
when actually received.
14. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.
15. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
COSTAIN COAL, INC.
By /s/ Ira Leon Rennert
-----------------------
EMPLOYEE:
/s/ Eberley Davis
-------------------------
R. Eberley Davis
<PAGE>
EMPLOYMENT AGREEMENT
(Mike Francisco)
AGREEMENT effective as of April 1, 1997 between COSTAIN COAL, INC.
("Employer"), and Mike Francisco ("Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee as
its Vice President Eastern Operations. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform his duties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President. During the Employment Term,
the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employee shall pay to Employee
(a) a salary at the rate of One Hundred Ten Thousand ($110,000) dollars per
year (or such greater amount as Employer may from time to time determine),
payable periodically in accordance with Employer's usual executive payroll
payment procedures; plus
<PAGE>
(b) an annual bonus of Twenty Five Thousand ($25,000) Dollars for each
fiscal year (ending October 31st,) provided that
(i) Employee achieves to Employer's satisfaction the performance
objectives established by Employer.
(ii) Employee is in the active employment of Employer, and actually
engaged in performing his duties, at the close of such fiscal year,
and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net operating income
available for common stock, as determined in accordance with
generally accepted accounting principles consistently applied, but
after adding back any non-cash charges for post-employment benefits
and before this bonus and bonuses provided for in all other executive
employment agreements.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. In the case of Employer's fiscal year ending in 1997, such bonus
shall be Twenty Five Thousand ($25,000) Dollars. Eligibility for this executive
performance based bonus does not affect Employee's participation in the other
benefit programs available to all salaried employees.
3. Automobile.
Employer shall provide Employee with the use of a vehicle leased by Employer
equivalent to a 1995 Chevy Tahoe. All expenses associated with the use of said
vehicle, including insurance, fuel and maintenance shall be paid, or reimbursed
to employee, by the
<PAGE>
Employer.
4. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be at the principal executive office of the Employer in Pikesville, Kentucky.
5. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
6. Early Termination of Employment
Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of illness or
other incapacity (including incapacity because of substance abuse) to render to
the Employer the services required of him hereunder for a period of two months
(during which the Employer shall continue the Employee's compensation at the
rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.
<PAGE>
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer shall
pay the
Employee the Twenty Five Thousand ($25,000) Dollars annual bonus provided for in
Section 2(b) prorated for the period from the start of the fiscal year to date
of termination, provided that the requirement of Sub-Sections 2(b)(i) and (iii)
have been met for such fiscal year.
7. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal property leases, financial, engineering and marketing information
and information about costs, mining and processing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, (the "Non-Competition Period"),
the Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise),
<PAGE>
directly or indirectly, be engaged in the business of coal mining. For purposes
of the preceding sentence, the Employee shall be deemed to be engaged in any
business which any person for whom he shall perform services is engaged. Nothing
herein contained shall be deemed to prohibit the Employee from owning, as a
passive investment, a security of any issuer which is not a supplier, vendor,
customer or competitor of the Employer.
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or duration of any limitation contained in this
paragraph 7 is too extensive to be legally enforceable, then the parties hereby
agree that the scope and duration (not greater than that provided for herein) of
such limitation shall be the maximum scope and duration which shall be legally
enforceable and the Employee hereby consents to the enforcement of such
limitation as so modified.
(d) The Employee acknowledges that any violation by him of the provisions of
this paragraph 7 could cause serious and irreparable damages to the Employer. He
further acknowledges that it might not be possible to measure such damages in
money. Accordingly, the Employee further acknowledges that, in the event of a
breach or threatened breach by him of the provisions of this paragraph 7, the
Employer may seek, in addition to any other rights or remedies, including money
damages, an injunction or restraining order, restraining the Employee from doing
or continuing to do or perform any acts constituting such breach or threatened
breach.
<PAGE>
8. Benefits.
The Employer agrees to provide to the Employee the benefits available to all
salaried employees.
9. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right and
power to enter into this Agreement and carry out his duties hereunder, and that
same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.
10. Default by Employee.
If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and
continue in his failure after written notice;
then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.
11. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be
<PAGE>
binding upon the Employer, its successors and assigns and upon the Employee and
his legal representatives, legatees and heirs. It is specifically understood,
however, that this Agreement may not be transferred or assigned by the Employee.
The Employer may assign any of its rights and obligations hereunder to any
subsidiary or affiliate of the Employer, or to a successor or survivor resulting
from a merger, consolidation, sale of assets or stock or other corporate
reorganization, on condition that the assignee shall assume all of the
Employer's obligations hereunder and it is agreed that such successor or
surviving corporation shall continue to be obligated to perform the provisions
of this Agreement.
12. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.
13. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
Mike Francisco Costain Coal, Inc.
249 East Main Street-Suite 200
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
<PAGE>
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.
14. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.
15. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
COSTAIN COAL, INC.
By /s/ Ira Leon Rennert
-------------------------
Ira Leon Rennert
EMPLOYEE:
/s/ Mike Francisco
---------------------------
Mike Francisco
<PAGE>
EMPLOYMENT AGREEMENT
(Bill Potter)
AGREEMENT effective as of April 1, 1997 between COSTAIN COAL, INC.
("Employer"), and Bill Potter ("Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee as
its Vice President Western Operations. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform his duties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President. During the Employment Term,
the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employee shall pay to Employee
(a) a salary at the rate of One Hundred Eleven Thousand Five Hundred & Fifty
($111,550) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll
<PAGE>
payment procedures; plus
(b) an annual bonus of Twenty Five Thousand ($25,000) Dollars for each
fiscal year (ending October 31st,) provided that
(i) Employee achieves to Employer's satisfaction the performance
objectives establis hed by Emplo yer.
(ii) Employee is in the active employment of Employer, and actually
engaged in performing his duties, at the close of such fiscal year,
and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net income.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. In the case of Employer's fiscal year ending in 1997, such bonus
shall be Twenty Five Thousand ($25,000) Dollars. Eligibility for this executive
performance based bonus does not affect Employee's participation in the other
benefit programs available to all salaried employees.
3. Automobile.
Employer shall provide Employee with the use of a vehicle leased by Employer
equivalent to a 1994 Ford Crown Victoria. All expenses associated with the use
of said vehicle, including insurance, fuel and maintenance shall be paid, or
reimbursed to Employee, by the Employer.
4. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be
<PAGE>
at the principal executive office of the Employer in West, Kentucky.
5. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
6. Early Termination of Employment Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of illness
or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's
compensation at the rates herein provided), the Employer may, in its
discretion, give one month notice of termination of the Employment Term
(during which the Employee's compensation shall likewise be continued), and
if the Employee shall not resume full performance of his duties within such
one month period, the Employment Term shall terminate at the expiration
thereof, provided that any such termination shall not affect the right of the
Employee (or his estate) to continue to receive benefits under any disability
insurance plan covering the Employee which is in effect at the date of
termination.
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer
shall pay the Employee the Twenty Five Thousand ($25,000) Dollars annual
bonus provided for in Section
<PAGE>
2(b) prorated for the period from the start of the fiscal year to date of
termination, provided that the requirement of Sub-Sections 2(b)(i) and ( iii)
have been met for such fiscal year.
7. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal property leases, financial, engineering and marketing information
and information about costs, mining and processing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, (the "Non-Competition
Period"), the Employee will not (whether as an officer, director, partner,
proprietor, investor, associate, employee, consultant, adviser, public
relations or advertising representative or otherwise), directly or
indirectly, be engaged in the business of coal mining. For purposes of the
preceding sentence, the Employee shall be deemed to be engaged in any
business which any person for whom he shall perform services is engaged.
Nothing herein contained shall be
<PAGE>
deemed to prohibit the Employee from owning, as a passive investment, a
security of any issuer which is not a supplier, vendor, customer or
competitor of the Employer.
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or duration of any limitation contained in this
paragraph 7 is too extensive to be legally enforceable, then the parties hereby
agree that the scope and duration (not greater than that provided for herein) of
such limitation shall be the maximum scope and duration which shall be legally
enforceable and the Employee hereby consents to the enforcement of such
limitation as so modified.
(d) The Employee acknowledges that any violation by him of the provisions
of this paragraph 7 could cause serious and irreparable damages to the
Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that,
in the event of a breach or threatened breach by him of the provisions of
this paragraph 7, the Employer may seek, in addition to any other rights or
remedies, including money damages, an injunction or restraining order,
restraining the Employee from doing or continuing to do or perform any acts
constituting such breach or threatened breach.
8. Benefits.
The Employer agrees to provide to the Employee the benefits available to
all salaried employees.
9. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right
and power
<PAGE>
to enter into this Agreement and carry out his duties hereunder, and that
same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.
10. Default by Employee.
If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and
continue in his failure after written notice;
then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.
11. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and
upon the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred
or assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets
or stock or
<PAGE>
other corporate reorganization, on condition that the assignee shall assume
all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform
the provisions of this Agreement.
12. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.
13. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
Bill Potter Costain Coal, Inc.
249 East Main Street-Suite 200
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually
<PAGE>
received.
14. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.
15. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
COSTAIN COAL, INC.
By /s/ Ira Leon Rennert
------------------------
EMPLOYEE:
/s/ Bill Potter
--------------------------
Bill Potter
<PAGE>
EMPLOYMENT AGREEMENT
(Michael E. Donohue)
AGREEMENT effective as of July 1, 1998 between LODESTAR ENERGY, INC.
("Employer"), and Michael E. Donohue ("Employee").
W I T N E S S E T H:
WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;
In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Terms and Duties.
Commencing as of the effective date hereof and continuing until April 1,
2002, and thereafter from year to year unless sooner terminated as herein
provided (the "Employment Term"), the Employer hereby employs the Employee
as its Vice President-Finance and Chief Financial Officer. The Employee hereby
accepts such employment and agrees to devote all of his business time and his
best efforts to the business of Employer and as may be necessary to perform
his duties in accordance with the policies and budgets established from time
to time by Employer and its Board of Directors and President. During the
Employment Term, the Employee will not have any other employment.
2. Compensation.
For Employee's services hereunder Employer shall pay to Employee
(a) a salary at the rate of One Hundred & Fifty Thousand ($150,000)
Dollars per year (or such greater amount as Employer may from time to time
determine), payable periodically in accordance with Employer's usual executive
payroll payment
<PAGE>
procedures; plus
(b) an annual bonus of Thirty Five Thousand ($35,000) Dollars for each
fiscal year (ending October 31th,) provided that
(i) Employee achieves to Employer's satisfaction the performance
objectives established by Employer.
(ii) Employee is in the active employment of Employer, and actually
engaged in performing his duties, at the close of such fiscal year,
and
(iii) Employer's financial statements for such year, as prepared by its
independent public accountants, show a positive net income.
Such annual bonus for each year shall be payable within 30 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net operating income, as shown in such statements, shall be conclusive on
the parties. Eligibility for this executive performance based bonus does not
affect Employee's participation in the other benefit programs available to all
salaried employees.
3. Place of Employment.
The Employee's regular place of employment during the Employment Term shall
be at the principal executive office of the Employer in Lexington, Kentucky.
4. Travel; Expenses.
The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.
All reasonable travel and other expenses incurred by the Employee (in
accordance
<PAGE>
with the policies and the budget of the Employer established from time to time)
in carrying out his duties hereunder will be reimbursed by the Employer on
presentation to it of expense accounts and appropriate documentation in
accordance with the customary procedures of the Employer for reimbursement of
executive expenses.
5. Early Termination of Employment Term on Disability or Death.
(a) If during the Employment term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.
(b) The Employment Term shall end upon the death of the Employee.
(c) In the event of termination for disability or death, the Employer shall
pay the
Employee the Thirty Five Thousand ($35,000) Dollars annual bonus provided for in
Section 2(b) prorated for the period from the start of the fiscal year to date
of termination, provided that the requirement of Sub-Sections 2(b)(i) and ( iii)
have been met for such fiscal year.
6. Confidentiality; Competition.
(a) For the purposes hereof, all confidential information about the business
and affairs of the Employer (including, without limitation, business plans, real
and personal property leases, financial, engineering and marketing information
and information about costs, mining and processing methods, suppliers and
customers) constitute "Employer
<PAGE>
Confidential Information." Employee acknowledges that he will have access to and
knowledge of Employer Confidential Information, and that improper use or
revelation of same by the Employee during or after the termination of his
employment by the Employer could cause serious injury to the business of the
Employer. Accordingly, the Employee agrees that he will forever keep secret and
inviolate all Employer Confidential Information which comes into his possession,
and that he will not use the same for his own private benefit, or directly or
indirectly for the benefit of others, and that he will not disclose such
Employer Confidential Information to any other person except as necessary in
pursuance of his duties.
(b) The Employee agrees that during the Employment Term as extended, if
extended, but in any event until April 1, 2002, ("Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of coal mining. For purposes of the preceding sentence, the
Employee shall be deemed to be engaged in any business which any person for whom
he shall perform services is engaged. Nothing herein contained shall be deemed
to prohibit the Employee from owning, as a passive investment, a security of any
issuer which is not a supplier, vendor, customer or competitor of the Employer.
(c) Within the terms of this Agreement, it is intended to limit disclosure
and competition by the Employee to the maximum extent permitted by law. If it
shall be finally determined by any court of competent jurisdiction ruling on
this Agreement that the scope or duration of any limitation contained in this
paragraph 7 is too extensive to be legally enforceable, then the parties hereby
agree that the scope and duration (not greater than that
<PAGE>
provided for herein) of such limitation shall be the maximum scope and duration
which shall be legally enforceable and the Employee hereby consents to the
enforcement of such limitation as so modified.
(d) The Employee acknowledges that any violation by him of the
provisions of this paragraph 7 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 7, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.
7. Benefits.
The Employer agrees to provide to the Employee the benefits available to all
salaried employees.
8. Employee's Representation.
Employee hereby represents to the Employer that he has full lawful right and
power to enter into this Agreement and carry out his duties hereunder, and that
same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.
9. Default by Employee. If the Employee shall:
(i) commit an act of dishonesty against the Employer or fraud upon the
Employer; or
<PAGE>
(ii) breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or
(iii) be convicted of a crime involving moral turpitude; or
(iv) fail or neglect diligently to perform his duties hereunder and
continue in his failure after written notice;
then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.
10. Successors.
The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.
11. Automatic Roll-over.
This Agreement shall automatically extend for an additional one-year period,
on each expiration date, unless either party shall have theretofore given at
least 30 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding
<PAGE>
said extension, unless otherwise agreed in writing.
12. Notices.
Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:
To Employee: To Employer:
Michael Donohue Lodestar Energy, Inc.
333 West Vine Street--Suite 1700
Lexington, KY 40507
Attention: President
with copy to:
The Renco Group, Inc.
30 Rockefeller Plaza-42nd Floor
New York, NY 10112
and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.
13. Waiver.
The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement
<PAGE>
on the part of the Employer shall be effective for any purposes whatsoever
unless such waiver is in writing and signed by the Employer.
14. Entire Agreement; Governing Law
There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under and shall be construed in accordance with, the laws of
Kentucky applicable to agreements to be performed wholly within that state.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
LODESTAR ENERGY, INC.
By /s/ John W. Hughes
------------------------
EMPLOYEE:
/s/ Michael E. Donohue
---------------------------
Michael E. Donohue
<PAGE>
Exhibit 10.2.1
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
May 14, 1998
Mr. John W. Hughes
105 Mallard Court
Nicholasville, KY 40356
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Hughes:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation
Participation, intended to constitute additional incentive compensation to
you. This letter is a restatement of, and replaces in its entirety, a
similar letter from Rencoal, Inc. to you dated March 14, 1997, and shall be
deemed to have effect from March 14, 1997.
1) Vesting - On April 30, 2000 provided that you continue to be
continuously employed by the Company from the date hereof through that date,
you shall receive a credit of one and one half percent (1 1/2%), and on each
of April 30, 2001, and April 30, 2002, you shall receive an additional credit
of one half of one percent (1/2%), provided that you are continuously
employed by the Company to the said date, for a maximum credit, if you remain
in the employ of the Company continuously through April 30, 2002 of two and
one half percent (2 1/2%) ("Maximum Credit"). You shall not receive credit
for any partial year, unless your employment terminates due to death or total
disability, in which case you shall receive a credit of one half of one
percent (1/2%) for the year in which such termination takes place, in
addition to any other credit previously vested (up to said Maximum Credit of
two and one half percent (2 1/2%).
2) Cumulative Net Income Participation Benefit - Upon the termination
of your employment by the Company (other than for cause), or your death or
total disability while in
<PAGE>
our employment, you (or your designee or estate) shall be entitled to a
payment ("Payment") equal to the product of (a) the total percentage credited
to you under paragraph 1 (a maximum of two and one half percent (2 1/2%))
multiplied by (b) the "cumulative net income". The "cumulative net income"
is the amount, if any, of the cumulative consolidated net income of the
Company's parent, Lodestar Holdings, Inc., ("Holdings") available to its
Common Stock, from March 14, 1997 through the end of either (at the Company's
option) (x) its fiscal quarter immediately preceding the date of your
termination or (y) the fiscal quarter in which your date of termination
occurs. If there is no positive "cumulative net income" there shall be no
payment. The determination of the independent public accountants for the
Company as to the cumulative net income, made in accordance with generally
accepted accounting principals, consistently applied, shall be conclusive.
There shall be deducted from net income for each period any amount paid as
dividends on the Common Stock of Holdings during such period. If your
employment shall be terminated for cause at any time, you shall forfeit all
rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000
per fiscal year, then the Company shall make a cash payment to you equal to
the total amount of the cash dividend and management fees in excess of
$1,200,000 per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing
three (3) months after the later of (x) the termination of your employment or
(y) your attaining 62 years of age, and at 3-month intervals thereafter,
provided, however, that in the event of your death or permanent disability,
rendering you unable to engage in your customary employment, the Payment, if
it has not already commenced, will commence. The period during which the
payments will be made is herein called the "Payment Period". You have
advised us that your date of birth is 5/31/41.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you
pursuant to this agreement, whether as a result of dividend participation or
otherwise, will not be counted as wages for the purpose of computing other
benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while
you shall be employed by the Company all or substantially all the stock or
assets of Holdings shall be sold to a person who is not an affiliate of Ira
Leon Rennert, or if The Renco Group, Inc. sells a controlling interest in
Holdings, then, upon the closing of such sale, the Maximum Credit shall be
deemed to be vested, and you shall be entitled to receive, as payment in full
of your participation, your pro rata share two and one half percent (2 1/2%)
of the "net proceeds" of the sale available for Holdings Common Stock, in
kind, on the same terms and conditions as Holdings or its shareholder is
being paid. "Net proceeds", for purposes hereof, shall mean the amount, if
any, by which the proceeds of the sale after deducting all expenses of the
sale, all applicable taxes, all liabilities retained by the seller and all
amounts to which holders of preferred stock are entitled exceeds the
consolidated net worth applicable to the Common Stock of Holdings on March
14, 1997. Except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall
comply with the following provisions as a condition precedent to your right
to receive Payments:
(a) You acknowledge that, by reason of your employment by the
Company, you will have continuing access to and knowledge of company
confidential information and that improper use or revelation of same by you
during or after the termination of your employment by the Company could cause
serious injury to the business of the Company. Accordingly, you agree that
you will forever keep secret and inviolate all company confidential
information which shall have come or shall hereafter come into your
possession, and that you will not use the same for your own private benefit,
or directly or indirectly for the benefit of others, and that you will not
disclose such company confidential information to any other person.
3
<PAGE>
(b) You agree that you will not (whether as an officer, director,
partner, proprietor, investor, associate, employee, consultant, adviser,
public relations or advertising representative or otherwise), directly or
indirectly, be engaged in the coal business, or in any other business in
which the Company is engaged, or proposed to engage, at the time of the
termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by
hand, certified or registered mail or overnight service to you, at the
address indicated above and to the Company, c/o The Renco Group, Inc., 30
Rockefeller Plaza, New York, New York 10112, to the attention of Ira Leon
Rennert, or to any other address which any of us may designate by notice in
writing.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to the subject matter contained herein by signing and
returning the enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
---------------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ John W. Hughes
- ---------------------------
John W. Hughes
105 Mallard Court
Nicholasville, KY 40356
4
<PAGE>
Exhibit 10.2.2
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
May 14, 1998
Mr. Eugene C. Holdaway
4004 Spicewood Court
Lexington, KY 40513
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Holdaway:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation Participation,
intended to constitute additional incentive compensation to you. This letter is
a restatement of, and replaces in its entirety, a similar letter from Rencoal,
Inc. to you dated March 14, 1997, and shall be deemed to have effect from March
14, 1997.
1) Vesting - On April 30, 2000 provided that you continue to be continuously
employed by the Company from the date hereof through that date, you shall
receive a credit of one and one twentieth percent (1 1/20%) and on each of April
30, 2001, and April 30, 2002, you shall receive an additional credit of seven
twentieths of one percent (7/20%), provided that you are continuously employed
by the Company to the said date, for a maximum credit, if you remain in the
employ of the Company continuously through April 30, 2002 of one and three
fourths percent (1 3/4%) ("Maximum Credit"). You shall not receive credit for
any partial year, unless your employment terminates due to death or total
disability, in which case you shall receive a credit of seven twentieths of one
percent (7/20%) for the year in which such termination takes place, in addition
to any other credit previously vested (up to said Maximum Credit of one and
three fourths percent (1 3/4%).
2) Cumulative Net Income Participation Benefit - Upon the termination of
your employment by the Company (other than for cause), or your death or total
disability while in
<PAGE>
our employment, you (or your designee or estate) shall be entitled to a payment
("Payment") equal to the product of (a) the total percentage credited to you
under paragraph 1 (a maximum of one and three fourths percent (1 3/4%))
multiplied by (b) the "cumulative net income". The "cumulative net income" is
the amount, if any, of the cumulative consolidated net income of the Company's
parent, Lodestar Holdings, Inc., ("Holdings") available to its Common Stock,
from March 14, 1997 through the end of either (at the Company's option) (x) its
fiscal quarter immediately preceding the date of your termination or (y) the
fiscal quarter in which your date of termination occurs. If there is no positive
"cumulative net income" there shall be no payment. The determination of the
independent public accountants for the Company as to the cumulative net income,
made in accordance with generally accepted accounting principals, consistently
applied, shall be conclusive. There shall be deducted from net income for each
period any amount paid as dividends on the Common Stock of Holdings during such
period. If your employment shall be terminated for cause at any time, you shall
forfeit all rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000 per
fiscal year, then the Company shall make a cash payment to you equal to the
total amount of the cash dividend and management fees in excess of $1,200,000
per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing three
(3) months after the later of (x) the termination of your employment or (y) your
attaining 62 years of age, and at 3-month intervals thereafter, provided,
however, that in the event of your death or permanent disability, rendering you
unable to engage in your customary employment, the Payment, if it has not
already commenced, will commence. The period during which the payments will be
made is herein called the "Payment Period". You have advised us that your date
of birth is 2/25/47.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you pursuant to
this agreement, whether as a result of dividend participation or otherwise, will
not be counted as wages for the purpose of computing other benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while you
shall be employed by the Company all or substantially all the stock or assets of
Holdings shall be sold to a person who is not an affiliate of Ira Leon Rennert,
or if The Renco Group, Inc. sells a controlling interest in Holdings, then, upon
the closing of such sale, the Maximum Credit shall be deemed to be vested, and
you shall be entitled to receive, as payment in full of your participation, your
pro rata share one and three fourths percent (1 3/4%) of the "net proceeds" of
the sale available for Holdings Common Stock, in kind, on the same terms and
conditions as Holdings or its shareholder is being paid. "Net proceeds", for
purposes hereof, shall mean the amount, if any, by which the proceeds of the
sale after deducting all expenses of the sale, all applicable taxes, all
liabilities retained by the seller and all amounts to which holders of preferred
stock are entitled exceeds the consolidated net worth applicable to the Common
Stock of Holdings on March 14, 1997. Except for such payment, neither you nor
this Company shall have any further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall comply
with the following provisions as a condition precedent to your right to receive
Payments:
(a) You acknowledge that, by reason of your employment by the Company, you
will have continuing access to and knowledge of company confidential information
and that improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious injury to the
business of the Company. Accordingly, you agree that you will forever keep
secret and inviolate all company confidential information which shall have come
or shall hereafter come into your possession, and that you will not use the same
for your own private benefit, or directly or indirectly for the benefit of
others, and that you will not disclose such company confidential information to
any other person.
3
<PAGE>
(b) You agree that you will not (whether as an officer, director, partner,
proprietor, investor, associate, employee, consultant, adviser, public relations
or advertising representative or otherwise), directly or indirectly, be engaged
in the coal business, or in any other business in which the Company is engaged,
or proposed to engage, at the time of the termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by hand,
certified or registered mail or overnight service to you, at the address
indicated above and to the Company, c/o The Renco Group, Inc., 30 Rockefeller
Plaza, New York, New York 10112, to the attention of Ira Leon Rennert, or to any
other address which any of us may designate by notice in writing.
Please confirm that the foregoing correctly sets forth our full agreement
with respect to the subject matter contained herein by signing and returning the
enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
----------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ Eugene C. Holdaway
- ------------------------
Eugene C. Holdaway
4004 Spicewood Court
Lexington, KY 40513
4
<PAGE>
Exhibit 10.2.3
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
May 14, 1998
Mr. Eberly Davis
2268 Shannawood Drive
Lexington, KY 40513
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Davis:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation Participation,
intended to constitute additional incentive compensation to you. This letter is
a restatement of, and replaces in its entirety, a similar letter from Rencoal,
Inc. to you dated March 14, 1997, and shall be deemed to have effect from March
14, 1997.
1) Vesting - On April 30, 2000 provided that you continue to be continuously
employed by the Company from the date hereof through that date, you shall
receive a credit of three fourths of one percent (3/4%) and on each of April 30,
2001, and April 30, 2002, you shall receive an additional credit of one fourth
of one percent (1/4%), provided that you are continuously employed by the
Company to the said date, for a maximum credit, if you remain in the employ of
the Company continuously through April 30, 2002 of one and one fourth percent (1
1/4%) ("Maximum Credit"). You shall not receive credit for any partial year,
unless your employment terminates due to death or total disability, in which
case you shall receive a credit of one fourth of one percent (1/4%) for the year
in which such termination takes place, in addition to any other credit
previously vested (up to said Maximum Credit of one and one fourth percent (1
1/4%).
2) Cumulative Net Income Participation Benefit - Upon the termination of
your employment by the Company (other than for cause), or your death or total
disability while in
<PAGE>
our employment, you (or your designee or estate) shall be entitled to a payment
("Payment") equal to the product of (a) the total percentage credited to you
under paragraph 1 (a maximum of one and one fourth percent (1 1/4%)) multiplied
by (b) the "cumulative net income". The "cumulative net income" is the amount,
if any, of the cumulative consolidated net income of the Company's parent,
Lodestar Holdings, Inc., ("Holdings") available to its Common Stock, from March
14, 1997 through the end of either (at the Company's option) (x) its fiscal
quarter immediately preceding the date of your termination or (y) the fiscal
quarter in which your date of termination occurs. If there is no positive
"cumulative net income" there shall be no payment. The determination of the
independent public accountants for the Company as to the cumulative net income,
made in accordance with generally accepted accounting principals, consistently
applied, shall be conclusive. There shall be deducted from net income for each
period any amount paid as dividends on the Common Stock of Holdings during such
period. If your employment shall be terminated for cause at any time, you shall
forfeit all rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000 per
fiscal year, then the Company shall make a cash payment to you equal to the
total amount of the cash dividend and management fees in excess of $1,200,000
per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing three
(3) months after the later of (x) the termination of your employment or (y) your
attaining 62 years of age, and at 3-month intervals thereafter, provided,
however, that in the event of your death or permanent disability, rendering you
unable to engage in your customary employment, the Payment, if it has not
already commenced, will commence. The period during which the payments will be
made is herein called the "Payment Period". You have advised us that your date
of birth is 3/5/57.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you pursuant to
this agreement, whether as a result of dividend participation or otherwise, will
not be counted as wages for the purpose of computing other benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while you
shall be employed by the Company all or substantially all the stock or assets of
Holdings shall be sold to a person who is not an affiliate of Ira Leon Rennert,
or if The Renco Group, Inc. sells a controlling interest in Holdings, then, upon
the closing of such sale, the Maximum Credit shall be deemed to be vested, and
you shall be entitled to receive, as payment in full of your participation, your
pro rata share one and one fourth percent (1 1/4%) of the "net proceeds" of the
sale available for Holdings Common Stock, in kind, on the same terms and
conditions as Holdings or its shareholder is being paid. "Net proceeds", for
purposes hereof, shall mean the amount, if any, by which the proceeds of the
sale after deducting all expenses of the sale, all applicable taxes, all
liabilities retained by the seller and all amounts to which holders of preferred
stock are entitled exceeds the consolidated net worth applicable to the Common
Stock of Holdings on March 14, 1997. Except for such payment, neither you nor
this Company shall have any further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall comply
with the following provisions as a condition precedent to your right to receive
Payments:
(a) You acknowledge that, by reason of your employment by the Company, you
will have continuing access to and knowledge of company confidential information
and that improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious injury to the
business of the Company. Accordingly, you agree that you will forever keep
secret and inviolate all company confidential information which shall have come
or shall hereafter come into your possession, and that you will not use the same
for your own private benefit, or directly or indirectly for the benefit of
others, and that you will not disclose such company confidential information to
any other person.
3
<PAGE>
(b) You agree that you will not (whether as an officer, director, partner,
proprietor, investor, associate, employee, consultant, adviser, public relations
or advertising representative or otherwise), directly or indirectly, be engaged
in the coal business, or in any other business in which the Company is engaged,
or proposed to engage, at the time of the termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by hand,
certified or registered mail or overnight service to you, at the address
indicated above and to the Company, c/o The Renco Group, Inc., 30 Rockefeller
Plaza, New York, New York 10112, to the attention of Ira Leon Rennert, or to any
other address which any of us may designate by notice in writing.
Please confirm that the foregoing correctly sets forth our full agreement
with respect to the subject matter contained herein by signing and returning the
enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
-----------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ Eberley Davis
- ------------------------
Eberly Davis
2268 Shannawood Drive
Lexington, KY 40513
4
<PAGE>
Exhibit 10.2.4
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
May 14, 1998
Mr. Mike Francisco
P.O. Box 439
Elkhorn City, KY 41522
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Francisco:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation Participation,
intended to constitute additional incentive compensation to you. This letter is
a restatement of, and replaces in its entirety, a similar letter from Rencoal,
Inc. to you dated March 14, 1997, and shall be deemed to have effect from March
14, 1997.
1) Vesting - On April 30, 2000 provided that you continue to be continuously
employed by the Company from the date hereof through that date, you shall
receive a credit of three fourths of one percent (3/4%) and on each of April 30,
2001, and April 30, 2002, you shall receive an additional credit of one fourth
of one percent (1/4%), provided that you are continuously employed by the
Company to the said date, for a maximum credit, if you remain in the employ of
the Company continuously through April 30, 2002 of one and one fourth percent (1
1/4%) ("Maximum Credit"). You shall not receive credit for any partial year,
unless your employment terminates due to death or total disability, in which
case you shall receive a credit of one fourth of one percent (1/4%) for the year
in which such termination takes place, in addition to any other credit
previously vested (up to said Maximum Credit of one and one fourth percent (1
1/4%).
2) Cumulative Net Income Participation Benefit - Upon the termination of
your employment by the Company (other than for cause), or your death or total
disability while in
<PAGE>
our employment, you (or your designee or estate) shall be entitled to a payment
("Payment") equal to the product of (a) the total percentage credited to you
under paragraph 1 (a maximum of one and one fourth percent (1 1/4%)) multiplied
by (b) the "cumulative net income". The "cumulative net income" is the amount,
if any, of the cumulative consolidated net income of the Company's parent,
Lodestar Holdings, Inc., ("Holdings") available to its Common Stock, from March
14, 1997 through the end of either (at the Company's option) (x) its fiscal
quarter immediately preceding the date of your termination or (y) the fiscal
quarter in which your date of termination occurs. If there is no positive
"cumulative net income" there shall be no payment. The determination of the
independent public accountants for the Company as to the cumulative net income,
made in accordance with generally accepted accounting principals, consistently
applied, shall be conclusive. There shall be deducted from net income for each
period any amount paid as dividends on the Common Stock of Holdings during such
period. If your employment shall be terminated for cause at any time, you shall
forfeit all rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000 per
fiscal year, then the Company shall make a cash payment to you equal to the
total amount of the cash dividend and management fees in excess of $1,200,000
per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing three
(3) months after the later of (x) the termination of your employment or (y) your
attaining 62 years of age, and at 3-month intervals thereafter, provided,
however, that in the event of your death or permanent disability, rendering you
unable to engage in your customary employment, the Payment, if it has not
already commenced, will commence. The period during which the payments will be
made is herein called the "Payment Period". You have advised us that your date
of birth is 1/14/56.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you pursuant to
this agreement, whether as a result of dividend participation or otherwise, will
not be counted as wages for the purpose of computing other benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while you
shall be employed by the Company all or substantially all the stock or assets of
Holdings shall be sold to a person who is not an affiliate of Ira Leon Rennert,
or if The Renco Group, Inc. sells a controlling interest in Holdings, then, upon
the closing of such sale, the Maximum Credit shall be deemed to be vested, and
you shall be entitled to receive, as payment in full of your participation, your
pro rata share one and one fourth percent (1 1/4%) of the "net proceeds" of the
sale available for Holdings Common Stock, in kind, on the same terms and
conditions as Holdings or its shareholder is being paid. "Net proceeds", for
purposes hereof, shall mean the amount, if any, by which the proceeds of the
sale after deducting all expenses of the sale, all applicable taxes, all
liabilities retained by the seller and all amounts to which holders of preferred
stock are entitled exceeds the consolidated net worth applicable to the Common
Stock of Holdings on March 14, 1997. Except for such payment, neither you nor
this Company shall have any further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall comply
with the following provisions as a condition precedent to your right to receive
Payments:
(a) You acknowledge that, by reason of your employment by the Company, you
will have continuing access to and knowledge of company confidential information
and that improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious injury to the
business of the Company. Accordingly, you agree that you will forever keep
secret and inviolate all company confidential information which shall have come
or shall hereafter come into your possession, and that you will not use the same
for your own private benefit, or directly or indirectly for the benefit of
others, and that you will not disclose such company confidential information to
any other person.
3
<PAGE>
(b) You agree that you will not (whether as an officer, director, partner,
proprietor, investor, associate, employee, consultant, adviser, public relations
or advertising representative or otherwise), directly or indirectly, be engaged
in the coal business, or in any other business in which the Company is engaged,
or proposed to engage, at the time of the termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by hand,
certified or registered mail or overnight service to you, at the address
indicated above and to the Company, c/o The Renco Group, Inc., 30 Rockefeller
Plaza, New York, New York 10112, to the attention of Ira Leon Rennert, or to any
other address which any of us may designate by notice in writing.
Please confirm that the foregoing correctly sets forth our full agreement
with respect to the subject matter contained herein by signing and returning the
enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
-----------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ Mike Francisco
- ------------------------
Mr. Mike Francisco
P.O. Box 439
Elkhorn City, KY 41522
4
<PAGE>
Exhibit 10.2.5
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
May 14, 1998
Mr. Bill Potter
2400 Ridgewood Drive
Madisonville, KY 42431
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Potter:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation
Participation, intended to constitute additional incentive compensation to
you. This letter is a restatement of, and replaces in its entirety, a
similar letter from Rencoal, Inc. to you dated March 14, 1997, and shall be
deemed to have effect from March 14, 1997.
1) Vesting - On April 30, 2000 provided that you continue to be
continuously employed by the Company from the date hereof through that date,
you shall receive a credit of three fourths of one percent (3/4%) and on each
of April 30, 2001, and April 30, 2002, you shall receive an additional credit
of one fourth of one percent (1/4%), provided that you are continuously
employed by the Company to the said date, for a maximum credit, if you remain
in the employ of the Company continuously through April 30, 2002 of one and
one fourth percent (1 1/4%) ("Maximum Credit"). You shall not receive credit
for any partial year, unless your employment terminates due to death or total
disability, in which case you shall receive a credit of one fourth of one
percent (1/4%) for the year in which such termination takes place, in
addition to any other credit previously vested (up to said Maximum Credit of
one and one fourth percent (1 1/4%).
2) Cumulative Net Income Participation Benefit - Upon the termination
of your employment by the Company (other than for cause), or your death or
total disability while in
<PAGE>
our employment, you (or your designee or estate) shall be entitled to a
payment ("Payment") equal to the product of (a) the total percentage credited
to you under paragraph 1 (a maximum of one and one fourth percent (1 1/4%))
multiplied by (b) the "cumulative net income". The "cumulative net income"
is the amount, if any, of the cumulative consolidated net income of the
Company's parent, Lodestar Holdings, Inc., ("Holdings") available to its
Common Stock, from March 14, 1997 through the end of either (at the Company's
option) (x) its fiscal quarter immediately preceding the date of your
termination or (y) the fiscal quarter in which your date of termination
occurs. If there is no positive "cumulative net income" there shall be no
payment. The determination of the independent public accountants for the
Company as to the cumulative net income, made in accordance with generally
accepted accounting principals, consistently applied, shall be conclusive.
There shall be deducted from net income for each period any amount paid as
dividends on the Common Stock of Holdings during such period. If your
employment shall be terminated for cause at any time, you shall forfeit all
rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000
per fiscal year, then the Company shall make a cash payment to you equal to
the total amount of the cash dividend and management fees in excess of
$1,200,000 per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing
three (3) months after the later of (x) the termination of your employment or
(y) your attaining 62 years of age, and at 3-month intervals thereafter,
provided, however, that in the event of your death or permanent disability,
rendering you unable to engage in your customary employment, the Payment, if
it has not already commenced, will commence. The period during which the
payments will be made is herein called the "Payment Period". You have
advised us that your date of birth is 2/8/52.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you
pursuant to this agreement, whether as a result of dividend participation or
otherwise, will not be counted as wages for the purpose of computing other
benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while
you shall be employed by the Company all or substantially all the stock or
assets of Holdings shall be sold to a person who is not an affiliate of Ira
Leon Rennert, or if The Renco Group, Inc. sells a controlling interest in
Holdings, then, upon the closing of such sale, the Maximum Credit shall be
deemed to be vested, and you shall be entitled to receive, as payment in full
of your participation, your pro rata share one and one fourth percent (1 1/4%)
of the "net proceeds" of the sale available for Holdings Common Stock, in
kind, on the same terms and conditions as Holdings or its shareholder is
being paid. "Net proceeds", for purposes hereof, shall mean the amount, if
any, by which the proceeds of the sale after deducting all expenses of the
sale, all applicable taxes, all liabilities retained by the seller and all
amounts to which holders of preferred stock are entitled exceeds the
consolidated net worth applicable to the Common Stock of Holdings on March
14, 1997. Except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall
comply with the following provisions as a condition precedent to your right
to receive Payments:
(a) You acknowledge that, by reason of your employment by the
Company, you will have continuing access to and knowledge of company
confidential information and that improper use or revelation of same by you
during or after the termination of your employment by the Company could cause
serious injury to the business of the Company. Accordingly, you agree that
you will forever keep secret and inviolate all company confidential
information which shall have come or shall hereafter come into your
possession, and that you will not use the same for your own private benefit,
or directly or indirectly for the benefit of others, and that you will not
disclose such company confidential information to any other person.
3
<PAGE>
(b) You agree you will not (whether as an officer, director,
partner, proprietor, investor, associate, employee, consultant, adviser,
public relations or advertising representative or otherwise), directly or
indirectly, be engaged in the coal business, or in any other business in
which the Company is engaged, or proposed to engage, at the time of the
termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by
hand, certified or registered mail or overnight service to you, at the
address indicated above and to the Company, c/o The Renco Group, Inc., 30
Rockefeller Plaza, New York, New York 10112, to the attention of Ira Leon
Rennert, or to any other address which any of us may designate by notice in
writing.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to the subject matter contained herein by signing and
returning the enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
-----------------------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ Bill Potter
- ------------------------------
Mr. Bill Potter
2400 Ridgewood Drive
Madisonville, KY 42431
4
<PAGE>
Exhibit 10.2.6
Lodestar Energy, Inc.
333 West Vine Street
Suite 1700
Lexington, KY 40507
June 1, 1998
Mr. Michael E. Donohue
1885 Bridgestone Way
Lexington, KY 40511
Re: Net Worth Appreciation Participation Agreement
----------------------------------------------
Dear Mr. Donohue:
This will confirm the understanding of Lodestar Energy, Inc., (the
"Company"), with you with respect to your Net Worth Appreciation
Participation, intended to constitute additional incentive compensation to
you.
1) Vesting - On April 30, 2000 provided that you continue to be
continuously employed by the Company from the date hereof through that date,
you shall receive a credit of three fourths of one percent (3/4%) and on each
of April 30, 2001, and April 30, 2002, you shall receive an additional credit
of one fourth of one percent (1/4%), provided that you are continuously
employed by the Company to the said date, for a maximum credit, if you remain
in the employ of the Company continuously through April 30, 2002 of one and
one fourth percent (1 1/4%) ("Maximum Credit"). You shall not receive credit
for any partial year, unless your employment terminates due to death or total
disability, in which case you shall receive a credit of one fourth of one
percent (1/4%) for the year in which such termination takes place, in
addition to any other credit previously vested (up to said Maximum Credit of
one and one fourth percent (1 1/4%).
2) Cumulative Net Income Participation Benefit - Upon the termination
of your employment by the Company (other than for cause), or your death or
total disability while in our employment, you (or your designee or estate)
shall be entitled to a payment ("Payment") equal to
<PAGE>
the product of (a) the total percentage credited to you under paragraph 1 (a
maximum of one and one fourth percent (1 1/4%)) multiplied by (b) the
"cumulative net income". The "cumulative net income" is the amount, if any,
of the cumulative consolidated net income of the Company's parent, Lodestar
Holdings, Inc., ("Holdings") available to its Common Stock, from June 1, 1998
through the end of either (at the Company's option) (x) its fiscal quarter
immediately preceding the date of your termination or (y) the fiscal quarter
in which your date of termination occurs. If there is no positive
"cumulative net income" there shall be no payment. The determination of the
independent public accountants for the Company as to the cumulative net
income, made in accordance with generally accepted accounting principals,
consistently applied, shall be conclusive. There shall be deducted from net
income for each period any amount paid as dividends on the Common Stock of
Holdings during such period. If your employment shall be terminated for
cause at any time, you shall forfeit all rights to receive any Payment.
3) Dividend Participation - If while you are employed by the Company,
Holdings shall pay any cash dividend on its Common Stock, or Holdings or the
Company pay management fees to The Renco Group, Inc. in excess of $1,200,000
per fiscal year, then the Company shall make a cash payment to you equal to
the total amount of the cash dividend and management fees in excess of
$1,200,000 per fiscal year multiplied by your Maximum Credit.
4) Payment - The Payment shall be payable to you (or your designee or
estate) in 40 equal quarterly installments, without interest, commencing
three (3) months after the later of (x) the termination of your employment or
(y) your attaining 62 years of age, and at 3-month intervals thereafter,
provided, however, that in the event of your death or permanent disability,
rendering you unable to engage in your customary employment, the Payment, if
it has not already commenced, will commence. The period during which the
payments will be made is herein called the "Payment Period". You have
advised us that your date of birth is ___________.
2
<PAGE>
5) Payment Effect on Other Benefits - Any payments made to you
pursuant to this agreement, whether as a result of dividend participation or
otherwise, will not be counted as wages for the purpose of computing other
benefits.
6) Sale of Substantially All of Holdings Stock or Assets - If, while
you shall be employed by the Company all or substantially all the stock or
assets of Holdings shall be sold to a person who is not an affiliate of Ira
Leon Rennert, or if The Renco Group, Inc. sells a controlling interest in
Holdings, then, upon the closing of such sale, the Maximum Credit shall be
deemed to be vested, and you shall be entitled to receive, as payment in full
of your participation, your pro rata share one and one fourth percent (1 1/4%)
of the "net proceeds" of the sale available for Holdings Common Stock, in
kind, on the same terms and conditions as Holdings or its shareholder is
being paid. "Net proceeds", for purposes hereof, shall mean the amount, if
any, by which the proceeds of the sale after deducting all expenses of the
sale, all applicable taxes, all liabilities retained by the seller and all
amounts to which holders of preferred stock are entitled exceeds the
consolidated net worth applicable to the Common Stock of Holdings on June 1,
1998. Except for such payment, neither you nor this Company shall have any
further rights or liabilities hereunder.
7) Condition Precedent - Non Compete and Confidentiality - You shall
comply with the following provisions as a condition precedent to your right
to receive Payments:
(a) You acknowledge that, by reason of your employment by the
Company, you will have continuing access to and knowledge of company
confidential information and that improper use or revelation of same by you
during or after the termination of your employment by the Company could cause
serious injury to the business of the Company. Accordingly, you agree that
you will forever keep secret and inviolate all company confidential
information which shall have come or shall hereafter come into your
possession, and that you will not use the same for your own private benefit,
or directly or indirectly for the benefit of others, and that you will not
disclose such company confidential information to any other person.
3
<PAGE>
(b) You agree you will not (whether as an officer, director,
partner, proprietor, investor, associate, employee, consultant, adviser,
public relations or advertising representative or otherwise), directly or
indirectly, be engaged in the coal business, or in any other business in
which the Company is engaged, or proposed to engage, at the time of the
termination of your employment.
8) Notices - Any notice to be sent pursuant hereto shall be sent by
hand, certified or registered mail or overnight service to you, at the
address indicated above and to the Company, c/o The Renco Group, Inc., 30
Rockefeller Plaza, New York, New York 10112, to the attention of Ira Leon
Rennert, or to any other address which any of us may designate by notice in
writing.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to the subject matter contained herein by signing and
returning the enclosed copy of this letter.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Ira Leon Rennert
---------------------------------
Ira Leon Rennert
Chairman of the Board
CONFIRMED AND AGREED TO:
/s/ Michael E. Donohue
- ------------------------------
Mr. Michael E. Donohue
1885 Bridgestone Way
Lexington, KY 40511
4
<PAGE>
Exhibit 10.3
[5/14/98]
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
by and among
LODESTAR ENERGY, INC.
as Borrower
LODESTAR HOLDINGS, INC.
as Guarantor
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as Lenders
CONGRESS FINANCIAL CORPORATION
as Agent
THE CIT GROUP/BUSINESS CREDIT, INC.
as Co-Agent
Dated: May 15, 1998
<PAGE>
TABLE OF CONTENTS
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. ACKNOWLEDGMENT AND RESTATEMENT. . . . . . . . . . . . . . . . . . 21
2.1 Existing Obligations. . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Acknowledgment of Security Interests. . . . . . . . . . . . . . . 21
2.3 Existing Agreement. . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.5 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3. CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . 22
3.2 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . 23
3.3 Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.5 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . 29
3.6 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.7 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.8 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.9 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.10 Authorization to Make Loans . . . . . . . . . . . . . . . . . . . 31
3.11 Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . 31
3.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4. CONDITIONS PRECEDENT TO LOANS AND
OTHER FINANCIAL ACCOMMODATIONS . . . . . . . . . . . . . . . 33
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations. . . . . . . . . . . . . . . . . . . . 33
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 39
6.1 Organization and Qualification. . . . . . . . . . . . . . . . . . 39
6.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . 39
6.3 Issuance of Senior Notes; Disposition of Proceeds . . . . . . . . 39
(i)
<PAGE>
Page
6.4 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5 Compliance with Other Agreements and Applicable Law . . . . . . . 42
6.6 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . 43
6.7 Chief Executive Office; Collateral Locations. . . . . . . . . . . 43
6.8 Priority of Liens/Title to Properties . . . . . . . . . . . . . . 43
6.9 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . 44
6.12 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . 45
6.14 Environmental Compliance. . . . . . . . . . . . . . . . . . . . . 46
6.15 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.16 Investment Company. . . . . . . . . . . . . . . . . . . . . . . . 47
6.17 Regulation U; Securities Exchange Act of 1934 . . . . . . . . . . 47
6.18 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . 47
6.19 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 47
6.20 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.21 Labor Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.22 Corporate Name; Prior Transactions. . . . . . . . . . . . . . . . 48
SECTION 7. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . 49
7.1 Tradenames. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.4 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . 55
7.5 Loans, Investments, Guarantees, Etc.. . . . . . . . . . . . . . . 57
7.6 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 59
7.7 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . 59
7.8 Maintenance of Existence. . . . . . . . . . . . . . . . . . . . . 62
7.9 Sale and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . 62
7.10 Consolidated Net Worth. . . . . . . . . . . . . . . . . . . . . . 62
7.11 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . 62
7.12 Sale of Assets, Consolidation, Merger, Dissolution, Etc.. . . . . 63
7.13 Compliance with Laws, Regulations, Etc. . . . . . . . . . . . . . 63
7.14 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . 64
7.15 Properties in Good Condition. . . . . . . . . . . . . . . . . . . 65
7.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.17 Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . 66
(ii)
<PAGE>
Page
7.19 Additional Bank Accounts. . . . . . . . . . . . . . . . . . . . . 67
7.20 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 67
7.21 Financial Statements and Other Information. . . . . . . . . . . . 67
7.23 After Acquired Real Property. . . . . . . . . . . . . . . . . . . 70
7.24 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 8. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . 71
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9. COLLECTION AND ADMINISTRATION . . . . . . . . . . . . . . . . . . 76
9.1 Collections; Management of Collateral . . . . . . . . . . . . . . 76
9.2 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.3 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . 78
9.4 Borrower's Loan Account . . . . . . . . . . . . . . . . . . . . . 79
9.5 Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
9.6 Right of Inspection; Access . . . . . . . . . . . . . . . . . . . 80
9.7 Accounts Documentation. . . . . . . . . . . . . . . . . . . . . . 80
9.8 Specific Powers . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10. EFFECTIVE DATE; TERMINATION; COSTS. . . . . . . . . . . . . . . 81
10.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.2 Expenses and Additional Fees. . . . . . . . . . . . . . . . . . . 83
10.3 Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . 84
10.4 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . 84
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 85
10.7 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.8 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . 85
10.9 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.10 Participant's Security Interests. . . . . . . . . . . . . . . . . 86
10.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW. . . . . . . . . . . . . . . . . . 86
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . 86
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . . 87
11.3 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 88
(iii)
<PAGE>
Page
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . . . . . . . 89
11.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.6 Assignments; Participations.. . . . . . . . . . . . . . . . . . . 90
11.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 92
SECTION 12. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
12.1 Appointment.. . . . . . . . . . . . . . . . . . . . . . . . . . . 92
12.2 Nature of Duties. . . . . . . . . . . . . . . . . . . . . . . . . 93
12.3 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . 94
12.4 Rights, Exculpation, Etc. . . . . . . . . . . . . . . . . . . . . 94
12.5 Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
12.6 Notice of Event of Default. . . . . . . . . . . . . . . . . . . . 95
12.7 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . 95
12.8 Indemnification.. . . . . . . . . . . . . . . . . . . . . . . . . 96
12.9 Congress in its Individual Capacity . . . . . . . . . . . . . . . 96
12.10 Successor Agent.. . . . . . . . . . . . . . . . . . . . . . . . . 97
12.11 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.12 Collateral Matters. . . . . . . . . . . . . . . . . . . . . . . . 98
12.13 Agency for Perfection . . . . . . . . . . . . . . . . . . . . . .100
12.14 Additional Loans. . . . . . . . . . . . . . . . . . . . . . . . .100
12.15 Concerning the Collateral and the Related
Financing Agreements. . . . . . . . . . . . . . . . . . . . . .101
12.16 Field Audit and Examination Reports; Disclaimer by Lenders. . . .101
(iv)
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A Form of Assignment and Acceptance
Schedule 1.40 List of Existing Bonds
Schedule 1.41 List of Existing Letters of Credit
Schedule 1.68 List of Congress Mortgages
Schedule 6.1(a) Jurisdictions of Qualification
Schedule 6.1(b) Subsidiaries
Schedule 6.3 Senior Note Agreements
Schedule 6.5(a) Existing Defaults
Schedule 6.5(c) Permits and Missing Permits
Schedule 6.7 Chief Executive Office and Locations of Collateral
Schedule 6.8 Existing Liens
Schedule 6.9 Tax Returns
Schedule 6.10 Pending Litigation
Schedule 6.13 Pension Plans
Schedule 6.14 Environmental Matters
Schedule 6.15 Bank Accounts
Schedule 6.21 Collective Bargaining Agreements
Schedule 6.22 Corporate Name; Tradenames; Prior Transactions
(v)
<PAGE>
Schedule 6.23 Material Contracts
Schedule 7.3 Existing Indebtedness
(vi)
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
AGREEMENT dated May 15, 1998 is entered into by and among Lodestar Energy,
Inc., formerly known as Costain Coal, Inc., a Delaware corporation ("Borrower"
as hereinafter further defined), Lodestar Holdings, Inc., formerly known as
Rencoal, Inc., a Delaware corporation ("Guarantor" as hereinafter further
defined), the financial institutions from time to time parties hereto as
lenders, whether by execution of this Agreement or an Assignment and Acceptance
(individually, a "Lender" and collectively, the "Lenders" as hereinafter further
defined), Congress Financial Corporation, a Delaware corporation (as successor
by merger to Congress Financial Corporation, a California corporation), in its
capacity as administrative agent and collateral agent for the Lenders (in such
capacity, the "Agent") and The CIT Group/Business Credit, Inc., a New York
corporation, in its capacity as co-agent for the Lenders (in such capacity, the
"Co-Agent").
W I T N E S S E T H:
WHEREAS, Agent, Co-Agent, Lenders, Borrower and Guarantor have heretofore
entered into certain financing arrangements as set forth in the Existing
Agreement (as hereinafter defined) pursuant to which Lenders or Agent on behalf
of Lenders have made loans and advances and provided other financial
accommodations to Borrower;
WHEREAS, Borrower and Guarantor have requested that Lenders and Agent
extend, modify and restate the existing financing arrangements with Borrower;
WHEREAS, Agent and Lenders are willing to extend, modify and restate the
existing financing arrangements, subject to the terms and conditions contained
herein and in the other Financing Agreements (as defined below);
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement and the other Financing Agreements, the
following terms shall have the respective meanings given to them below:
1.1 "ACCOUNT DEBTOR" shall mean each debtor or obligor in any way obligated
on or in connection with any Account.
1.2 "ACCOUNTS" shall mean all present and future accounts, contract rights,
general intangibles, chattel paper, documents and instruments, as such terms are
defined in the UCC,
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including, without limitation, all obligations for the payment of money arising
out of the sale, lease or other disposition of goods or other property or
rendition of services.
1.3 "AFFILIATE" shall mean, with respect to a specified Person, a
partnership, corporation or any other person which directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with such Person, and without limiting the generality of the
foregoing, includes (a) any Person which beneficially owns or holds five (5%)
percent or more of any class of voting securities of such Person or other equity
interests in such Person, (b) any Person of which such Person beneficially owns
or holds five (5%) percent or more of any class of voting securities or in which
such Person beneficially owns or holds five (5%) percent or more of the equity
interests and (c) any director, officer or employee of such Person. For the
purposes of this definition, the term "control" (including with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
1.4 "ASSET SALE" shall mean any direct or indirect sale, issuance,
conveyance, transfer, lease, assignment or other transfer for value by Borrower,
Guarantor or any of its Subsidiaries to any person, in one transaction or a
series of related transactions, of (a) any Capital Stock of any Subsidiary;
(b)all or substantially all of the properties and assets of any division or line
of business of Guarantor or any Subsidiary; or (c) any other properties or
assets of Guarantor or any Subsidiary, other than in the ordinary course of
business, in excess of $1,000,000. For purposes of this definition, the term
"Asset Sale" shall not include (i) any sale, issuance, conveyance, transfer,
lease or other disposition of properties or assets that is consummated in
accordance with the provisions of Article Five of the Senior Note Indenture (as
in effect on the date hereof) and (ii) the sale of inventory in the ordinary
course of business.
1.5 "ASSIGNMENT AND ACCEPTANCE" shall mean an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto (with blanks
appropriately completed) delivered to the Agent in connection with an assignment
of a Lender's interest hereunder in accordance with the provisions of Section
11.6 below.
1.6 "BLOCKED ACCOUNTS" shall have the meaning set forth in Section 9.1
hereof.
1.7 "BOARD" shall mean the Board of Governors of the Federal Reserve System
or any successor thereto.
1.8 "BONDING COMPANIES" shall mean, individually and collectively, the
USF&G Companies, Frontier, any Person who may at any time hereafter provide
Bonds for the benefit of Borrower or its Subsidiaries and their respective
successors and assigns; PROVIDED, THAT, as to any such Person (other than the
USF&G Companies, Frontier and their respective successors and assigns),
(a)Borrower shall give Agent prior written notice of the intention of
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Borrower to enter into such arrangements with such other Person and (b) the
Indebtedness of Borrower or any of its Affiliates to such other Person shall be
permitted under Section 7.3(i) hereof.
1.9 "BONDS" shall mean reclamation, workers' compensation, lease payment,
coal supply, supersedeas or other bonds at any time issued by any of the Bonding
Companies for the benefit of Borrower or any of its Subsidiaries in the ordinary
course of the business of Borrower or any of its Subsidiaries consistent with
current practices in effect on the date hereof including, but not limited to,
the Existing Bonds.
1.10 "BORROWER" shall mean Lodestar Energy, Inc., formerly known as Costain
Coal Inc., a Delaware corporation and its successors and assigns.
1.11 "BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Lenders and Agent are open for the transaction of business.
1.12 "CAPITAL EXPENDITURES" shall mean all expenditures by any Person for
any fixed or capital assets (including, but not limited to, tooling) or
improvements, or for replacements, substitutions or additions thereto, which
have a useful life of more than one (1) year, including, but not limited to, the
direct or indirect acquisition of such assets by way of offset items or
otherwise and shall include payments in respect of Capitalized Lease Obligations
that have not otherwise been included in the profit and loss statement of such
Person in accordance with the GAAP; PROVIDED, THAT, as to Borrower and its
Subsidiaries, Capital Expenditures shall not include expenditures made pursuant
to replacement and maintenance programs incurred in the ordinary course of
business and properly charged to current operations in accordance with GAAP (but
only to the extent such expenditures are included in the profit and loss
statement of Borrower as an expense for the then current period).
1.13 "CAPITALIZED LEASE OBLIGATIONS" shall mean any obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purposes of this Agreement, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.
1.14 "CAPITAL STOCK" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock,
partnership interests or limited liability company interests and any options or
warrants with respect to any of the foregoing.
1.15 "CASH EQUIVALENTS" shall mean (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within two
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(2) years from the date of acquisition thereof;(b) marketable direct obligations
issued by any State of the United States of America or any political subdivision
of any such State or any public instrumentality thereof maturing within two (2)
years from the date of acquisition thereof and, at the time of acquisition,
having one of the two highest ratings obtainable from either Standard & Poor's
Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P") or
Moody's Investors Service, Inc. ("Moody's");(c) commercial paper maturing no
more than two (2) years from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's;(d) certificates of deposit or bankers' acceptances maturing within two
(2) years from the date of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America or any State thereof or
the District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$500,000,000;(e) repurchase obligations with a term of not more than seven (7)
days for underlying securities of the types described in clause (a) above
entered into with any bank meeting the qualifications specified in clause (d)
above; and (f) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (a) through (e)
above.
1.16 "CIT" shall mean The CIT Group/Business Credit, Inc., a New York
corporation, in its individual capacity, and its successors and assigns.
1.17 "COAL RESERVES" shall mean demonstrated recoverable reserves of coal
which are owned by Borrower or leased by Borrower on terms acceptable to Agent,
that have at least a moderate degree of geological assurance and are within
three-quarters (3/4) mile of a valid point of measurement or point of
observation supporting such measurements.
1.18 "COLLATERAL ACCESS AGREEMENT" shall mean an agreement in writing, in
form and substance satisfactory to Agent, from any lessor of premises to
Borrower, or any other person to whom any Inventory is consigned or who has
custody, control or possession of any Inventory or Equipment or is otherwise the
owner or operator of any premises on which any Inventory or Equipment is located
or which is adjacent to any Equipment which is a vessel, pursuant to which such
lessor, consignee or other person, INTER ALIA, acknowledges the first priority
security interest of Agent (for itself and the ratable benefit of Lenders) in
such Inventory or Equipment, agrees to waive any and all claims such lessor,
consignee or other person may, at any time, have against such Inventory or
Equipment, whether for processing, storage or otherwise, and agrees to permit
Agent access to, and the right to remain on, the premises of such lessor,
consignee or other person so as to exercise Agent's rights and remedies and
otherwise deal with the Collateral.
1.19 "CODE" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.20 "COLLATERAL" shall have the meaning set forth in Section 5 hereof.
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1.21 "COMMITMENT" shall have the meaning set forth in Section 3.4 hereof.
1.22 "COMMITMENT PERCENTAGE" shall mean, as to each Lender, the percentage
of the Maximum Credit provided for hereunder represented by such Lender's
Commitment. The Commitment Percentage of each Lender signing this Agreement is
set forth on the signature pages hereto below each Lender's respective
signature.
1.23 "CONGRESS" shall mean Congress Financial Corporation, a Delaware
corporation, in its individual capacity, and its successors and assigns.
1.24 "CONSOLIDATED NET INCOME" shall mean, with respect to any Person for
any period, the net income (or loss) of such Person and its Subsidiaries, on a
consolidated basis for such period determined in accordance with GAAP; PROVIDED,
THAT,(a) the net income of any Person in which such Person or any Subsidiary of
such person has an ownership interest with a third party (other than a person
that meets the definition of a Wholly-Owned Subsidiary) shall be included only
to the extent of the amount that has actually been received by such Person or
its Wholly-Owned Subsidiaries in the form of dividends or other distributions
during such period (subject to, in the case of any dividend or distribution
received by a Wholly-Owned Subsidiary of such person, the restrictions set forth
in clause (b) below) and (b)the net income of any Subsidiary of such Person that
is subject to any restriction or limitation on the payment of dividends or the
making of other distributions shall be excluded to the extent of such
restriction or limitation; PROVIDED, THAT, there shall also be excluded (i) the
net income (or loss) of any Person (acquired in a pooling of interests
transaction) accrued prior to the date it becomes a Subsidiary of such Person or
is merged into or consolidated with such person or any Subsidiary of such
Person,(ii) any gain (or loss) (and related tax effects) resulting from an Asset
Sale by such Person or any of its Subsidiaries,(iii) any extraordinary, unusual
or nonrecurring gains or losses (and related tax effects) in accordance with
GAAP and (iv) any compensation-related expenses arising as a result of the
application of the net proceeds from the issuance of the Senior Notes. For
purposes of Section 7.7(b) hereof, the amortization of deferred financing costs
of Borrower relating to the issuance of the note payable by Borrower to
Guarantor pursuant to the loan on the date hereof by Guarantor to Borrower with
the proceeds from the issuance of the Senior Notes shall be excluded from this
definition of "Consolidated Net Income."
1.25 "CONSOLIDATED NET WORTH" shall mean, as to any Person at any time, in
accordance with GAAP, consistently applied, on a consolidated basis for such
Person and its Subsidiaries, the amount equal to the difference between:
(a) the aggregate net book value of all assets of such Person and its
Subsidiaries, calculating the book value of inventory for this purpose on a
first-in-first-out basis, after deducting from such book values all appropriate
reserves in accordance with GAAP consistently applied (including all reserves
for doubtful receivables, obsolescence, depreciation and amortization) and
(b) the total aggregate Indebtedness and other liabilities of such Person and
its Subsidiaries, including accruals for taxes, workmen's compensation liability
and other proper accruals (other than contingent liabilities which would not be
included in the balance sheet under GAAP) of such Person and its Subsidiaries.
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1.26 "CREDIT FACILITY" shall mean, collectively, the Revolving Credit
Facility and the Letter of Credit Facility provided for hereunder and under the
other Financing Agreements.
1.27 "ELIGIBLE ACCOUNTS" shall mean Accounts created by Borrower arising
out of the sale of goods or rendition of services by Borrower, which are and at
all times shall continue to be acceptable to Agent in all respects. Standards
of eligibility may be fixed and revised from time to time solely by Agent in its
exclusive judgment. In determining eligibility, Agent may, but need not, rely
on agings, reports and schedules of Accounts furnished to Agent by Borrower, but
reliance by Agent thereon from time to time shall not be deemed to limit Agent's
right to revise standards of eligibility at any time as to both present and
future Accounts. In general, an Account shall not be deemed eligible unless:
(a) the Account Debtor on such Account is and at all times continues to be
acceptable to Agent; (b) such Account complies in all respects with the
representations, covenants and warranties set forth herein and in the other
Financing Agreements; (c) no more than sixty (60) days have elapsed since the
original due date of such Account up to one hundred twenty (120) days after the
original invoice date of such Account; (d) if the goods giving rise to such
Account have not been shipped and delivered to the Account Debtor, Agent shall
have received a written agreement, in form and substance satisfactory to Agent,
evidencing the Account Debtor's unconditional obligation to take and pay for
such goods; and (e) the chief executive office of the Account Debtor with
respect to such Account is located in the United States of America or Canada;
PROVIDED, THAT, (i) with respect to such Accounts where the chief executive
office of the Account Debtor is located in Canada, at any time promptly upon
Agent's request, Borrower shall have executed and delivered, or caused to be
executed and delivered, such agreements, documents and instruments as may be
required by Agent to perfect the security interests of Agent in the Accounts
owing by an Account Debtor with its chief executive office in Canada in
accordance with the applicable laws of the Province of Canada in which such
chief executive office is located and taken or caused to be taken such other
further actions as Agent may request to enable Agent as secured party with
respect thereto to collect such Accounts under the applicable laws of the
Province of Canada and (ii) at Agent's option, if the chief executive office of
the Account Debtor with respect to such Accounts is located other than in the
United States of America or Canada, then Agent may deem such Accounts to be
Eligible Accounts if: (A) such Account is payable only in the United States of
America and in U.S. Dollars and (B) either (a) the Account Debtor has delivered
to Borrower an irrevocable letter of credit issued or confirmed by a bank
satisfactory to Agent, the original of such letter of credit has been delivered
to Agent or Agent's agent and the issuer thereof notified of the pledge or
assignment of the proceeds of such letter of credit to Agent, or (b) such
Account is subject to credit insurance payable to Agent issued by an insurer and
on terms and in an amount acceptable to Agent, or (c) such Account is otherwise
acceptable in all respects to Agent subject to such lending formula with respect
thereto as Agent may determine). Any Accounts which Agent determines to be
ineligible or unacceptable for purposes of the Lending Formulas (as hereinafter
defined) at any time shall nevertheless be and remain at all times part of the
Collateral.
1.28 "ELIGIBLE COAL INVENTORY" shall mean Inventory consisting of coal
which has been extracted from the Real Property, is in a coal stockpile and
constitutes finished goods
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held for sale in the ordinary course of the business of Borrower or is Unwashed
Coal, in each case to the extent acceptable to Agent in all respects. Standards
of eligibility may be fixed and revised from time to time solely by Agent in its
exclusive judgment. In determining eligibility Agent may, but need not, rely on
reports and schedules of such Inventory furnished to Agent by Borrower, but
reliance thereon by Agent from time to time shall not be deemed to limit Agent's
right to revise standards of eligibility at any time. In general, except in
Agent's discretion, Eligible Coal Inventory shall not include: (a)bill and hold
goods;(b) such Inventory which is not subject to the first priority perfected
security interest of Agent (for itself and the ratable benefit of Lenders);
(c) except as Agent may otherwise determine in its discretion, such Inventory at
the premises of third parties or Inventory purchased or sold on consignment;
PROVIDED, THAT, any such Inventory which would otherwise be deemed Eligible Coal
Inventory at locations which are not owned and operated by Borrower may
nevertheless be considered Eligible Coal Inventory: (i) if Agent shall have
received a Collateral Access Agreement in writing, in form and substance
satisfactory to Agent, from the holder of such Inventory or the owner and/or
operator of such location, as the case may be, and (ii) in addition to the
agreement described above, if the Inventory is delivered to the holder, owner
and/or operator on consignment and if required by Agent: (A) the holder, owner
and/or operator, lessor and/or mortgagee executes appropriate UCC-1 financing
statements in favor of Borrower, which are duly assigned to Agent and (B) any
lender to the holder, owner and/or operator with any interest in Inventory is
properly notified of the first priority lien on such Inventory of Agent;(d) coal
which has been uncovered but not removed from the pit or ground;(e) coal which
has not been mined in accordance with all applicable laws or at any mine or site
which is not being operated in accordance with and as required by any agreement
with a Governmental Authority, any Permits or otherwise in accordance with all
applicable laws; and (f) Inventory subject to a security interest or lien in
favor of any person other than Agent and the Bonding Companies to the extent
permitted in this Agreement. Any Inventory which Agent determines to be
ineligible or unacceptable for purposes of the Lending Formulas at any time
shall nevertheless be and remain at all times part of the Collateral.
1.29 "ELIGIBLE EQUIPMENT" shall mean Equipment owned by Borrower, which is
in good order, repair, running and marketable condition and acceptable to Agent
in all respects. In general, Eligible Equipment shall not include:
(a) Equipment at premises other than those owned and controlled by Borrower,
except if (i) Agent shall have received a Collateral Access Agreement, in form
and substance satisfactory to Agent, from the person in possession of such
Equipment and/or the owner or operator of such premises or if Agent shall not
have received such Collateral Access Agreement, then Agent shall have
established such reserves with respect to the obligations of Borrower to the
person in possession of such Equipment and/or the owner or operator of such
premises as Agent determines, EXCEPT THAT, upon Borrower's request, Agent shall
not establish such reserves, but such Equipment shall not be deemed Eligible
Equipment or (ii) such Equipment constitutes a vessel located in waters adjacent
to premises owned and controlled by Borrower or adjacent to premises leased by
Borrower (but in the case of premises leased by Borrower only so long as Agent
has received a Collateral Access Agreement, in form and substance satisfactory
to Agent, from the owner or operator of such leased premises or if Agent shall
not have received such
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Collateral Access Agreement, then Agent shall have established such reserves
with respect to the obligations of Borrower to the person in possession of such
Equipment and/or the owner or operator of such premises as Agent determines,
EXCEPT THAT, upon Borrower's request, Agent shall not establish such reserves,
but such Equipment shall not be deemed Eligible Equipment or); (b) Equipment
subject to a security interest or lien in favor of any person other than Agent
and the Bonding Companies to the extent permitted under this Agreement;
(c) Equipment which is not located in the continental United States of America
or as to Equipment consisting of vessels, the inland waters of the continental
United States of America; (d) Equipment which is not subject to the first
priority, valid and perfected security interest of Agent (for itself and the
ratable benefit of Lenders); or (e) worn-out, obsolete, damaged or defective
Equipment or Equipment not used or usable in the ordinary course of Borrower's
business as presently conducted. General criteria for Eligible Equipment may be
established and revised from time to time by Agent in good faith. Any Equipment
which is not Eligible Equipment shall nevertheless be part of the Collateral.
1.30 "ELIGIBLE INVENTORY" shall mean Eligible Coal Inventory and Eligible
Stores Inventory.
1.31 "ELIGIBLE STORES INVENTORY" shall mean Inventory consisting of Stores
Inventory, which is acceptable to Agent in all respects. Standards of
eligibility may be fixed and revised from time to time solely by Agent in its
exclusive judgment. In determining eligibility, Agent may, but need not, rely
on reports and schedules of such Inventory furnished to Agent by Borrower, but
reliance thereon by Agent from time to time shall not be deemed to limit Agent's
right to revise standards of eligibility at any time. In general, except in
Agent's discretion, Eligible Stores Inventory shall not include: (a) packaging
and shipping materials; (b) bill and hold goods; (c) such Inventory which is not
subject to the first priority perfected security interest of Agent (for itself
and the ratable benefit of Lenders); (d) except as Agent may otherwise determine
in its discretion, such Inventory at the premises of third parties or Inventory
purchased or sold on consignment; PROVIDED, THAT, any such Inventory which would
otherwise be deemed Eligible Inventory at locations which are not owned and
operated by Borrower may nevertheless be considered Eligible Stores Inventory:
(i) if Agent shall have received a Collateral Access Agreement, in form and
substance satisfactory to Agent, from the holder of such Inventory or the owner
and/or operator of such location, as the case may be, and (ii) in addition to
the Collateral Access Agreement described above, if the Inventory is delivered
to the holder, owner and/or operator on consignment and if required by Agent:
(A) the holder, owner and/or operator, lessor and/or mortgagee executes
appropriate UCC-1 financing statements in favor of Borrower, which are duly
assigned to Agent and (B) any lender to holder, owner and/or operator with any
interest in Inventory is properly notified of the first priority lien on such
Inventory of Agent; (e)Inventory subject to a security interest or lien in favor
of any person other than Agent and the Bonding Companies to the extent permitted
in this Agreement;(f) unserviceable or obsolete Inventory; (g) damaged and/or
defective Inventory; and (h) Inventory for which no perpetual inventory records
satisfactory to Agent are maintained. Any Inventory which Agent determines to
be ineligible or unacceptable for purposes of the
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Lending Formulas at any time shall nevertheless be and remain at all times part
of the Collateral.
1.32 "ENVIRONMENTAL LAWS" shall mean all Federal, State and local laws,
rules, regulations, ordinances, and consent decrees relating to health, safety,
hazardous substances, pollution and environmental matters, as now or at any time
hereafter in effect, applicable to the business and facilities of Borrower and
its Subsidiaries (whether or not owned by it or any of them), including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contamination, chemicals, or hazardous, toxic or dangerous
substances, materials or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or hazardous, toxic or dangerous
substances, materials or wastes or relating to or imposing liability or
standards of conduct concerning mining or reclamation of mined land. Such laws
and regulations include, but are not limited to, the Resource Conservation and
Recovery Act of 1976, as amended; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the Superfund Amendments and
Reauthorization Act; the Water Pollution Control Act of 1972; the Solid Waste
Disposal Act; the Insecticide, Fungicide and Rodenticide Act; the Mine Safety
and Health Act of 1977; the Surface Mining Control and Reclamation Act of 1977;
the Safe Drinking Water Act of 1974; the Toxic Substances Control Act, as
amended; the Clean Water Act, as amended; the Clean Air Act, as amended; the
Hazardous Materials Transportation Act, as amended; U.S. Department of
Transportation and Environmental Protection Agency regulations; and applicable
state counterparts to any of such laws and any common law or equitable doctrine
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Materials.
1.33 "EQUIPMENT" shall mean all of Borrower's now owned and hereafter
acquired equipment and fixtures, of every kind and description, wherever
located, including, without limitation, any and all machinery used in connection
with the manufacture, sale, exchange or lease of goods or rendition of services,
machinery, tooling, tools, telephone equipment, computers, computer hardware and
related computer equipment and accessories (including software and records),
vehicles, dies, jigs, furniture, trade fixtures and fixtures, all attachments,
components, parts, accessions and property now or hereafter affixed thereto,
installed thereon or used in connection therewith, and all additions to and
substitutions and replacements thereof and all existing and future leasehold
interests in equipment and fixtures, wherever located, whether now owned or
hereafter acquired and all licenses and other rights of Borrower relating
thereto, whether in the possession and control of Borrower or in the possession
and control of a third person for the account of Borrower and all claims to the
proceeds of insurance thereon and all maintenance and warranty records relating
thereto.
1.34 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended,
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modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.35 "ERISA AFFILIATE" shall mean any (a) corporation which is a member of
the same controlled group of corporations (within the meaning of section 414(b)
of the Code) as Borrower,(b) partnership or other trade or business (whether or
not incorporated) which is under common control (within the meaning of Section
414(c) of the Code) with Borrower, and (c) member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as Borrower.
1.36 "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1
hereof.
1.37 "EXCESS LETTER OF CREDIT AVAILABILITY" shall mean at any time the
amount, as determined by Agent, calculated at such time, equal to:
(a) the Letter of Credit Availability, MINUS
(b) the amount of all then outstanding and unpaid Obligations
arising pursuant to the then outstanding Tranche B Letter of Credit
Accommodations.
1.38 "EXCESS REVOLVING CREDIT AVAILABILITY" shall mean at any time the
amount, as determined by Agent, calculated at such time, equal to:
(a) the Revolving Credit Availability, MINUS
(b) the sum of:(i) the amount of all then outstanding and unpaid
Obligations arising pursuant to the then outstanding Loans and Tranche A Letter
of Credit Accommodations plus (ii) the aggregate amount of (A) all then
outstanding and unpaid trade payables of Borrower which are outstanding and
unpaid more than sixty (60) days past due as of such time and (B) the book
overdraft of Borrower.
1.39 "EXISTING AGREEMENT" shall mean the Loan and Security Agreement, dated
March 14, 1997, by and among Agent, Co-Agent, Lenders, Borrower and Guarantor.
1.40 "EXISTING BONDS" shall mean, collectively, the Bonds issued on or
before the date hereof by the USF&G Bonding Companies under or pursuant to the
USF&G Bonding Agreements or by Frontier, in each case for the benefit of or in
connection with the business of Borrower or its Subsidiaries set forth on
Schedule 1.40 hereto, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.41 "EXISTING LETTERS OF CREDIT" shall mean, collectively, Letter of
Credit Accommodations arranged for by Agent for the benefit of Borrower or its
Subsidiaries under the Existing Agreement set forth on Schedule 1.41 hereto, as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
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1.42 "FINANCING AGREEMENTS" shall mean, collectively, this Agreement,
together with all other agreements, documents and instruments now or at any time
hereafter executed and/or delivered by Borrower or any other person, with, to or
in favor of Agent or any Lender in connection herewith or related hereto, as
this Agreement and such other agreements, documents or instruments now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.43 "FRONTIER" shall mean Frontier Insurance Company, a New York
corporation, and its successors and assigns.
1.44 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination except that for purposes of
Section 7.10, GAAP shall be determined on the basis of such principles in effect
on the date hereof and consistent with those used in the preparation of the
financial statements delivered to Agent and Lenders prior to the date hereof.
1.45 "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.46 "GUARANTOR" shall mean Lodestar Holdings, Inc., formerly known as
Rencoal, Inc., a Delaware corporation, and its successors and assigns.
1.47 "HARVARD" shall mean the President and Fellows of Harvard College, and
their successors and assigns.
1.48 "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or dangerous
substances or materials and wastes including without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyl, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials, or wastes
that are or became regulated under any Environmental Laws (including, without
limitation, any that are or become classified as hazardous or toxic under any
Environmental Laws.) In the event that any of the applicable Environmental Laws
are amended so as to broaden the meaning of any of the above-referenced terms,
such broader meaning shall apply subsequent to the effective date of such
amendment.
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1.49 "INDEBTEDNESS" shall mean, with respect to any Person, any liability
(a) in respect of borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof) or
evidenced by bonds, notes, indentures or similar instruments; (b) representing
the balance deferred and unpaid of the purchase price of any property or
services (EXCEPT any such balance that constitutes an account payable to a trade
creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed
by such Person in the ordinary course of business of such Person in connection
with obtaining goods, materials or services); (c) all Capitalized Lease
Obligations; (d) any contractual obligations, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, endorsed (other than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by such Person, or in respect of which such Person is
otherwise directly or indirectly liable, including contractual obligations
(contingent or otherwise) arising through any agreement to purchase, repurchase,
or otherwise acquire such indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether in
the form of loans, advances, stock purchases, capital contributions or
otherwise), or to maintain solvency, assets, level of income, or other financial
condition, or to make payment other than for value received; (e) all obligations
with respect to redeemable stock and redemption or repurchase obligations under
any Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities, contingent or otherwise, of
such Person with respect to bonds (including, without limitation, the Bonds),
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account; (g) all indebtedness of such Person in respect
of indebtedness of another Person for borrowed money or indebtedness of another
Person otherwise described in this definition which is secured by any security
interest in, or mortgage or lien upon the interest in any asset of such Person,
whether or not such obligations, liabilities or indebtedness are assumed by or
are a personal liability of such Person, all as of such time; and (h) all
obligations, liabilities and indebtedness of such Person (marked to market)
constituting Interest Rate Protection Obligations or in respect of foreign
exchange agreements.
1.50 "INITIAL PURCHASERS" shall mean, collectively, BT Alex. Brown
Incorporated and Donaldson Lufkin & Jenrette Securities Corporation and their
respective successors and assigns.
1.51 "INTEREST RATE" shall mean a rate of three-quarters (3/4%) percent per
annum above the Prime Rate; PROVIDED, THAT, Agent may, at its option, and upon
the written direction of the Majority Lenders shall, increase such rate to a
rate of two and three-quarters (2 3/4%) percent per annum above the Prime Rate
at any time without notice,(a) for the period on and after (i) the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment against
Borrower), or (ii) the date of any Event of Default, and for so long as such
Event of Default exists or is continuing, as determined by Agent and (b) on the
Loans at any time outstanding in excess of the Revolving Credit Availability
(whether or not such excess(es) arise or are
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made with or without Agent's knowledge or consent and whether made before or
after an Event of Default).
1.52 "INTEREST RATE PROTECTION OBLIGATIONS" shall mean the obligations of
any Person pursuant to any arrangement with any other Person whereby, directly
or indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
1.53 "INVENTORY" shall mean all of Borrower's now owned and hereafter
acquired inventory, wherever located, including, without limitation, all raw
materials, work-in-process, and finished and semi-finished inventory of any
kind, nature or description, wherever located, including, without limitation,
(a) all minerals in whatever form, and including, without limitation, coal, fly
ash, bottom ash or other ash, methane, sulfur, sulfur dioxide, and other
by-products resulting from the processing of the coal mined by Borrower and
other minerals and chemicals resulting from the mining or processing of coal;
(b) cast iron fittings, paint, belts and hoses, bolts and nuts, wire and wire
products, welding supplies, tools, steel, rope, timber, railroad, spikes,
railroad car parts and railroad crane parts, baghouse parts, pump parts,
compressor parts, electrical parts, bearings, drills, bits and accessories and
other parts and supplies; (c) all wrapping, packaging, advertising and shipping
materials; and (d) any other personal property held for sale, exchange or lease
or furnished or to be furnished or used or consumed in the business or in
connection with the manufacturing, packaging, shipping, advertising, selling or
furnishing of such goods, inventory, merchandise and other personal property,
and all names or marks affixed to or to be affixed thereto for purposes of
selling same by the seller, manufacturer, lessor or licensor thereof and all
right, title and interest therein and thereto.
1.54 "LENDERS" shall mean the financial institutions who are signatories
hereto as lenders and other persons made a party to this Agreement as lenders in
accordance with Section 11.6 hereof, and their respective successors and
assigns.
1.55 "LENDING FORMULAS" shall mean the percentages set forth in Section 3.1
hereof with respect to Eligible Accounts and Eligible Inventory.
1.56 "LETTER OF CREDIT ACCOMMODATIONS" shall mean with respect to the
Credit Facility, the letters of credit or other guaranties which are from time
to time either (a) issued or opened by Agent for the account of Borrower or any
Obligor or (b) with respect to which Agent or any Lender has agreed to indemnify
the issuer or guaranteed to the issuer the performance by Borrower of its
obligations to such issuer (including, without limitation, the Existing Letters
of Credit).
1.57 "LETTER OF CREDIT AVAILABILITY" shall mean, at any time, the lesser
of:
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(a) the amount equal to the sum of: (i) sixty (60%) percent of the
orderly liquidation value of Eligible Equipment as set forth in the most recent
acceptable appraisal of the Equipment received by Agent in form, scope and
methodology reasonably acceptable to Agent and by an appraiser reasonably
acceptable to Agent and addressed to Agent and on which Agent is expressly
permitted to rely, plus (ii) the lesser of (A) twenty-five (25%) percent of the
mid-point of the range of the distressed sale values of the Coal Reserves of
Borrower as set forth in the most recent acceptable appraisal of the Coal
Reserves received by Agent in form, scope and methodology reasonably acceptable
to Agent and by an appraiser reasonably acceptable to Agent and addressed to
Agent and on which Agent is expressly permitted to rely or (B) $3,500,000 or
(b) the Letter of Credit Facility Limit;
PROVIDED, THAT, the Letter of Credit Availability shall be reduced each month
commencing June 1, 1998 by the Special Availability Reserve to the extent
provided in Section 3.3 hereof and by any other reserves at any time and from
time to time allocated by Agent to the Letter of Credit Facility. The term
"Letter of Credit Availability" is used herein to mean the amount of Tranche B
Letter of Credit Accommodations available without any reduction for the amount
of Tranche B Letter of Credit Accommodations then outstanding.
1.58 "LETTER OF CREDIT FACILITY" shall mean the Tranche B Letter of Credit
Accommodations provided for hereunder and under the other Financing Agreements.
1.59 "LETTER OF CREDIT FACILITY LIMIT" shall mean $30,000,000.
1.60 "LETTER OF CREDIT NOTES" shall mean the promissory notes issued by
Borrower in favor of each Lender evidencing the Obligations of Borrower to each
Lender with respect to the Tranche B Letter of Credit Accommodations made by or
on behalf of Lenders pursuant to the Letter of Credit Facility, with each Note
being in a principal amount of up to the respective Lender's maximum Pro Rata
Share of the Tranche B Letter of Credit Accommodations.
1.61 "LOANS" shall mean the loans made to or for the benefit of Borrower by
Lenders or, at Agent's option, by Agent for the ratable account of Lenders, on a
revolving basis pursuant to the Revolving Credit Facility (involving advances,
repayments and readvances) as set forth in Section 3.1 hereof.
1.62 "MAJORITY LENDERS" shall mean, as of any date of determination
thereof, Lenders holding more than fifty (50%) percent of the aggregate
outstanding principal amount of Loans and outstanding Letter of Credit
Accommodations, or, if there are no Loans or Letter of Credit Accommodations
outstanding, then such term shall mean Lenders having aggregate Commitment
Percentages of more than fifty (50%) percent.
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1.63 "MANAGEMENT AGREEMENT" shall mean the Management Agreement, dated
March 14, 1997, between Borrower and Renco Group, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.64 "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the condition (financial or otherwise), business, performance, operations or
properties of Borrower or Guarantor; (b) the legality, validity or
enforceability of this Agreement or any of the other Financing Agreements;
(c) the legality, validity, enforceability, perfection or priority of the
security interests and liens of Agent or any Lender upon the Collateral or any
other property which is security for the Obligations; (d) the Collateral or any
other property which is security for the Obligations, or the value of the
Collateral or such other property; (e) the ability of Borrower to repay the
Obligations or of Borrower or any Obligor to perform its obligations under this
Agreement or any of the other Financing Agreements; or (f) the ability of Agent
or any Lender to enforce the Obligations or realize upon the Collateral or
otherwise with respect to the rights and remedies of Agent or any Lender under
this Agreement or any of the other Financing Agreements.
1.65 "MATERIAL CONTRACT" shall mean any contract or other arrangements
(other than the Financing Agreements), whether written or oral, to which
Borrower or its Subsidiaries is a party as to which the breach, nonperformance,
cancellation or failure to renew by any party thereto could be reasonably
expected to have a Material Adverse Effect.
1.66 "MAXIMUM CREDIT" shall mean $120,000,000.
1.67 "MORTGAGES" shall mean, individually and collectively, the deeds of
trust, mortgages and other security agreements with respect to the Real Property
listed on Schedule 1.68 hereto, as the same now exist or may hereinafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.68 "NET AMOUNT OF ELIGIBLE ACCOUNTS" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) rebates, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.69 "NET CASH PROCEEDS" shall mean (a) proceeds received by Borrower in
cash or Cash Equivalents from the sale, assignment or other disposition of any
of its assets or property (other than sales of Inventory in the ordinary course
of business), net of payments of Indebtedness secured by such assets or
properties (including any fees or prepayment premises required to be paid as a
result of such sale, assignment or other disposition) and the reasonable cash
costs of sale, assignment or other disposition, PROVIDED, THAT, evidence of such
costs is provided to Agent;(b) proceeds of insurance in cash or Cash Equivalents
on account of the loss of or damage to any such assets or property, and payments
of compensation in cash or Cash Equivalents for any such assets or property
taken by condemnation or eminent domain; and (c)proceeds received after the date
hereof by Borrower or any of its Subsidiaries in cash or Cash Equivalents from
(i) the issuance of any Capital Stock by
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Borrower or any of its Subsidiaries or any other additions to the equity of
Borrower or any of its Subsidiaries (other than retained earnings) or any
contributions to capital of Borrower or any of its Subsidiaries or (ii) issuance
of any Indebtedness by Borrower or any of its Subsidiaries, in each case net of
reasonable underwriting discounts and commissions and reasonable costs incurred
in connection with such transaction; PROVIDED, THAT, evidence of such costs
satisfactory to Agent is provided to Agent upon Agent's request.
1.70 "NOTES" shall mean, collectively, the Revolving Credit Notes and the
Letter of Credit Notes.
1.71 "OBLIGATIONS" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower and/or any Obligor to Agent or
any Lender and/or its affiliates, including principal, interest, charges, fees,
costs and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, arising under or in connection with this Agreement, any
of the other Financing Agreements or by operation of law in connection
therewith, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement, after the
commencement of any case with respect to Borrower or any Obligor under the
United States Bankruptcy Code or any similar statute (including the payment of
interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated or secured.
1.72 "OBLIGOR" shall mean any guarantor, endorser, acceptor, surety, or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.73 "PARTICIPANT" shall mean any financial institution that acquires and
holds participation in the interest of any Lender in any of the Loans and Letter
of Credit Accommodations in conformity with the provisions of Section 11.6 of
this Agreement governing participations.
1.74 "PAYMENT ACCOUNT" shall have the meaning set forth in Section 9.1
hereof.
1.75 "PERMITS" shall have the meaning set forth in Section 6.5 hereof.
1.76 "PERSON" or "PERSON" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
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1.77 "PRIME RATE" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors as its prime rate, whether or not
such announced rate is the best rate available at such bank, calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed, which
rate shall increase or decrease by an amount equal to each increase or decrease
effective on the first day of the month after any change in such prime rate
based on the prime rate in effect on the last day of the month in which any such
change occurs.
1.78 "PRO RATA SHARE" shall mean, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the aggregate amount
of all of the Lenders' Commitments, as adjusted from time to time in accordance
with the provisions of Section 11.6 hereof, PROVIDED, THAT, if the Commitments
have been terminated, the numerator shall be the unpaid amount of such Lender's
Loans and its interest in the Letter of Credit Accommodations and the
denominator shall be the aggregate amount of all unpaid Loans and Letter of
Credit Accommodations.
1.79 "PROVISION FOR TAXES" shall mean an amount equal to all taxes imposed
on or measured by net income, whether federal, state or local, and whether
foreign or domestic, that are paid or payable by any Person and its Subsidiaries
in respect of such fiscal year on a consolidated basis in accordance with GAAP.
1.80 "REAL PROPERTY" shall mean all now owned or hereafter acquired real
property of Borrower, including leasehold interests, together with all
buildings, structures, fixtures and other improvements relating thereto, and all
metals and minerals which are in, under, upon, or to be produced from such real
property to the extent of the rights of Borrower to the same, including all coal
(but only to the extent such metals and minerals have not been extracted from
the real property), wherever located, including, without limitation, the real
property and related assets of Borrower more particularly described in the
Mortgages.
1.81 "RECORDS" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.82 "REGISTER" shall have the meaning set forth in Section 11.6 hereof.
1.83 "RENCO GROUP" shall mean The Renco Group, Inc., a New York
corporation, and its successors and assigns.
1.84 "REVOLVING CREDIT AVAILABILITY" shall mean, at any time, the lesser of
(a) the amount of the Loans which would be available to Borrower as of such time
calculated based
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on the product of the applicable Lending Formulas multiplied by the Net Amount
of Eligible Accounts and the Value of Eligible Inventory, as the case may be, as
determined by Agent, and subject to the applicable sublimits established by
Agent hereunder or (b) the Revolving Credit Facility Limit, PROVIDED, THAT, the
Revolving Credit Availability shall be reduced by the Special Availability
Reserve to the extent provided in Section 3.3 hereof and by any other reserves
at any time from time to time allocated by Agent to the Revolving Credit
Facility. The term "Revolving Credit Availability" is used herein to mean the
amount of Loans available without any reduction for the amount of Loans or
Tranche A Letter of Credit Accommodations then outstanding.
1.85 "REVOLVING CREDIT FACILITY" shall mean the Loans and Tranche A Letter
of Credit Accommodations provided for hereunder and under the other Financing
Agreements.
1.86 "REVOLVING CREDIT FACILITY LIMIT" shall mean $90,000,000.
1.87 "REVOLVING CREDIT NOTES" shall mean the promissory notes issued by
Borrower in favor of each Lender evidencing the Obligations of Borrower to each
Lender with respect to the Loans made by or on behalf of Lenders pursuant to the
Revolving Credit Facility, with each Note being in a principal amount of up to
the respective Lender's maximum Pro Rata Share of the Loans and the Tranche A
Letter of Credit Accommodations.
1.88 "SENIOR NOTE AGREEMENTS" shall mean, individually and collectively,
each and all of the following (as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced):
(a) the Senior Notes; (b) the Senior Note Indenture (and including the Senior
Note Guarantee); (c) the Purchase Agreement, dated May 15, 1998, by and among
the Initial Purchasers, Guarantor, Borrower, Eastern Resources, Inc. and
Industrial Fuels Minerals Company with respect to the purchase from Guarantor of
all of the Senior Notes; and (d) the Senior Note Registration Agreement.
1.89 "SENIOR NOTE GUARANTEE" shall mean, individually and collectively, the
guarantee set forth in Section 11.01 of the Senior Note Indenture by Borrower,
Eastern Resources, Inc. and Industrial Fuels Minerals Company in favor of the
holders of the Senior Notes with respect to the Indebtedness of Guarantor
evidenced by the Senior Notes, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.90 "SENIOR NOTE INDENTURE" shall mean the Indenture, dated of even date
herewith, by and among Guarantor, Borrower, Eastern Resources, Inc., Industrial
Fuels Minerals Company and the Senior Note Trustee with respect to the Senior
Notes, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.91 "SENIOR NOTE REGISTRATION AGREEMENT" shall mean the Registration
Rights Agreement, dated as of May 15, 1998, by and among Guarantor, the Initial
Purchasers, Borrower, Eastern Resources, Inc. and Industrial Fuels Minerals
Company, as the same now
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exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.92 "SENIOR NOTES" shall mean, individually and collectively, each and all
of the following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the 11 1/2% Senior
Notes due 2005, Series A (the "Series A Notes") issued by Guarantor on the date
hereof pursuant to the Senior Note Indenture in the original principal amount of
$150,000,000 and (b) the 11 1/2% Senior Notes due 2005, Series B (the "Series B
Notes") issued by Guarantor after the date hereof which have terms identical to
the terms of the Series A Notes and are offered to the holders of the Series A
Notes pursuant to a registration statement to be filed by Guarantor with the
Securities and Exchange Commission in exchange for the Series A Notes held by
such person.
1.93 "SENIOR NOTE TRUSTEE" shall mean State Street Bank and Trust Company,
and its successors and assigns, and any replacement or other trustee under the
Senior Note Indenture.
1.94 "SPECIAL AVAILABILITY RESERVE" shall have the meaning set forth in
Section 3.3 hereof.
1.95 "STORES INVENTORY" shall mean Inventory consisting of cast iron
fittings, paint, belts and hoses, bolts and nuts, wire and wire products,
welding supplies, tools, steel, rope, timber, railroad spikes, railroad car
parts and railroad crane parts, baghouse parts, pump parts, compressor parts,
electrical parts, bearings, drills, bits and accessories and other parts and
supplies.
1.96 "STORES INVENTORY SUBLIMIT" shall mean the amount equal to $5,000,000.
1.97"SUBSIDIARY" or "SUBSIDIARY" shall mean any corporation, association or
organization, active or inactive, as to which more than fifty (50%) percent of
the outstanding voting stock or shares or interests shall now or hereafter be
owned or controlled, directly or indirectly, by Borrower, any subsidiary of
Borrower, or any subsidiary of such subsidiary.
1.98"TOTAL AVAILABILITY" shall mean, at any time, the sum of (a) the
Revolving Credit Availability as of such time plus (b) the Letter of Credit
Availability as of such time.
1.99"TRADENAME" shall have the meaning set forth in Section 7.1 hereof.
1.100"TRANCHE A LETTER OF CREDIT ACCOMMODATIONS" shall mean Letter of
Credit Accommodations designated by Borrower at the time of the issuance thereof
as allocated to the Revolving Credit Facility, subject to and in accordance with
the terms hereof.
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1.101"TRANCHE B LETTER OF CREDIT ACCOMMODATIONS" shall mean Letter of
Credit Accommodations designated by Borrower at the time of the issuance thereof
as allocated to the Letter of Credit Facility, subject to and in accordance with
the terms hereof.
1.102"UNWASHED COAL" shall mean coal which has been extracted from the Real
Property and is at the appropriate processing site, which only requires being
washed with liquid solutions before it constitutes finished goods held for sale
in the ordinary course of the business of Borrower.
1.103"USF&G BONDING AGREEMENTS" shall mean, collectively, the Master Surety
Agreement, General Contract of Indemnity, Collateral Trust Agreement, Schedule A
to the Collateral Trust Agreement and Annual Premium Agreement, dated March 14,
1997, by and among Van-American, the USF&G Bonding Companies, Borrower,
Guarantor and the Subsidiaries of Borrower, and all agreements, documents and
instruments at any time executed and/or delivered by Borrower, Guarantor or any
other Person with, to or in favor of Van-American and/or any of the USF&G
Bonding Companies in connection therewith, as all of the foregoing now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.104"USF&G BONDING COMPANIES" shall mean, individually and collectively,
United States Fidelity and Guaranty Company, a Maryland corporation, Fidelity
and Guaranty Insurance Company, a Maryland corporation and Guaranty and
Insurance Underwriters, Inc., a Maryland corporation and any and all affiliated,
associated and subsidiary companies thereof, and their respective successors and
assigns.
1.105"VALUE" or "VALUE" shall mean, as determined by Agent, with respect to
the Inventory, the lower of (a) cost computed on a first-in-first-out basis in
accordance with GAAP or (b) market value, as determined by Agent.
1.106"VAN-AMERICAN" shall mean Van-American Insurance Agency, Inc., a
Kentucky corporation, in its capacity as service manager on behalf of the USF&G
Bonding Companies (and not in its individual capacity) and any successor or
replacement service manager on behalf of the USF&G Bonding Companies under the
USF&G Bonding Agreements.
1.107 "WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary of such Person to
the extent all of the Capital Stock or other ownership interests in such
Subsidiary (other than (a) directors' qualifying shares and (b) an immaterial
interest owned by other Persons solely to comply with applicable law) is owned
directly or indirectly by such Person or a Wholly-Owned Subsidiary of such
Person.
1.108 TERMS. All accounting terms used in this Agreement which are not
specifically defined herein shall be construed in accordance with GAAP
consistently applied, except as otherwise stated herein.
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1.109 OTHER DEFINED TERMS The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.110 UNIFORM COMMERCIAL CODE DEFINITIONS. All terms used herein which are
not specifically defined herein which are defined or used in the Uniform
Commercial Code as in effect in the State of New York (the "UCC") shall have the
meanings as defined or used in the UCC.
1.111 INTERPRETATION. For purposes of this Agreement, unless the context
otherwise requires, all other terms hereinbefore or hereinafter defined,
including but not limited to those terms defined in the recitals hereto, shall
have the meanings herein assigned to such terms. All references to Borrower and
other Persons pursuant to the definitions set forth in the recitals hereto or
otherwise herein shall include their respective successors and assigns. All
references to any term in the plural shall include the singular and all
references to any term in the singular shall include the plural. The words
"ratable" or "ratably" or words of similar import when used in this agreement
shall refer to a sharing or allocation based on the respective Pro Rata Shares
of Lenders.
SECTION 2. ACKNOWLEDGMENT AND RESTATEMENT
2.1 EXISTING OBLIGATIONS. Borrower and Guarantor each hereby
acknowledges, confirms and agrees that Borrower is indebted to Agent and Lenders
for loans and advances to Borrower under the Existing Agreement, as of the close
of business on May 13, 1998, in the aggregate principal amount of $30,190,755.56
and the aggregate amount of $22,017,208.00 in respect of Letter of Credit
Accommodations (as defined in the Existing Agreement), together with all
interest accrued and accruing thereon (to the extent applicable), and all fees,
costs, expenses and other charges relating thereto, all of which are
unconditionally owing by Borrower to Agent and Lenders, without offset, defense
or counterclaim of any kind, nature or description whatsoever.
2.2 ACKNOWLEDGMENT OF SECURITY INTERESTS.
(a) Borrower and Guarantor each hereby acknowledges, confirms and
agrees that Agent, for itself and the ratable benefit of Lenders, has and shall
continue to have a security interest in and lien upon the Collateral heretofore
granted to Agent pursuant to the Existing Agreement to secure the Obligations,
as well as any Collateral granted under this Agreement or under any of the other
Financing Agreements or otherwise granted to or held by Agent or any Lender.
(b) The liens and security interests of Agent, for itself and the
ratable benefit of Lenders, in the Collateral shall be deemed to be continuously
granted and perfected from the
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earliest date of the granting and perfection of such liens and security
interests, whether under the Existing Agreement, this Agreement or any of the
other Financing Agreements.
2.3 EXISTING AGREEMENT. Borrower and Guarantor each hereby acknowledges,
confirms and agrees that: (a) the Existing Agreement has been duly executed and
delivered by Borrower and Guarantor and is in full force and effect as of the
date hereof and (b) the agreements and obligations of Borrower and Guarantor
contained in the Existing Agreement constitute the legal, valid and binding
obligations of Borrower and Guarantor enforceable against it in accordance with
their respective terms and Borrower and Guarantor each has no valid defense to
the enforcement of such obligations and (c) Agent and Lenders are entitled to
all of the rights and remedies provided for in the Existing Agreement.
2.4 RESTATEMENT.
(a) Except as otherwise stated in Section 2.2 hereof and this
Section 2.4, as of the date hereof, the terms, conditions, agreements,
covenants, representations and warranties set forth in the Existing Agreement
are hereby amended and restated in their entirety, and as so amended and
restated, replaced and superseded, by the terms, conditions, agreements,
covenants, representations and warranties set forth in this Agreement and the
other Financing Agreements, EXCEPT that nothing herein or in the other Financing
Agreements shall impair or adversely affect the continuation of the liability of
Borrower or Guarantor for the Obligations heretofore granted, pledged and/or
assigned to Agent or any Lender. The amendment and restatement contained herein
shall not, in any manner, be construed to constitute payment of, or impair,
limit, cancel or extinguish, or constitute a novation in respect of, the
Indebtedness and other obligations and liabilities of Borrower or Guarantor
evidenced by or arising under the Existing Agreement, and the liens and security
interests securing such Indebtedness and other obligations and liabilities,
which shall not in any manner be impaired, limited, terminated, waived or
released.
(b) The principal amount of the Loans and Letters of Credit
Accommodations outstanding as of the date hereof under the Existing Agreement
shall be allocated to the Loans and Letter of Credit Accommodations hereunder in
such manner and in such amounts as Agent shall determine.
2.5 RELEASE. Borrower and Guarantor each for itself and its successors and
assigns does hereby remise, release, discharge and hold Agent and each Lender,
its officers, directors, agents and employees and their respective predecessors,
successors and assigns harmless from all claims, demands, debts, sums of money,
accounts, damages, judgments, financial obligations, actions, causes of action,
suits at law or in equity, of any kind or nature whatsoever, whether or not now
existing or known, which Borrower, Guarantor or their respective successors or
assigns has had or may now or hereafter claim to have against Agent or any
Lender or its officers, directors, agents and employees and their respective
predecessors, successors and assigns in any way arising from or connected with
the Existing Agreement or the arrangements set forth therein or transactions
thereunder up to and including the date hereof.
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SECTION 3. CREDIT FACILITY
3.1 REVOLVING CREDIT FACILITY.
(a) Subject to and upon the terms and conditions contained herein,
each of the Lenders severally (and not jointly) agrees to fund its Pro Rata
Share of the Loans to Borrower from time to time under the Revolving Credit
Facility in amounts requested by Borrower, up to the amount at any one time
outstanding equal to the sum of:
(i) ninety (90%) percent of the Net Amount of Eligible Accounts,
plus
(ii) the lesser of:
(A) the sum of (1) sixty (60%) percent of the Value of
Eligible Coal Inventory plus (2) the lesser of: twenty-five
(25%) percent of the Value of Eligible Stores Inventory or
the Stores Inventory Sublimit, or
(B) $25,000,000.
(b) The Loans shall be (i) evidenced by the Revolving Credit
Notes duly executed and delivered by Borrower to each Lender,(ii) repaid,
together with interest and other amounts, in accordance with this Agreement, the
Revolving Credit Notes and the other Financing Agreements, and (iii) secured by
all of the Collateral. A Revolving Credit Note for each Lender, duly
authorized, executed and delivered by Borrower, shall be delivered by Borrower
to Agent on the date of the execution and delivery of this Agreement.
(c) Agent may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower,(i) reduce the Lending Formula
with respect to Eligible Accounts to the extent that Agent determines that: (A)
the dilution with respect to the Accounts for any period (based on the ratio of
(1) the aggregate amount of reductions in Accounts other than as a result of
payments in cash to (2) the aggregate amount of total sales) has increased in
any respect or may be reasonably anticipated to increase in any respect above
historical levels, or (B) the general creditworthiness of account debtors has
declined or (ii) reduce any of the Lending Formulas with respect to Eligible
Inventory to the extent that Agent determines that: (A) the number of days of
the turnover of the Inventory for any period has changed in any material respect
or (B) the liquidation value of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature and quality of the Inventory has deteriorated.
In determining whether to reduce any of the Lending Formulas, Agent may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing reserves as
provided in Section 3.3. Borrower may from time to time borrow, repay and
reborrow Loans in accordance with the terms hereof.
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(d) Except in Agent's discretion with the consent of all of the
Lenders, notwithstanding anything to the contrary contained in Section 3.1(a)
above, but subject to Section 3.5(a) below, (i) the aggregate outstanding
principal amount of the Loans based on Eligible Inventory consisting of Unwashed
Coal shall not exceed $3,500,000 at any time outstanding,(ii) the aggregate
outstanding principal amount of the Loans and the Tranche A Letter of Credit
Accommodations shall not exceed the Revolving Credit Facility Limit and
(iii) the aggregate outstanding principal amount of the Loans and the Letter of
Credit Accommodations shall not exceed the Maximum Credit.
3.2 LETTER OF CREDIT ACCOMMODATIONS.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, pursuant to the Credit Facility, Agent
agrees, for the ratable risk of each Lender according to its Pro Rata Share, to
provide or arrange for Letter of Credit Accommodations to be issued for the
account of Borrower containing terms and conditions acceptable to Agent and the
issuer thereof. Upon each request for any Letter of Credit Accommodation,
Borrower shall specify to Agent whether the Letter of Credit Accommodation
requested will be a Tranche A Letter of Credit Accommodation or a Tranche B
Letter of Credit Accommodation and subject to Sections 3.2(d) and 3.2(e) below,
such Letter of Credit Accommodations shall be deemed either a Tranche A Letter
of Credit Accommodation or a Tranche B Letter of Credit Accommodation as
Borrower has specified in such request. Any payments made by Agent or Lenders
to any issuer and/or related parties in connection with any of the Letter of
Credit Accommodations (whether Tranche A Letter of Credit Accommodations or
Tranche B Letter of Credit Accommodations) shall constitute Loans.
(b) The Obligations arising pursuant to the Tranche B Letter of
Credit Accommodations shall be (i) evidenced by the Letter of Credit Notes duly
executed and delivered by Borrower to each Lender, (ii) repaid, together with
interest and other amounts, in accordance with this Agreement, the Letter of
Credit Notes and the other Financing Agreements, and (iii) secured by all of the
Collateral. A Letter of Credit Note for each Lender, duly authorized, executed
and delivered by Borrower, shall be delivered by Borrower to Agent on the date
of the execution and delivery of this Agreement.
(c) In addition to any customary charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations, Borrower shall pay to Agent, for the ratable benefit of Lenders,
a letter of credit fee at a rate equal to one and one-half (1 1/2%) percent per
annum on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month, except that Agent may, and upon the
written direction of the Majority Lenders shall, require Borrower to pay to
Agent, for the ratable benefit of Lenders, such letter of credit fee, without
notice, at a rate equal to three and one-half (3 1/2%) percent per annum on such
daily outstanding balance for:(i) the period on and after the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of a judgment against Borrower)
and (ii) the
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period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing, as determined by Agent. Such
letter of credit fee shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this Agreement.
(d) No Tranche A Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of such Tranche A Letter
of Credit Accommodations, the Excess Revolving Credit Availability (without
regard to the trade payables and book overdraft described in Section 1.38(b)(ii)
hereof) is equal to or greater than one hundred (100%) percent of the face
amount thereof and all other commitments and obligations made or incurred by
Agent or any Lender with respect thereto. Effective on the issuance of each
Tranche A Letter of Credit Accommodation and for so long as such Letter of
Credit Accommodation is outstanding, the amount of Loans and Tranche A Letter of
Credit Accommodations which might otherwise be available to Borrower under the
Revolving Credit Facility shall be reduced by such amount. No Tranche B Letter
of Credit Accommodations shall be available unless on the date of the proposed
issuance of such Tranche B Letter of Credit Accommodations, the Excess Letter of
Credit Availability is equal to or greater than one hundred (100%) percent of
the face amount thereof and all other commitments and obligations made or
incurred by Agent or any Lender with respect thereto. Effective on the issuance
of each Tranche B Letter of Credit Accommodation and for so long as such Letter
of Credit Accommodation is outstanding, the amount of Tranche B Letter of Credit
Accommodations which might otherwise be available to Borrower under the Letter
of Credit Facility shall be reduced by such amount.
(e)(i) In the event that on the date that any reduction in the
Letter of Credit Availability becomes effective (whether pursuant to Section
3.2(g), Section 3.3 below or otherwise) the then outstanding amount of the
Tranche B Letter of Credit Accommodations exceed the Letter of Credit
Availability as so reduced, the amount of such Tranche B Letter of Credit
Accommodations equal to the difference between the Letter of Credit Availability
as so reduced and the Tranche B Letter of Credit Accommodations then outstanding
shall, effective as of such date and thereafter, be deemed to constitute Tranche
A Letter of Credit Accommodations (such that as of the effective date of such
reduction in the Letter of Credit Availability, a portion of such Letter of
Credit Accommodations may thereafter be deemed Tranche A Letter of Credit
Accommodations and a portion may be deemed Tranche B Letter of Credit
Accommodations), PROVIDED, THAT, each of the following conditions is satisfied:
(A) after giving effect thereto, there shall be Excess Revolving Credit
Availability (without regard to the trade payables and book overdraft described
in Section 1.38(b)(ii) hereof) and (B) no Event of Default or act, condition or
event which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred. If such conditions are not satisfied,
upon Agent's request, Borrower shall furnish cash collateral to Agent (for
itself and the ratable benefit of Lenders) in the amount by which the then
outstanding Tranche B Letter of Credit Accommodations exceed the Letter of
Credit Availability.
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(ii) In the event that at any time thereafter the Letter of
Credit Availability shall be greater than the Tranche B Letter of Credit
Accommodations then outstanding, subject to the proviso in Section 3.3(b)(ii)
below, Agent may, at its option, or Borrower may, at its option, specify in
writing to Agent that any Tranche A Letter of Credit Accommodations then
outstanding shall be deemed Tranche B Letter of Credit Accommodations up to the
amount of the Excess Letter of Credit Availability at such time, PROVIDED, THAT,
each of the following conditions is satisfied: (A) after giving effect thereto,
there shall be Excess Letter of Credit Availability and (B) no Event of Default
or act, condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred.
(iii) To the extent that a Tranche B Letter of Credit
Accommodation (or any portion thereof) may for any reason subsequently be deemed
to be a Tranche A Letter of Credit Accommodation, the amount of the Loans and
Tranche A Letter of Credit Accommodations otherwise available hereunder shall be
reduced by the amount of such Letter of Credit Accommodation and related amounts
as provided in Section 3.2(d) above.
(f) Except in Agent's discretion, with the consent of all of the
Lenders, the aggregate amount of all outstanding Tranche B Letter of Credit
Accommodations and all other commitments and obligations made or incurred by
Agent and Lenders in connection therewith shall not at any time exceed the
Letter of Credit Availability. At any time an Event of Default exists or has
occurred and is continuing, the Agent may, and upon the written direction of the
Majority Lenders shall, require Borrower to either furnish cash collateral to
secure the reimbursement obligations to the issuer in connection with any or all
Letter of Credit Accommodations or furnish cash collateral to Agent, for itself
and the ratable benefit of Lenders, for the Letter of Credit Accommodations, and
in either case, the Letter of Credit Accommodations otherwise available to
Borrower shall not be reduced as provided in Section 3.2(d) to the extent of
such cash collateral.
(g) For purposes of determining the Letter of Credit Availability as
of the date hereof, (i) the distressed sale value of the Coal Reserves shall be
based on the report prepared by Marshall Miller & Associates for Borrower dated
November 8, 1996, PROVIDED, THAT, Borrower shall cause an appraisal of the Coal
Reserves, in form, scope and methodology acceptable to Agent and by an appraiser
acceptable to Agent and addressed to Agent and on which Agent and Lenders are
expressly permitted to rely, to be delivered to Agent and Lenders thirty (30)
days after the date hereof, and (ii) the orderly liquidation value of the
Eligible Equipment shall be based on the report prepared by MB Valuation
Services, Inc. dated October 5, 1996, PROVIDED, THAT, Borrower shall cause an
appraisal of the Eligible Equipment, in form, scope and methodology acceptable
to Agent and addressed to Lender and on which Agent and Lenders are expressly
permitted to rely, to be delivered to Agent and Lenders within thirty (30) days
after the date hereof. The Letter of Credit Availability shall then be
recalculated by Agent based on such updated appraisals of the Eligible Equipment
and the Coal Reserves. To the extent that as a result of such recalculation of
the Letter of Credit Availability or any recalculation thereafter based on any
other appraisal, the aggregate amount of the then outstanding Tranche B Letter
of Credit Accommodations
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exceed the Letter of Credit Availability, such Tranche B Letter of Credit
Accommodations shall, effective as of such date, be deemed to constitute Tranche
A Letter of Credit Accommodations as provided in Section 3.2(e) above.
(h) Borrower shall indemnify and hold Agent and Lenders harmless from
and against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or any Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation except resulting from the gross negligence
or wilful misconduct of Agent or any Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. Borrower assumes all
risks with respect to the acts or omissions of the drawer under or beneficiary
of any Letter of Credit Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for,
and agrees to pay, all foreign, Federal, State and local taxes, duties and
levies relating to any goods subject to any Letter of Credit Accommodations or
any documents, drafts or acceptances thereunder except resulting from the gross
negligence or wilful misconduct of Agent or any Lender as determined pursuant to
a final non-appealable order of a court of competent jurisdiction. Borrower
hereby releases and holds Agent and Lenders harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by any issuer
or correspondent or otherwise with respect to or relating to any Letter of
Credit Accommodation except resulting from the gross negligence or wilful
misconduct of Agent or any Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. The provisions of
this Section 3.2(h) shall survive the payment of Obligations and the termination
or non-renewal of this Agreement.
(i) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Agent or any Lender in
any manner. Agent and Lenders shall have no liability of any kind with respect
to any Letter of Credit Accommodation provided by an issuer other than Agent,
unless Agent has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good faith
by Agent, or any other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Agent shall have the sole and exclusive right and
authority to, and Borrower shall not, at any time an Event of Default exists or
has occurred and is continuing, (i) approve or resolve any questions of
non-compliance of documents,(ii) give any instructions as to acceptance or
rejection of any documents or goods or (iii) execute any and all applications
for steamship or airway guaranties, indemnities or delivery orders. At all
times, Borrower shall not, without the prior written consent of Agent, grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents or agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit
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Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Agent may take such actions either in its
own name or in Borrower's name.
(j) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Agent and Lenders. Any rights,
remedies, duties or obligations undertaken by Agent or any Lender to any issuer
or correspondent in any application for any Letter of Credit Accommodation, or
any other agreement by Agent or any Lender in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Agent or the applicable Lender(s)
and to apply in all respects to Borrower.
3.3 RESERVES.
(a) Without limiting any other rights and remedies of Agent or
Lenders hereunder or under the other Financing Agreements, all Loans and Letter
of Credit Accommodations otherwise available to Borrower shall be subject to
Agent's continuing right in its discretion, to establish a reserve reducing the
amounts of Loans and Letter of Credit Accommodations otherwise available to
Borrower and to increase and decrease such reserve from time to time, if and to
the extent that, in Agent's judgment, such reserve is necessary to protect Agent
and/or Lenders against possible nonpayment for any reason by Account Debtors or
possible nonpayment of any of the Obligations, or in respect of any state of
facts which does or would, with notice or passage of time or both, constitute an
Event of Default hereunder or for any other reason.
(b) Without limiting any other rights of Agent under this Agreement
with respect to the establishment of reserves or otherwise, and in addition to
any other reserves at any time established by Agent, Agent shall, effective on
June 1, 1998 establish a reserve reducing the amount of the Letter of Credit
Availability in the amount of $350,000, which reserve shall thereafter increase
effective on the first day of each month by an amount equal to $350,000 (such
reserve being referred to herein as the "Special Availability Reserve"),
PROVIDED, THAT if after giving effect to the Special Availability Reserve or any
increase in such reserve (whether as of the first day of any month pursuant to
this Section 3.3(b) or otherwise), the aggregate amount of the outstanding
Tranche B Letter of Credit Accommodations would be greater than the Letter of
Credit Availability as so reduced, then effective as of such date (i) the Letter
of Credit Availability shall instead be reduced by a portion of the Special
Availability Reserve in the amount by which the Letter of Credit Availability
immediately prior to giving effect to the Special Availability Reserve or such
increase thereof, as the case may be, exceeds the aggregate amount of the then
outstanding Tranche B Letter of Credit Accommodations, (ii) the Revolving Credit
Availability shall be reduced by a portion of the Special Availability Reserve
in the amount equal to (A) the amount of the Special Availability Reserve or
such increase thereof, as the case may be,
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minus (B) the amount of the reduction in the Letter of Credit Availability
pursuant to Section 3.3(b)(i) above, PROVIDED, THAT, if at any time thereafter,
the Letter of Credit Availability shall exceed the then outstanding Tranche B
Letter of Credit Accommodations, Agent may, at its option, or Borrower may, at
its option, specify in writing to Agent that any portion of the Special
Availability Reserve then in effect be deemed to reduce the Letter of Credit
Availability (rather than the Revolving Credit Availability) up to the amount of
the Excess Letter of Credit Availability at such time, PROVIDED, THAT, each of
the following conditions is satisfied: (A) after giving effect thereto, there
shall be Excess Letter of Credit Availability and (B) no Event of Default or
act, condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred, and (iii) so long
as there is no Excess Letter of Credit Availability, each increase in the amount
of the Special Availability Reserve thereafter, whether as of the first day of
any month pursuant to this Section 3.3(b), Section 3.2(g) hereof or otherwise,
shall reduce the amount of the Revolving Credit Availability.
(c) Borrower may, at its option, from time to time hereafter deliver,
or cause to be delivered, to Agent and Lenders, at Borrower's cost and expense,
an appraisal of the Eligible Equipment and the Coal Reserves in form, scope and
methodology acceptable to Agent, by an appraiser acceptable to Agent and
addressed to Agent and on which Agent and Lenders are expressly permitted to
rely, together with such evidence that such Equipment constitutes Eligible
Equipment as Agent may request. The Letter of Credit Availability shall be
recalculated based on the results of such appraisals and the Special
Availability shall, effective on the first day of the month after the date of
the receipt of the appraisals, be released and reduced to zero (0) until the
first day of the next month and on the first day of the next month the Special
Availability Reserve shall be $350,000 and shall increase thereafter as of the
first day of each month as provided above. After each such adjustment to the
Special Availability Reserve, it shall thereafter continue to increase as of the
first day of each month as provided above.
(d) Notwithstanding anything to the contrary set forth above, in no
event shall the Special Availability Reserve be reduced or released as set forth
herein if on the date such reduction or release would otherwise occur an Event
of Default, or act, condition or event which with notice or passage of time or
both would constitute an Event of Default shall exist or have occurred.
3.4 COMMITMENTS. The Commitments of the Lenders shall be the respective
maximum amounts set forth below each Lender's signature on the signature pages
hereto, as the same may from time to time be amended with the written
acknowledgment of the Agent in connection with the Assignment and Acceptance
executed and delivered to evidence permitted assignments by any Lender as
provided in Section 11.6 hereof.
3.5 MANDATORY PREPAYMENTS.
(a) In the event that the outstanding aggregate amount of the Loans
and the Tranche A Letter of Credit Accommodations exceeds the Revolving Credit
Availability, or
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the aggregate outstanding amount of the Tranche B Letter of Credit
Accommodations exceed the Letter of Credit Availability, or the aggregate amount
of the Loans and the Letter of Credit Accommodations outstanding at any time
shall exceed the Maximum Credit, such event shall not limit, waive or otherwise
affect any rights of Agent and Lenders in that circumstance or on any future
occasions and Borrower shall, upon demand by Agent, which may be made at any
time or from time to time, immediately repay to Agent, for the ratable benefit
of Lenders, the entire amount of any such excess(es) for which payment is
demanded or in the case of Letter of Credit Accommodations, provide cash
collateral to Agent (for itself and the ratable benefit of Lenders) in such
amount.
(b) Immediately after the receipt by Borrower or any of its
Subsidiaries of any Net Cash Proceeds on account of (i) the sale, assignment or
other disposition of assets of Borrower or any of its Subsidiaries (other than
(A) sales of Inventory in the ordinary course of Borrower's and its
Subsidiaries' business, or (B) so long as no Event of Default exists or has
occurred, sales of worn-out or obsolete Equipment to the extent permitted under
Section 7.12 in the aggregate amount of up to $250,000 for all such sales of
such Equipment), or (ii) the loss of or damage to all or any portion of the
assets of Borrower or any of its Subsidiaries, Borrower shall absolutely and
unconditionally, without notice or demand, make a payment to Agent for the
ratable benefit of Lenders as a mandatory prepayment of the then outstanding
principal amount of the Loans, in an amount equal to one hundred (100%) percent
of all such Net Cash Proceeds, PROVIDED, THAT, Borrower or such Subsidiary shall
not be required to make such mandatory prepayment with the proceeds of sales of
worn-out or obsolete Equipment as provided in clause (i) above prior to an Event
of Default, so long as all of such proceeds are used within ninety (90) days
after the date of receipt thereof to purchase new Equipment free and clear of
any security interest, lien, claim or other encumbrance.
(c) Subject to Section 10.1(e) hereof, all such payments in respect
of the Loans pursuant to this Section 3.5 shall be without premium or penalty.
All interest accrued on the principal amount of the Loans paid pursuant to this
Section 3.5 shall be paid, or may be charged by Agent to the loan account(s) of
Borrower, at Agent's option, on the date of such payment.
3.6 INTEREST.
(a) Interest on all of the Loans and other non-contingent Obligations
shall be payable by Borrower to Agent for the ratable benefit of Lenders at the
Interest Rate.
(b) In no event shall the Interest Rate and other charges hereunder
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that a court determines that Agent or Lenders have received interest and
other charges hereunder in excess of the highest rate applicable hereto, such
excess shall be deemed received on account of, and shall automatically be
applied to reduce, the Obligations other than interest in the inverse order of
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maturity, and the provisions hereof shall be deemed amended to provide for the
highest permissible rate.
(c) Subject to the foregoing, all interest charges hereunder or in
connection herewith shall be (i) computed as provided herein and in the other
Financing Agreements and (ii) paid monthly to Agent on the first day of each
calendar month, or, at Agent's option, charged to Borrower's account(s)
maintained by Agent as of the first day of each calendar month and deemed paid
by the first amounts subsequently credited thereto.
(d) Without limiting the continuing right of Agent and Lenders to
demand payment of the Loans and other Obligations, or any portion thereof, in
accordance with the terms of this Agreement, or any of the other Financing
Agreements, all interest accruing hereunder on and after the date of any Event
of Default or termination or nonrenewal hereof, shall be payable on demand.
3.7 CLOSING FEE. Borrower shall pay to Agent for the ratable benefit of
Lenders, based on their Pro Rata Shares, a fee of $600,000, which closing fee is
fully earned and payable on the date hereof.
3.8 SERVICING FEE. Borrower shall pay monthly to Agent, for its own
account, a servicing fee in an amount equal to $12,500 for each month or part
thereof during the term of the Credit Facility and for so long thereafter as any
of the Obligations are outstanding, which fee shall be fully earned as of and
payable in advance on the date hereof and on the first day of each month
hereafter.
3.9 UNUSED LINE FEE. Borrower shall pay to Agent, for the ratable benefit
of Lenders, based on their Pro Rata Shares, an unused line fee at a rate equal
to one-quarter of one (1/4%) percent per annum calculated upon the amount (if
any) by which (a) the Maximum Credit exceeds (b) the average aggregate daily
principal balance of the Loans and Letter of Credit Accommodations outstanding
during the immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
3.10 AUTHORIZATION TO MAKE LOANS. Agent is authorized to make the Loans
and provide the Letter of Credit Accommodations for the account and risk of
Lenders based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Agent, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested Loan is to be made or Letter of Credit
Accommodation established (which day shall be a Business Day) and the amount of
the requested Loan and Letter of Credit Accommodation. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans
and Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made
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to, and at the request of and for the benefit of, Borrower when deposited to the
credit of Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
3.11 SETTLEMENT PROCEDURES.
(a) Notwithstanding any other provision of this Agreement, and in
order to administer the Credit Facility in an efficient manner and to reduce the
number of fund transfers between Lenders and Agent, Borrower, Lenders and Agent
agree that Agent may (but shall not be obligated to), and Borrower and Lenders
hereby irrevocably authorize the Agent to, fund, on behalf of the Lenders, Loans
pursuant to Section 3.1, subject to the procedures for settlement set forth in
this Section 3.11; PROVIDED, THAT,(i) other than to fund Loans to make payments
to the issuer of any of the Letter of Credit Accommodations or for costs and
expenses as provided for herein, Agent shall in no event fund such Loans if the
Agent shall have received written notice from the Majority Lenders on the
Business Day prior to the day of the proposed Loan that one or more of the
conditions precedent contained in Section 4 will not be satisfied on the day of
the proposed Loan, and (ii) Agent shall not otherwise be required to determine
that, or take notice whether, the conditions precedent in Section 4 have been
satisfied.
(b) With respect to all periods for which the Agent has funded Loans
pursuant to Section 3.11(a) above, the amount of each Lender's Pro Rata Share in
the outstanding Loans and Letter of Credit Accommodations shall be computed
weekly, and shall be adjusted upward or downward on the basis of the amount of
the outstanding Loans as of the close of business on the Business Day
immediately preceding the date of each settlement computation; PROVIDED, THAT,
Agent retains the absolute right at any time or from time to time to make the
above described adjustments at intervals more frequent than weekly. Agent shall
deliver to each of Lenders after the end of each week, or such lesser period or
periods as Agent shall determine, a summary statement of the amount of
outstanding Loans for such period (such week or lesser period or periods being
hereinafter referred to as a "Settlement Period"). If the summary statement is
sent by Agent and received by a Lender prior to 12:00 noon (New York City time)
then such Lender shall make the settlement transfer described in this Section by
no later than 2:00 p.m. (New York City time) on the day such summary statement
was sent, and if such summary statement is sent by Agent and received by a
Lender after 12:00 noon (New York City time), such Lender shall make such
settlement transfer by no later than 2:00 p.m. (New York City time) on the next
Business Day following the date of the receipt of such summary statement. If,
as of the end of any Settlement Period, the amount of a Lender's Pro Rata Share
of the outstanding Loans is more than such Lender's Pro Rata Share of the
outstanding Loans as of the end of the previous Settlement Period, then such
Lender shall forthwith (but in no event later than the time set forth in the
preceding sentence) transfer to Agent by wire transfer in immediately available
funds the amount of the increase. If the amount of a Lender's Pro Rata Share of
the outstanding Loans in any Settlement Period is less than the amount of such
Lender's Pro Rata Share of the outstanding Loans for the previous Settlement
Period, Agent shall forthwith transfer to such Lender by wire transfer in
immediately available funds the amount of the decrease. The obligation of each
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of the Lenders to transfer such funds and effect such settlement shall be
irrevocable and unconditional and without recourse to or warranty by Agent.
Each of Agent and Lenders agrees to mark its books and records at the end of
each Settlement Period to show at all times the dollar amount of its Pro Rata
Share of the outstanding Loans and Letter of Credit Accommodations. Each Lender
shall only be entitled to receive interest on its Pro Rata Share of the Loans
which have been funded by such Lender.
(c) To the extent that Agent has made any such amounts available and
the settlement described above shall not yet have occurred, upon repayment of
any Loans by Borrower, Agent may apply such amounts repaid directly to any
amounts made available by Agent pursuant to this Section 3.11. In lieu of
weekly or more frequent settlements, Agent may at any time require each Lender
to provide Agent with immediately available funds representing its Pro Rata
Share of each Loan, prior to Agent's disbursement of such Loan to or for the
benefit of Borrower. In such event, all Loans under this Agreement shall be
made by the Lenders simultaneously and proportionately to their Pro Rata Shares.
No Lender shall be responsible for any default by any other Lender in the other
Lender's obligation to make a Loan requested hereunder nor shall the Commitment
of any Lender be increased or decreased as a result of the default by any other
Lender in the other Lender's obligation to make a Loan requested hereunder.
(d) If Agent is not funding a particular Loan pursuant to Section
3.11(a) above on any day, Agent may assume that each Lender will make available
to Agent such Lender's Pro Rata Share of the Loan requested or otherwise made on
such day and Agent may, in its discretion, but shall not be obligated to, cause
a corresponding amount to be made available to Borrower on such day. If Agent
makes such corresponding amount available to a Borrower and such corresponding
amount is not in fact made available to Agent by such Lender, Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon for each day from the date such payment was due
until the date such amount is paid to Agent at the Interest Rate. During the
period in which such Lender has not paid such corresponding amount to Agent,
notwithstanding anything to the contrary contained in this Agreement or any of
the other Financing Agreements, the amount so advanced by Agent to Borrower
shall, for all purposes hereof, be a Loan made by Agent for its own account.
Upon any such failure by a Lender to pay Agent, Agent shall promptly thereafter
notify Borrower of such failure and the Borrower shall immediately pay such
corresponding amount to Agent for its own account.
(e) Nothing in this Section 3.11 or otherwise in this Agreement or
the other Financing Agreements shall be deemed to require Agent to advance funds
on behalf of any Lender or to relieve any Lender from its obligation to fulfill
its Commitment hereunder or to prejudice any rights that Agent or Borrower may
have against any Lender as a result of any default by such Lender hereunder.
3.12 USE OF PROCEEDS. All Loans and Letter of Credit Accommodations made
or provided by Agent on behalf of Lenders or made or provided by Lenders to or
for the account of Borrower pursuant to this Agreement and the other Financing
Agreements shall be
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used by Borrower for general operating and working capital purposes of Borrower
and such other purposes as permitted by the terms hereof.
SECTION 4. CONDITIONS PRECEDENT TO LOANS AND
OTHER FINANCIAL ACCOMMODATIONS
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is a condition precedent to the initial
Loans and Letter of Credit Accommodations pursuant to this Agreement and the
other Financing Agreements which shall be satisfied in a manner acceptable to
Agent and each Lender (any of which may be waived, in whole or in part, only by
Agent and all of Lenders in writing):
(a) Agent shall have received evidence, in form and substance
satisfactory to Agent, that the arrangements of Borrower with Van-American and
the USF&G Bonding Companies to provide Bonds for the business of Borrower are in
full force and effect and adequate for the continuing operation of the business
of Borrower and its Subsidiaries;
(b) Agent shall have received, in form and substance satisfactory to
Agent, a consolidated pro-forma balance sheet of Guarantor and its Subsidiaries
reflecting the initial transactions contemplated hereunder, including, but not
limited to, the transactions contemplated by the Senior Note Agreements, the
Loans and Letter of Credit Accommodations made or provided by Agent on behalf of
Lenders to Borrower which are outstanding on the date hereof and the use of the
proceeds of the Loans as provided herein, accompanied by a certificate dated of
even date herewith of the chief financial officer of Guarantor acceptable to
Agent stating that such pro-forma balance sheet represents the reasonable, good
faith opinion of such officer as to the subject matter thereof as of the date of
such certificate;
(c) Agent shall have received, in form and substance satisfactory to
Agent, evidence that: (i) the Senior Notes, the other Senior Note Agreements
and all agreements, documents and instruments relating thereto have been duly
authorized, executed and delivered by the parties thereto in accordance with
their terms, (ii) Guarantor has received from or on behalf of the holders of the
Senior Notes cash or other immediately available funds in the aggregate amount
of approximately $145,875,000 constituting the proceeds from the issuance of the
Senior Notes after the underwriters' commission and other costs, fees and
expenses payable in connection with the issuance of the Senior Notes and
(iii) Borrower has received a loan from Guarantor in the amount of $150,000,000
with the proceeds from the issuance of the Senior Notes of which Borrower has
received $145,875,000 in cash or other immediately available funds, with the
balance applied to the underwriters' commission and other costs, fees and
expenses payable in connection with the issuance of the Senior Notes and the
other transactions contemplated hereunder;
(d) Agent shall have received, in form and substance satisfactory to
Agent, all other consents, waivers, acknowledgments, releases, terminations and
other agreements and
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documents from third persons which Agent may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements; PROVIDED, THAT, the foregoing shall not include
the consents of lessors of Real Property to the Mortgages;
(e) Borrower shall have established a lockbox and the Blocked
Accounts for its collections and the transfer thereof to Agent, which shall be
in form and substance satisfactory to Agent, in accordance with Section 9.1
hereof;
(f) Agent shall have received evidence of insurance and loss payee
endorsements required under this Agreement and under the other Financing
Agreements, in form and substance satisfactory to Agent, and certificates of
insurance policies and/or endorsements naming Agent as loss payee, all at
Borrower's cost and expense;
(g) Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has a valid perfected first priority security
interest in all of the Collateral;
(h) Agent shall have received and reviewed UCC search results for all
jurisdictions in which assets of Borrower are located in the United States,
which search results shall be in form and substance satisfactory to Agent;
(i) Agent shall have received evidence, in form and substance
satisfactory to Agent, that Borrower has available to it approximately
$46,200,000 from the proceeds of the loan on the date hereof by Guarantor to
Borrower with proceeds from the issuance of the Senior Notes to be used to
purchase certain Equipment of Borrower currently leased by Borrower;
(j) Agent shall have received (i) evidence, in form and substance
satisfactory to Agent, that all Indebtedness and other obligations and
liabilities of Guarantor, Borrower and its Subsidiaries to Harvard have been
paid and satisfied in full with a portion of the proceeds of the loan by
Guarantor to Borrower on the date hereof with a portion of the proceeds from the
issuance of the Senior Notes and that Guarantor, Borrower and its Subsidiaries
have been released by Harvard from all such Indebtedness, and other obligations
and liabilities, and (ii) all releases, terminations and such other documents as
Agent may request to evidence and effectuate the termination by Harvard of its
financing arrangements with Borrower, in form and substance satisfactory to
Agent, and the termination and release by Harvard of any interest in and to any
assets and properties of Borrower and each Obligor, duly authorized, executed
and delivered by Harvard, including, but not limited to, (A) UCC termination
statements for all UCC financing statements previously filed by it, as secured
party and Borrower or any Obligor, as debtor and (B) satisfactions and
discharges of any mortgages, deeds of trust or deeds to secure debt by Borrower
or any Obligor in favor of Harvard, in form acceptable for recording in the
appropriate government office;
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(k) Agent shall have received evidence, in form and substance
satisfactory to Agent, that all Indebtedness and other obligations and
liabilities of Guarantor and Borrower to Renco Group outstanding as of the date
hereof (including (i) the Indebtedness of Guarantor to Renco Group arising
pursuant to the loan by Renco Group to Guarantor on March 14, 1997 in the amount
of $2,000,000 and all interest thereon, (ii) the Indebtedness of Borrower to
Renco Group arising pursuant to the loan by Renco Group to Borrower in the
amount of $3,000,000 evidenced by the Unsecured Promissory Note, dated October
31, 1997, issued by Borrower payable to Renco Group and (iii) all outstanding
and unpaid management fees payable by Borrower or Guarantor to Renco Group) have
been paid and satisfied in full with a portion of the proceeds from the issuance
of the Senior Notes, PROVIDED, THAT, the total amount of all such payments shall
not exceed $5,800,000;
(l) the Excess Availability, as determined by Agent, as of the date
hereof, shall be not less than $20,000,000 after giving effect to the initial
Loans and Letter of Credit Accommodations outstanding as of the date hereof;
(m) Agent shall have received, in form and substance satisfactory to
Agent, an opinion letter of counsel to Borrower with respect to the Senior Note
Agreements, the transactions contemplated therein, the Financing Agreements and
such other matters as Agent or its counsel may request;
(n) this Agreement, the other Financing Agreements and all
instruments and documents hereunder and thereunder shall have been duly
authorized, executed and delivered to Agent, in form and substance satisfactory
to Agent.
4.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT ACCOMMODATIONS.
Each of the following is an additional condition precedent to the Loans and
Letter of Credit Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all respects with the
same effect as though such representations and warranties had been made on and
as of the date of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto, except to the extent that
such representation and warranties expressly relate solely to an earlier date
(in which case such representations and warranties shall have been true and
accurate on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and Agent shall not have received any notice that any action,
suit, investigation, litigation or proceeding is pending or threatened in any
court or before any arbitrator or Governmental Authority which (i) purports to
enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or
(B) the consummation of the transactions contemplated pursuant to the terms
hereof or the other Financing Agreements or (ii) has or could reasonably be
expected to have a Material Adverse Effect; and
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(c) no Event of Default and no act, condition or event which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. COLLATERAL
5.1 As collateral security for the prompt performance, observance and
payment in full of all of the Obligations, Borrower hereby grants, pledges and
assigns to Agent for itself and the ratable benefit of Lenders, and confirms,
reaffirms and restates its prior grant to Agent for itself and the ratable
benefit of Lenders of, continuing security interests in and liens upon, and
rights of setoff against, all of the following now owned and hereafter acquired
or existing assets and properties of Borrower (which assets and properties,
together with all other collateral security for the Obligations granted to or
otherwise held or acquired by Agent or any Lender are referred to herein as the
"Collateral"):
(a) (i)all Accounts;(ii) all monies, securities and other property
and the proceeds thereof, now or hereafter held or received by, or in transit
to, Agent or any Lender or Participant from or for Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise and all of
Borrower's deposits (general or special), balances, sums and credits with Agent
or any Lender or Participant at any time existing; (iii) all right, title and
interest, and all enforcement and other rights, remedies, and security and
liens, in, to and in respect of the Accounts and other Collateral, including,
without limitation, rights of stoppage in transit, replevin, repossession,
sequestration and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, guaranties or other contracts of suretyship with
respect to the Accounts, deposits or other security for the obligation of any
Account Debtor, credit and other insurance;(iv) all right, title and interest
in, to and in respect of all goods relating to Accounts, including, without
limitation, all goods described in invoices, documents, contracts or instruments
with respect to, or otherwise representing or evidencing, any Account or other
Collateral, including, without limitation, all returned, reclaimed or
repossessed goods;(v) all deposit accounts; (vi) all securities and other
investment property; and (vii) all other general intangibles of every kind and
description, including, without limitation, (A) the interests of Borrower in any
surety, insurance or bonds, letters of credit or other guaranties, (B)
tradenames and trademarks and the goodwill of the business symbolized thereby,
(C) patents, (D) copyrights, (E) licenses, (F) claims and other choses in
action, and (G) Federal, State, local and foreign tax refund claims of all
kinds;
(b) all Inventory;
(c) all Equipment;
(d) all Real Property;
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(e) all present and future books and records relating to any of the
above, including, without limitation, all ledgers, books of account, records,
tapes, cards, computer programs, computer disks or tape files, computer
printouts, computer runs, computer data and other computer prepared information
in the possession or control of Borrower, any computer service bureau or other
third person; and
(f) all products and proceeds of the foregoing, in any form,
including, without limitation, any insurance proceeds and any claims against
third persons for loss or damage to or destruction of any or all of the
foregoing.
5.2 Notwithstanding anything to the contrary set forth in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any rights or interests of Borrower as lessee of or tenant under any
leasehold interests of Borrower in coal mines or concentrations of coal, if,
under the terms of the lease giving rise to such leasehold interest, the valid
grant of a mortgage, security interest or lien therein to Agent is prohibited
(or the consent of the other party to the grant of a mortgage, security interest
or lien therein to Agent is required) and such prohibition has not been or is
not waived or the consent of the other party to such lease has not been or is
not otherwise obtained or under applicable law such prohibition cannot be
waived. With respect to those leasehold interests of Borrower or any Obligor as
lessee of or tenant under coal mines or concentrations of coal for which the
lease thereof to Borrower or such Obligor is not recorded in the appropriate
real estate records, the representations and warranties with respect to the
perfection of the mortgage, security interest and lien of Agent set forth in
Section 6.8 hereof shall not apply, so long as Borrower shall use its best
efforts after the date hereof to have the leases or acceptable memoranda thereof
recorded in the appropriate real estate records (without the payment of
compensation to the lessor under such lease for its consent to such recording),
other than such leases which by their terms prohibit the grant of a mortgage,
security interest or lien therein to Agent or require the consent of the other
party to such grant. As to such leases or memoranda thereof which may be
recorded after the date hereof, without limiting any of the other rights of
Agent or Lenders hereunder, Borrower shall, at its expense, promptly execute and
deliver to Agent, and cause its Subsidiaries to execute and deliver to Agent,
such amendments to the Mortgages or additional agreements, in form and substance
satisfactory to Agent, as Agent may request. Borrower will pay any taxes, fees
and other charges for recording any of such amendments to the Mortgages or
additional agreements.
5.3 Notwithstanding anything to the contrary set forth in Section 5.1, the
types or items of Collateral described in such Section shall not include any
rights or interests of Borrower in and to unearned premiums or returned premiums
payable as a result of the cancellation of policies to the extent such premiums
have been financed as permitted under Section 7.4 hereof, if under the terms of
the arrangements with A.I. Credit Corp. (or such other lender acceptable to
Agent providing loans or other financial accommodations to finance its insurance
premiums), the grant of a security interest or lien therein to Agent is
prohibited and such prohibition is not waived or the consent of A.I. Credit
Corp. (or such other lender) has not been or is not otherwise obtained.
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5.4 Notwithstanding anything to the contrary contained in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any Equipment which is, or at the time of Borrower's acquisition thereof
shall be, subject to a purchase money mortgage or other purchase money lien or
security interest (including capitalized or finance leases) permitted under
Section 7.4 hereof if: (a) the valid grant of a security interest or lien to
Agent in such item of Equipment is prohibited by the terms of the agreement
between Borrower and the holder of such purchase money mortgage or other
purchase money lien or security interest and such prohibition has not been or is
not waived, or the consent of the holder of the purchase money mortgage or other
purchase money lien or security interest has not been or is not otherwise
obtained and (b) the purchase money mortgage or other purchase money lien or
security interest on such item of Equipment is or shall become valid and
perfected.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower and Guarantor hereby jointly and severally represent and warrant
to Agent and Lenders as follows (and as to Guarantor, only to the extent
applicable to Guarantor as set forth herein), which representations and
warranties are continuing and shall survive the execution and delivery hereof,
and the truth and accuracy of each, together with the representations and
warranties in the other Financing Agreements, being a continuing condition of
each Loan and Letter of Credit Accommodations:
6.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Borrower, Guarantor and the Subsidiaries of Borrower is a
duly organized and validly existing corporation in good standing under the laws
of its state or jurisdiction of incorporation, with perpetual corporate
existence, and has the corporate power and authority to own its properties and
to transact the business in which it is engaged or presently proposes to engage.
Each of Borrower, Guarantor and the Subsidiaries of Borrower has qualified to do
business as a foreign corporation in the states and other jurisdictions listed
on Schedule 6.1(a) hereto, which constitute all states or other jurisdictions
where the nature of its business or the ownership or use of property requires
such qualification.
(b) Borrower and Guarantor do not have any Subsidiaries as of the
date hereof, except as set forth on Schedule 6.1(b) hereto.
6.2 CORPORATE POWER AND AUTHORITY. Borrower has the corporate power and
authority to borrow and each of Borrower, Guarantor and the Subsidiaries of
Borrower has the corporate power and authority to execute, deliver and carry out
the terms and provisions of this Agreement and the other Financing Agreements
and all other agreements, instruments and documents delivered by Borrower,
Guarantor and the Subsidiaries of Borrower pursuant hereto and thereto
applicable to it, and each of Borrower, Guarantor and the Subsidiaries of
Borrower has taken or caused to be taken all necessary corporate action to
authorize the
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execution, delivery and performance of this Agreement, the other Financing
Agreements and the other agreements relating hereto or thereto to which it is a
party, the present and future borrowings by Borrower hereunder and thereunder
and the execution, delivery and performance of the instruments and documents
delivered and to be delivered by it pursuant hereto and thereto. This Agreement
and the other Financing Agreements to which it is a party constitute and will
constitute legal, valid and binding obligations of Borrower and Guarantor,
enforceable in accordance with their respective terms.
6.3 ISSUANCE OF SENIOR NOTES; DISPOSITION OF PROCEEDS.
(a) The Senior Notes have been duly authorized, issued and delivered
by Guarantor and all agreements, documents and instruments related thereto,
including, but not limited to, the Senior Note Indenture, have been duly
authorized, executed and delivered and the transactions contemplated thereunder
performed in accordance with their terms by the respective parties thereto in
all respects, including the fulfillment (not merely the waiver) of all
conditions precedent set forth therein. All actions and proceedings required by
the Senior Note Agreements and the agreements, documents and instruments related
thereto and applicable law or regulation have been taken and the transactions
required thereunder have been duly and validly taken and consummated. Neither
the execution and delivery of the Senior Notes, any of the other Senior Note
Agreements or any of the instruments and documents to be delivered pursuant
thereto, nor the consummation of the transactions therein contemplated, nor
compliance with the provisions therein contemplated, has violated or will
violate any law or regulation or any order or decree of any court or other
Governmental Authority in any respect or does or will conflict with or result in
the breach of, or constitute a default in any respect under, any indenture,
mortgage, deed of trust, agreement or instrument to which Guarantor, Borrower or
its Subsidiaries is a party or may be bound, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property of
Guarantor, Borrower or its Subsidiaries (except as specifically contemplated
hereunder or under the other Financing Agreements) or violate any provision of
the Certificate of Incorporation or Bylaws of Guarantor, Borrower or its
Subsidiaries.
(b) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the issuance of
the Senior Notes and the transactions described therein and in the other Senior
Notes Agreements and to the best of Borrower's knowledge, no governmental or
other action or proceeding has been threatened or commenced, seeking any
injunction, restraining order or other order which seeks to void or otherwise
modify the issuance of the Senior Notes or any of the other Senior Note
Agreements.
(c) Guarantor has used the proceeds from the issuance of the Senior
Notes to make an unsecured loan on the date hereof to Borrower in the amount of
$150,000,000 of which Borrower has received cash or other immediately available
funds in the amount of $145,875,000 on the date hereof, after deduction of
$6,300,000 for deferred debt issuance costs and financing fees and the accrual
of $2,175,000 for financing fees in connection with the issuance of the Senior
Notes and the other transactions contemplated hereunder.
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(d) Borrower has used a portion of the proceeds of such loan from
Guarantor on the date hereof as follows: (i) approximately $30,190,755.56 has
been used to repay the principal amount of the Obligations outstanding under the
Existing Agreement, (ii) approximately $4,830,338 has been used to repay all of
the Indebtedness of Borrower and Guarantor to Harvard outstanding as of the date
hereof (other than contingent interest payable on May 31, 1998) of which
$4,500,000 is for principal, (iii) approximately $3,000,000 has been used to
repay all Indebtedness of Borrower to Renco Group arising pursuant to the loan
by Renco Group to Borrower evidenced by the Unsecured Promissory Note, dated
October 31, 1997, issued by Borrower payable to Renco Group, (iv) approximately
$700,000 has been used to pay all outstanding and unpaid management fees due to
Renco Group as of the date hereof pursuant to the Management Agreement,
(v) approximately $2,782,000 has been used to make certain contractual payments
to certain executives of Borrower required under the terms of the net worth
appreciation agreements of Borrower with such executives, (vi) approximately
$6,300,000 has been or will be used to pay fees and expenses related to the
issuance of the Senior Notes and the financing arrangements provided for herein
(of which $2,175,000 has been accrued for such fees and expenses),
(vii) approximately $27,818,000 has been used to pay a dividend to Guarantor,
and (viii) approximately $2,100,000 has been used to repay all Indebtedness of
Borrower to Guarantor arising pursuant to the loan by Guarantor to Borrower on
March 14, 1997 in the original principal amount of $2,000,000. Guarantor has
used the proceeds of the repayment of such loan referred to in clause (viii) to
repay on the date hereof all Indebtedness of Guarantor to Renco Group arising
pursuant to the loan by Renco Group to Guarantor on March 14, 1997 in the
original principal amount of $2,000,000 (and including all interest thereon).
(e) In addition, Borrower shall, after the date hereof, use certain
proceeds from such loan by Guarantor to Borrower on the date hereof as follows:
(i) approximately $46,200,000 shall be used to purchase certain Equipment
currently financed pursuant to leases and (ii) approximately $9,438,600 shall be
used to buy out certain long-term royalty agreements with third parties.
(f) Borrower has delivered, or caused to be delivered, to Agent,
true, correct and complete copies of the Senior Note Agreements. Set forth in
Schedule 6.3 hereto is a correct and complete list of the Senior Note Agreements
and all other agreements, documents and instruments existing as of the date
hereof by Borrower and its Affiliates in connection therewith.
6.4 CAPITALIZATION.
(a) All of the issued and outstanding shares of Capital Stock of
Borrower are directly and beneficially owned and held by Guarantor and have been
duly authorized and are fully paid and nonassessable, free and clear of all
claims, liens, pledges and encumbrances of any kind. All of the issued and
outstanding shares of Capital Stock of Guarantor are directly and beneficially
owned and held by Renco Group and have been duly authorized and are fully paid
and non-assessable, free and clear of all claims, liens, pledges and
encumbrances of any kind.
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(b) After the creation of the Obligations, the issuance of the Senior
Notes, the security interests of Agent for itself and the ratable benefit of
Lenders and the other transactions contemplated hereunder, Borrower shall
continue to be able to pay its debts as they mature and has (and has reason to
believe it will continue to have) sufficient capital (and not unreasonably small
capital) to carry on its business and all businesses in which it is about to
engage. The assets and properties of Borrower at a fair valuation and at their
present fair salable value are, and will be, greater than the Indebtedness and
other liabilities of Borrower, and including subordinated and contingent
liabilities computed in the amount which, to the best of Borrower's knowledge,
represents an amount which can reasonably be expected to become an actual or
matured liability. Borrower has sufficient capital to carry on all businesses
and transactions in which it now engages or proposes to engage in, is solvent
and will, in the reasonable, good faith determination of Borrower as of the date
hereof, continue to be solvent after the creation of the Obligations and the
security interests in favor of Agent for itself and the ratable benefit of
Lenders, and is able to pay its debts as they mature.
6.5 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAW.
(a) Each of Borrower, Guarantor and the Subsidiaries of Borrower is
not in default under, in violation of or in contravention of, in any respect,
any indenture, mortgage, deed of trust, deed to secure debt, agreement or
instrument to which it is a party or by which it or any of its assets or
properties may be or are bound, in each case where such default, violation or
contravention has or would have a Material Adverse Effect, except as described
on Schedule 6.5(a) hereto.
(b) Neither the execution and delivery of this Agreement, the other
Financing Agreements, or any of the instruments and documents to be delivered
pursuant hereto or thereto, nor the consummation of the transactions herein or
therein contemplated, nor compliance with the provisions hereof or thereof, has
violated any law or regulation or any order or decree of any court or
Governmental Authority in any respect or does or will conflict with or result in
the breach of, or constitute a default in any respect under, any indenture,
mortgage, deed of trust, agreement or instrument to which Borrower, Guarantor or
any of the Subsidiaries of Borrower is a party or may be bound, which in any
case has or would have a Material Adverse Effect, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property of
Borrower, Guarantor or any of the Subsidiaries of Borrower (except as
specifically contemplated hereunder or under the other Financing Agreements) or
violate any provision of the Certificate of Incorporation or By-Laws of
Borrower, Guarantor or any of the Subsidiaries of Borrower.
(c) Borrower has obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any Governmental Authority
required for the lawful conduct of its business and is in compliance in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority (including, but not limited
to, the Kentucky Natural Resources and Environmental Protection Cabinet, West
Virginia Department of Environmental Protection, Kentucky Department for Surface
Mining Reclamation and Enforcement, West Virginia Department of Surface Mining
and
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Reclamation, Federal Mine Safety and Health Administration, Federal Office of
Surface Mining and Reclamation, and the Federal Environmental Protection Agency)
relating to its business (including, without limitation, those set forth in or
promulgated pursuant to ERISA, the Occupational Safety and Health Act of 1970,
as amended, the Surface Mining Control and Reclamation Act of 1977, the Mine
Safety and Health Act of 1977, the Fair Labor Standards Act of 1938, as amended,
the Code, and the Environmental Laws). Schedule 6.5(c) hereto sets forth all
material permits, licenses, approvals, consents, certificates, orders or
authorizations (collectively, "Permits") issued or held by Borrower as of the
date hereof by any Federal, State or local Governmental Authority. The Permits
constitute all permits, licenses, approvals, consents, certificates, orders or
authorizations necessary for Borrower to own and operate its business as
presently conducted or proposed to be conducted where the failure to have such
Permits would have a Material Adverse Effect. Except as described on Schedule
6.5(c) hereto, all of the Permits are valid and subsisting and in full force and
effect and there are no actions, claims or proceedings pending or threatened
that seek the revocation, cancellation, suspension or modification of any of the
Permits.
6.6 GOVERNMENTAL APPROVAL. No consent, approval or other action of, or
filing with, or notice to any Governmental Authority is required in connection
with the execution, delivery and performance of this Agreement, the other
Financing Agreements or any of the instruments or documents to be delivered
pursuant hereto or thereto, except for the filing of UCC financing statements
and the recording of the Mortgages (or as applicable, amendments thereto).
6.7 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS.
(a) The address of the principal place of business and chief
executive office of Borrower is as set forth on Schedule 6.7 hereto, which
address is the mailing address for such principal place of business and chief
executive office. The books and records relating to the Accounts of Borrower
are located at such address. The Collateral is located only at the locations
set forth on Schedule 6.7.
(b) Borrower may open any new location within the continental United
States provided it (i) gives Agent thirty (30) days prior written notice of the
intended opening of any such new location and (ii) executes and delivers, or
causes to be executed and delivered, to Agent such agreements, documents, and
instruments consistent with the other then existing Financing Agreements to the
extent applicable or otherwise as Agent may deem reasonably necessary or
desirable to protect its interests in the Collateral to be located in such
location, including, without limitation, UCC financing statements and agreements
from appropriate Persons acknowledging the liens of Agent on the Collateral to
be located in such location, waiving any lien or claim by such Person to the
Collateral and permitting Agent access to the premises to exercise its rights
and remedies and otherwise deal with the Collateral.
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6.8 PRIORITY OF LIENS/TITLE TO PROPERTIES.
(a) The security interests and liens granted to Agent for itself and
the ratable benefit of Lenders under this Agreement and the other Financing
Agreements constitute valid and perfected liens and security interests in and
upon the Collateral subject only to the liens indicated on Schedule 6.8 hereto
and the liens permitted under Section 7.4 hereof.
(b) Each of Borrower, Guarantor and the Subsidiaries of Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except (i) those directly in favor of or assigned to Agent and such others
as are specifically permitted under the provisions of this Agreement as listed
on Schedule 6.8 hereto or under Section 7.4 hereof and the other Financing
Agreements and (ii) any lien, mortgage, encumbrance or other defect in its title
to any leasehold interest in Real Property as a result of a lien, mortgage,
encumbrance or other defect in the title of the lessor with respect to such
leasehold interest, PROVIDED, THAT,(A) Borrower, Guarantor and the Subsidiaries
of Borrower do not have any notice of any such lien, mortgage, encumbrance or
other defect,(B) Borrower has conducted a limited investigation with respect to
title thereof in accordance with its customary practice and (C) has verified the
title of the lessors at such time as Borrower prepares to mine any such Real
Property. Each of Borrower, Guarantor and the Subsidiaries of Borrower has
peaceful and undisturbed possession of all Real Property and Equipment and such
other assets as may be necessary for its business as presently conducted or
proposed to be conducted and under all leases, licenses and easements necessary
for the operation of its properties and business. None of such leases, licenses
and easements contain any unusual or burdensome provisions which might
materially affect or impair the operations of such properties and business and
all such leases, licenses and easements are valid and subsisting and in full
force and effect.
6.9 TAX RETURNS. Except as set forth on Schedule 6.9, each of Borrower,
Guarantor and the Subsidiaries of Borrower has filed, or caused to be filed all
Federal, State, county, local, foreign and other tax returns, reports and
declarations which are required to be filed by it and as to which an extension
has not been granted and has paid or caused to be paid all taxes shown to be due
and payable on said returns and reports or in any assessment received by it, to
the extent that such taxes have become due and payable, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower, Guarantor or such Subsidiary of
Borrower and with respect to which adequate reserves have been set aside on its
books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed.
6.10 LITIGATION. Except as set forth on Schedules 6.9, 6.10 and 6.14
hereto, there is no present investigation by any Governmental Authority pending
or, to the best of the knowledge of Borrower or Guarantor, threatened against or
affecting Borrower, Guarantor or the Subsidiaries of Borrower or their
respective properties or business and there is no present action, suit,
proceeding or claim by any Person pending or, to the best of the knowledge of
Borrower or Guarantor, threatened against Borrower, Guarantor or the
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Subsidiaries of Borrower or its or their assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, the other Financing
Agreements, or other instruments, agreements or documents delivered in
connection herewith or therewith, which if adversely determined with respect to
it, would have a Material Adverse Effect.
6.11 INTELLECTUAL PROPERTY. Each of Borrower, Guarantor and the
Subsidiaries of Borrower owns or licenses all patents, trademarks, servicemarks,
logos, tradenames, trade secrets, know-how, copyrights, or licenses and other
rights with respect to any of foregoing, which are necessary for the operation
of its business as presently conducted or proposed to be conducted. No
trademark, servicemark, logo or similar item at any time used by Borrower,
Guarantor or the Subsidiaries of Borrower which is owned by another person or
owned by Borrower, Guarantor or the Subsidiaries of Borrower subject to any
security interest, lien, collateral assignment, pledge or other encumbrance in
favor of any person other than Agent is affixed to any Eligible Inventory. To
the best of the knowledge of Borrower or Guarantor, no product, process, method,
substance, part or other material presently contemplated to be sold by or
employed by Borrower infringes any patent, trademark, servicemark, tradename,
copyright, license or other right owned by any other Person and no claim or
litigation is pending or threatened against or affecting Borrower contesting its
right to sell or use any such product, process, method, substance, part or other
material.
6.12 ACCOUNTS. Each Eligible Account represents a valid and legally
enforceable indebtedness based upon an actual and bona fide sale and delivery of
goods or rendition of services in the ordinary course of the businesses of
Borrower which has been finally accepted by the Account Debtor and for which the
Account Debtor is unconditionally liable to make payment of the amount stated in
each invoice, document or instrument evidencing the Eligible Account in
accordance with the terms thereof, without offset, defense or counterclaim. All
statements made and all unpaid balances appearing in the invoices, documents and
instruments evidencing each Eligible Account are true and correct and are in all
respects what they purport to be and all signatures and endorsements that appear
thereon are genuine and all signatories and endorsers have full capacity to
contract and each Account Debtor is solvent and financially able to pay in full
the Eligible Account when it matures. None of the transactions underlying or
giving rise to any Account violates any Federal, State or foreign laws or
regulations, and all documents relating to the Accounts are legally sufficient
under such laws or regulations and shall be legally enforceable in accordance
with their terms and all recording, filing and other requirements of giving
public notice under any applicable law have been duly complied with.
6.13 EMPLOYEE BENEFITS.
(a) Each of Borrower, Guarantor and the Subsidiaries of Borrower has
not engaged in any transaction in connection with which Borrower, Guarantor and
the Subsidiaries of Borrower or any of its or their ERISA Affiliates, could be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code.
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(b) No liability to the Pension Benefit Guaranty Corporation (other
than liability for premiums in the ordinary course of the business of Borrower)
has been or is expected by Borrower or Guarantor to be incurred with respect to
any employee pension benefit plan of Borrower, Guarantor and their Subsidiaries
or any of its or their ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event or condition
with respect to any employee pension benefit plan of Borrower, Guarantor and the
Subsidiaries of Borrower or any of its or their ERISA Affiliates which presents
a risk of termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made of all amounts which Borrower,
Guarantor and the Subsidiaries of Borrower or any of its or their ERISA
Affiliates is required under Section 302 of ERISA and Section 412 of the Code to
have paid under the terms of each employee pension benefit plan as contributions
to such plan as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, except as set forth on Schedule 6.13 hereto, and
no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any
employee pension benefit plan.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower, Guarantor or the
Subsidiaries of Borrower that are subject to Title IV of ERISA does not exceed
the current value of the assets of such plans allocable to such vested accrued
benefits, except as set forth on Schedule 6.13 hereto. The terms "current
value" and "accrued benefit" have the meanings specified in Section
4062(b)(1)(A) and Section 3 of ERISA, respectively.
(e) Neither Borrower, Guarantor and the Subsidiaries of Borrower nor
any of its or their ERISA Affiliates is or has ever been obligated to contribute
to any "multi-employer plan" (as such term is defined in Section 4001(a)(3) of
ERISA) that is subject to Title IV of ERISA, except as set forth on Schedule
6.13 hereto.
6.14 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth on Schedule 6.14 hereto, neither Borrower nor
its Subsidiaries have generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any license, permit, certificate,
approval or similar authorization thereunder in any material respect and the
operations of Borrower and its Subsidiaries comply in all material respects with
all Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 6.14 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other person nor is any pending or,
to the best of Borrower's knowledge, threatened, with respect to any
noncompliance with or violation of the
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requirements of any Environmental Law by Borrower or any of its Subsidiaries in
any material respect or the release, spill or discharge, threatened or actual,
of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacturer, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects
Borrower or its Subsidiaries or their businesses, operations or assets or any
properties at which Borrower or its Subsidiaries transported, stored or disposed
of any Hazardous Materials in any material respect.
(c) Except as set forth on Schedule 6.14 hereto, neither Borrower nor
its Subsidiaries have any material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Except as set forth on Schedule 6.14, Borrower and its
Subsidiaries have all material licenses, certificates, approvals and other
Permits required to be obtained or filed in connection with the operations of
Borrower and its Subsidiaries under any Environmental Law and all of such
licenses, permits, certificates, approvals and other Permits are valid and in
full force and effect.
6.15 BANK ACCOUNTS. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower or its Subsidiaries maintained
at any bank or other financial institution are set forth on Schedule 6.15
hereto, subject to the right of Borrower to establish new accounts in accordance
with Section 7.19 below.
6.16 INVESTMENT COMPANY. Borrower, Guarantor and their Subsidiaries are
not an "investment company", or an "affiliated person" or "promoter" or
"principal underwriter", as such terms are defined in the Investment Company Act
of 1940, as amended. The making of the Loans by Agent on behalf of Lenders or
by Lenders, the application of the proceeds and the repayment thereof by
Borrower and the performance of the transactions contemplated herein will not
violate any provision of the Investment Company Act of 1940, as amended, or any
rule, regulation or order issued pursuant thereto.
6.17 REGULATION U; SECURITIES EXCHANGE ACT OF 1934. Borrower does not own
any "margin stock" as such term is defined in Regulation U, as amended of the
Board. The proceeds of the borrowings made pursuant to this Agreement and the
other Financing Agreements will be used by Borrower only for the purposes
contemplated hereunder. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin stock or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry any margin stock or for any other purpose which
might cause any of the Loans to be considered a "purpose credit" within the
meaning of Regulation U of the Board, as amended. Borrower will not take, nor
will Borrower permit any agent acting in its behalf to take, any action which
might cause this Agreement or the other Financing Agreements, or instruments
delivered pursuant hereto or thereto, to violate
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any regulation of the Board or to violate the Securities Exchange Act of 1934 or
any state or other securities laws, in each case as in effect on the date hereof
or as amended hereafter.
6.18 NO MATERIAL ADVERSE CHANGE. There has been no material adverse change
in the business, assets, condition (financial or otherwise) or results of
operations of Borrower, Guarantor and the Subsidiaries of Borrower (taken as a
whole) since the date of the most recent financial statements with respect
thereto submitted to Agent or field examination with respect thereto conducted
by Agent.
6.19 FINANCIAL STATEMENTS.
(a) None of the financial statements, reports and other information
furnished or to be furnished by Borrower or Guarantor to Agent or any Lender
with respect to Guarantor and its Subsidiaries contain, as of their respective
dates, any untrue statement of material fact or (taken as a whole) omit to state
any material fact necessary to make the information therein not misleading.
Such financial statements and reports were and will be prepared in accordance
with GAAP consistently applied, and shall fairly present the consolidated and
consolidating financial condition and results of operations of the applicable
Persons, as of the dates and for the periods indicated thereon.
(b) The unaudited Pro Forma Consolidated Balance Sheet of Guarantor
and Borrower as of January 31, 1998 furnished by Guarantor and Borrower to Agent
and Lenders taken as a whole represent the reasonable, good faith opinion of
Guarantor, Borrower and their management as to the subject matter thereof and
has been prepared in accordance with applicable guidelines of the American
Institute of Certified Public Accountants.
6.20 DISCLOSURE.
(a) The information contained in the representations and warranties
of Borrower and Guarantor set forth in this Agreement, the other Financing
Agreements, or in any other instrument, document, list, certificate, statement,
schedule or exhibit heretofore delivered or to be delivered to Agent or any
Lender, as contemplated in this Agreement or in the other Financing Agreements,
does not contain and will not contain any untrue statement of a material fact
and (taken as a whole) does not omit and will not omit to state a material fact
necessary in order to make the information contained herein or therein not
misleading.
(b) After giving effect to the transactions contemplated by this
Agreement, the other Financing Agreements, and the other instruments or
documents delivered in connection herewith and therewith, there does not exist
and there has not occurred any act, condition or event which constitutes an
Event of Default or which, with notice or passage of time or both would
constitute an Event of Default.
6.21 LABOR DISPUTES. There is no collective bargaining agreement or other
labor contract covering employees of Borrower or its Subsidiaries, except as set
forth on Schedule 6.21 hereto. There is no pending or threatened strike, work
stoppage, material unfair labor
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practice claims, or other material labor dispute against or affecting Borrower
or its Subsidiaries or their respective employees, except as set forth on
Schedule 6.21 hereto.
6.22 CORPORATE NAME; PRIOR TRANSACTIONS. Borrower has not, during the past
five years, been known by or used any other corporate or fictitious name or been
a party to any merger or consolidation, or acquired all or substantially all of
the assets of any Person, or acquired any of its property or assets out of the
ordinary course of business, except as set forth on Schedule 6.22 hereto.
6.23 MATERIAL CONTRACTS. All of the Material Contracts of Borrower and its
Subsidiaries are set forth on Schedule 6.23 hereto. Borrower has delivered
true, correct and complete copies of such Material Contracts to Lender on or
before the date hereof. Borrower is not in breach of or in default under any
Material Contract, except as set forth on Schedule 6.5(a) hereto.
SECTION 7. ADDITIONAL COVENANTS
In addition to the covenants set forth in the other Financing Agreements,
each of Borrower and Guarantor hereby jointly and severally covenants to and
agrees with Agent and Lenders that Borrower and Guarantor (to the extent
applicable to Guarantor as set forth herein) shall comply with the following
covenants applicable to it, or cause the same to be complied with, unless Agent
shall otherwise consent in writing:
7.1 TRADENAMES. Some of Borrower's invoices may from time to time be
rendered to customers under the tradenames listed on Schedule 6.22 hereto
(which, together with any new tradenames used after the date hereof are referred
to collectively as the "Tradenames" and individually, as a "Tradename"). As to
the Tradenames used by it, and the related Accounts:
(a) Each Tradename is a tradename (and not an independent corporation
or other legal entity) by which Borrower may identify and sell or lease certain
of its goods or services and conduct a portion of its business.
(b) All Accounts and proceeds thereof (including any returned
merchandise) which arise from the sale or lease of goods or rendition of
services invoiced under the Tradename shall be owned solely by Borrower and
shall be subject to the security interests of Lender and other terms of this
Agreement and the other Financing Agreements.
(c) All assignments or confirmatory schedules of Accounts delivered
to Lender by Borrower, whether in the name of any of the Tradenames or of
Borrower, shall be executed by Borrower as owner of such assigned Accounts.
(d) New Tradenames may be used by Borrower, but only if (i) Lender is
given at least thirty (30) days prior written notice of the intended use of any
new Tradename and
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(ii) such supplemental financing statements or similar instruments as Lender may
request shall be executed and delivered to Lender by Borrower for filing or
recording by Lender prior to the use of such new Tradename.
7.2 SUBSIDIARIES. Borrower shall not form or acquire any Subsidiaries
without the prior written consent of Agent. In the event Agent so consents,
promptly upon such formation or acquisition, (a) such Subsidiary shall be
subject to the terms of this Agreement and bound by the terms and conditions
hereof applicable to the Subsidiaries of Borrower; (b) Borrower shall cause any
such Subsidiary to execute and deliver to Agent, in form and substance
satisfactory to Agent and its counsel: (i) an absolute and unconditional
guarantee of payment of any and all present and future Obligations of Borrower
to Agent and Lenders containing terms substantially similar to those guarantees
entered into by the existing Subsidiaries of Borrower in favor of Agent and
Lenders as of the date hereof, (ii) a security agreement granting to Agent for
itself and the ratable benefit of Lenders a first security interest and lien
(except as otherwise consented to in writing by Agent) upon all of the assets of
such Subsidiary containing terms substantially similar to the security
agreements entered into by the existing Subsidiaries of Borrower in favor of
Agent and Lenders as of the date hereof, (iii) related Uniform Commercial Code
Financing Statements, and (iv) such other agreements, documents and instruments
as Agent may require, including, but not limited to, supplements and amendments
hereto and other loan agreements or instruments evidencing Indebtedness of such
new Subsidiary to Agent and Lenders; and (c) promptly upon Agent's request:
(i) Borrower shall execute and deliver to Agent, in form and substance
satisfactory to Agent, a pledge and security agreement granting to Agent for
itself and the ratable benefit of Lenders a first pledge of and lien on all of
the issued and outstanding shares of Capital Stock of such Subsidiary and
(ii) Borrower shall deliver the original stock certificates evidencing such
shares of Capital Stock together with stock powers with respect thereto duly
executed in blank, and (iii) the amount of the investment by Borrower in the
Capital Stock of such Subsidiary and any other amounts paid by Borrower to such
Subsidiary shall not exceed the amount permitted under Section 7.5 hereof.
7.3 INDEBTEDNESS. Borrower shall not, and shall not permit any Subsidiary
to, create, incur, assume or permit to exist, contingently or otherwise, any
Indebtedness, except:
(a) the Obligations;
(b) Indebtedness consisting of unsecured current liabilities incurred
in the ordinary course of its business;
(c) Indebtedness incurred in the ordinary course of its business
secured only by liens permitted under Section 7.4(c) hereof;
(d) Indebtedness of Borrower or its Subsidiaries to the extent
permitted under Section 7.4(d) hereof;
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(e) contingent Indebtedness permitted under Section 7.5 hereof
(including contingent Indebtedness arising under the Senior Note Guarantee to
the extent permitted under Section 7.5 hereof);
(f) Indebtedness incurred in the ordinary course of business
consisting of unsecured non-current accruals and deferred liabilities relating
to deferred compensation and taxes, environmental liabilities, post-employment
benefits for health care, pensions, life insurance and long term disability
benefits and similar items;
(g) Indebtedness of Borrower and its Subsidiaries to the USF&G
Bonding Companies under the USF&G Bonding Agreements (as in effect on the date
hereof or as amended, restated or replaced with the prior written consent of
Agent, except to the extent such consent is not required pursuant to Section
7.3(g)(ii)(A) below); PROVIDED, THAT, (i) Borrower may only make payments in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such Indebtedness as in effect on the date hereof, (ii) Borrower shall
not, directly, or indirectly, (A) amend, modify, alter or change the terms of
such Indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, EXCEPT, THAT, Borrower may, after prior written
notice to Agent, amend, modify, alter or change the terms thereof so long as
such Indebtedness and any agreement, document or instrument related thereto
shall not at any time include terms or conditions which in any manner adversely
affect or restrict or limit Agent or any Lender or any rights of Agent or any
Lender or the rights of Borrower and its Subsidiaries with respect to the
financing arrangements provided for herein, as determined in good faith by Agent
or include terms and conditions which are more restrictive or burdensome than
the terms or conditions of the most restrictive or burdensome of any other
material Indebtedness of Borrower as in effect on the date hereof or (B) at any
time on or after an Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and be continuing, redeem, retire, defease, purchase or
otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) Borrower and its Subsidiaries shall furnish
to Agent all notices or demands in connection with such Indebtedness either
received by Borrower or its Subsidiaries or on its or their behalf, promptly
after the receipt thereof, or sent by Borrower or its Subsidiaries or on its or
their behalf, concurrently with the sending thereof, as the case may be;
(h) Indebtedness of Borrower and its Subsidiaries to Frontier under
the General Agreement of Indemnity, dated May 4, 1998, by and among Frontier,
Borrower and its Subsidiaries (as in effect on the date hereof or as amended,
restated or replaced with the prior written consent of Agent, except to the
extent such consent is not required pursuant to Section 7.3(h)(ii)(A) below);
PROVIDED, THAT, (i) Borrower may only make payments in accordance with the terms
of the agreement or instrument evidencing or giving rise to such Indebtedness as
in effect on the date hereof, (ii) Borrower shall not, directly, or indirectly,
(A) amend, modify, alter or change the terms of such Indebtedness or any
agreement, document or instrument related thereto as in effect on the date
hereof, EXCEPT, THAT, Borrower may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof so
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long as such Indebtedness and any agreement, document or instrument related
thereto shall not at any time include terms or conditions which in any manner
adversely affect or restrict or limit Agent or any Lender or any rights of Agent
or any Lender or the rights of Borrower and its Subsidiaries with respect to the
financing arrangements provided for herein, as determined in good faith by Agent
or include terms and conditions which are more restrictive or burdensome than
the terms or conditions of the most restrictive or burdensome of any other
Indebtedness of Borrower as in effect on the date hereof or (B) at any time on
or after an Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing, redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose,(iii) all of the Indebtedness of Borrower and its Subsidiaries
to Frontier is and shall at all times be unsecured, EXCEPT THAT Borrower may
grant security interests to Frontier on certain assets and properties of
Borrower and its Subsidiaries to secure such Indebtedness, PROVIDED, THAT, as of
or prior to such grant of security interest, each of the following conditions is
satisfied: (A) Agent shall have received not less than ten (10) Business Days'
prior written notice of the intention of Borrower to grant such security
interests, together with such information with respect thereto as Agent may
request,(B) Agent shall have received, in form and substance satisfactory to
Agent and Co-Agent, an intercreditor agreement between Frontier and Agent (as
acknowledged and agreed to by Borrower and its Subsidiaries) providing for,
INTER ALIA, the subordination by Frontier of any security interests, liens or
other interests or claims of Frontier in and to any assets and properties of
Borrower or its Subsidiaries to the security interests in and liens upon such
assets and properties in favor of Agent (for itself and the ratable benefit of
Lenders), as duly authorized, executed and delivered by Frontier, Borrower and
its Subsidiaries, and (C) the security agreement or other agreements with
respect thereto by Borrower or its Subsidiaries shall be in form and substance
satisfactory to Agent, and (iv) Borrower and its Subsidiaries shall furnish to
Agent all notices or demands in connection with such Indebtedness either
received by Borrower or its Subsidiaries or on its or their behalf, promptly
after the receipt thereof, or sent by Borrower or its Subsidiaries or on its or
their behalf, concurrently with the sending thereof, as the case may be;
(i) Indebtedness of Borrower and its Subsidiaries arising after the
date hereof to any of the Bonding Companies (other than the USF&G Bonding
Companies and Frontier); PROVIDED, THAT each of the following conditions is
satisfied: (i) Agent shall have received not less than ten (10) Business Days'
prior written notice of the intention to incur such Indebtedness, which notice
shall be set forth in reasonable detail satisfactory to Agent, the person to
whom such Indebtedness will be owed with respect thereto and such other
information with respect thereto as Agent may reasonably request,(ii) Agent
shall have received true, correct and complete copies of all agreements,
documents and instruments evidencing or otherwise related to such Indebtedness,
as duly authorized, executed and delivered by the parties thereto,(iii) such
Indebtedness shall be incurred by Borrower at commercially reasonably rates and
terms in a BONA FIDE arm's length transaction,(iv) such Indebtedness shall not
at any time include terms and conditions which in any manner adversely affect or
restrict or limit Agent or any Lender or any rights of Agent or any Lender or
the rights of Borrower and its Subsidiaries with respect to the financing
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arrangements provided for herein as determined in good faith by Agent or which
are more restrictive or burdensome than the terms or conditions of the most
restrictive or burdensome of any other material Indebtedness of Borrower as in
effect on the date hereof,(v) if such Indebtedness is to be secured, (A) Agent
shall have received, in form and substance satisfactory to Agent and Co-Agent,
an intercreditor agreement between such person and Agent (as acknowledged and
agreed to by Borrower and its Subsidiaries) providing for, INTER ALIA, the
subordination by such person of any security interests, liens or other interests
or claims of such person in and to any assets and properties of Borrower or its
Subsidiaries to the security interests in and liens upon such assets and
properties in favor of Agent (for itself and the ratable benefit of Lenders), as
duly authorized, executed and delivered by such person, Borrower and its
Subsidiaries and (B) the security agreement or other agreement with respect
thereto by Borrower and its Subsidiaries shall be in form and substance
satisfactory to Agent, (vi) Borrower shall not, directly or indirectly,(A)
amend, modify, alter or change the terms of the agreements with respect to such
Indebtedness EXCEPT, THAT, Borrower may, after prior written notice to Agent,
amend, modify, alter or change terms thereof so long as after giving effect
thereto, Borrower and its Subsidiaries are in compliance with Section 7.3(i)(iv)
above, or (B) at any time on or after an Event of Default, or act, condition or
event which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing, redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invent any sums for such purpose, and (vii) Borrower and
its Subsidiaries shall furnish to Agent all notices or demands in connection
with such Indebtedness either received by Borrower or its Subsidiaries or on its
or their behalf promptly after the receipt thereof, or sent by Borrower or its
Subsidiaries or on its or their behalf, concurrently with the sending thereof,
as the case may be;
(j) Indebtedness of Borrower to Guarantor arising pursuant to the
loan by Guarantor to Borrower on the date hereof with the proceeds from the
issuance of the Senior Notes; PROVIDED, THAT, (i) such Indebtedness is, and
shall at all times remain, unsecured,(ii) the terms and conditions of such
Indebtedness shall be acceptable in all respects to Agent, (iii) such
Indebtedness shall not exceed $150,000,000 (less the aggregate amount of all
repayments or repurchases of principal in respect thereof) plus interest thereon
at the rate applicable as in effect on the date hereof, (iv) such Indebtedness
is, in all respects, subject to, and subordinate in right of payment to, the
right of Agent and Lenders to receive the prior indefeasible payment and
satisfaction in full of all of the Obligations, (v) Agent shall have received,
in form and substance satisfactory to Agent, a subordination agreement providing
for, INTER ALIA, the terms of the subordination in right of payment of such
Indebtedness of Borrower to the prior indefeasible payment and satisfaction in
full of the Obligations, duly authorized, executed and delivered by Borrower and
Guarantor, (vi) Borrower shall not, directly or indirectly, make any payments in
respect of such Indebtedness, including, but not limited to, any prepayments or
other non-mandatory payments, EXCEPT, THAT, Borrower may make regularly
scheduled semi-annual payments of interest in respect of such Indebtedness,
PROVIDED, THAT, (A) the proceeds of each such payment by Borrower to Guarantor
shall be used to make substantially contemporaneous payments then due by
Guarantor to the holders of the Senior Notes in accordance with the terms of the
Senior Notes (as in effect on the date hereof) and (B) as of the date of each
such
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payment and after giving effect thereto, no Event of Default or act, condition
or event which with notice or passage of time or both would constitute an Event
of Default shall exist or have occurred and be continuing, (vii)Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change any terms of
such Indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, EXCEPT, THAT, Borrower may, after prior written
notice to Agent, amend, modify, alter or change the terms thereof so as to
extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith or to make any covenants contained therein less restrictive
or burdensome as to Borrower or (B) redeem, retire, defease, purchase or
otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose except to the extent permitted under Section
7.7(b)(iv) hereof, and (viii) Borrower shall furnish to Agent all notices or
demands in connection with such Indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be;
(k) Indebtedness of Borrower to A.I. Credit Corp. (or another lender
acceptable to Agent providing loans or other financial accommodations to
Borrower to finance its insurance premiums) in respect of unearned premiums
payable on certain insurance policies maintained by Borrower pursuant to the
terms of the Premium Finance Agreement, Disclosure Statement and Security
Agreement between Borrower and A.I. Credit Corp. (or any other similar type of
agreement with substantially similar terms between Borrower and another lender
acceptable to Agent providing loans or other financial accommodations to
Borrower to finance its insurance premiums), PROVIDED, THAT, (i) in no event
shall the total amount of such Indebtedness outstanding at any time exceed
$3,000,000, (ii) Agent shall have received true, correct and complete copies of
all agreements, documents and instruments evidencing or otherwise related to
such Indebtedness, as duly authorized, executed and delivered by the parties
thereto, (iii) Borrower shall not, directly or indirectly,(A) amend, modify,
alter or change the terms of the agreements with respect to such Indebtedness;
EXCEPT, THAT, Borrower may, after prior written notice to Agent, amend, modify,
alter or change the terms thereof so as to extend the maturity thereof or defer
the timing of any payments in respect thereof, or to forgive or cancel any
portion of such Indebtedness (other than pursuant to payments thereof), or to
reduce the interest rate or any fees in connection therewith, or to make any
covenants contained therein less restrictive or burdensome as to Borrower or
otherwise more favorable to Borrower, or (B) redeem, retire, defease, purchase
or otherwise acquire such Indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose and (iv) Borrower shall furnish to Agent all
notices or demands in connection with such Indebtedness either received by
Borrower or on its behalf after the receipt thereof, or sent by Borrower or on
its behalf, concurrently with the sending thereof, as the case may be;
(l) Indebtedness of Borrower in respect of Interest Rate Protection
Obligations incurred in the ordinary course of business;
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(m) unsecured Indebtedness of Borrower to any Subsidiaries arising
after the date hereof pursuant to loans by such Subsidiaries to Borrower,
PROVIDED, THAT,(i) such Indebtedness is subject to, and subordinate in right of
payment to, the right of Agent and Lenders to receive the prior indefeasible
payment and satisfaction in full of all of the Obligations on terms and
conditions acceptable to Agent,(ii) Agent shall have received, in form and
substance satisfactory to Agent, a subordination agreement providing for, INTER
ALIA, the terms of the subordination in right of payment of such Indebtedness of
Borrower to the prior indefeasible payment and satisfaction in full of all of
the Obligations, duly authorized, executed and delivered by such Subsidiaries
and Borrower,(iii) Borrower shall not, directly or indirectly make, or be
required to make, any payments in respect of such Indebtedness so long as any of
the Obligations are outstanding and unpaid and this Agreement has not been
terminated,(iv) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change any terms of such Indebtedness or any agreement, document or
instrument related thereto, or (B) redeem, retire, defease, purchase or
otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (v) Borrower shall furnish to Agent all notices,
demands or other materials in connection with such Indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be;
(n) unsecured Indebtedness of Subsidiaries of Borrower to Borrower
arising after the date hereof pursuant to loans by Borrower to such Subsidiaries
to the extent such loans by Borrower are permitted under Section 7.5 below,
PROVIDED, THAT, such Indebtedness shall not be evidenced by any promissory note
or other instrument, unless the original of such note or other instrument is
pledged and delivered to Agent (with such endorsement thereof as Agent may
require);
(o) unsecured Indebtedness of Subsidiaries of Borrower to other
Subsidiaries of Borrower arising after the date hereof pursuant to loans by such
Subsidiaries to such other Subsidiaries, PROVIDED, THAT, such Indebtedness shall
not be evidenced by any promissory note or other instrument, unless the original
of such note or other instrument is pledged and delivered to Agent (with such
endorsement thereof as Agent may require);
(p) Indebtedness of Borrower existing on the date hereof which is
described on Schedule 7.3 hereto; PROVIDED, THAT: (i)Borrower may only make
regularly scheduled payments of principal and interest as set forth on Schedule
7.3, except as otherwise permitted in Section 7.3(p)(ii) below,(ii) Borrower
shall not, directly or indirectly, (A) make any prepayments or other
nonmandatory payments in respect of such Indebtedness (except that Borrower may
make prepayments with proceeds from the loan by Guarantor to Borrower on the
date hereof with proceeds from the issuance of the Senior Notes in connection
with the purchase of certain Equipment currently financed pursuant to leases or
to buy certain long-term royalty agreements with third parties as set forth in
Section 6.3(e) hereof or to prepay certain other Indebtedness as provided in
Section 6.3(d) hereof), or (B) amend, modify, alter or change the terms of the
agreements with respect to such Indebtedness or otherwise, EXCEPT, THAT,
Borrower may, after prior written notice to Agent, amend, modify, alter or
change the terms thereof so as to extend the maturity thereof or defer the
timing of any
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payments in respect thereof, or to forgive or cancel any portion of such
Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or to make any covenants
contained therein less restrictive or burdensome as to Borrower or Guarantor, or
(C) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose (except as
otherwise permitted hereunder), and (iii) Borrower shall furnish to Agent all
notices, demands or other materials in connection with such Indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof or
sent by Borrower or on its behalf concurrently with the sending thereof, as the
case may be.
7.4 LIMITATION ON LIENS. Borrower and Guarantor shall not, and shall not
permit any Subsidiary of Borrower to, create or suffer to exist any mortgage,
pledge, security interest, lien or encumbrance of any nature whatsoever on any
of its or their assets or properties (including, without limitation, the
Collateral) or defect in title or restriction upon the use of their personal
properties, in each case, whether now owned or hereafter acquired, except:
(a) the security interests in and liens upon the Collateral in favor
of Agent and Lenders;
(b) the security interests in and liens upon the Collateral granted by
Borrower, Guarantor and certain of the Subsidiaries of Borrower to the USF&G
Bonding Companies pursuant to the USF&G Bonding Agreements (as in effect on the
date hereof) to secure the Indebtedness of Borrower, Guarantor and certain of
the Subsidiaries of Borrower to the USF&G Bonding Companies permitted under
Section 7.3(g) hereof, which security interests and liens are, in all respects,
subject and subordinate in priority to the security interests and liens of Agent
and Lenders as set forth in the Intercreditor Agreement, dated March 14, 1997,
by and among Agent, Lenders, Harvard, Van-American and the USF&G Bonding
Companies, as acknowledged and agreed to by Borrower, Guarantor and certain of
the Subsidiaries of Borrower (which Intercreditor Agreement is in full force and
effect as of the date hereof);
(c) tax, mechanics, materialmen, warehousemen and other like
statutory liens arising in the ordinary course of Borrower's or any of its
Subsidiaries' or Guarantor's respective businesses to the extent (i) such liens
secure Indebtedness which is not overdue or (ii) until foreclosure or similar
proceedings shall have been commenced, such liens secure Indebtedness relating
to claims or liabilities which are (A) fully insured and being defended at the
sole cost and expense and the sole risk of the insurer or (B) being contested in
good faith by appropriate proceedings diligently pursued and available to
Borrower or its Subsidiaries prior to the commencement of foreclosure or other
similar proceedings and are adequately escrowed for or reserved against in
Agent's judgment;
(d) purchase money mortgages or other purchase money liens or
security interests upon any specific fixed assets hereafter acquired or liens or
security interests existing on any such future fixed assets at the time of
acquisition thereof and including in any
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event any leases with respect to Capitalized Lease Obligations; PROVIDED, THAT:
(i) the aggregate amount of all Indebtedness secured by such purchase money
mortgages or other liens or security interests arising after the date hereof
shall not exceed $20,000,000 outstanding at any time, (ii) no such purchase
money lien or security interest (or lease with respect to Capitalized Lease
Obligations, as the case may be) covering specific future fixed assets or as
refinanced shall extend to or cover any other property other than the specific
fixed assets so acquired, or acquired subject to such lien or security interest
(or lease) and the proceeds thereof,(iii) such lien or security interest only
secures the obligation to pay the purchase price of such specific fixed assets
(or the Capitalized Lease Obligations, as the case may be),(iv) the principal
amount secured thereby shall not exceed one hundred (100%) percent of the cost
of the fixed assets so acquired (or leased), and (v) at the time of the granting
of such mortgage, lien or security interest, no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred and be continuing;
(e) liens and security interests of A.I. Credit Corp. (or another
lender acceptable to Agent providing loans or other financial accommodations to
Borrower to finance its insurance premiums) on the insurance policies maintained
by Borrower and unearned premiums with respect thereto, PROVIDED, THAT,
(i) Agent shall have received a list and description, in form and substance
satisfactory to Agent, of the insurance policies subject to such liens and
security interests and (ii) Agent shall have received evidence, in form and
substance satisfactory to Agent, that A.I. Credit (or such other lender) does
not have any security interest or other interest or claim in or to any assets of
Borrower other than claims to unearned or returned premiums payable as a result
of the cancellation of such policies;
(f) liens and security interests in favor of any of the Bonding
Companies (other than the USF&G Bonding Companies) arising after the date hereof
to secure Indebtedness permitted under Section 7.3(h) hereof if such security
interests and liens are granted to Frontier or to secure Indebtedness permitted
under Section 7.3(i) if such security interests and liens are granted to any of
the other Bonding Companies, PROVIDED, THAT, (i) such security interests and
liens are permitted under Sections 7.3(h) and 7.3(i) hereof, respectively and
(ii) such security interests and liens are, in all respects, subject and
subordinate to the security interests and liens of Agent and Lenders pursuant to
an intercreditor agreement by and between Agent and Frontier or such other of
the Bonding Companies, as the case may be, as acknowledged and agreed to by
Borrower, Guarantor and their Subsidiaries, which intercreditor agreement shall
be in form and substance satisfactory to Agent and duly authorized, executed and
delivered by Frontier or such other Bonding Companies, as the case may be, and
Borrower, Guarantor and their Subsidiaries; and
(g) the liens, encumbrances or security interests listed on Schedule
6.8 hereto or with respect to the Real Property as permitted under the
Mortgages, PROVIDED, THAT, such liens, encumbrances or security interests with
respect to the Real Property:(i) do not interfere with the use of the Real
Property or the ordinary conduct of the businesses of Borrower or its
Subsidiaries as presently conducted or proposed to be conducted thereon and (ii)
do not impair the value of the affected property.
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7.5 LOANS, INVESTMENTS, GUARANTEES, ETC. Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly, make any loans or advance
money or property to any Person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all
or a substantial part of the assets or property of any Person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly)
the Indebtedness, performance, obligations or dividends of any Person or agree
to do any of the foregoing, EXCEPT:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in Cash Equivalents which shall be pledged and
delivered to Agent upon Agent's request;
(c) equity investments of Borrower in its existing Subsidiaries and
any Subsidiaries formed or acquired after the date hereof to the extent
permitted under and in accordance with Section 7.2 hereof, PROVIDED, THAT,
(1) as of the date of such investment and after giving effect thereto, no Event
of Default, or act, condition or event which with notice or passage of time or
both would constitute an Event of Default shall exist or have occurred and
(2) in no event shall the total amount of any capital contributions or other
amounts paid by Borrower to or for the acquisition of any such Subsidiaries
formed or acquired after the date hereof exceed $500,000 in the aggregate and
(3) such Subsidiary has executed and delivered a guarantee of the Obligations in
favor of Agent and Lenders and such other agreements as are required under
Section 7.2 hereof;
(d) guarantees by any wholly-owned Subsidiary of Borrower of the
Obligations in favor of Agent and Lenders;
(e) loans by Subsidiaries of Borrower to Borrower or other
wholly-owned Subsidiaries of Borrower after the date hereof to the extent the
Indebtedness of Borrower to such Subsidiaries or of such Subsidiaries to other
Subsidiaries arising pursuant to such loans is permitted under Section 7.3
hereof;
(f) loans by Borrower to wholly-owned Subsidiaries of Borrower after
the date hereof, PROVIDED, THAT, (1) as of the date of each such loan and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default
shall exist or have occurred and (2) in no event shall the total amount of all
such loans exceed $250,000 in the aggregate;
(g) loans, payments, dividends, investments or distributions of any
kind by Borrower to Guarantor and Renco Group or by Guarantor to Renco Group to
the extent permitted under Section 7.7 hereof;
(h) the Senior Note Guarantee by Borrower, Eastern Resources, Inc.
and Industrial Fuels Minerals Company (as in effect on the date hereof) with
respect to the
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Indebtedness of Guarantor evidenced by the Senior Notes to the extent such
Indebtedness of Guarantor is permitted under Section 7.22 hereof, PROVIDED,
THAT, (i) Borrower and such Subsidiaries shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of the Senior Note Guarantee or any
of the other Senior Note Agreements, EXCEPT, THAT, Borrower may, after prior
written notice to Agent, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or to make any covenants contained therein less
restrictive or burdensome as to Borrower or Guarantor or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, except to the extent
Guarantor is permitted to repay the Indebtedness evidenced by the Senior Notes
under Section 7.3(m) hereof and (ii) Borrower shall furnish to Agent all
notices, demands or other materials in connection with such Indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be;
(i) the contingent Indebtedness of Borrower and its Subsidiaries to
the USF&G Bonding Companies to the extent permitted under Section 7.3(g) hereof;
(j) the contingent Indebtedness of Borrower and its Subsidiaries to
Frontier to the extent permitted under Section 7.3(h) hereof;
(k) the contingent Indebtedness of Borrower and its Subsidiaries to
any of the Bonding Companies (other than the USF&G Bonding Companies and
Frontier) to the extent permitted under Section 7.3(i) hereof;
(l) unsecured contingent obligations of Borrower pursuant to
performance, surety, worker's compensation, insurance and appeal bonds (other
than the Bonds) incurred in the ordinary course of business of Borrower
consistent with the current practices of Borrower as of the date hereof which
shall in no event exceed more than $5,000,000 at any time outstanding;
(m) secured purchase money financing provided by Borrower to Cardinal
River Resources, Inc. and No. 1 Contractors, Inc. in connection with the sale by
Borrower to them of certain parts Inventory and Equipment, PROVIDED, THAT,
(i) Agent shall have received not less than ten (10) Business Days prior written
notice of the sale and financing and such other information with respect thereto
as Agent may request,(ii) the aggregate amount of the deferred portion of the
purchase price shall not exceed $500,000,(iii) the value of such Inventory and
Equipment does not exceed $500,000 in the aggregate and (iv) all of the proceeds
of such sale are applied to the obligations of Borrower to Cardinal River
Resources, Inc. and No. 1 Contractors, Inc. for mine operating services provided
by them to Borrower in the ordinary course of business on commercially
reasonable prices and terms; and
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(n) guarantees by Borrower or any wholly-owned Subsidiary of Borrower
to the extent otherwise permitted hereunder.
7.6 TRANSACTIONS WITH AFFILIATES. Borrower shall not, and shall not
permit any Subsidiary of Borrower to, directly or indirectly, purchase, acquire
or lease any property from, or sell, transfer or lease any property to, any
shareholder, officer, director, agent, employee or other Affiliate of Borrower
or Guarantor (and in any event from or to Renco Group and any Affiliate of Renco
Group) EXCEPT (a) on prices and on terms no less favorable than would have been
obtained in an arm's length transaction with a non-affiliated person, and (b)
payments by Borrower to Guarantor or Renco Group, as the case may be, to the
extent permitted under Section 7.7 hereof.
7.7 RESTRICTED PAYMENTS.
(a) Except as set forth in Section 7.7(b) below, Borrower shall not,
directly or indirectly,(i) declare or pay any cash dividends or dividends
payable in property other than stock on account of any shares of any class of
Capital Stock of Borrower now or hereafter outstanding, or set apart any sums
for such purpose, or redeem, retire, defease, purchase or otherwise acquire any
shares of any class of Capital Stock of Borrower (or set aside or otherwise
deposit or invest any sums for such purpose) for any consideration other than
stock or apply or set apart any sums, or make any other distribution (by
reduction of capital or otherwise) in respect of any such shares or agree to do
any of the foregoing, (ii) pay to any shareholder, officer, director, agent,
employee or other Affiliate of Borrower (and in any event including Guarantor,
Renco Group and any Affiliate of Renco Group) any management, consulting or
other fees or any amount for any management assistance or services rendered by
such persons to Borrower or (iii) make any payments in respect of Indebtedness
owing to any shareholder, officer, director or other Affiliate of Borrower (and
in any event including Guarantor, Renco Group and any Affiliate of Renco Group).
(b) Notwithstanding anything to the contrary contained in Section 7.5
or Section 7.7(a) above:
(i) Borrower may pay a dividend to Guarantor on the date hereof
in the amount of $27,818,000 with the proceeds of the loan by Guarantor to
Borrower on the date hereof made by Guarantor to Borrower with the proceeds from
the issuance of the Senior Notes;
(ii) Borrower may make payments to Renco Group in respect of the
monthly management fee owed by Borrower to Renco Group under the terms of the
Management Agreement (as in effect on the date hereof); PROVIDED, THAT,(A) the
aggregate amount of all such payments by Borrower in any fiscal year shall not
exceed $1,200,000 and (B) as of the date of each such payment and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and be continuing,
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(iii) Borrower may pay dividends on account of any shares of
Capital Stock of Borrower now outstanding, make any loans or advance money or
property to Renco Group or Guarantor or make any payments in respect of any
Indebtedness owing by Borrower to Guarantor (whether arising pursuant to
payments made by Guarantor on behalf of Borrower or otherwise); PROVIDED, THAT,
in each case as to any of the foregoing, each of the following conditions is
satisfied as determined by Agent:
(A) no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred and be continuing at the time of or after giving effect
to any such payments,
(B) any dividends or other distributions shall be out of funds
legally available therefor,
(C) as of the date of any such payments and after giving effect
thereto, the aggregate amount of all such payments made subsequent to the date
hereof shall not exceed the amount equal to fifty (50%) percent of the
cumulative Consolidated Net Income of Borrower (or if cumulative Consolidated
Net Income shall be a loss, minus one hundred (100%) percent of such loss)
earned subsequent to the date hereof and prior to the date the payment occurs
(treating such period as a single accounting period),
(D) as of the date of such payment the daily average of the
Excess Availability for the immediately preceding thirty (30) consecutive day
period shall be not less than, and after giving effect to each such payment,
Excess Availability shall be not less than, $5,000,000,
(iv) Borrower may make regularly scheduled semi-annual payments of
interest on the loan made by Guarantor to Borrower on the date hereof with the
proceeds from the issuance of the Senior Notes to the extent permitted under
Section 7.3(j) hereof;
(v) Borrower may make payments to Renco Group to reimburse Renco
Group for (A) insurance premium payments previously paid or then payable by
Renco Group on behalf of Borrower or Guarantor and (B) payments in respect of
the Bonds;
(vi) Borrower may make payments to Renco Group on the date hereof
in an amount not to exceed $700,000 in respect of the outstanding and unpaid
management fees owing by Borrower to Renco Group as of the date hereof under the
Management Agreement with the proceeds received by Borrower from the loan by
Guarantor to Borrower on the date hereof with the proceeds received by Guarantor
from the issuance of the Senior Notes;
(vii) Borrower may make a payment to Renco Group on the date hereof
to repay all of the Indebtedness of Borrower to Renco Group arising pursuant to
the loan made by Renco Group to Borrower in the amount of $3,000,000 evidenced
by the Unsecured Promissory Note, dated October 31, 1997, issued by Borrower
payable to Renco Group, PROVIDED, THAT, (A) such payment shall satisfy all of
such Indebtedness, (B) such payment
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shall not exceed $3,000,000, and (C) such payment shall be made by Borrower with
the proceeds received by Borrower from the loan by Guarantor to Borrower on the
date hereof with the proceeds received by Guarantor from the issuance of the
Senior Notes;
(viii)Borrower may make a payment to Guarantor on the date hereof
to repay all of the Indebtedness of Borrower to Guarantor arising pursuant to
the loan made by Guarantor in the amount of $2,000,000 on March 14, 1997,
PROVIDED, THAT, (A) such payment shall satisfy all of such Indebtedness,
(B) such payment shall not exceed $2,100,000 and (C) such payment shall be made
with the proceeds received by Borrower from the loan by Guarantor on the date
hereof with the proceeds received by Guarantor from the issuance of the Senior
Notes;
(ix) Borrower may make payments to Guarantor or to Renco Group on
behalf of Guarantor, itself and its Subsidiaries pursuant to the tax sharing
arrangement between Guarantor, Borrower and its Subsidiaries and Renco Group (as
in effect on the date hereof); PROVIDED, THAT, (A) Borrower, Guarantor and their
Subsidiaries are included in the consolidated federal income tax return filed by
Renco Group as to which Borrower is making such payments, (B) the payments in
any year shall not exceed the federal income tax liability that Borrower would
have been liable for if Borrower had filed its tax returns on a stand-alone
basis except that Borrower will not have the benefit of any of its tax loss
carry forwards and any intercompany items shall, for tax liability purposes, be
recorded on a cash basis rather than on an accrual basis, (C) such payments
shall be made by Borrower no earlier than five (5) days prior to the date on
which Renco Group is required to make its payments to the Internal Revenue
Service, and (D) in the event that Borrower also joins with Renco Group in
filing any combined or consolidated (or similar) state or local income tax
returns, then the making of payments to Renco Group shall be allowed in a manner
as similar as possible to that provided herein with respect to federal income
taxes.
7.8 MAINTENANCE OF EXISTENCE. Each of Borrower and Guarantor shall, and
shall cause each Subsidiary of Borrower to, at all times preserve, renew and
keep in full, force and effect their corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
licenses, trademarks, tradenames, approvals, authorizations, leases, contracts
and Permits necessary to carry on the business as presently or proposed to be
conducted.
7.9 SALE AND LEASEBACKS. Each of Borrower and Guarantor shall not, and
shall not permit any Subsidiary of Borrower to, enter into any arrangement,
directly or indirectly, with any person whereby Borrower or Guarantor, as the
case may be, shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
7.10 CONSOLIDATED NET WORTH. Borrower shall, at all times, maintain a
Consolidated Net Worth of not less than the respective amounts set forth below
for the period indicated:
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Period Amount
------ ------
(a) From the date hereof through ($30,000,000)
and including October 30, 1998
(b) On and after October 31, 1998 ($35,000,000)
through and including October 30,
1999
(c) On and after October 31, 1999 ($42,000,000)
through and including October 30,
2000
(d) On and after October 31, 2000 ($43,600,000)
and all times thereafter
The parentheticals above indicate that the number is negative.
7.11 CAPITAL EXPENDITURES. Borrower shall not, and shall not permit any
Subsidiary to, directly or indirectly, make, whether through purchase, capital
leases or otherwise, Capital Expenditures on a non-cumulative basis (such that
expenditures not made in any one fiscal year may not be made in any following
fiscal year), in excess of $20,000,000, in the fiscal year of Borrower, EXCEPT
THAT (a) to the extent Borrower and its Subsidiaries make Capital Expenditures
in any one fiscal year in amounts less than the applicable amount set forth
herein, Borrower may make additional Capital Expenditures in the next
consecutive fiscal year in amounts up to the difference between the applicable
amount set forth herein and the Capital Expenditures actually made in the
immediately preceding fiscal year and (b) such limitation shall not apply to the
Capital Expenditures by Borrower of approximately $46,200,000 with the proceeds
from the loan received by Borrower on the date hereof from Guarantor with the
proceeds received by Guarantor from the issuance of the Senior Notes to purchase
certain Equipment currently financed pursuant to leases.
7.12 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Borrower
shall not, and shall not permit any Subsidiary to, directly or indirectly, (a)
merge into or with or consolidate with any other Person or permit any other
Person to merge into or with or consolidate with it, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to
any other Person or any of its properties or assets to any other Person (except
for (i) sales or other dispositions by Borrower or its Subsidiaries of assets in
the ordinary course of the business of Borrower or such Subsidiary which consist
of Equipment; PROVIDED, THAT, as to each and all such sales, (A) the total fair
market value of the assets sold in any one such transaction or series of related
transactions shall not exceed $500,000 and the total fair market value of the
assets sold in all such transactions shall not exceed $1,000,000 in any twelve
(12) consecutive month period, (B) Agent shall have received not less than ten
(10) Business Days prior written notice of such sale, which notice
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shall set forth in reasonable detail satisfactory to Agent, the parties to such
sale or other disposition, the assets to be sold or otherwise disposed of, the
purchase price and the manner of payment thereof and such other information with
respect thereto as Agent may reasonably request, (C) as of the date of such sale
or other disposition and after giving effect thereto, no Event of Default, or
act, condition or event which with notice or passage of time would constitute an
Event of Default shall exist or have occurred, and (D) upon Agent's request, any
and all proceeds payable or delivered to Borrower in respect of such sale or
other disposition shall be paid or delivered, or caused to be paid or delivered,
to Agent for application to the Obligations in such order and manner as Agent
may determine,(ii) sales of Inventory in the ordinary course of business, and
(iii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used or useful in the business of Borrower or its Subsidiaries), or (c) wind up,
liquidate or dissolve or (d) agree to do any of the foregoing.
7.13 COMPLIANCE WITH LAWS, REGULATIONS, ETC.
(a) Borrower and Guarantor shall, and shall cause each Subsidiary of
Borrower to, at all times comply in all material respects with all applicable
provisions of laws, rules, regulations, licenses, approvals, orders and other
Permits and duly observe all requirements, of any foreign, Federal, State or
local Governmental Authority, including, without limitation, ERISA, the Code,
the Occupational Safety and Health Act of 1970, as amended, the Surface Mining
Control and Reclamation Act of 1977, the Mine Safety Health Act of 1977, the
Fair Labor Standards Act of 1938, as amended, and the rules and regulations
thereunder and all statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health and safety,
including, without limitation, all of the Environmental Laws.
(b) Borrower and Guarantor shall, and shall cause each Subsidiary of
Borrower to, take prompt and appropriate action to respond to any material
noncompliance with any of the Environmental Laws and shall regularly report to
Agent with regard to such response as to any such noncompliance which has or
could have a Material Adverse Effect. If Borrower or Guarantor receive any
notice of (i) the happening of any event involving the use, spill, discharge or
cleanup of any Hazardous Material which has or would have a Material Adverse
Effect or (ii) any complaint, order, citation or notice with regard to air
emissions, water discharges, noise emissions or any other environmental, health
or safety matter affecting Borrower from any Person, including, but not limited
to, the United States Environmental Protection Agency or any state or local
environmental agency or authority, which has or could have a Material Adverse
Effect, then Borrower shall give within three (3) Business Days both oral and
written notice of same to Agent and Lenders. Without limiting the generality of
the foregoing, whenever there is noncompliance, or any condition which requires
any action by or on behalf of Borrower or Guarantor in order to avoid any
noncompliance, with any Environmental Law, in either case which has or could
have a Material Adverse Effect, Borrower shall, at the reasonable request of
Agent or any Lender and Borrower's expense: (A) cause an independent
environmental engineer reasonably acceptable to Agent to conduct such tests of
the site where Borrower's noncompliance or alleged noncompliance with
Environmental Laws has occurred as to such non-compliance and
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prepare and deliver to Agent and Lenders a report as to such non-compliance
setting forth the results of such tests, a proposed plan for responding to any
environmental problems described therein, and an estimate of the costs thereof
and (B) provide to Agent and Lenders a supplemental report of such engineer
whenever the scope of such non-compliance, or Borrower's response thereto or the
estimated costs thereof, shall change in any material respect.
7.14 PAYMENT OF TAXES AND CLAIMS. Borrower and Guarantor shall, and shall
cause each Subsidiary of Borrower to, duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against it or them
or its or their properties or assets, except for taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower or Guarantor prior to the date on which penalties attach
thereto. Borrower and Guarantor shall be liable for any tax or penalty imposed
upon any transaction under this Agreement or any of the other Financing
Agreements or giving rise to the Accounts or any other Collateral or which
Agent, or subject to Section 12.11 below any Lender may be required to withhold
or pay for any reason, and each of Borrower and Guarantor agrees to indemnify
and hold Agent, and any Lender harmless with respect thereto, and to repay to
Lender on demand the amount thereof, and until paid by Borrower such amount
shall be added and deemed part of the Loans, PROVIDED, THAT, nothing contained
herein shall be construed to require Borrower or Guarantor to pay any income tax
attributable to the income of Agent or any Lender from any amounts charged or
paid hereunder to Lender.
7.15 PROPERTIES IN GOOD CONDITION.
(a) Borrower shall keep its properties, and shall cause its
Subsidiaries to keep their properties, in good repair, working order and
condition (reasonable wear and tear excepted) and, from time to time, make and
cause its Subsidiaries to make all needful and proper repairs, renewals,
replacements, additions and improvements thereto, so that the business carried
on may be properly and advantageously conducted at all times in accordance with
prudent business management. The Inventory shall only be used in Borrower's
business and not for personal, family, household or farming use.
(b) All of the Inventory is and will be held for sale or lease, or to
be furnished in connection with the rendition of services, in the ordinary
course of Borrower's business, and is and will be fit for such purposes.
Borrower shall keep the Inventory in good and marketable condition, at its own
expense. Borrower will not acquire or accept any Inventory on consignment or
approval, except if such Inventory is at all times clearly identified on the
books and records of Borrower as Inventory held on consignment or approval and
such Inventory is separately reported to Agent and not included in the Inventory
of Borrower as reported to Agent in a manner satisfactory to Agent. Borrower
agrees that all Inventory will be mined and produced in accordance with all
applicable laws, including the Surface Mining Control and Reclamation Act of
1977, the Mine Safety and Health Act of 1977, the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations, and orders thereunder.
Borrower shall conduct a physical count of the Inventory at least once per
fiscal
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year, and at any time on or after an Event of Default and so long as the same is
continuing, at such other times as Agent reasonably requests, and in each case
shall promptly supply Agent and Lenders with a copy of such count accompanied by
a report of the Value of such Inventory. Borrower shall not, without Agent's
prior written consent, sell any Inventory on a bill-and-hold (except if reported
to Agent as bill-and-hold goods), guaranteed sale, sale and return, sale on
approval, or other repurchase or return basis.
7.16 INSURANCE. Borrower shall at all times maintain with financially
sound and reputable insurers, insurance with respect to the Collateral against
loss or damage of the kind and in the amounts customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated and Borrower shall maintain public liability insurance
against claims for personal injury, death or property damage occurring upon, in,
about or in connection with the use of any properties owned, occupied or
controlled by Borrower and occurring in connection with the use (or otherwise)
of any products manufactured or sold by Borrower, and workmen's compensation
insurance (except as to workmen's compensation insurance to the extent Borrower
is self-insured with respect thereto). Said policies of insurance shall be
satisfactory to Agent as to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Agent as proof of such insurance, and,
if Borrower fails to do so, Agent is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Agent of any cancellation or
reduction of coverage and that Agent may act as attorney for Borrower in
obtaining, and at any time on or after the occurrence of an Event of Default,
adjusting, settling, amending and canceling such insurance. Borrower shall
obtain noncontributory lender's loss payable endorsements to all insurance
policies in form and substance reasonably satisfactory to Agent specifying that
the proceeds of such insurance shall be payable to Agent as its interests may
appear and further specifying that Agent shall be paid regardless of any act or
omission by Borrower. At its option, Agent may, and upon the direction of the
Majority Lenders shall, apply any insurance proceeds received by Agent at any
time to the cost of replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and in such manner as Agent
may determine or as directed by the Majority Lenders or Agent may hold such
insurance proceeds as cash collateral for the Obligations as Agent may determine
or as directed by the Majority Lenders.
7.17 APPRAISALS. Upon the request of Agent or the Majority Lenders,
Borrower shall, at Borrower's expense, no more than once in any six (6) month
period, but at any time or times as Agent or the Majority Lenders may request on
or after an Event of Default, deliver, or cause to be delivered, to Agent and
Lenders written reports or appraisals of any or all of the Collateral in form,
scope and methodology, and by an appraiser acceptable to Agent. Such reports or
appraisals shall list all items and categories thereof, describing the condition
of same and setting forth the lower of cost (calculated on a first-in-first-out
basis) or fair market value, in such form as is satisfactory to Agent.
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7.18 COMPLIANCE WITH ERISA.
(a) Borrower and Guarantor shall not with respect to all "employee
pension benefit plans" maintained by Borrower, Guarantor or any of their ERISA
Affiliates: (i) terminate any of such employee pension benefit plans so as to
incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA,(ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower, Guarantor or such ERISA Affiliate to a
tax or penalty or other liability on prohibited transactions imposed under
Section 4975 of the Code or ERISA,(iii) fail to pay to any such employee pension
benefit plan any contribution which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such plan,(iv) allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect to
any such employee pension benefit plan,(v) allow or suffer to exist any
occurrence of a reportable event or any other event or condition which presents
a material risk of termination by the Pension Benefit Guaranty Corporation of
any such employee pension benefit plan that is a Single Employer Plan, which
termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multi-employer pension plan, except as set forth on Schedule 6.13 hereto.
(b) As used in this Section 7.18, the term "employee pension benefit
plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
7.19 ADDITIONAL BANK ACCOUNTS. Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly, open, establish or maintain any
deposit account, investment account or any other account with any bank or other
financial institution, other than the Blocked Accounts and the accounts set
forth in Schedule 6.15 hereto, except: (a) as to any new or additional Blocked
Accounts and other such new or additional accounts which contain any Collateral
or proceeds thereof, with the prior written consent of Agent and subject to such
conditions thereto as Agent may establish and (b) as to any accounts used by
Borrower or its Subsidiaries to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Agent.
7.20 NOTICE OF DEFAULT. Promptly upon becoming aware of the existence of
any condition or event which constitutes an Event of Default or any condition or
event which, with the passage of time or notice or both would constitute such an
Event of Default, pursuant to the provisions of this Agreement or the other
Financing Agreements, Borrower shall give Agent written notice thereof
specifying the nature of such condition or event.
7.21 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Borrower and Guarantor shall promptly furnish to Agent and
Lenders all such financial and other information as Agent or any Lender shall
reasonably request relating
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to the Collateral and the assets, businesses and operations of Borrower and
Guarantor, and notify the auditors and accountants of Borrower and Guarantor
that Agent and Lenders are authorized to obtain such information directly from
them. Without limiting the foregoing, Borrower and Guarantor shall furnish to
Agent and Lenders, in such detail as Agent or any Lender shall request, the
following:
(i) As soon as available, but in any event not later than ninety
(90) days after the close of each fiscal year, audited consolidated balance
sheet, consolidated statement of operations and consolidated statement of cash
flows for Guarantor and its Subsidiaries for such fiscal year, and the
accompanying notes thereto, and unaudited consolidating balance sheets,
statements of operations and statements of cash flows for Guarantor and its
Subsidiaries for such fiscal year, and the accompanying notes thereto, setting
forth in each case in comparative form figures for the previous fiscal year, all
in reasonable detail, fairly presenting the financial position and the results
of operations of Guarantor and its Subsidiaries as at the date thereof and for
the fiscal year then ended, and prepared in accordance with GAAP consistently
applied. Such audited consolidated statements of Guarantor and its Subsidiaries
shall be examined in accordance with generally accepted auditing standards by
and accompanied by a report thereon unqualified as to scope of independent
certified public accountants selected by Borrower and satisfactory to Lender.
(ii) As soon as available, but in any event not later than
forty-five (45) days after the close of each fiscal quarter other than the
fourth quarter of a fiscal year (which shall be delivered within ninety (90)
days), consolidated and consolidating unaudited balance sheets of Guarantor and
its Subsidiaries as at the end of such quarter, and consolidated and
consolidating unaudited statements of operations and statements of cash flow for
Guarantor and its Subsidiaries for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, together with the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and results of operation of Guarantor and its Subsidiaries as
at the date thereof and for such periods, prepared in accordance with GAAP
consistently applied (subject to normal year-end adjustments). Such statements
shall be certified to be correct by the chief financial officer of Guarantor,
subject to normal year-end adjustments.
(iii) As soon as available, but in any event not later than thirty
(30) days after the end of each month, consolidated and consolidating unaudited
balance sheets of Guarantor and its Subsidiaries as at the end of such month,
and consolidated and consolidating unaudited statements of operations for
Guarantor and its Subsidiaries for such month and for the period from the
beginning of the fiscal year to the end of such month, all in reasonable detail,
fairly presenting the financial position and results of operation of Guarantor
and its Subsidiaries as at the date thereof and for such periods, and prepared
in accordance with GAAP consistently applied (except that such interim financial
statements shall not include accompanying notes and shall be subject to normal
year-end adjustments). Such statements shall be certified to be correct by the
chief financial officer of Guarantor, subject to normal year-end adjustments.
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(iv) With each of the audited financial statements delivered
pursuant to Section 7.21(a)(i) above, a certificate of the independent certified
public accountants that examined such statements to the effect that they have
reviewed and are familiar with the Financing Agreements and that, in examining
such financial statements, they did not become aware of any fact or condition
which then constituted an Event of Default, except for those, if any, described
in reasonable detail in such certificate.
(v) Simultaneously with the delivery of each of the annual
audited and quarterly unaudited financial statements as set forth herein, Agent
and Lenders shall receive a certificate of the chief financial officer of
Guarantor (A) stating that, except as explained in reasonable detail in such
certificate, (1) all of the representations, warranties and covenants of
Borrower and Guarantor contained in this Agreement and the other Financing
Agreements are correct and complete as at the date of such certificate and (2)
no Event of Default then exists or existed during the period covered by such
financial statements, and (B) describing and analyzing in reasonable detail all
material trends, changes and developments in each and all financial statements.
If such certificate discloses that a representation or warranty is not correct
or complete, or that a covenant has not been complied with, or that an Event of
Default existed or exists, such certificate shall set forth what action Borrower
and Guarantor have taken or propose to take with respect thereto.
(vi) No sooner than ninety (90) days prior to, and no less than,
fifteen (15) days after the beginning of each fiscal year of Borrower, projected
balance sheets, statements of income and expense, and statements of cash flow
for Guarantor and its Subsidiaries as at the end of and for each month of such
fiscal year.
(vii) Promptly after delivery thereof, copies of any management
letters and reports by such independent certified public accountants to
Guarantor and its Subsidiaries.
(viii) Monthly accounts receivable agings and inventory reports
(including, without limitation, Inventory consisting of work-in-process) and
such schedules of Accounts and Inventory, together with any further financial
and other information regarding the Collateral, as Agent or any Lender may
request from time to time.
(b) Borrower and Guarantor shall promptly notify Agent in writing of
any loss, damage, investigation, action, suit, proceeding or claim relating to
the Collateral or which might result in any material adverse change in its
business, properties, assets, goodwill or condition, financial or otherwise.
(c) Borrower and Guarantor shall promptly notify Agent of any of the
following events: (i) any Material Contract of Borrower or any of its
Subsidiaries is terminated or any new Material Contract is entered into (in
which event such Borrower shall provide Agent with a copy of such Material
Contract); or (ii) any of the material terms (other than price) upon which
material suppliers of Borrower or any of its Subsidiaries do business with
Borrower or Subsidiary are changed or amended in any manner adverse to such
Borrower or Subsidiary in any material respect; or (iii) any notification of
violation of any law or
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regulation shall have been received by Borrower or any of its Subsidiaries from
any Governmental Authority the results of which are reasonably likely to have a
Material Adverse Effect.
(d) Borrower and Guarantor shall promptly provide Agent and Lenders
such budgets, forecasts, projections and other information respecting the
business operations and financial or other condition of Guarantor and its
Subsidiaries, as Agent or any Lender may, from time to time, reasonably request.
(e) Agent and Lenders are hereby authorized to deliver a copy of any
financial statement or any other information relating to the business,
operations or financial condition of Guarantor or its Subsidiaries, which may be
furnished to it hereunder or otherwise, to any regulatory body or agency or
other Governmental Authority having jurisdiction over Agent or Lenders or upon
notice to Borrower (to the extent permitted under applicable law), to any court
or to any other Person which shall, or shall have any right or obligation to,
succeed to all or any part of Agent or any Lender's interests in any of the
Loans, this Agreement, the other Financing Agreements or the Collateral,
including, without limitation, any assignee pursuant to Section 11.6 hereof or
any Participant who shall have agreed to treat such information as confidential
to the extent provided in Section 10.7 hereof.
(f) Each of Borrower and Guarantor hereby irrevocably authorizes and
directs all accountants, auditors or other third parties to deliver to Agent
upon Agent's reasonable request, at Borrower's expense, copies of the financial
statements, and other accounting records relating to Guarantor and its
Subsidiaries of any nature in their possession and to disclose to Agent and any
Lender any information they may have regarding the business affairs and
financial condition of Guarantor and its Subsidiaries.
7.22 SENIOR NOTE AGREEMENTS. With respect to the Indebtedness of Guarantor
to the holders of the Senior Notes evidenced by or arising under the Senior
Notes:(a) such Indebtedness shall not exceed the principal amount of
$150,000,000, as reduced by payments of principal in respect thereof, plus
interest thereon at the rate provided for in the Senior Notes as in effect on
the date hereof; (b) Guarantor shall only make regularly scheduled payments of
principal and interest or other mandatory payments in respect of such
Indebtedness in accordance with the terms of the Senior Notes as in effect on
the date of the issuance thereof, EXCEPT THAT Guarantor may prepay, in whole or
in part, the Senior Notes as in effect on the date of the issuance thereof, so
long as (i) Guarantor provides Agent with two (2) Business Days' prior written
notice of the intention of Guarantor to make any such prepayment, (ii) as of the
date of such prepayment and after giving effect thereto, no Obligations (other
than pursuant to Letter of Credit Accommodations and the costs, expenses and
other charges relating thereto) shall be outstanding, (iii) after giving effect
to such prepayment, there shall be Excess Availability of not less than
$10,000,000, and (iv) no Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and is continuing; (c) Guarantor and Borrower shall not,
directly or indirectly (i) amend, modify, alter or change the terms of the
Senior Note Agreements or any agreements, documents or
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instruments executed and/or delivered in connection therewith as in effect on
the original date of the execution and delivery thereof or (ii) redeem, retire,
defease, purchase or otherwise deposit or invest any sums for such purpose,
EXCEPT for (A) prepayments permitted under Section 7.22(b) above, (B) mandatory
repurchases of Senior Notes required in accordance with the terms of the Senior
Note Indenture (as in effect on the date hereof) in connection with (1) the
sales of certain assets of Borrower and its Subsidiaries (other than the
Collateral) and (2) changes in control of Borrower and (3) the exchange of the
Senior Notes consisting of the Series A Notes for the Series B Notes;(d)
Guarantor and Borrower shall furnish to Agent copies of all notices, demands or
other materials either received from the Senior Note Trustee or any of the
holders of the Senior Notes, or on its or their behalf, promptly after receipt
thereof, or sent by Guarantor or any of its Affiliates, or on its or their
behalf, to the Senior Note Trustee or any other representative of the holders of
the Senior Notes, concurrently with the sending thereof, as the case may be;
(e) such Indebtedness is, and shall at all times be, unsecured; and (f)
Guarantor shall use the proceeds from the issuance of the Senior Notes on the
date hereof to make a loan to Borrower in the amount of $150,000,000, to the
extent the Indebtedness of Borrower to Guarantor arising pursuant to such loan
is permitted under Section 7.3 hereof.
7.23 AFTER ACQUIRED REAL PROPERTY. If Borrower or any of its Subsidiaries
hereafter acquires any Real Property, fixtures or any other property that is of
the kind or nature described in the Mortgages and such Real Property, fixtures
or other property at any one location has a fair market value in an amount equal
to or greater than $500,000 (or if an Event of Default, or act, condition or
event which with notice or passage of time or both would constitute an event
which with notice or passage of time or both would constitute an Event of
Default exists, then regardless of the fair market value of such assets), or
without limiting any other rights of Agent or Lenders, or duties or obligations
of Borrower, upon Agent's request, Borrower shall, or shall cause its
Subsidiary, to execute and deliver to Agent a mortgage, deed of trust or deed to
secure debt, as Agent may determine, in form and substance substantially similar
to the Mortgages and as to any provisions relating to specific state laws
satisfactory to Agent and in form appropriate for recording in the real estate
records of the jurisdiction in which such Real Property or other property is
located granting to Agent a first lien, mortgage and security interest in such
Real Property (except as Borrower would otherwise be permitted to incur
hereunder or under the Mortgages or as otherwise consented to in writing by
Agent or as otherwise permitted herein) and such other agreements, documents and
instruments as Agent may require in connection therewith.
7.24 FURTHER ASSURANCES. Each of Borrower and Guarantor has executed or
will contemporaneously herewith execute and deliver to Agent such of the other
Financing Agreements to which it is a party and financing statements pursuant to
the UCC, in form and substance satisfactory to Agent. Each of Borrower and
Guarantor shall, at its expense, at any time or times duly execute and deliver,
or shall cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, collateral assignments, UCC financing statements or amendments or
continuations thereof, certificates of title with respect to motor vehicles and
applications for notation of the liens of Agent thereon, landlord's or
mortgagee's waivers of liens and
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consents to the exercise by Agent of all the rights and remedies hereunder,
under any of the other Financing Agreements or applicable law with respect to
the Collateral, and do or cause to be done such further acts as may be necessary
or proper in Agent's opinion to evidence, perfect, maintain and enforce the
security interest and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of the other
Financing Agreements. Where permitted by law, Borrower and Guarantor hereby
authorize Agent to execute and file one or more UCC financing statements signed
only by Agent. Upon the request of Agent, at any time and from time to time,
each of Borrower and Guarantor shall, at its cost and expense, do, make,
execute, deliver and record, register or file, financing statements, mortgages,
deeds of trust, deeds to secure debt, and other instruments, acts, pledges,
assignments and transfers (or cause the same to be done) and will deliver to
Agent such instruments evidencing items of Collateral as may be requested by
Agent.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default" hereunder:
(a) Borrower shall be in default in the payment of any of the
Obligations when due, which default shall continue for three (3) days; or
(b) Borrower, Guarantor or any Obligor shall fail to observe or
perform any covenants or agreements contained in this Agreement, the other
Financing Agreements or in any other document or instrument referred to herein
or therein other than as described in Section 8.1(a) above and such failure
shall continue for fifteen (15) days, PROVIDED, THAT, such fifteen (15) day
period shall not apply in the case of:(i) any failure to observe any such
covenant or agreement which is not capable of being cured at all or within such
fifteen (15) day period or which has been the subject of a prior failure within
a six (6) month period or (ii) an intentional breach by Borrower, Guarantor or
its or their management of any such covenant or agreement, or (iii)the failure
to observe or perform any of the covenants or agreements contained in Section
7.16 or Section 7.23 of this Agreement or any covenants or agreements covering
substantially the same matter as such sections in any of the other Financing
Agreements; or
(c) any present or future representation, warranty or statement of
fact when made by or on behalf of Borrower, Guarantor or any Obligor to Agent or
any Lender is false or misleading in any material respect; or
(d) a judgment is rendered against Borrower or any Obligor in excess
of $1,000,000 in any one case or in excess of $2,500,000 in the aggregate and
the same shall remain undischarged for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed except if it is a judgment
for which Borrower or such Obligor is
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fully insured and with respect to which the insurer has admitted in writing its
liability for the full amount thereof and so long as execution is at all times
effectively stayed; or
(e) Borrower or any Obligor shall be generally unable to pay its
debts as they mature, suspend or discontinue doing business for any reason,
become insolvent, call a meeting of creditors or have a creditors' committee
appointed, make a general assignment for the benefit of creditors, shall admit
in writing its inability to pay its debts as they become due or shall commence
any action or proceeding for the appointment of any trustee, receiver, custodian
or liquidator of Borrower or such Obligor or all or any part of their respective
properties or assets; or
(f) Borrower or any Obligor shall commence any action or proceeding
for relief under the Bankruptcy Code or any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
Bankruptcy Code or any other present or future statute, law or regulation or
shall take any corporate action to authorize any of such actions or proceedings;
or
(g) Borrower or any Obligor shall have commenced against it any
action or proceeding for relief under the Bankruptcy Code or any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the Bankruptcy Code or any other present or future statute, law or
regulation, or any action or proceeding for the appointment of any trustee,
receiver, custodian or liquidator of any of Borrower or such Obligor or all or
any part of their respective properties or assets, which is not dismissed within
forty-five (45) days of its commencement, or Borrower or such Obligor shall file
any answer admitting or not contesting the allegations of a petition filed
against it in any such proceeding or by any act or omission indicates its
consent to, acquiescence in or approval of, any such action or proceeding or if
the relief requested is granted sooner; or
(h) Borrower or any Obligor shall default in the payment of any
amounts at any time due on any Indebtedness for borrowed money, Capitalized
Lease Obligations or any contingent Indebtedness in connection with any
guarantee, letter of credit, indemnity or similar type of instrument at any time
owing to any Person other than Lender, in each case to the extent in excess of
$2,500,000, including, but not limited to, Indebtedness evidenced by or arising
under the Senior Notes or the other Senior Note Agreements or Indebtedness to
Van-American and the USF&G Bonding Companies or Indebtedness to Frontier or in
the performance of any other terms or covenants or any evidence of the same or
any agreement relating thereto or securing same (including, but not limited to,
any of the Senior Note Agreements, the USF&G Bonding Agreements or any
agreements with Frontier or any of the other Bonding Companies) and which
causes, or permits the holders of such Indebtedness to cause, such Indebtedness
to become due prior to its maturity, and which default continues for more than
the applicable cure period, if any, with respect thereto, but in no event more
than thirty (30) days after the occurrence of any such default; or
(i) there is any change in the ultimate control of Borrower or
Guarantor or the majority ownership of Borrower or Guarantor; or
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(j) the occurrence of any default or event of default under any of
the other Financing Agreements.
8.2 REMEDIES.
(a) Without limiting Agent's or any Lender's rights to demand payment
sooner as provided in this Agreement, upon or at any time after the occurrence
or existence of any one or more of such Events of Default, upon termination of
this Agreement or the other Financing Agreements, or if this Agreement and the
other Financing Agreements are not renewed, in addition to any other rights
Agent or any Lender may have under the Financing Agreements or otherwise:
(i) subject to Section 8.2(b) below, Agent may, and upon the
direction of the Majority Lenders shall, declare the Commitments of each Lender
terminated, whereupon the Commitment of each Lender will terminate immediately
(such that no more Loans shall be made or Letter of Credit Accommodations
provided hereunder), without presentment for payment, demand, notice of dishonor
or notice of protest or any other or further notice, all of which are hereby
expressly waived by Borrower; or
(ii) subject to Section 8.2(b) below, Agent may, and upon the
direction of the Majority Lenders shall, declare any or all of the Obligations
to be immediately due and payable, together with interest at the highest rate of
interest hereunder until fully and indefeasibly paid, without presentment for
payment, demand, notice of dishonor or protest or any or other further notice,
all of which are hereby expressly waived by Borrower (PROVIDED, THAT, upon the
occurrence of any Events of Default described in Sections 8.1(f) or 8.1(g), all
Obligations shall automatically become immediately due and payable); and
(iii) each Participant, to the fullest extent permitted by
applicable law, shall have the right to (A) set off against the Obligations any
and all deposits (whether general or special, time or demand, provisional or
final), credits, balances, accounts, monies or other assets which are the
property of Borrower and held by such Participant or owed by such Participant
to Borrower and (B) remit the same to Agent for application to the Obligations;
(iv) without further notice to Borrower, Agent and any Lender may
appropriate, set off and apply to the payment of any or all of the Obligations,
any or all Collateral, in such manner as Agent shall determine, enforce payment
of any Collateral, settle, compromise or release in whole or in part, any
amounts owing on the Collateral, make allowances and adjustments with respect
thereto, issue credits in Agent's or Borrower's name, sell, assign and deliver
the Collateral (or any part thereof), at public or private sale, at broker's
board, for cash, upon credit or otherwise, at Agent's option and discretion, and
Agent may bid or become purchaser at any such sale, if public, free from any
right of redemption which is hereby expressly waived;
(v) without limiting the generality of the foregoing, Agent and
Lenders are hereby authorized at any time and from time to time, to set off and
apply any and all
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deposits (general or special, time or demand, provisional or final) at any time
held and other Indebtedness at any time owing by Agent or any Lender to or for
the credit or the account of Borrower against any and all of the Obligations,
whether or not then due and payable;
(vi) Agent shall have the right, without notice to Borrower
(except as otherwise expressly provided herein), at any time and from time to
time in its discretion, with or without judicial process or the aid or
assistance of others and without cost to Agent or Lenders (A) to enter upon any
premises on or in which any of the Inventory may be located and, without
resistance or interference by Borrower, take possession of the Inventory, (B) to
complete processing, manufacturing and repair of all or any portion of the
Inventory, (C) to sell, foreclose or otherwise dispose of any part or all of the
Inventory on or in any premises of Borrower or premises of any other party,
(D) to require Borrower, at its expense, to assemble and make available to Agent
any part or all of the Inventory at any reasonable place and time designated by
Agent, and (E) to remove any or all of the Inventory from any premises on or in
which the same may be located, for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose.
(b) Notwithstanding anything to the contrary in this Section 8.2, but
subject to Section 12.5 and the other provisions of Section 12 hereof, so long
as the Commitment Percentage of Congress shall be fifty (50%) percent, in the
event Agent or the Majority Lenders do not exercise the rights set forth in
Section 8.2(a)(i) or Section 8.2(a)(ii) above within forty-five (45) days after
the date of any written notice from CIT to Agent of an Event of Default (which
Event of Default is not thereafter waived or cured), CIT may direct, and upon
such direction Agent shall, exercise the remedies set forth in Section 8.2(a)(i)
or 8.2(a)(ii) as CIT may specify.
(c) Agent and Lenders shall have all of the rights and remedies of a
secured party under the UCC or applicable law of any State in which any
Collateral may be situated, in addition to all of the rights and remedies set
forth in this Agreement and the other Financing Agreements, and in any
instrument or document referred to herein or therein, and/or under any other
applicable law relating to this Agreement, the other Financing Agreements, the
Obligations or the Collateral.
(d) Each of Borrower and Guarantor agrees that the giving of ten (10)
days notice to Borrower by Agent at Borrower's address set forth below,
designating the place and time of any public sale or of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be deemed to be reasonable notice thereof and Borrower waives any other
notice with respect thereto.
(e) The Net Cash Proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by Agent to the payment of the
Obligations in such order as Agent may elect, and Borrower shall remain liable
to Agent and Lenders for any deficiency. Without limiting the generality of the
foregoing, if Agent or any Lender enters into any credit transaction, directly
or indirectly, in connection with the disposition of any Collateral, it shall
have the option, at any time, in its discretion, to reduce the Obligations by
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the principal amount of such credit transaction or to defer the reduction
thereof until actual receipt by Agent or such Lender of cash or other
immediately available funds in connection therewith.
(f) In the event Agent institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy or otherwise,
Borrower and Guarantor hereby irrevocably waive (i) the posting of any bond,
surety or security with respect thereto which might otherwise be required,(ii)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral, and (iii) any requirement that Agent retain possession
and not dispose of any Collateral until after trial or final judgment.
(g) Agent may, at its option, cure any default by Borrower under any
agreement with any Person, which constitutes, or with notice or passage of time
or both would constitute, an Event of Default hereunder or under any of the
other Financing Agreements, or pay or bond on appeal any judgment entered
against Borrower (irrespective of the amount of said judgment or the time
elapsed since entry thereof), and charge Borrower's account(s) therefor, such
amounts to be repayable by Borrower on demand, together with interest thereon at
the highest rate of interest payable hereunder; PROVIDED, HOWEVER, Agent shall
be under no obligation to effect such cure, payment or bonding and shall not, by
making any payment for Borrower's account(s), be deemed to have assumed any
obligation or liability of Borrower.
(h) The enumeration of the foregoing rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies Agent or any Lender may
have under the UCC or other applicable law. Agent shall have the right to
determine which rights and remedies, and in which order any of the same, are to
be exercised, and to determine which Collateral is to be proceeded against and
in which order, and the exercise of any right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative.
(i) No act, failure or delay by Agent or any Lender shall constitute
a waiver of any of the rights and remedies of Agent and Lenders. No single or
partial waiver by Agent or Lenders of any provision of this Agreement or any of
the other Financing Agreements, or breach or default thereunder, or of any right
or remedy which Agent and Lenders may have shall operate as a waiver of any
other provision, breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion.
(j) Borrower waives presentment, notice of dishonor, protest and
notice of protest of all instruments included in or evidencing any of the
Obligations or the Collateral and any and all notices or demands whatsoever
(except as expressly provided herein). Agent may, at all times, proceed
directly against Borrower to enforce payment of the Obligations and shall not be
required to take any action of any kind to preserve, collect or protect any
rights in the Collateral.
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SECTION 9. COLLECTION AND ADMINISTRATION
9.1 COLLECTIONS; MANAGEMENT OF COLLATERAL.
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Agent may reasonably specify, with such banks as are reasonably
acceptable to Agent into which Borrower shall promptly deposit and direct its
Account Debtors to directly remit all payments on Accounts and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner. The banks
at which the Blocked Accounts are established shall enter into an agreement, in
form and substance reasonably satisfactory to Agent, providing that all items
received or deposited in the Blocked Accounts are the property of Agent and
Lenders according to their interests hereunder, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Agent as Agent may from time to time designate
for such purpose ("Payment Account"). Borrower agrees that all payments made to
such Blocked Accounts or other funds received and collected by Agent, whether on
the Accounts or as proceeds of Inventory, Equipment or other Collateral or
otherwise shall be the property of Agent and Lenders according to their
interests hereunder.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Agent in the Payment Account (the
"Collection Period"). For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Agent in the
Payment Account, if such payments are received within sufficient time (in
accordance with Agent's usual and customary practices as in effect from time to
time) to credit Borrower's loan account on such day, and if not, then on the
next Business Day. The economic benefit of the Collection Period shall be for
Agent's sole account. To the extent Agent may hold cash collateral to secure
all of the Obligations on terms and conditions determined by Agent, so long as
no Event of Default shall exist or have occurred and be continuing, Borrower
shall receive a credit to its loan account maintained by Agent on the funds held
by Lender at a rate equal to three (3%) percent per annum less than the Prime
Rate. Such credit shall be applied to the loan account of Borrower as of the
first day of each month.
(c) Borrower and all of its subsidiaries, shareholders, directors,
employees, agents and other Affiliates shall, acting as trustee for Agent,
receive, as the property of Agent and Lenders according to their interests
hereunder, any monies, checks, notes, drafts or any other payment relating to
and/or proceeds of Accounts or other Collateral which come into their possession
or under their control and immediately upon receipt thereof, shall deposit or
cause the same to be deposited in the Blocked Accounts, or remit the same or
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cause the same to be remitted, in kind, to Agent. In no event shall the same be
commingled with Borrower's own funds. Borrower agrees to reimburse Agent and
Lenders on demand for any amounts owed or paid to any bank at which a Blocked
Account is established or any other bank or person involved in the transfer of
funds to or from the Blocked Accounts arising out of Agent's or Lenders'
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Agent or Lenders for such amounts pursuant to this Section
9.1 shall survive the termination or non-renewal of this Agreement.
9.2 PAYMENTS.
(a) All Obligations shall be payable to the Payment Account as
designated under Section 9.1 or such other place as Agent may designate from
time to time. The Obligations shall be payable upon the effective date of
termination or non-renewal or maturity of the Credit Facility, or earlier upon
an Event of Default, or otherwise as provided elsewhere herein or in the other
Financing Agreements. Agent may apply payments received or collected from
Borrower or for the account of Borrower (including, without limitation, the
monetary proceeds of collections or of realization upon any Collateral) to such
of the Obligations in respect of the Loans, whether or not then due, and to such
other Obligations then due, in each case in such order and manner as Agent
determines. Agent shall have the continuing and exclusive right to apply and
reverse and reapply any and all such proceeds and payments to any portion of the
Obligations. Upon the request of Agent, Borrower shall execute and deliver to
Agent one or more promissory notes, in form and substance satisfactory to Agent,
to evidence further the Loans, or any portion thereof.
(b) Except as otherwise provided in this Section 9.2(b), aggregate
principal and interest payments shall be apportioned among all outstanding Loans
to which such payments relate and payments of the fees required to be paid by
Borrower to Agent for the account of the Lenders hereunder shall, as applicable,
be apportioned ratably among the Lenders, in each case according to their Pro
Rata Shares. All payments shall be remitted to Agent. Agent shall promptly
distribute to each Lender at its primary address set forth on the appropriate
signature page hereof, or at such other address as such Lender may designate in
writing to Agent, such funds as it may be entitled to receive. The foregoing
apportionment of payments is solely for the purpose of determining the
obligations of Borrower hereunder and, notwithstanding such apportionment, any
Lender may on its books and records allocate payments received by it in a manner
different from that contemplated hereby. No such different allocation shall
alter the rights and obligations of Borrower or Guarantor under this Agreement
determined in accordance with the apportionments contemplated by this Section
9.2(b).
(c) If after receipt of any payment of, or proceeds applied to the
payment of, all or any part of the Obligations, Agent or any Lender is for any
reason required to surrender such payment or proceeds to any Person, because
such payment or proceeds is invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, or a diversion of trust
funds, or for any other reason, then the Obligations or any part thereof
intended to be satisfied shall be revived and continue and this Agreement shall
continue in
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full force as if such payment or proceeds had not been received by Agent or such
Lender and Borrower shall be liable to pay to Agent or such Lender, and hereby
does indemnify Agent and Lenders and hold them harmless for the amount of such
payment or proceeds surrendered. The provisions of this Section 9.2(c) shall be
and remain effective notwithstanding any contrary action which may have been
taken by Agent or any Lender in reliance upon such payment or proceeds, and any
such contrary action so taken shall be without prejudice to the rights of Agent
and Lenders under this Agreement and shall be deemed to have been conditioned
upon such payment or proceeds having become final and irrevocable. The
provisions of this Section 9.2(c) shall survive the termination of this
Agreement and the other Financing Agreements.
(d) At Agent's option, all principal, interest, fees, commissions,
costs, expenses, or other charges hereunder, under the other Financing
Agreements or in connection herewith or therewith, and any and all Loans, may be
charged directly to any account(s) of Borrower maintained by Agent.
(e) Borrower shall make all payments in respect of the Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholdings, restrictions or conditions of any kind or nature
whatsoever.
9.3 SHARING OF PAYMENTS, ETC.
(a) Borrower agrees that, in addition to (and without limitation of)
any right of setoff, banker's lien or counterclaim Agent or any Lender may
otherwise have, each Lender shall be entitled, at its option, to offset balances
held by it for the account of Borrower at any of its offices, in dollars or in
any other currency, against any principal of or interest on any Loans owed to
such Lender or any other amount payable to such Lender hereunder, that is not
paid when due (regardless of whether such balances are then due to Borrower), in
which case it shall promptly notify Borrower and Agent thereof; PROVIDED, THAT,
such Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender (including Agent) shall obtain from Borrower
payment of any principal of or interest on any Loan owing to it or payment of
any other amount under this Agreement or any other Financing Agreement through
the exercise of any right of setoff, banker's lien or counterclaim or similar
right or otherwise (other than from Agent as provided herein), and, as a result
of such payment, such Lender shall have received more of its Pro Rata Share of
the principal of or interest on the Loans or such other amounts then due
hereunder by Borrower to such Lender than the percentage thereof received by any
other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the
amount of such excess and simultaneously purchase from such other Lenders a
participation in the Loans or such other amounts, respectively, owing to such
other Lenders (or in interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall be equitable, to the
end that all Lenders shall share the benefit of such excess payment (net of any
expenses that may be incurred by such Lender in obtaining or preserving such
excess
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payment) in accordance with their respective Pro Rata Shares. Amounts received
by Agent under this Section 9.3 shall be treated as payments received from
Borrower under Section 9.2 hereof. To such end all Lenders shall make
appropriate adjustments among themselves (by the resale of participation sold or
otherwise) if such payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender so purchasing such a
participation (or direct interest) may exercise, in a manner consistent with
this Section 9.3, all rights of setoff, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans or other amounts (as the case may be) owing to such
Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 9.3 applies, such Lender shall, to the extent practicable,
assign such rights to Agent for the benefit of Lenders and, in any event,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of Lenders entitled under this Section 9.3 to share in the benefits
of any recovery on such secured claim.
9.4 BORROWER'S LOAN ACCOUNT. Agent shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral,(b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Agent's customary practices as in effect from time to
time. All Collateral or other collateral security held by or granted to Agent
or Lenders by Borrower or any third persons shall be security for the payment
and performance of any and all Obligations of Borrower to Agent and Lenders
(including, but not limited to, the Loans), notwithstanding the maintenance of
separate accounts for Borrower or third persons or the existence of any notes.
9.5 STATEMENTS. Agent shall render to Borrower each month a statement
setting forth the balance in Borrower's loan account(s) maintained by Agent for
Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Agent but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Agent receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Agent.
Until such time as Agent shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing by Borrower to Agent and Lenders.
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9.6 RIGHT OF INSPECTION; ACCESS. Agent, Lenders and their representatives
shall, at all reasonable times and upon reasonable prior written notice prior to
an Event of Default and at any time and without notice at any time on or after
an Event of Default, have free access to and right of inspection of the
Collateral and have full access to and the right to examine and make copies of
the books and records of Borrower to confirm and verify all Accounts, to perform
general audits and to do whatever else Agent or any Lender deems necessary to
protect the interests of Agent and Lenders. Agent may at any time remove from
the premises of Borrower or require Borrower or any accountants and auditors
employed by Borrower to deliver any books and records and Agent and Lenders may,
without cost or expense to any of them, use such of Borrower's personnel,
supplies, computer equipment and space at its places of business as may be
reasonably necessary for the handling of collections.
9.7 ACCOUNTS DOCUMENTATION. Borrower shall maintain its shipping forms,
invoices and other related documents in a form reasonably satisfactory to Agent
and Borrower shall maintain its books, records and accounts in accordance with
GAAP consistently applied. Borrower shall keep and maintain, at its cost and
expense, satisfactory and complete books and records of all Accounts, all
payments received or credits granted thereon, and all other dealings therewith.
At such times as Agent may reasonably request, Borrower shall deliver to Agent,
all original documents evidencing the sale and delivery of goods or the
performance of services which created any Accounts, including, but not limited
to, all contracts, orders, invoices, bills of lading, warehouse receipts,
delivery tickets and shipping receipts, together with schedules describing the
Accounts and/or written confirmatory assignments to Agent of each Account, in
form and substance satisfactory to Agent and duly executed by Borrower, together
with such other information as Agent may request. In no event shall the making
or the failure to make or the content of any schedule or assignment or
Borrower's failure to comply with the provisions hereof be deemed or construed
as a waiver, limitation or modification of the security interest in, lien upon
and assignment of the Collateral or the representations, warranties or covenants
under this Agreement or the other Financing Agreements. Any documents,
schedules, invoices or other papers delivered to Agent or any Lender, pursuant
to this Section or otherwise, may be destroyed or otherwise disposed of by it
one (1) year after the same are delivered, unless Borrower make written request
therefor and pay all expenses attendant to their return, in which event Agent or
such Lender shall return same when its actual or anticipated need therefor has
ceased.
9.8 SPECIFIC POWERS. Borrower hereby constitutes Agent and its designees,
as Borrower's attorney-in-fact, with power of substitution, at the cost and
expense of Borrower, to exercise at any time all or any of the following powers
which appointment, being coupled with an interest, shall be irrevocable until
all Obligations have been indefeasibly paid in full: (a) to receive, take,
endorse, assign, deliver, accept and deposit, in the name of Agent or Borrower,
any and all checks, notes, drafts, remittances and other instruments and
documents or chattel paper relating to the Collateral; (b) on or after the
occurrence of an Event of Default, or an act, condition or event which with
notice, passage of time or both would constitute an Event of Default, to
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as Agent
designates; (c) to transmit to Account Debtors notice of Agent's interest
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therein and to request from such Account Debtors at any time, in the name of
Agent or Borrower or that of Agent's designee, information concerning the
Collateral and the amounts owing thereon; (d) on or after the occurrence of an
Event of Default, or an act, condition or event which with notice, passage of
time or both would constitute an Event of Default, to notify Account Debtors to
make payment directly to Agent; (e) on or after the occurrence of an Event of
Default, or an act, condition or event which with notice, passage of time or
both would constitute an Event of Default, to take or bring, in the name of
Agent or Borrower, all steps, actions, suits or proceedings deemed by Agent
necessary or desirable to effect collection of the Collateral; and (f) to
execute in Borrower's name and on its behalf any UCC financing statements or
amendments thereto. Borrower hereby releases Agent and its officers, employees
and designees, from any liability arising from any act or acts under this
Agreement or in furtherance thereof, whether of omission or commission, and
whether based upon any error of judgment or mistake of law or fact, except for
acts of gross negligence or wilful misconduct of Agent as determined pursuant to
a final non-appealable order of a court of competent jurisdiction.
SECTION 10. EFFECTIVE DATE; TERMINATION; COSTS
10.1 TERM.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date hereof and shall continue in full force and effect for
a term ending on the date three (3) years from the date hereof (the "Renewal
Date") and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof; PROVIDED, THAT, Agent, any Lender (as to such Lender), or
Borrower may terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the Renewal Date in any
subsequent year by giving to the other parties hereto at least sixty (60) days
prior written notice, PROVIDED, THAT, in the event any one Lender shall send a
notice of its intention to terminate this Agreement as to such Lender, any of
the other Lenders may upon receipt of such notice purchase the Commitment of the
Lender sending such notice of termination. Upon the exercise of the option to
purchase such Commitment by any Lender and upon payment in full to the
terminating Lender of the amounts owing to it by the purchasing Lender in
accordance with Section 11.6, the Lender sending such notice of termination
shall assign its rights and obligations under this Agreement and the other
Financing Agreements to the Lender exercising such option in accordance with
Section 11.6 hereof. This Agreement and all other Financing Agreements must be
terminated simultaneously.
(b) In addition, Agent may, and upon the direction of the Majority
Lenders shall, terminate this Agreement and the other Financing Agreements, or
terminate only the provisions of this Agreement as to future Loans and Letter of
Credit Accommodations, immediately at any time upon the occurrence of an Event
of Default or an act, condition or event which with notice or passage of time or
both would constitute an Event of Default.
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(c) Upon the effective date of termination or nonrenewal of the
Financing Agreements, Borrower shall pay to Agent for the account of Lenders in
full, all outstanding and unpaid Obligations (including, but not limited to, the
Loans and all interest, fees (including the early termination fees provided
herein, if applicable), charges, expenses and other amounts provided for
hereunder, under the other Financing Agreements or otherwise) and shall furnish
cash collateral to Agent in such amounts as Agent determines are reasonably
necessary to secure Agent and Lenders from loss, cost, damage or expense,
including reasonable attorneys' fees and legal expenses, in connection with any
contingent Obligations, including Letter of Credit Accommodations and any checks
or other payments provisionally credited to the Obligations and/or as to which
Agent or any Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Agent, as Agent may, in
its discretion, designate in writing to Borrower for such purpose. Interest at
the Interest Rate shall be due until and including the next Business Day, if the
amounts so paid by Borrower to the bank account designated by Agent are received
in such bank account later than 12:00 noon, New York, New York time.
(d) No termination of the Financing Agreements or the Commitments
shall relieve or discharge either of Borrower or Guarantor of its duties,
obligations and covenants under the Financing Agreements until all Obligations
have been fully indefeasibly discharged and paid, and the continuing security
interests of Agent in the Collateral shall remain in effect until all such
Obligations have been fully and indefeasibly discharged and paid.
(e) If this Agreement terminates upon the occurrence of an Event of
Default or at the request of Borrower prior to the Renewal Date, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of the lost
profits of Agent and Lenders as a result thereof, Borrower hereby agrees to pay
to Agent for the ratable benefit of Lenders, upon the effective date of such
termination, an early termination fee in an amount equal to:
(i) three (3%) percent of the Maximum Credit, if such
termination is effective on or prior to the first
anniversary of this Agreement; or
(ii) two (2%) percent of the Maximum Credit, if such termination
is effective after the first anniversary of this Agreement
but on or prior to the second anniversary of this Agreement;
or
(iii) one (1%) percent of the Maximum Credit, if such termination
is effective after the second anniversary of this Agreement
but prior to the third anniversary of this Agreement.
Such early termination fee shall be presumed to be the amount of damages
sustained by said early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The early termination fee provided
for in this Section 10.1 shall be deemed included in the Obligations.
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10.2 EXPENSES AND ADDITIONAL FEES.
(a) Borrower shall pay to Agent on demand all reasonable costs and
expenses that Agent or any Lender may pay or incur in connection with the
negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Financing Agreements, including,
without limitation: (i) reasonable attorneys' and paralegals' fees and
disbursements of counsel to Agent, Lenders and any Participant (including
allocated costs of in-house counsel);(ii) costs and expenses (including
reasonable attorneys' and paralegals' fees and disbursements, and allocated
costs of in-house counsel) for any amendment, supplement, waiver, consent, or
subsequent closing in connection with the Financing Agreements and the
transactions contemplated thereby;(iii) costs and expenses of lien and title
searches and title insurance;(iv) taxes, fees and other charges for recording
any agreements or documents with the Office of Patents and Trademarks, the
Copyright Office or any other governmental authority, and the filing of UCC
financing statements and continuations, and other actions to perfect, protect,
and continue the security interests and liens of Lender in the Collateral;(v)
sums paid or incurred to pay any amount or take any action required of Borrower
under the Financing Agreements that Borrower fails to pay or take; (vi) costs of
appraisals, environmental audits, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals for
inspections of the Collateral and Borrower's operations by Agent, any Lender,
Participants or their agents, plus a charge of $600 per person per day for the
field examiners of Agent, any Lender and any Participant;(vii) costs and
expenses of forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining payment accounts and lock boxes;(viii)
costs and expenses of preserving and protecting the Collateral; and (ix) costs
and expenses (including reasonable attorneys' and paralegals' fees and
disbursements and allocated costs of in-house counsel) paid or incurred to
obtain payment of the Obligations, enforce the security interests and liens of
Agent, sell or otherwise realize upon the Collateral, and otherwise enforce the
provisions of this Agreement and the other Financing Agreements, or to defend
any claims made or threatened against Agent or any Lender arising out of the
transactions contemplated hereby (including, without limitation, preparations
for and consultations concerning any such matters). The foregoing shall not be
construed to limit any other provisions of the Financing Agreements regarding
costs and expenses to be paid by Borrower.
(b) Borrower shall pay to Agent all of its customary charges and fees
in connection with (i) any payment, claim or refund relating to the dishonor of
any checks or other items of Borrower or Account Debtors, and (ii) wire
transfers to Borrower.
(c) All sums provided for in this Section 10.2 shall be part of the
Obligations, shall be payable on demand, and shall accrue interest after demand
for payment thereof at the applicable rate of interest then payable hereunder.
Agent is hereby irrevocably authorized to charge any amounts payable hereunder
directly to any of the account(s) maintained by Agent with respect to Borrower.
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10.3 SURVIVAL OF AGREEMENT. All agreements, representations and warranties
contained herein or made in writing by the parties hereto in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement, the other Financing Agreements and the consummation of the
transactions contemplated herein or therein regardless of any investigation made
by or on behalf of Agent or any Lender.
10.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise, and no delay
in exercising on the part of Agent or any Lender any right, power or privilege
under this Agreement or under any of the other Financing Agreements or other
documents referred to herein or therein shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or thereunder preclude any other or further exercise thereof or the exercise of
any other right, power and privilege. No notice to or demand on Borrower or
Guarantor not required hereunder or any of the other Financing Agreements shall
entitle Borrower or Guarantor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Agent or
any Lender to any other or further action in any circumstances without notice or
demand. The rights and remedies of Agent and Lenders under this Agreement, the
other Financing Agreements and any other present and future agreements between
Agent and/or Lenders and Borrower or Agent and/or Lenders and Guarantor are
cumulative and not exclusive of any rights or remedies provided by law or under
any of the Financing Agreements or such other agreements and all such rights and
remedies may be exercised successively or concurrently.
10.5 NOTICES. All notices, requests and demands hereunder shall be in
writing and (a) made to the applicable party at its address set forth on the
signature page hereof, or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if delivered in person, immediately upon delivery; if
by telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next Business Day, one (1) Business Day after
sending; and if by certified mail, return receipt requested, ten (10) days after
mailing.
10.6 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represent the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior and contemporaneous agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, offers and contracts concerning the subject matter hereof and
thereof, whether oral or written.
10.7 CONFIDENTIALITY.
(a) Agent and each Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant
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to this Agreement which is clearly and conspicuously marked as confidential at
the time such information is furnished by Borrower to Agent and Lenders,
PROVIDED, THAT, nothing contained herein shall limit the disclosure of any such
information: (i) to the extent required by statute, rule, regulation, subpoena
or court order,(ii) to bank examiners and other regulators, auditors and/or
accountants,(iii) in connection with any litigation to which Agent or any Lender
is a party,(iv) to any Affiliate of Agent or any Lender,(v) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) shall have first agreed in
writing to treat such information as confidential in accordance with this
Section 10.7, or (vi) to counsel for Agent or any Lender or any participant or
assignee (or prospective participant or assignee).
(b) In no event shall this Section 10.7 or any other provision
of this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 10.7 or otherwise becomes generally
available to the public other than as a result of a disclosure in violation
hereof,(ii) to apply to or restrict disclosure of information that was or
becomes available to Agent or any Lender on a non-confidential basis from a
person other than Borrower,(iii) require Agent or any Lender to return any
materials furnished by Borrower to Agent or such Lender or (iv) prevent Agent or
any Lender from responding to routine informational requests in accordance with
the CODE OF ETHICS FOR THE EXCHANGE OF CREDIT INFORMATION promulgated by The
Robert Morris Associates or other applicable industry standards relating to the
exchange of credit information. The obligations of Agent and Lenders under this
Section 10.7 shall supersede and replace the obligations of Agent and Lenders
under any confidentiality letter signed prior to the date hereof.
10.8 PARTIAL INVALIDITY. If any provision of this Agreement or the
other Financing Agreements is held to be invalid or unenforceable, such
invalidity or unenforceability shall not invalidate this Agreement or the other
Financing Agreements as a whole but this Agreement or the particular Financing
Agreement, as the case may be, shall be construed as though it did not contain
the particular provision or provisions held to be invalid or unenforceable and
the rights and obligations of the parties shall be construed and enforced only
to such extent as shall be permitted by law.
10.9 HEADINGS. The headings used herein are for convenience only and do
not constitute matters to be considered in interpreting this Agreement.
10.10 PARTICIPANT'S SECURITY INTERESTS. If a Participant shall at any
time participate with any Lender in the Loans and Letter of Credit
Accommodations, Borrower hereby grants to such Participant and such Participant
shall have and is hereby given, a continuing lien on and security interest in
any money, securities and other property of Borrower in the custody or
possession of the Participant, including the right of setoff, to the extent of
the Participant's participation in the Obligations, and such Participant shall
be deemed to have the same right of setoff to the extent of its participation in
the Obligations, as it would have if it were a direct Lender.
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10.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Agent, Lenders, Borrower and Guarantor in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements (other than the Mortgages to the
extent otherwise specifically provided therein) and any dispute arising out of
the relationship between the parties hereto, whether in contract, tort, equity
or otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Borrower, Agent and Lenders irrevocably consent and submit
to the non-exclusive jurisdiction of the Supreme Court of the State of New York
in New York County and the United States District Court for the Southern
District of New York and waive any objection based on venue or FORUM NON
CONVENIENS with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above. Agent shall have the right to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction which
Agent deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
registered mail, postage prepaid, directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed ten
(10) days after the same shall have been so deposited in the U.S. mails,
registered mail, postage prepaid, or, at Agent's option, by service upon
Borrower in any other manner provided under the rules of any of the foregoing
courts. Within thirty (30) days after such service, Borrower shall appear in
answer to such process, failing which Borrower shall be deemed in default and
judgment may be entered by Agent against Borrower for the amount of the claim
and other relief requested.
(d) BORROWER, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF
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THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER, AGENT
AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWER OR AGENT OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Neither Agent nor any Lender shall have any liability to
Borrower or Guarantor (whether in tort, contract, equity or otherwise) for
losses suffered by Borrower or Guarantor in connection with, arising out of, or
in any way related to the transactions or relationships contemplated by this
Agreement, or any act, omission or event occurring in connection herewith,
unless it is determined by a final and non-appealable judgment by a court of
competent jurisdiction that the losses were the result of such party's own acts
or omissions constituting gross negligence or willful misconduct. In any such
litigation, Agent and each of Lenders shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrower and Guarantor hereby expressly waive
demand, presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and commercial paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower or Guarantor which
Agent may elect to give shall entitle Borrower or Guarantor to any other or
further notice or demand in the same, similar or other circumstances. Without
limiting the generality of the foregoing, Borrower and Guarantor waive (a)
notice prior to Agent's taking possession or control of any of the collateral or
any bond or security which might be required by any court prior to allowing
Agent to exercise any of Agent's remedies, including the issuance of an
immediate writ of possession and (b) the benefit of all valuation, appraisement
and exemption laws.
11.3 AMENDMENTS AND WAIVERS.
(a) No amendment or modification of any provision of this Agreement
or of any of the other Financing Agreements shall be effective without the
written agreement of the Majority Lenders and Borrower and no termination or
waiver of any provision of this Agreement or of any of the Financing Agreements,
or consent to any departure by Borrower therefrom, shall in any event be
effective without the written concurrence of the Majority Lenders, which the
Majority Lenders shall have the right to grant or withhold at their discretion;
EXCEPT THAT any amendment, modification, or waiver (i) of any provision of
Section 3 hereof, which amendment, modification or waiver increases the
Commitment of
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any Lender, reduces the principal of, or interest on, the Loans or the Letter of
Credit Accommodations, reduces the amount of any fee payable for the account of
any Lender, or postpones or extends any date fixed for any payment of principal
of, or interest or fees on the Loans or Letter of Credit Accommodations payable
to any Lender, (ii) that increases the aggregate amount of the Commitments of
the Lenders, (iii) that increases the advance percentages for Eligible Accounts
or Eligible Inventory provided for in Section 3.1(a) hereof or the amount set
forth in Section 3.1(a)(ii)(B),(iv) that increases the limit on Letter of Credit
Accommodations set forth in Section 3.3(d) hereof or that increases the Maximum
Credit,(v) of the definitions of "Renewal Date", "Majority Lenders" or "Pro Rata
Shares", (vi) of the definitions of "Eligible Accounts" or "Eligible Inventory"
if the effect of such amendment, modification or waiver is to increase the
amount of the Loans and/or Letter of Credit Accommodations available to Borrower
under the Lending Formulas, (vii) of any provision of this Agreement or any of
the Financing Agreements that would permit security interests in or liens upon
on the Collateral (or release any Collateral) (except as set forth in Section
12.12 hereof or except as otherwise permitted herein) or release any guarantee
of the Obligations, (viii) that amends the terms of the Intercreditor Agreement
by and among Van-American, the USF&G Bonding Companies, Harvard, Agent and
Lenders, as acknowledged and agreed to by Borrower, Guarantor and certain of the
Subsidiaries of Borrower or any other intercreditor agreement entered into by
Agent on behalf of Lenders after the date hereof with any of the other Bonding
Companies, or (ix) of the provisions contained in this Section 11.3, shall be
effective only if evidenced by a writing signed by or on behalf of (A) any
Lender affected thereby in the case of the amendments, modifications or waivers
described in clause (i) above or (B) all Lenders in the case of the amendments
to definitions or waivers described in clauses (ii) through (ix) above. No
amendment, modification, termination or waiver of any provision of Section 11 or
any other provision referring to Agent shall be effective without the written
concurrence of Agent. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No
notice to or demand on Borrower in any case shall entitle Borrower to any other
or further notice or demand in similar or other circumstances. Any amendment,
modification, waiver or consent effected in accordance with this Section 11.3
shall be binding on each Lender, each future Lender, and, if signed by Borrower,
on the Borrower.
(b) Notwithstanding anything to the contrary contained in Section
11.3(a), in the event that Borrower requests that this Agreement or any other
Financing Agreements be amended or otherwise modified in a manner which would
require the unanimous consent of all of the Lenders and such amendment or other
modification is agreed to by the Majority Lenders, then, with the consent of
Borrower and the Majority Lenders, Borrower and the Majority Lenders may amend
this Agreement without the consent of the Lender or Lenders which did not agree
to such amendment or other modification (collectively, the "Minority Lenders")
to provide for (i) the termination of the Commitment of each of the Minority
Lenders,(ii) the addition to this Agreement of one or more other Lenders, or an
increase in the Commitment of one or more of the Majority Lenders, so that the
Commitments, after giving effect to such amendment, shall be in the same
aggregate amount as the Commitments immediately before giving effect to such
amendment,(iii) if any Loans are outstanding at the time of such amendment, the
making of such additional Loans by such new Lenders or
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Majority Lenders, as the case may be, as may be necessary to repay in full the
outstanding Loans of the Minority Lenders immediately before giving effect to
such amendment and (iv)the payment of all interest, fees and other Obligations
payable or accrued in favor of the Minority Lenders and such other modifications
to this Agreement as Borrower and the Majority Lenders may determine to be
appropriate.
(c) Agent and Lenders shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of the rights,
powers and/or remedies of Agent or Lenders unless such waiver shall be in
writing and signed as provided in Section 11.3(a) above. Any such waiver shall
be enforceable only to the extent specifically set forth therein. Neither this
Agreement nor any provision hereof shall be amended, modified, waived or
discharged orally or by course of conduct, but only by a written agreement
approved as required under this Section 11.3. A waiver by Agent or Lenders of
any right, power and/or remedy on any one occasion shall not be construed as a
bar to or waiver of any such right, power and/or remedy which Agent or any
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
11.4 WAIVER OF COUNTERCLAIMS. Each of Borrower and Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other than compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.5 INDEMNIFICATION. Each of Borrower and Guarantor shall indemnify and
hold Agent, Lenders and their respective officers, directors, agents, employees
and counsel, harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Agreement, any
other Financing Agreements, or any undertaking or proceeding related to any of
the transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including, without limitation, amounts paid in
settlement, court costs, and the fees and expenses of counsel except to the
extent resulting directly from the gross negligence or wilful misconduct of
Agent or Lenders as determined pursuant to a final non-appealable order of a
court of competent jurisdiction, PROVIDED, THAT, such gross negligence or wilful
misconduct of any one Lender shall not affect the obligations of Borrower and
Guarantor hereunder as to Agent or any other Lender. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, Borrower and
Guarantor shall pay the maximum portion which it is permitted to pay under
applicable law to Agent and/or the affected Lender(s) in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
11.6 ASSIGNMENTS; PARTICIPATIONS.
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(a) Each Lender may with the written consent of the Agent, which
consent shall not be unreasonably withheld, and after prior notice to Borrower,
assign to one or more commercial banks or other financial institutions a portion
of its rights and obligations under this Agreement (including, without
limitation, a portion of its Commitment, the Loans owing to it and its rights
and obligations as a Lender with respect to the Letter of Credit Accommodations)
and the other Financing Agreements; PROVIDED, THAT, (i) each such assignment
shall be in a principal amount of not less than $10,000,000 and in multiples of
$1,000,000 in excess thereof (or the remainder of such Lender's Commitment),
(ii) the parties to each such assignment shall execute and deliver to Agent, for
its acceptance and recording in the Register an Assignment and Acceptance and
(iii) Agent's consent shall not be required for any such assignment by CIT.
(b) Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in each Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and to the other Financing
Agreements and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations (including, without limitation, the obligation to participate in
Letter of Credit Accommodations) of a Lender hereunder and thereunder and
(ii) the assigning Lender shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement.
(c) By execution and delivering an Assignment and Acceptance, the
assignor and assignee thereunder confirm to and agree with each other and the
other parties hereto as follows: (i) other than as provided in such Assignment
and Acceptance, the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any of the other
Financing Agreements or the execution, legality, enforceability, genuineness,
sufficiency or value of this Agreement or any of the other Financing Agreements
furnished pursuant hereto, (ii) the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of Borrower, Guarantor or any of their Subsidiaries or the performance or
observance by Borrower or Guarantor of any of the Obligations; (iii) such
assignee confirms that it has received a copy of this Agreement and the other
Financing Agreements, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender, the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Financing Agreements, (v) such assignee
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Financing Agreements as
are delegated to Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto, and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement and the other Financing Agreements are required to
be performed by it as a
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Lender. Agent and Lenders may furnish any information concerning Borrower,
Guarantor or their Subsidiaries in the possession of Agent or any from time to
time to assignees and Participants.
(d) Agent shall maintain at its address referred to on the
signature page hereto, a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
Lenders and the Commitment of each Lender from time to time (the "Register").
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and Borrower, Guarantor, Agent and Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
Borrower, Guarantor and any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee Lender, together with the Revolving Credit Note
and the Letter of Credit Note subject to such assignment, Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) give prompt
notice thereof to Borrower and Guarantor and (iii) record the information
contained therein in the Register. Within five (5) Business Days after its
receipt of such notice, Borrower, at its expense, shall execute and deliver to
Agent in exchange for the surrendered Notes, new Notes to the order of such
assignee Lender in an aggregate principal amount equal to the Commitment assumed
by it pursuant to such Assignment and Acceptance, and new Notes to the order of
the assigning Lender in an aggregate principal amount equal to the Commitment
retained by it hereunder, in each case prepared by or on behalf of the Agent.
Such new Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note, shall be dated the date of Agent's
acceptance of such assignment and acceptance and shall otherwise be in
substantially the form of the Notes as in effect on the date hereof.
(f) Each Lender may, after prior notice to Borrower, sell
participations to one or more banks or other entities in or to all or a portion
of its rights and obligations under this Agreement and the other Financing
Agreements (including, without limitation, all or a portion of its Commitments
and the Loans owing to it and its participation in the Letter of Credit
Accommodations); PROVIDED, THAT, (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment hereunder) and the
other Financing Agreements shall remain unchanged, and (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, and Borrower, Guarantor, Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Financing
Agreements. Each Lender shall inform Agent of the persons who have purchased
such participations and upon Borrower's request, Agent shall inform Borrower of
the names of the persons who as of the date of such request have purchased
participations in the Loans.
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11.7 SUCCESSORS AND ASSIGNS. This Agreement, the other Financing
Agreements and any other document referred to herein or therein shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns, except that Borrower and Guarantor may
not assign their rights under this Agreement, the other Financing Agreements and
any other document referred to herein or therein without the prior written
consent of Agent.
SECTION 12. THE AGENT
12.1 APPOINTMENT.
(a) Each Lender hereby irrevocably appoints and authorizes Agent
(i) to receive on behalf of each Lender any payment of principal of or interest
on the Notes outstanding hereunder and all other amounts accrued hereunder for
the account of the Lenders and paid to Agent, and, subject to Section 3.11 of
this Agreement, to distribute promptly to each Lender its Pro Rata Share of all
payments so received, (ii) to distribute to each Lender copies of all material
notices and agreements received by the Agent and not required to be delivered to
each Lender pursuant to the terms of this Agreement, PROVIDED, THAT, the Agent
shall not have any liability to Lenders for the Agent's failure to distribute
any such notice or agreements to Lenders and (iii) subject to Section 11.3 of
this Agreement, to take such action as Agent deems appropriate on its behalf to
administer the Loans, Letter of Credit Accommodations and this Agreement and the
other Financing Agreements and to exercise such other powers delegated to Agent
by the terms hereof and the other Financing Agreements (including, without
limitation, the power to give or to refuse to give notices, waivers, consents,
approvals and instructions and the power to make or to refuse to make
determinations and calculations) together with such powers as are reasonably
incidental thereto to carry out the purposes hereof and thereof. As to any
matters not expressly provided for by this Agreement and the other Financing
Agreements (including, without limitation, enforcement or collection of the
Notes), Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders, and such instructions of the Majority Lenders shall be
binding upon all Lenders; PROVIDED, THAT, Agent shall not be required to take
any action which, in the reasonable opinion of the Agent, exposes the Agent or
liability or which is contrary to this Agreement, any of the other Financing
Agreements or applicable law. The provisions of this Section 12 are solely for
the benefit of Agent and Lenders. Borrower and Guarantor shall not have any
rights as a third party beneficiary of any of the provisions contained in this
Section 12. Notwithstanding anything to the contrary contained in Section 11.3
hereof, no amendments to this Section 12 shall require the written agreement of
Borrower or Guarantor. The identification of CIT as co-agent hereunder shall
not create any rights in favor of it in such capacity, nor subject it to any
duties or obligations in such capacity.
(b) Without limiting the generality of the foregoing, or of any
other provision of this Agreement or the other Financing Agreements that
provides rights or powers to Agent,
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Lenders agree that Agent shall have the right to exercise the following powers
as long as this Agreement remains in effect: (i) maintain, in accordance with
its customary business practices, ledgers and records reflecting the status of
the Loans, the Letter of Credit Accommodations, the Collateral, and related
matters; (ii) execute and/or file any and all financing or similar statements or
notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to this Agreement and
the other Financing Agreements; (iii) make Loans for itself or on behalf of
Lenders as provided herein; (iv) exclusively receive, apply and distribute
proceeds of the Collateral as provided herein; (v) open and maintain such bank
accounts and lock boxes as Agent deems necessary and appropriate in accordance
with this Agreement and the other Financing Agreements for the foregoing
purposes and with respect to the Collateral and proceeds thereof; (vi) perform,
exercise and enforce any and all other rights and remedies of the Lenders with
respect to Borrower, Guarantor, the Loans and the Collateral, or otherwise
related to any of same as provided herein and in the other Financing Agreements;
and (vii) incur and pay such costs and expenses as Agent may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to this Agreement and the other Financing Agreements.
12.2 NATURE OF DUTIES. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement or in the other Financing
Agreements. The duties of Agent shall be mechanical and administrative in
nature. Agent shall not have by reason of this Agreement or any of the other
Financing Agreements a fiduciary relationship in respect of any Lender. Nothing
in this Agreement or any of the other Financing Agreements, express or implied,
is intended to or shall be construed to impose upon Agent any obligations in
respect of this Agreement or any of the other Financing Agreements except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrower,
Guarantor and any other Obligor in connection with the making and the
continuance of the Loans hereunder and the issuance of the Letter of Credit
Accommodations and shall make its own appraisal of the creditworthiness of
Borrower, Guarantor and any other Obligor and the value of the Collateral, and
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the date hereof or at any
time or times hereafter, PROVIDED, THAT, upon the reasonable request of a
Lender, Agent shall provide to such Lender any documents or reports delivered to
Agent by Borrower pursuant to the terms of this Agreement or any of the other
Financing Agreements. If Agent seeks the consent or approval of the Majority
Lenders to the taking or refraining from taking any action hereunder, Agent
shall send notice thereof to each Lender. Agent shall promptly notify each
Lender any time that the Majority Lenders have instructed Agent to act or
refrain from acting pursuant hereto.
12.3 DELEGATION OF DUTIES. Except as otherwise provided in this section,
Agent may execute any of its duties under this Agreement or any of the other
Financing Agreements by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. Agent shall not be responsible for the negligence or misconduct of any
agent or attorney-in-fact that it selects as long as such
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selection was made in compliance with this Section and without gross negligence
or willful misconduct.
12.4 RIGHTS, EXCULPATION, ETC. Agent and its directors, officers, agents
or employees shall not be liable for any action taken or omitted to be taken by
it or them under or in connection with this Agreement or any of the other
Financing Agreements, except for their own gross negligence or willful
misconduct as determined by a final non-appealable order of a court of competent
jurisdiction. Without limiting the generality of the foregoing, Agent (a) may
treat the payee of any Note as the holder thereof until Agent receives written
notice of the assignment or transfer thereof, pursuant to Section 11.13 hereof,
signed by such payee and in form satisfactory to the Agent; (b) may consult with
legal counsel (including, without limitation, counsel to Agent or counsel to
Borrower or Guarantor), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, certificates,
warranties or representations made in or in connection with this Agreement or
any of the other Financing Agreements; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or any of the other Financing Agreements;
(e) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or any
of the other Financing Agreements on the part of any Person, the existence or
possible existence of any Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default, or
to inspect the Collateral or other property (including, without limitation, the
books and records) of any Person; (f) shall not be responsible to any Lender for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or any of the other Financing Agreements or any other
instrument or document furnished pursuant hereto or thereto; and (g) shall not
be deemed to have made any representation or warranty regarding the existence,
value or collectibility of the Collateral, the existence, priority or perfection
of the security interest in, or mortgage or lien upon, any of the Collateral, or
the Loans available to Borrower or any certificate prepared by Borrower or
Guarantor in connection therewith, nor shall Agent be responsible or liable to
the Lenders for any failure to monitor or maintain availability of Loans
hereunder or any portion of the Collateral. Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith pursuant to
Section 9.2, and if any such apportionment or distribution is subsequently
determined to have been made in error the sole recourse of any Lender to whom
payment was due but not made, shall be to recover from other Lenders any payment
in excess of the amount which they are determined to be entitled. Agent may at
any time request instructions from the Lenders with respect to any actions or
approvals which by the terms of this Agreement or of any of the other Financing
Agreements Agent is permitted or required to take or to grant, and if such
instructions are promptly requested, Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval hereunder or under
any of the other Financing Agreements until it shall have received such
instructions from the Majority Lenders. Without limiting the foregoing, no
Lender shall have any right of action whatsoever against
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Agent as a result of Agent acting or refraining from acting under this Agreement
or any of the other Financing Agreements in accordance with the instructions of
the Majority Lenders.
12.5 RELIANCE. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent. Agent shall be full justified in failing or refusing to take any action
under this Agreement or any of the other Financing Agreements unless it shall
first receive such advice or concurrence of the Lenders as it deems appropriate
and until such instructions are received, Agent shall act, or refrain from
acting, as it deems advisable so long as it is not grossly negligent or guilty
of wilful misconduct. If Agent so requests, it shall first be indemnified to
its reasonable satisfaction by Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any of the other Financing Agreements in
accordance with a request or consent of the Lenders and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
12.6 NOTICE OF EVENT OF DEFAULT. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default, except with
respect to defaults in the payment of principal, interest, fees, and expenses
required to be paid to Agent for the account of the Lenders and with respect to
Events of Default of which Agent has actual knowledge, unless Agent shall have
received written notice from a Lender or Borrower referring to this Agreement,
describing such Event of Default, and stating that such notice is a "notice of
default." Agent promptly will notify the Lenders of its receipt of any such
notice or of any Event of Default of which Agent has, or is deemed to have,
actual knowledge. If any Lender obtains actual knowledge of any Event of
Default, such Lender promptly shall notify the other Lenders and Agent of such
Event of Default. Each Lender shall be solely responsible for giving any
notices to its Participants, if any.
12.7 CREDIT DECISION. Each Lender acknowledges that the Agent has not made
any representation or warranty to it, and that no act by Agent hereinafter
taken, including any review of the affairs of Borrower and its Subsidiaries or
Affiliates, shall be deemed to constitute any representation or warranty by
Agent to any Lender. Each Lender represents to Agent that it has, independently
and without reliance upon Agent and based on such documents and information as
it has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financing and other condition and
creditworthiness of Borrower and any other Person (other than any Lender) party
to any of the other Financing Agreements, and all applicable bank regulatory
laws relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to Borrower. Each Lender also
represents that it will, independently and without reliance upon Agent and based
on such documents and information as it shall deem
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appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and any of the
other Financing Agreements, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financing and other condition and creditworthiness of Borrower and any other
Person (other than any Lender) party to this Agreement or any of the other
Financing Agreements. Except for notices, reports and other documents expressly
herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Borrower and any other Person party
to this Agreement or any of the other Financing Agreements that may come into
the possession of Agent.
12.8 INDEMNIFICATION. To the extent that Agent is not reimbursed and
indemnified by Borrower, the Lenders will reimburse and indemnify the Agent for
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any of
the other Financing Agreements or any action taken or omitted by Agent under
this Agreement or any of the other Financing Agreements, in proportion to each
Lender's Pro Rata Share, PROVIDED, THAT, no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements for which there has
been a final non-appealable order of a court of competent jurisdiction that such
resulted from Agent's gross negligence or willful misconduct. The obligations
of the Lenders under this Section 12.8 shall survive the payment in full of the
Obligations and the termination or non-renewal of this Agreement.
12.9 CONGRESS IN ITS INDIVIDUAL CAPACITY. With respect to its Pro Rata
Share of the Commitments hereunder, the Loans made by it and the Notes issued to
or held by it, Congress shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein as any other Lender or holder of a Note. The terms
"Lenders" or "Majority Lenders" or any similar terms shall, unless the context
clearly otherwise indicates, include Congress in its individual capacity as a
Lender or one of the Majority Lenders. Congress and its Affiliates may accept
deposits from, lend money to, and generally engage in any kind of banking, trust
or other business with Guarantor, Borrower or any of its or their Subsidiaries
or Affiliates as if it were not acting as Agent pursuant hereto without any duty
to account to Lenders.
12.10 SUCCESSOR AGENT.
(a) Agent may resign from the performance of all its functions and
duties hereunder and under the other Financing Agreements at any time by giving
at least thirty (30) Business Days' prior written notice to Borrower and each
Lender. Such resignation shall take effect upon the acceptance by a successor
Agent of appointment pursuant to Sections 12.10(b) and 12.10(c) below or as
otherwise provided below.
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(b) Upon any such notice of resignation, the Majority Lenders
shall appoint a successor Agent. If the successor Agent is not selected from
one of the Lenders, the successor Agent must be reasonably satisfactory to
Borrower. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Financing Agreements. After any Agent's
resignation hereunder as the Agent, the provisions of this Section 12 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Financing Agreements.
(c) If a successor Agent shall not have been so appointed within
such thirty (30) Business Day period, the retiring Agent, with the consent of
Borrower, shall then appoint a successor Agent who shall serve as Agent until
such time, if any, as the Majority Lenders, with the consent of the Borrower,
appoint a successor Agent as provided above.
12.11 WITHHOLDING TAX.
(a) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and
Borrower:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS Forms
1001 and W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii)such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns,
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grants a participation in, or otherwise transfers all or part of the Obligations
of Borrower to such Lender, such Lender agrees to notify Agent of the percentage
amount in which it is no longer the beneficial owner of Obligations of Borrower
to such Lender. To the extent of such percentage amount, Agent will treat such
Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of Borrower to such
Lender, such Lender agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Section 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(e) If the Internal Revenue Service or any other Governmental
Authority of the United States of America or other jurisdiction asserts a claim
that Agent did not properly withhold tax from amounts paid to or for the account
of any Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify Agent
fully for all amounts paid, directly or indirectly, by Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to Agent under this Section, together
with all costs and expenses (including attorneys' fees and expenses). The
obligations of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation or replacement of Agent.
12.12 COLLATERAL MATTERS.
(a) Agent may from time to time, at any time on or after an Event
of Default and for so long as the same is continuing, make such disbursements
and advances ("Agent Advances") which Agent, in its sole discretion, deems
necessary or desirable either (i) to preserve or protect the Collateral or any
portion thereof,(ii) to enhance the likelihood or maximize the amount of
repayment by Borrower of the Loans and other Obligations or (iii) to pay any
other amount chargeable to Borrower pursuant to the terms of this Agreement,
including, without limitation, costs, fees and expenses as described in Section
10.2 and payments to any issuer of Letter of Credit Accommodations, PROVIDED,
THAT, in no event shall the sum of the amount of the Agent Advances made for the
purposes set forth in Section 12.12(a)(ii) at any time outstanding plus the
amount of the then outstanding additional Loans and Letter of Credit
Accommodations in excess of the Total Availability provided for in Section 12.14
below, exceed $3,500,000. Agent Advances shall be repayable on demand and be
secured by the Collateral. Agent Advances shall not constitute Loans but shall
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otherwise constitute Obligations hereunder. Agent shall notify each Lender and
Borrower in writing of each such Agent Advance, which notice shall include a
description of the purpose of such Agent Advance. Without limitation of its
obligations pursuant to Section 12.5, each Lender agrees that it shall make
available to Agent, upon Agent's demand, in immediately available funds, the
amount equal to such Lender's Pro Rata Share of each such Agent Advance. If
such funds are not made available to Agent by such Lender, Agent shall be
entitled to recover such funds, on demand from such Lender together with
interest thereon, for each day from the date such payment was due until the date
such amount is paid to Agent, at the Interest Rate.
(b) Lenders hereby irrevocably authorize Agent, at its option and
in its discretion to release any security interest in, mortgage or lien upon,
any of the Collateral upon termination of the Commitments and payment and
satisfaction of all of the Obligations and delivery of cash collateral as
provided in Section 10.1 above; or constituting property being sold or disposed
of if Borrower certifies to Agent that the sale or disposition is made in
compliance with Section 7.13 hereof (and Agent may rely conclusively on any such
certificate, without further inquiry); or constituting property in which
Borrower owned no interest at the time the security interest, mortgage or lien
was granted or at any time thereafter; or if approved, authorized or ratified in
writing by the Majority Lenders. Except as provided above, Agent will not
release any security interest in, mortgage or lien upon, any of the Collateral
without the prior written authorization of the Majority Lenders; PROVIDED, THAT,
Agent may not release such security interests in, mortgage or lien upon, any of
the Collateral having a value in excess of $1,000,000, without the prior written
authorization of all of the Lenders. Upon request by Agent at any time, the
Lenders will confirm in writing Agent's authority to release particularly types
or items of Collateral pursuant to this Section 12.12.
(c) Without any manner limiting Agent's authority to act without
any specific or further authorization or consent by the Majority Lenders, each
Lender agrees to confirm in writing, upon request by Agent, the authority to
release Collateral conferred upon Agent under this Section 12.12. So long as no
Event of Default is then continuing, upon receipt by Agent of confirmation from
the Majority Lenders of its authority to release any particular item or types of
Collateral, and upon at least five (5) Business Day's prior written request by
Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to)
execute such documents as may be necessary to evidence the release of the
security interest, mortgage or liens granted to Agent for the benefit of the
Lenders upon such Collateral; PROVIDED, THAT, (i) Agent shall not be required to
execute any such document on terms which, in Agent's opinion, would expose Agent
to liability or create any obligations or entail any consequence other than the
release of such security interest, mortgage or liens without recourse or
warranty and (ii) such release shall not in any manner discharge, affect or
impair the Obligations or any security interest, mortgage or lien upon (or
obligations of Borrower in respect of) the Collateral retained by Borrower.
(d) Agent shall have no obligation whatsoever to any Lender to
assure that the Collateral exists or is owned by Borrower, Guarantor or any
Obligor (as the case may be) or
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<PAGE>
is cared for, protected or insured or has been encumbered or that the security
interest, mortgage or lien granted to Agent pursuant to any of the Financing
Agreements has been properly or sufficiently or lawfully created, perfected,
protected or enforced or is entitled to any particular priority, or to exercise
at all or in particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this Section 12 or in any of the other
Financing Agreements, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, Agent may act in any
manner it may deem appropriate, in its sole discretion, given Agent's own
interest in the Collateral as one of the Lenders and that Agent shall have no
duty or liability whatsoever to any other Lender.
12.13 AGENCY FOR PERFECTION. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the security interests in
and liens upon the Collateral of Agent for itself and the ratable benefit of
Lenders in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession. Should any Lender obtain possession of any such
Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's
request therefor shall deliver such Collateral to Agent or in accordance with
Agent's instructions.
12.14 ADDITIONAL LOANS. Agent shall not make any Loans or provide any
Letter of Credit Accommodations on behalf of Lenders intentionally and with
actual knowledge that such Loans or Letter of Credit Accommodations would cause
the aggregate amount of the total outstanding Loans and Letter of Credit
Accommodations to exceed the Total Availability, without the prior consent of
all of the Lenders, EXCEPT, THAT, Agent may make Loans in connection with any
Letter of Credit Accommodations in such circumstances and Agent may make such
additional Loans or provide such additional Letter of Credit Accommodations on
behalf of Lenders intentionally and with actual knowledge that such Loans or
Letter of Credit Accommodations will cause the total outstanding Loans and
Letter of Credit Accommodations to exceed the Total Availability as Agent may
deem necessary or advisable in its discretion, PROVIDED, THAT: (a) the total
principal amount of the additional Loans or additional Letter of Credit
Accommodations which Agent may make after obtaining such actual knowledge that
the aggregate principal amount of the Loans equals or exceeds the Total
Availability shall not exceed ten (10%) percent of the Total Availability at the
time, but in no event shall such additional Loans or additional Letter of Credit
Accommodations exceed $3,500,000 in the aggregate outstanding at any time, and
(b) without the consent of all of the Lenders, Agent shall not make any such
additional Loans or Letter of Credit Accommodations more than ninety (90) days
from the date of the first such additional Loans or Letter of Credit
Accommodations each time Agent shall make or provide the same, PROVIDED, THAT,
at any time within any such ninety (90) day period commencing on the date of the
first such additional Loans or Letter of Credit Accommodations, the Loans or
Letter of Credit Accommodations do not exceed the Total Availability for thirty
(30) days then such ninety (90) day period shall cease and recommence upon the
next time that Agent may make such additional Loans or provide such additional
Letter of Credit Accommodations. Each Lender shall be obligated to pay Agent
the amount of its Pro Rata Share of any such
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<PAGE>
additional Loans or Letter of Credit Accommodations provided that Agent is
acting in accordance with the terms of this Section 12.14.
12.15 CONCERNING THE COLLATERAL AND THE RELATED FINANCING AGREEMENTS. Each
Lender authorizes and directs Agent to enter into this Agreement and the other
Financing Agreements relating to the Collateral, for the ratable benefit of
Lenders and Agent. Each Lender agrees that any action taken by Agent or
Majority Lenders in accordance with the terms of this Agreement or the other
Financing Agreements relating to the Collateral, and the exercise by the Agent
or Majority Lenders of their respective powers set forth therein or herein,
together with such other powers that are reasonably incidental thereto, shall be
binding upon all of the Lenders.
12.16 FIELD AUDIT AND EXAMINATION REPORTS; DISCLAIMER BY LENDERS. By
signing this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish Lender,
promptly after it becomes available, a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared by Agent;
(b) expressly agrees and acknowledges that Agent (i) does not
make any representation or warranty as to the accuracy of any Report, or (ii)
shall not be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel; and
(d) agrees to keep all Reports confidential and strictly for its
internal use in accordance with the terms of Section 10.7 hereof, and not to
distribute or use any Report in any other manner.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, Agent, Lenders, Borrower and Guarantor have caused
these presents to be duly executed as of the day and year first above written.
AGENT BORROWER
CONGRESS FINANCIAL CORPORATION, LODESTAR ENERGY, INC. (formerly
as Agent known as Costain Coal, Inc.)
By: /s/ Andrew W. Robin By: /s/ Michael E. Donohue
----------------------------- -----------------------------
Title: SVP Title: CFO
-------------------------- --------------------------
ADDRESS: CHIEF EXECUTIVE OFFICE:
1133 Avenue of the Americas 333 West Vine Street
New York, New York 10036 Suite 1700
Lexington, Kentucky 40507
GUARANTOR
LODESTAR HOLDINGS, INC.
(formerly known as Rencoal, Inc.)
By: /s/ Michael E. Donohue
-----------------------------
Title: CFO
--------------------------
CHIEF EXECUTIVE OFFICE:
30 Rockefeller Plaza
New York, New York 10112
LENDERS
CONGRESS FINANCIAL CORPORATION THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Andrew W. Robin By: /s/ Allison Friedman
----------------------------- -----------------------------
Title: SVP Title: Assistant Secretary
-------------------------- --------------------------
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<PAGE>
[SIGNATURE PAGE CONTINUED]
ADDRESS: ADDRESS:
1133 Avenue of the Americas 1211 Avenue of the Americas
New York, New York 10036 New York, New York 10036
COMMITMENT: COMMITMENT:
$60,000,000 $60,000,000
COMMITMENT PERCENTAGE: COMMITMENT PERCENTAGE:
50% 50%
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<PAGE>
EXHIBIT A
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
[FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance")
dated as of _____________, 199_ [2000] is made between _________________________
(the "Assignor") and ____________________ (the "Assignee").
W I T N E S S E T H:
WHEREAS, Lodestar Energy, Inc. ("Borrower") has entered into financing
arrangements with Congress Financial Corporation in its capacity as Agent
pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf
of the financial institutions from time to time parties thereto as lenders (in
such capacity, "Agent") and the financial institutions which are from time to
time parties to the Loan Agreement as lenders (individually, a "Lender", and
collectively, "Lenders") pursuant to which Lenders may make, and Agent on behalf
of Lenders may make, loans and advances and provide other financial
accommodations to Borrower as set forth in the Amended and Restated Loan and
Security Agreement, dated May ___, 1998, by and among Borrower, Lodestar
Holdings, Inc., Agent and Lenders (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement");
WHEREAS, pursuant to the Loan Agreement, Assignor has undertaken to make
Loans and participate in Letter of Credit Accommodations to Borrower in an
aggregate amount not to exceed $____________ (the "Commitment"); and
WHEREAS, the Assignor desires to assign to Assignee [part of the] [all]
rights and obligations of Assignor under the Loan Agreement in respect of its
Commitment, together with a corresponding portion of each of its outstanding
Loans and interest in Letter of Credit Accommodations on the terms and subject
to the conditions set forth herein and the Assignee wishes to accept assignment
of such rights and to assume such obligations from the Assignor on such terms
and subject to such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
(e) ASSIGNMENT AND ASSUMPTION
A-1
<PAGE>
(1) Subject to the terms and conditions of this Assignment and
Acceptance, Assignor hereby sells, transfers and assigns to Assignee, and
Assignee hereby purchases, assumes and undertakes from Assignor, without
recourse and without representation or warranty (except as provided in this
Assignment and Acceptance) an undivided interest in all of Assignor's rights and
obligations under and pursuant to the Loan Agreement and the other Financing
Agreements in an amount representing ________ (__%) percent of the total
Commitments of all Lenders under the Loan Agreement ("Assignee's Percentage"),
including, without limitation, (a) all amounts advanced and to be advanced or
participated in by the Assignor pursuant to the Commitment up to the Assignee's
Percentage and (b) related rights, benefits, obligations, liabilities and
indemnities of Assignor under or in connection with the Loan Agreement and the
other Financing Agreements;
(2) On and after the Effective Date (as defined in Section 4
hereof), Assignee shall be a party as a Lender to the Loan Agreement and succeed
to all of the rights and be obligated to perform all of the obligations of a
Lender under the Loan Agreement, including the requirements concerning
confidentiality and the payment of the indemnification, with a Commitment in the
amount set forth below. Assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Loan Agreement are
required to be performed by it as a Lender. It is the intent of the parties
hereto that the Commitment of the Assignor shall, as of the Effective Date, be
reduced by an amount equal to the amount of Assignee's Commitment set forth
below and Assignor shall relinquish its rights and be released from its
obligations under the Loan Agreement to the extent such obligations have been
assumed by the Assignee.
(3) After giving effect to the assignment and assumption set
forth herein, on the Effective Date Assignee's Commitment shall be $__________
and Assignee's Commitment Percentage shall be _________ (___%) percent.
(4) After giving effect to the assignment and assumption set
forth herein, on the Effective Date, Assignor's Commitment shall be $__________
and Assignor's Commitment Percentage shall be _________ (___%) percent.
(f) PAYMENTS. As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to $__________,
representing Assignee's Pro Rata Share of the principal amount of all Loans.
(g) INDEPENDENT CREDIT DECISION. The Assignee (a) acknowledges that it
has received a copy of the Credit Agreement and the Schedules and Exhibits
thereto, together with copies of the most recent financial statements of
Borrower and its Subsidiaries, and such other documents and information as it
has deemed appropriate to make its own credit and legal analysis and decision to
enter into this Assignment and Acceptances and (b) agrees that it will,
independently and without reliance upon the Assignor, the Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time,
A-2
<PAGE>
continue to make its own credit and legal decisions in taking or not taking
action under the Loan Agreement and the other Financing Agreements.
(h) EFFECTIVE DATE; NOTICES.
(1) As between the Assignor and Assignee, the effective date for
this Assignment and Acceptance shall be ___________, 199_ (the "Effective
Date"); PROVIDED THAT the following conditions precedent have been satisfied on
or before the Effective Date:
(i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;
(ii) the consent of the Agent required for an effective
assignment of the Commitment by Assignor to Assignee shall have been duly
obtained and shall be in full force and effect as of the Effective Date;
(iii) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to Borrower and Agent; and
(iv) Assignee shall pay to the Assignor all amounts due to the
Assignor under this Assignment and Acceptance.
(2) Promptly following the execution of this Assignment and
Acceptance, the Assignor shall deliver to Borrower and Agent for acknowledgement
by the Agent, a Notice of Assignment in the form attached hereto as Schedule 1.
(i) WITHHOLDING TAX. Assignee (a) represents and warrants that under
applicable law and treaties no tax will be required to be withheld by the Lender
with respect to any payments to be made to Assignor hereunder, (b) agrees to
furnish (if it is organized under the laws of any jurisdiction other than the
United States or any State thereof) to the Agent and the Borrower prior to the
time that the Agent or Borrower is required to make any payment of principal,
interest or fees hereunder, duplicate executed originals of either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
the Assignee claims entitlement to the benefits of a tax treaty that provides
for a complete exemption from U.S. federal income withholding tax on all
payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the
expiration of any previously delivered form or comparable statements in
accordance with applicable U.S. law and regulations and amendments thereto, duly
executed and completed by the Assignee, and (c) agrees to comply with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption.
(j) REPRESENTATIONS AND WARRANTIES.
(1) The Assignor represents and warrants that (i) it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of
A-3
<PAGE>
any security interest or lien or other adverse claim; (ii) it is duly organized
and existing and it has the full power and authority to take, and has taken, all
action necessary to execute and deliver this Assignment and Acceptance and any
other documents required or permitted to be executed or delivered by it in
connection with this Assignment and Acceptance and to fulfil its obligations
hereunder, (iii) no notices to, or consents, authorizations or approvals of, any
Person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Assignment and Acceptance, and apart
from any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; and (iv) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the legal,
valid an binding obligation of Assignor, enforceable against the Assignor in
accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles.
(2) Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representation made
in or in connection with the Loan Agreement or the other Financing Agreements or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or the other Financing Agreements or any other
instrument or document furnished pursuant thereto. Assignor makes no
representation or warranty in connection with, and assumes no responsibility
with respect to, the solvency, financial condition or statements of Borrower or
any Obligor, or the performance or observance by Borrower or any Obligor, of any
of its respective obligations under the Loan Agreement or the other Financing
Agreements or any other instrument or document furnished in connection
therewith.
(3) Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and all
action necessary to execute and deliver this Assignment and Acceptance and any
other documents required or permitted to be executed or delivered by it in
connection with this Assignment and Acceptance, and to fulfill its obligations
hereunder; (ii) no notices to, or consents, authorizations or approvals of, any
Person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Assignment and Acceptance; and apart
from any agreements or undertakings or filings required by the Loan Agreement,
no further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; and (iii) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the legal,
valid and binding obligation of the Assignee, enforceable against the Assignee
in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles.
(k) FURTHER ASSURANCES. Assignor and Assignee each hereby agree to
execute and deliver such other instruments, and take such other action, as
either party may reasonably request in connection with the transactions
contemplated by this Assignment and Acceptance, including the delivery of any
notices or other documents or instruments to the Borrower or
A-4
<PAGE>
the Agent, which may be required in connection with the assignment and
assumption contemplated hereby.
(l) MISCELLANEOUS.
(1) Any amendment or waiver of any provision of this Assignment
and Acceptance shall be in writing and signed by the parties hereto. No failure
to delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
(2) All payments made hereunder shall be made without any
set-off or counterclaim.
(3) Assignor and Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.
(4) This Assignment and Acceptance may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(5) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. The Assignor and
the Assignee each irrevocably submits to the non-exclusive jurisdiction of any
State or Federal court sitting in New York, New York over any suit, action or
proceeding arising out of or relating to this Assignment and Acceptance and
irrevocably agrees that all claims in respect of such action or proceeding may
be hard and determined in such New York State or Federal court. Each party to
this Assignment and Acceptance hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
(6) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY
RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR
STATEMENTS (WHETHER ORAL OR WRITTEN).
[REMAINDER OF PAGE INTENTIONALLY OMITTED]
A-5
<PAGE>
IN WITNESS WHEREOF, the Assignor and Assignee have caused this Assignment
and Acceptance to be executed and delivered by their duly authorized officers as
of the date first above written.
[ASSIGNOR]
By:
----------------------------------
Title:
-------------------------------
Address:
-----------------------------
-----------------------------
[ASSIGNEE]
By:
----------------------------------
Title:
-------------------------------
Address:
-----------------------------
-----------------------------
A-6
<PAGE>
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
____________, 19__[2000]
- ------------------------------
- ------------------------------
- ------------------------------
Attn.:
------------------------
Ladies and Gentlemen:
Lodestar Energy, Inc. (together with its successors and assigns,
"Borrower") has entered into financing arrangements with Congress Financial
Corporation (Southwest) in its capacity as agent pursuant to the Loan Agreement
(as hereinafter defined) acting for and on behalf of the financial institutions
which are parties thereto as lenders (together with its successors and assigns
in such capacity, "Agent"), and the financial institutions which are parties to
the Loan Agreement as lenders (together with their successors and assigns,
collectively, "Lenders") as set forth in the Loan and Security Agreement, dated
May __, 1998, by and among Borrower, Agent and Lenders (as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, the "Loan Agreement") and the other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto (all of the foregoing, together with the
Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"). All capitalized terms used
herein shall have the meaning assigned thereto in the Loan Agreement, unless
otherwise defined herein.
1. We hereby give you notice of, and request your consent to, the
assignment by __________________________ (the "Assignor") to
___________________________ (the "Assignee") of _________ (__%) percent of the
right, title and interest of Assignor in and to the Loan Agreement (including,
without limitation, the right, title and interest of Assignor in and to the
Commitments of Assignor, each of the outstanding Loans made by Assignor and the
Assignor's participation in each of the Letter of Credit Accommodations pursuant
to the Assignment and Acceptance Agreement attached hereto (the "Assignment and
Acceptance"). We understand and agree that the Assignor's Commitment, as of
______________, ____, is $___________ and the aggregate amount of its
outstanding Loan is $____________.
2. Assignee agrees that, upon receiving the consent of each Agent to such
assignment, Assignee will be bound by the terms of the Loan Agreement as fully
and to the same extent as if the Assignee were the Lender originally holding
such interest under the Loan Agreement.
1-1
<PAGE>
3. The following administrative details apply to Assignee:
(A) Notice address:
Assignee name:
------------------------------
Address:
------------------------------
------------------------------
Attention:
------------------------------
Telephone:
------------------------------
Telecopier:
------------------------------
(B) Payment instructions:
Account No.:
------------------------------
At:
------------------------------
------------------------------
------------------------------
Reference:
------------------------------
Attention:
------------------------------
4. You are entitled to rely upon the representations, warranties and
covenants of each of Assignor and Assignee contained in the Assignment and
Acceptance.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Notice of
Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[NAME OF ASSIGNOR]
By:
------------------------------
Title:
---------------------------
[NAME OF ASSIGNEE]
By:
------------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON THE NEXT PAGE]
1-2
<PAGE>
[SIGNATURE CONTINUED FROM THE PREVIOUS PAGE]
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
CONGRESS FINANCIAL CORPORATION,
as Agent
By:
------------------------------
Title:
---------------------------
1-3
<PAGE>
COSTAIN COAL INC.
September 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Contract Term ......................................................... 4
2. Quantity .............................................................. 4
3. Scheduling ............................................................ 6
4. Variations, Delays, and Interruptions in Deliveries ................... 7
5. Source ................................................................ 9
6. Price ................................................................. 11
7. Sampling and Analysis ................................................. 11
8. Adjustment for Quality ................................................ 16
9. Quality and Specifications ............................................ 18
10. Contract Price Adjustments ............................................ 20
11. Remedies .............................................................. 22
12. Notices ............................................................... 24
13. Shipping Notices ...................................................... 25
14. Transportation ........................................................ 26
15. Payments, Invoices .................................................... 28
16. Weights ............................................................... 29
17. Contract Administrator/Contracting Officer ............................ 31
18. Disputes .............................................................. 31
19. Clean Air Act and Other Environmental Requirements. ................... 33
20. Unilateral Termination Right .......................................... 33
21. Contract Components ................................................... 34
EXHIBIT I ................................................................. 35
APPENDIX A ................................................................ 37
APPENDIX B ................................................................ 38
</TABLE>
<PAGE>
GENERAL LONG-TERM CONTRACT CONDITIONS
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Verification of Data, Inspection of Records and Mine Sources .......... 39
2. Coal Mining Reclamation and Conservation Requirements ................. 39
3. Relationship of Parties - Producer's Statement ........................ 41
4. Nonassignability; Subcontracts; Designation and Termination of Agent .. 41
5. Waivers ............................................................... 42
6. Officials Not To Benefit .............................................. 42
7. Contingent Fees ....................................................... 42
8. Convict Labor ......................................................... 43
9. Walsh-Healey Act ...................................................... 43
10. Discrimination on the Basis of Age .................................... 43
11. Small Business Policy ................................................. 43
12. Liquidated Damages for Subcontracting Plans ........................... 43
13. Utilization of Woman-Owned Business Concerns .......................... 44
14. Affirmative Action and Equal Opportunity .............................. 45
15. Environmental Protection Agency (EPA) Regulations ..................... 46
16. Safety and Health ..................................................... 46
17. Anti-Kickback Procedures .............................................. 46
18. Drug-Free Workplace ................................................... 46
19. Environmentally Acceptable Facilities; Clean Air and Water ............ 46
20. Price or Fee Adjustment for Illegal or Improper Activity .............. 48
</TABLE>
<PAGE>
Contract___________________
CONTRACT FOR PURCHASE AND SALE OF COAL
THIS AGREEMENT, is made and entered into this 20 day of Sept, 1996, by and
between TENNESSEE VALLEY AUTHORITY, a corporation organized and existing under
an Act of Congress (hereinafter called "TVA"), and COSTAIN COAL INC.
(hereinafter called "Contractor").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter stated, the parties
hereto agree as follows:
Definitions: "Contract Year" shall mean a twelve-month period
commencing with the first day of the calendar month in which the Delivery
Commencement Date (as hereinafter defined) occurs.
"Delivery Commencement Date" shall be that date set forth in Section
1 hereof for commencement of deliveries. Such date may be changed only by
supplement to this contract that expressly refers to the term "Delivery
Commencement Date." The actual date of commencement of deliveries shall not
affect the Delivery Commencement Date.
"Contract Quarter" shall mean any of the four quarters of a Contract
Year.
"Contract Administrator" shall be that TVA representative designated
to administer the contract on behalf of TVA.
3
<PAGE>
"Destination Plant" shall mean TVA's Colbert, New Johnsonville and
Gallatin Fossil Plant or such other destination as TVA may elect under
Subsection 14.g. of this contract.
1. Contract Term: The Delivery Commencement Date shall be July 1, 1997 and
deliveries shall continue for six years unless terminated by agreement or as
otherwise provided herein. Provided, however, this contract may be reopened by
either party (9) months prior to the 36th-month anniversary of the Delivery
Commencement Date for the purpose of renegotiating price and other terms and
conditions or for the sole purpose of terminating deliveries. The party desiring
to exercise such reopener shall give the other party written notice at least (9)
months prior to the anniversary date and may, but shall not be required to,
specifics the purpose of such reopening. Nothing herein is intended to require a
party who has commenced renegotiations hereunder to continue such renegotiations
if, for any reason, such party determines it is not in its interests to do so.
If the reopener provision has been exercised, this contract will terminate on
the said 36-'month anniversary date unless TVA and the Contractor have mutually
agreed in writing six (6) months prior to the said anniversary date to continue
this contract. Neither party shall be under any obligation or liability to
continue this contract beyond said termination or have any liability for
refusing to do so, if either party desires to terminate deliveries in accordance
herewith. The Contract Administrator's agreement to any contract modification
arriving out of such renegotiations shall be subject to approval by TVA's Board
of Directors.
2. Quantity:
a. Subject to TVA's right to reduce or increase quantities to be
delivered, as hereinafter provided, the quantity of coal to be sold and
purchased hereunder during each Contract Year shall be 2,000,000 nominal tons,
which shall be divided into four (4) equal amounts to determine the quantity of
coal to be delivered per Contract Quarter, provided, however each Contract
Quarter TVA may either increase or decrease such purchases from Contractor by an
amount up to twenty percent (20%) of the quantity of coal per Contract Quarter
by giving at least thirty (30) days' written notice prior to the beginning of
each Contract Quarter (said
4
<PAGE>
nominated quantity being hereinafter referred to as the "Nominated Quarterly
Quantity'). Such notice shall also indicate the quantities to be delivered each
month for the Contract Quarter. In establishing such monthly quantities, subject
to meeting the Nominated Quarterly Quantity, TVA may elect as much as one
hundred and ten percent (110%) of the base monthly schedule or as little as
ninety percent (90%) of the base monthly schedule to be delivered in any one
month by providing notice in accordance with this Subsection 2.a.
TVA shall not be required to accept any quantity of coal
shipped during a month that is in excess of the total monthly amount scheduled,
but if TVA accepts such excess quantity of coal, TVA may, upon written notice to
Contractor, require that such excess amount be deducted from the quantities to
be shipped during the following or subsequent month(s).
This contract is not and shall not be construed as a contract
for all of TVA's coal requirements for the Destination Plant. TVA reserves the
right to purchase coal from other suppliers in any amount during the term of
this contract.
b. Notwithstanding the provisions of a. above, if generation of
electricity at the Destination Plant is curtailed or interrupted for a period of
one week or more as a result of the operating requirements of TVA's integrated,
electric generating system, including considerations of economic dispatch of
TVA's generating units, TVA may, from time to time, direct Contractor to (i)
suspend deliveries if the electric output of the Destination Plant is
interrupted or (ii) reduce scheduled shipments of coal by a percentage equal to
the percentage reduction in electric output of the Destination Plant resulting
from a curtailment. Such suspension or reduction in deliveries may continue as
long as generation at the Destination Plant is curtailed or interrupted;
provided, however, if TVA continues any such reduction or suspension for more
than one hundred eighty (180) days, Contractor may notify TVA in writing of
Contractor's intent to terminate this contract ninety (90) days from the date of
TVA's receipt of such written notice, and this contract shall, upon the passing
of such ninety-day (90-day) period, terminate without further cost or obligation
to either party, unless TVA shall have
5
<PAGE>
directed resumption of the suspended or reduced deliveries within forty-five
(45) days of TVA's receipt of Contractor's notice of termination.
Except as provided in the preceding sentence, suspensions or
reductions under this subsection shall not affect the enforceability of this
contract, and, on termination of the suspension or reduction, shipments shall
resume pursuant to the terms and conditions of this contract. Both TVA and
Contractor shall be excused from their respective obligations hereunder with
respect to deliveries suspended or reduced pursuant to this Section and such
deliveries shall not be rescheduled for delivery except by mutual consent of the
parties.
c. Except in the case of any failure to deliver that is excused
under Subsection 4.b., TVA may exercise the remedies afforded it under Section
11, Remedies or as otherwise provided by law, in the event Contractor fails to
deliver coal as provided in this Section 2 or Section 3, Scheduling provided,
however, in lieu of other remedies, TVA may elect to reschedule for delivery any
deficiencies. This rescheduled coal shall be delivered in accordance with the
provisions of this contract and at the price in effect at the time during which
such deficiencies occurred.
3. Scheduling:
a. TVA shall provide Contractor with a monthly shipment schedule
indicating the dates and quantities of coal to be delivered to TVA consistent
with TVA's Nominated Quarterly Quantity and the requirements of Subsection 2.a.
Such schedule will be provided by TVA no later than fifteen (15) days prior to
the beginning of the affected month. Contractor shall deliver all coal in
accordance with such schedules. Provided Contractor provides at least one
hundred fifty (150) days' notice to TVA of the holiday and vacation periods for
its sources, TVA shall not schedule deliveries during such periods, unless such
deliveries are critical to the prudent operation of the plant(s) during such
periods.
6
<PAGE>
TVA maintains the right to coordinate all deliveries under
this contract and others for purposes of establishing a uniform daily delivery
schedule for placement at TVA plants.
b. Whether TVA or Contractor contracts for transportation services
necessary to transport coal purchased and sold hereunder to the Destination
Plant, unless otherwise agreed, it shall be Contractors responsibility to make
timely arrangements for the availability of transportation equipment for moving
the coal at the scheduled rate of delivery. Contractor shall be responsible for
any demurrage that accrues at the loading point as provided in Section 14,
Transportation.
4. Variations, Delays, and Interruptions in Deliveries:
a. Time of delivery is of major importance to TVA. Contractor shall
immediately notify TVA's Fuel Transportation Department of any expected
deviation from the delivery schedule established in accordance with Section 2,
Quantity. and Subsection 3.a. of this contract and of the cause and extent of
deviation, except in the case of variations from schedule of up to five percent
(5%).
b. Subject to the conditions hereinafter stated, neither party shall
be liable to the other for failure to mine, deliver, take, or unload coal as
provided for in this contract if such failure was due to supervening causes
beyond its control and not due to its own negligence, and which cannot
reasonably be overcome by the exercise of due diligence. Such causes shall
include by way of illustration, but not limitation: acts of God or of the public
enemy; insurrection; riots; strikes; nuclear disaster; partial or total outages
of coal-fired units; floods; accidents; major breakdown of equipment or
facilities (including emergency outages of equipment or facilities to make
repairs to avoid breakdowns thereof or damage thereto); fires; shortages of
carriers' equipment; embargoes; orders or acts of civil or military authority;
or industry-wide shortages of materials and supplies. Nor shall TVA be obligated
to take coal hereunder so long as such causes wholly or partially prevent the
unloading, stockpiling, or burning of coal at the plant to which deliveries are
consigned at
7
<PAGE>
the time the cause occurs, in which case, TVA shall have no obligation to
consign coal shipments to another plant in order to avoid the effect of an
excusable cause. Nor shall the refusal of either party to settle a strike on
terms other than it considers satisfactory preclude the strike from being
considered an excusable cause. TVA shall have the right, but not the obligation,
to require Contractor to make up any tonnage not delivered in accordance with
this Section.
A party's delays due to delays of its subcontractors will not
be excusable under this provision unless the delay of the subcontractor was also
due to causes beyond the control and without the fault of the subcontractor,
such as the causes listed above. The failure by Contractor or its subcontractor
to obtain and maintain all federal, state, and other regulatory agency coal
mining permits, certificates, and licenses shall not excuse Contractor from any
obligation under this contract. The provisions of this Subsection b. shall not
excuse a party unless such party failing to deliver or take coal shall give
written notice to the other of such failure and furnish full information as to
the cause and probable extent thereof within ten (10) calendar days after the
failure first occurs. In the case of the Contractor, said ten-day (10-day)
period shall begin with the day following that on which tonnage first becomes
deficient under the established delivery schedule. In the case of TVA, this
period shall begin on the day following that on which TVA first fails to take
coal duly and properly delivered. Failure to give such notice and furnish such
information within the time specified shall be deemed a waiver of all rights
under this provision with respect to tonnage scheduled for delivery prior to the
date such notice and information are actually furnished.
In the event of partial failure to deliver, take, or unload
coal which is excusable under this Subsection, the parties shall prorate
deliveries or receipts of coal in substantially the same proportion based upon
contractual commitments, (e.g. a fifty percent (50%) reduction in receiving or
production capacity would result in a fifty percent (50%) reduction in
scheduled deliveries for each supplier or consumer). However, the parties shall
not be obligated to prorate a reduction in receipts or deliveries under coal
supply contracts not affected by the failure because they have different modes
of delivery or have substantially different quality
8
<PAGE>
requirements, or because their scheduled delivery dates are not affected by the
failure. During the periods TVA may experience such failures to take or unload
coal, Contractor shall be permitted to sell such coal normally intended for TVA.
In the case of the period during which Contractor may experience such failures
to deliver coal, TVA may purchase replacement coal. The disabling effects of
such failures to deliver, take, or unload coal shall be corrected by the party
experiencing such failure as soon as and to the extent reasonably practicable.
If a party's excused failure to deliver or receive coal in
amounts substantially in conformance with the schedule established under Section
2, Quantity, and Subsection 3.a. continues for a period exceeding one-hundred
eighty (180) days, the other party may terminate this contract. In the event of
such a termination, neither party shall have any further liability to the other
except for those liabilities which may have accrued with respect to performance
or defaults prior to said termination.
c. TVA, by providing at least forty-five (45) days' prior written
notice to Contractor, shall have the right to refuse any shipments otherwise
scheduled for delivery during plant maintenance or repair periods and shall have
no obligation to accept such shipments at a later time.
5. Source:
a. The source of coal delivered under this contract is of major
importance to TVA. The provisions of this contract pertaining to coal quality
and quantity requirements, price adjustments, federal and state legislation, and
other matters are directly related to the source of coal. As used in this
Section 5, "Source Area" shall mean the total coal reserve areas outlined in the
Specific Location Map(s) identified in Appendix B; provided, that, within the
Source Area, only the area(s), for surfaced-mined coal, or mine opening(s), for
underground-mined coal, covered by the mining permit(s) listed in the Term Offer
is an "Authorized Source" of coal for delivery under this contract. The mine
area(s) and/or opening(s) located -within the Source Area shown on the Specific
Location Map(s), but not covered by the mining permit(s) listed in the Term
Offer, may become
9
<PAGE>
an Authorized Source under the following procedures as mining progresses and the
appropriate permit(s) and license(s) are obtained. Contractor shall notify TVA
in writing at least forty-five (45) days in advance of its intention to deliver
coal from any additional area(s) or mine opening(s) in the Source Area which is
not then authorized. TVA may, if it deems it is in TVA's best interests,
authorize such areas, but is under no obligation to do so. TVA reserves the
right to require Contractor to furnish any information and/or any guarantees TVA
deems necessary bearing on the ability of the source to meet the requirements of
this contract and to make that information a part of this contract
b. Contractor shall immediately notify TVA in writing of any events
affecting the size or location of the Authorized Source(s). All Authorized
Sources under this contract shall be in compliance with the Federal Mine Safety
and Health Act of 1977, as amended, all state and federal reclamation laws,
including the Surface Mining Control and Reclamation Act of 1977, as amended,
and regulations issued under such laws. If Contractor fails to comply with this
requirement, whether or not coal from such Authorized Source is then being
delivered hereunder, TVA may exercise its rights under Section 11, Remedies.
c. Contractor expressly assumes the risk that the Authorized
Source(s) will permit the production of coal in such quantities and of such
quality as will meet the requirements of this contract. Coal shall not be
delivered from any other source(s), or shipped from any other origin(s), or
mined by any other producer(s) or subcontractor(s), unless authorized by TVA in
writing prior to delivery.
d. Regardless of the cause of or reason for a request by Contractor
to approve a new Authorized Source, TVA shall be under no obligation to approve
the tendered source as an Authorized Source, and TVA may withhold its approval
on any basis or bases that TVA may deem appropriate, including purely economic
considerations.
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<PAGE>
6. Price:
TVA shall pay Contractor $24.28 f.o.b. barge (hereinafter
referred to as the "Base Price") Caseyville Dock for each net ton of coal
purchased and delivered under this contract, plus or minus such adjustments as
herein provided. The Base Price shall be reduced by $0.25 per ton should TVA
elect, from time to time, to use Contractor weights and sampling. The Base Price
shall remain constant.
7. Sampling and Analysis:
a. The sampling location shall be the Destination Plant unless TVA
notifies Contractor in writing that samples will be taken at other locations.
Contractor may be present at the taking of samples, but TVA shall be under no
obligation to notify Contractor to be present. Samples shall be collected from
as much as is practical, but not less than fifty percent (50%) of the tonnage
delivered in each quarter.
b. Sampling and analysis shall be conducted generally in accordance
with the methods described in the latest published edition of the Annual Book of
ASTM Standards volume 05.05. The analysis location shall be the TVA Central Coal
Laboratory unless TVA notifies Contractor in writing that samples will be
analyzed at other locations. Contractor has observed the sampling and analysis
equipment and facilities or has taken such other steps as Contractor deems
appropriate to familiarize itself with such equipment and facilities, and
Contractor waives any claim, demand, defense, or objection thereto based on any
lack of conformance of such equipment and facilities to the requirements of this
Section 7, provided they are properly maintained during the term of this
contract.
c. Analysis data shall be promptly made available to Contractor
through access to a computer system or, at TVA's option, such data may be
provided by other means. Moisture, ash, and sulfur values shall be reported to
the nearest hundredth (.01) of a percent. Heat content in Btu/lb. SO2 content
shall be calculated and reported to the nearest hundredth (.01) of a pound.
11
<PAGE>
d. All samples collected by TVA shall be prepared to No. 60 mesh
according to ASTM D 2013 and shall be divided into at least two parts and put in
suitable airtight containers, the first container in each case to be used by
TVA, or its designated commercial laboratory, and the second container in each
case to be held available by TVA for a period of not less than forty-five (45)
days from actual sampling date of the coal by TVA, properly sealed and labeled,
to be analyzed if a dispute arises between TVA and Contractor. If Contractor
wishes to dispute a sample or analysis, it shall notify TVA in writing within
such forty-five day (45) period. If Contractor fails to provide such notice of
dispute within such forty-five day (45) period, Contractor shall be deemed to
have waived any claim or defense based on errors or omissions in the sampling or
analysis operations as to the affected samples.
If a dispute is made over the result or method of such sampling
or analysis, TVA shall review and inspect the sampling and analysis equipment
and procedures, and the second sample split will be analyzed by a third party
commercial laboratory to check for reproducibility. The third party lab will
follow the same ASTM analysis procedures outlined in Subsection b and the
reproducibility limits in those same standards will be used to judge
reproducibility. If the review of the sampling and/or analysis indicates the
sampling or analysis was improperly performed or the results of the second
analysis are not within ASTM reproducibility limits, the original analysis
report shall be declared erroneous, and both the original and the second
analysis report shall be ignored. Otherwise, the original analysis report shall
remain in full force and effect.
e. Contractor shall also sample and analyze, or obtain services of a
third party to sample and analyze, all shipments of coal to TVA under this
contract. These analyses shall specify, at a minimum, the total moisture
content, the ash content (as-received), the heat content Btu/lb (as-received),
and the sulfur content (as-received), and must be electronically transmitted to
both the Destination Plant and the Contract Administrator in a format acceptable
to TVA. These analyses are required in order to provide information on the
contents of coal received by TVA prior to unloading. TVA reserves the right not
to unload coal at the Destination Plant until after the appropriate analysis is
received. Contractor shall be responsible for any demurrage charges
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<PAGE>
incurred by TVA as the result of Contractors failure to transmit the analyses
when and as required. TVA may reject coal based on these analyses; however,
nothing in this Subsection e. shall affect in any way TVA's rights to
appropriate contractual actions and adjustments for quality based on samples
collected and analyzed in accordance with Subsections a. and b. of this Section
7.
f. In the event that TVA does not sample at least fifty percent
(50%) of the tonnage received for a quarterly adjustment, the Contractor's
samples shall be used for the quality adjustment for such quarter under Section
8, Adjustments for Quality provided all Contractor samples for such quarter meet
all criteria below:
(1) One-hundred. percent (100%) of shipments shall have been sampled
and analyzed in accordance with the methods described in the latest published
edition of the Annual Book of ASTM Standards. volume 05.05. Samples must have
been collected utilizing mechanical systems meeting ASTM D 2234 Type I,
Condition B, which have been shown to be free of bias within the past year. The
bias testing procedure and precision used must be approved by TVA. Systems will
be subject to a critical inspections according to ASTM D 4702 prior to approval.
Analysis procedures used should be as follows unless otherwise approved in
writing by TVA:
<TABLE>
<CAPTION>
Parameter Method
--------- ------
<S> <C>
Residual Moisture ASTM D 5142
Ash ASTM D 5142
Sulfur ASTM D 4239
Btu ASTM D 1989
</TABLE>
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<PAGE>
(2) Sample analysis and other data required by TVA to match data
with shipment shall be provided to TVA in a format approved by TVA.
(3) The lot size for each sample shall be by barge for barge coal,
by trainload for rail coal, and by daily delivery for truck coal.
(4) Analysis for each sample shall have been received by TVA by
electronic data interchange within seven (7) days of collection of said sample.
(5) The sampling system shall be located such that the sample
collected for shipment is collected only from coal that is loaded for said
shipment.
If TVA samples twenty percent (20%) or more but less than
fifty percent(50%) of the tonnage received, and if any of Contractors samples
for the quarter do not meet all of the above criteria, TVA samples shall be used
for the quarterly adjustment.. If TVA samples less than twenty percent (20%) of
the tonnage received and any of Contractor's samples do not meet all of the
above criteria, no adjustment for quality will be made for the quarter.
7a. Optional Sampling:
TVA has the option from time to time, with 30 days' notice, to
switch the coal sampling location to Contractor's barge loading facility. In the
event TVA exercises this option then (during the period such option is in
effect) the following shall supersede Section 7:
a. The coal to be delivered hereunder shall be sampled by Contractor
at the barge loading point by use of a mechanical sampling device, conforming to
ASTM Standard D2234, Collection of a Gross
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<PAGE>
Sample of Coal. Unless otherwise mutually agreed, sampling shall be conducted in
accordance with the most current published revision of the Annual Book of ASTM
Standards, Volume 05.05. Unless otherwise mutually agreed, sampling shall be on
a barge load by barge load basis. These samples shall be used to determine the
quality of the coal sold hereunder for contract purposes. In the event the
mechanical sampling system is not operating due to mechanical, electrical or
operational failure, Contractor shall notify TVA and accept TVA's samples at the
Destination Plant.
Contractor agrees to ensure that all sampling equipment is
properly maintained and adjusted so that each sample taken is proportionate and
representative of the coal delivered. TVA or its designated representative may
observe any sampling or sample preparation performed by Contractor. Contractor
shall furnish the results of bias tests on the sampling system, and the results
must be acceptable to TVA. The sample system shall be bias tested (dynamic bias
test) at least every twelve (12) months.
Contractor shall prepare the samples obtained as directed by
TVA and shall divide such samples into three splits. Contractor will analyze the
first split and fax the results to the Fuel Contract Administrator who
administers this contract for TVA and to the Coal Records Clerk and Yard
Operations Supervisor at the Destination Plant. Except as provided below, the
Contractor's results obtained on this first split will be utilized by TVA to
determine whether or not the coal covered by the sample will be unloaded at the
Destination Plant. TVA reserves the right not to unload coal at the Destination
Plant until after the appropriate analysis is received. Contractor shall be
responsible for any demurrage charges incurred by TVA as the result of
Contractor's failure to transmit the analyses when and as required. Contractor
will promptly obtain a TVA sample number from the Coal Records Clerk at the
Destination Plant and send, within twenty-four (24) hours of barge loading, the
second split identified by such sample number directly to TVA's Central
Laboratory by expedited delivery for analysis. The TVA analysis results obtained
from the second split shall supersede the first split sample results and will be
utilized for all contract purposes, including rejection of shipments and
determining the price adjustment required to compensate for the difference
between the quality of the coal
15
<PAGE>
actually shipped and the contract guaranteed analysis. The third split ("referee
sample") will be retained by Contractor to be analyzed by an independent
laboratory (to be agreed upon by TVA and Contractor) in the event of a
disagreement between the parties regarding the results obtained on either of the
other two splits. If the results of the referee analysis indicate the analysis
was improperly performed or the results of the referee analysis are not within
ASTM reproducibility limits with the Central Laboratory results, then the
referee analysis result will be conclusive between the parties in regard to the
analysis of the sample in question. The cost of any such referee analysis shall
be borne by the party that requested it. If adjustment is made, then the cost of
any such analysis shall be equally shared by both parties.
8. Adjustment for Quality:
a. As used in this Section 8, a "Quarterly Average Value" shall mean
the weighted average value of the appropriate quality component determined from
all samples collected in accordance with Subsections 7.a. and 7.b. (or 7a., as
applicable) during a calendar quarter based, at TVA's election, on the tonnage,
number of railcars, or barges represented by the samples.
b. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest cent per ton and using the Base Price, shall be
applied to the contract price to account for variations in the Quarterly Average
Value for as-received Btu/lb compared to the Typical Analysis for as-received
Btu. This adjustment shall in no way be affected by contract price adjustments
under Section 10, Contract Price Adjustments hereof. (See Exhibit I for example
of calculations)
c. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest tenth of a cent per ton at a rate of either (I) $ 0.15
per ton (decrease) for each percentage point the Quarterly Average Value of ash
(on an as-received basis) exceeds the Typical Analysis for ash, or (2) $ 0.15
per ton (increase) for each percentage point for the Quarterly Average Value for
ash (on an as-received basis) is less
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<PAGE>
than the Typical Analysis for ash, shall be applied to the contract price. The
calculation shall be prorated to cover any fractional percentage. (see Exhibit I
for example of calculations)
d. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest tenth of a cent per ton at a rate of either (1) $0.06
per ton (decrease) for each percentage point the Quarterly Average Value of
moisture exceeds the Typical Analysis for Moisture, or (2) $0.06 per ton
(increase) for each percentage point the Quarterly Average Value for Moisture is
less than the Typical Analysis for moisture, shall be applied to the contract
price. The calculation shall be prorated to cover any fractional percentage.
(see Exhibit I for example of calculations)
e. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest cent per ton at a rate of either (1) $ 0.52 per ton
(decrease) for each tenth (1/10) of a pound per million Btus the Quarterly
Average Value of sulfur dioxide exceeds the Typical Analysis for sulfur dioxide,
or (2) $0.13 per ton (increase) for each tenth (1/10) of a pound per million
Btus the Quarterly Average Value for sulfur dioxide is less than the Typical
Analysis for sulfur dioxide, shall be applied to the contract price. The
calculation shall be prorated to cover any fractional amount tenth (1/10) of a
pound. (see Exhibit I for example of calculations)
f. As soon as practicable after the end of each calendar quarter,
TVA shall submit to Contractor a report showing the Quarterly Average Values and
any adjustments determined under this Section 8 of the contract. The number of
tons of coal received by TVA which are subject to adjustment shall be multiplied
by said adjustments, and any resulting amount shall be paid promptly (or
credited to the extent of any offsetting debit) to the party to whom it is due.
The assessment of adjustments in accordance with the foregoing does not in any
way impair TVA's rights under the contract or at law with respect to any failure
by Contractor to meet the Typical Analysis that gives rise to such adjustments.
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<PAGE>
9. Quality and Specifications:
a. All coal delivered under this contract shall conform to the
following Typical Analysis on a Quarterly average as determined by sampling and
analyses performed in accordance with Section 7, Sampling and Analysis:
<TABLE>
<CAPTION>
TYPICAL REJECTION/SUSPENSION
ANALYSIS (1) SPECIFICATIONS(3)
<S> <C> <C> <C>
Lbs of SO(2) per
million Btu(2) 3.7 lbs Not more than 3.8 lbs
Total Moisture 8.0 % Not more than 10.5 %
Sulfur (as-received) 2.3 % Not more than 2.6 %
Sulfur (as received) Not less than 1.7 %
Ash (as-received) 10.5 % Not more than 13.0 %
Ash (dry basis) 11.4 % Not more than 15.0 %
Btu/lb (as-received) 12,200 Not less than 11,834
Ash fusion temperature
reducing atmosphere
Initial 2300 (degrees)(F)
2300 (degrees)(F)
for Colbert and
Softening (Hemispherical) 2400 (degrees)(F)
Not less than 2100 (degrees)(F)
for all other plants
Fluid 2550 (degrees)(F)
Volatile Matter (dry basis) 36.0 % Not less than 32.0 %
Grindability (Hardgrove Index) 55 Not less than 50
Chlorine (dry basis) 0.29 % Not more than 0.29 %
</TABLE>
(1) The Typical Analysis shall be used for the quality adjustment under
Section 8.
(2) At 97.5%
(3) Failure to comply with any of these specifications shall be basis
for rejections and suspensions or termination pursuant to
Subsections 9.c. and 9.d.
b. The coal as-received shall have a top size not greater than two
(2) inches or less than one and one-fourth (1-1/4) inches, with at least
fifty-five percent (55%) of the product larger than one-fourth (1/4) inch, and
with at least eighty-five percent (85%) of the product larger than 28 mesh. Such
sizes shall be determined by using screens with square openings. Coal shall not
exhibit a temperature in excess of 120 (degrees)(F), and
18
<PAGE>
it shall be substantially free from mining impurities and scrap such as drill
bits, pieces of scrap metal or plate, plastic, rubber, rope, cloth, wire, cable,
bone, slate, earth, rock, pyrite, wood, or water, which can be kept out or
removed with the exercise of reasonable care during mining, preparation, and
loading. It shall be loaded in a manner that will ensure reasonably uniform
consistency as to size and quality and shall not contain slurry pond material
(washer tailings), gob pile material (mine refuse), petroleum-coke, oxidized
coal, or blends of such materials, or create excessive amounts of dust during
the unloading and transferring to storage.
c. If any coal delivered fails to meet any of the
Rejection/Suspension Specifications in Subsection 9.a. or the requirements of
Subsections 9.b. on the basis of visual inspection or laboratory analysis, TVA
may reject the coal at the source, loading point, or Destination Plant. TVA's
acceptance of any amount of coal which does not meet these requirements shall
not constitute a waiver of any right which TVA may have under this contract or
as provided by law on account of the delivery of such coal. In case of rejection
of any coal in accordance with this Section, TVA will immediately notify
Contractor of the rejection and of the cause of rejection. In the case of coal
rejected after loading, unless the cause for rejection is corrected, Contractor
shall promptly remove the coal from the carrier's equipment or from TVA
premises, as the case may be, at Contractors expense. Contractor shall reimburse
TVA for any additional transportation costs, demurrage, equipment repair costs,
or handling expenses incurred by TVA in connection with any such rejection. TVA
shall not be under any obligation or liability to assist Contractor in any
corrective actions required to remedy the cause for rejection.
d. If any coal delivered fails to meet any of the
Rejection/Suspension Specifications stated in Subsection 9.a. or the
requirements of Subsection 9.b., TVA shall have the right to refuse to accept
further deliveries from any or all mine sources authorized under the contract
until Contractor provides assurance satisfactory to TVA that Contractor will
comply with the Rejection/Suspension Specifications and the Subsection 9.b.
requirements. Such assurance must be given in writing within seven (7) days
after the beginning of such suspension. If Contractor fails to provide such
satisfactory assurance within the time specified or provides such
19
<PAGE>
assurance but does not correct the deficiencies that resulted in the
Contractor's failure to comply with any of the Rejection/Suspension
Specifications or the requirements of Subsection 9.b. within seven (7) days
after giving such assurance, TVA may then terminate Contractors right to make
further deliveries under this contract. Contractor shall be responsible for all
costs or damages incurred by TVA resulting from Contractors failure to comply
with the contract requirements. Damages or excess reprocurement cost may be
determined in accordance with Section 11, Remedies.
e. If the normal operations in conformance with the design
capabilities of TVA's fossil plants cannot be accomplished with the coal
delivered hereunder, although the coal complies with the quality and size
requirements of this Section 9, TVA may then terminate Contractor's right to
make further deliveries, and this contract shall be canceled without further
obligation or liability to either party. In the event of such a termination, the
Contractor may be given a reasonable opportunity to remedy the cause for
termination, which may include the offer of replacement coal. However, TVA is
not obligated to accept offers of replacement coal.
10. Contract Price Adjustments:
a. Effective the first day of the second Contract Year and each such
first day of each Contract Year thereafter, the then current adjusted price of
coal shipped under this contract will be increased by one percent (1%) of the
Base Price specified in Section 6, Price as such price may be modified under
Subsection d., below.
b. (1) In the event of enactment or amendment, after the proposal
closing date for the requisition under which this contract was awarded (or in
the case of establishment of a new Base Price under Subsections d., below, after
the effective date of such new Base Price), of a federal or state statute that
assesses on a per ton basis a tax, fee, or other similar charge on the coal
delivered hereunder ("Law Change"), Contractor shall notify TVA of such Law
Change and supply from its records information satisfactory to TVA showing the
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effect, if any, of the Law Change upon the cost per ton of furnishing coal under
this contract. If a Law Change increases Contractors cost of providing coal to
TVA, a contract price increase shall be made by TVA for such Law Change
effective on the later of (a) the date TVA receives Contractors notice of the
Law Change or (b) the date Contractors cost of providing coal is increased by
the Law Change. If a Law Change decreases Contractor's cost of providing coal to
TVA, a price decrease shall be made by TVA for such Law Change effective on the
date such Law Change could be utilized to reduce Contractors costs whether or
not Contractor actually reduces such costs on such date. This Section l0.b.(l)
does not apply to (i) promulgation or amendment of rules and regulations except
to the extent such promulgation or amendment results from a Law Change, or (ii)
to implementation of statutes or amendments to statutes that are enacted on or
before the proposal closing date as described above.
(2) If (i) a price adjustment requested by Contractor under
this Subsection b. would result in a contract price increase exceeding ten
percent (10%) of the Base Price, or (ii) a combination of price adjustments
under this Subsection b. and any other provision of this contract that
collectively come into effect during any one-year period would result in a
contract increase exceeding ten percent (10%) of the Base Price, then TVA may,
at its sole discretion, terminate the contract upon sixty (60) days' written
notice given after such an adjustment(s) is requested by Contractor.
c. The increase or decrease under each subsection shall be
calculated separately to the nearest one-tenth (1/10) cent per ton. Any changes
(including a recalculation of a previously granted tentative price adjustment)
considered applicable by Contractor shall be reported to TVA by Contractor with
appropriate data necessary to verify the change. Contractor must furnish such
supporting evidence as may be requested by TVA. A request for a price adjustment
considered applicable by Contractor must be submitted to TVA with appropriate
documentation within one hundred eighty (180) days of the date Contractor incurs
a cost change. Failure to do so shall constitute a waiver of Contractor's right
to any upward adjustment. Any overpayment made under these provisions may be
deducted from any amounts otherwise due Contractor.
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<PAGE>
Contractor agrees chat, in the event TVA reimburses Contractor
under this Section 10 for a cost incurred by Contractor and it is later
determined that Contractor is entitled to recover such cost from a third party,
at TVA's request Contractor shall use its best efforts to recover such cost and
upon such recovery shall reimburse TVA for amounts previously paid by TVA based
on said cost. Reasonable costs incurred by Contractor in pursuing such recovery
at TVA's request shall be reimbursed by TVA; provided that where contractor
and/or other purchasers from Contractor also receive a benefit from pursuing
such recovery, the cost thereof shall be equitably shared.
d. In the event TVA's transportation cost for shipment of coal
delivered hereunder increases during any one-year period at a rate greater than
ten percent (10%) of the transportation cost in effect at the time of contract
award, TVA may terminate the Contractors right to proceed under this contract
without further obligation or liability to either party hereunder or at law by
giving Contractor sixty (60) days' advance notice of such termination any time
within one year after TVA begins incurring such cost increase. However, in lieu
of termination, Contractor may elect to reduce the Base Price of coal to cover
the increased portion of the transportation cost above the aforementioned limit,
in which case the contract shall remain in full force and effect. Contractors
election must be set forth in writing within thirty (30) days of TVA's notice of
termination. Such election by Contractor shall be irrevocable and binding for
that increase and, shall be effective as of the date of notification by TVA of
the cost increase. TVA may invoke the provisions of this Subsection d. each and
every time its costs exceed the limit set forth above.
11. Remedies:
a. This Subsection 11.a. does not apply to a situation where another
contract provision provides a different procedure, such as Subsection 9.d. If
TVA in good faith believes that Contractor has failed to comply with any term or
condition of this contract, the Contract Administrator shall give Contractor
oral notice, to be followed by written confirmation, of any such violation.
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<PAGE>
(i) If Contractor fails to correct a curable contract
violation within seven (7) days of first notice, TVA shall have the right to
suspend Contractors right to make further deliveries until Contractor provides
adequate assurance to TVA that Contractor will comply with all provisions of
this contract, such assurance to be given in writing within seven (7) days after
such suspension. If Contractor fails to provide such adequate assurance within
the time specified or timely provides such satisfactory assurance but Contractor
does not correct the curable contract violation(s) within seven (7) days after
giving such assurance, TVA shall have the right, but not the obligation, to
terminate Contractor's right to make further deliveries under this contract.
(ii) In the case of a contract violation by Contractor that is
not curable (including, but not limited to, violations of Section 5, Source, of
this contract or of Section 6, Officials Not to Benefit of the General Long-Term
Contract Conditions), upon providing notice as described above, TVA shall have
the immediate right, but not the obligation, to terminate or suspend for up to
thirty (30) days, Contractors right to make further deliveries under this
contract. If TVA suspends Contractor's right to make further deliveries,
then, upon expiration of said thirty-day period, TVA shall either direct
Contractor to continue performance of this contract or terminate Contractors
right to make further deliveries.
b. Contractor shall be responsible for all costs or damages incurred
by TVA resulting from Contractor's failure to comply with the contract
requirements. TVA may, at its option, purchase in the open market or by contract
or otherwise procure coal to replace all or any part of that which the
Contractor has failed to deliver, except as provided in Subsection b. of Section
4, Variations. Delays. and Interruptions in Deliveries or that as to which its
right to deliver was terminated or suspended. Contractor shall be liable to TVA
for the excess cost occasioned by such purchase(s) and any other loss or damage
caused by Contractor's breach of the contract, including, but without limitation
to, liability incurred by TVA with respect to the transportation or other
handling of the coal. In the alternative, TVA may determine the loss or damage
sustained by Contractor's breach of contract by other methods as provided by
law. In addition to all other means of recovery, TVA may deduct any such excess
costs and damages from any amount otherwise due Contractor.
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<PAGE>
Unless TVA determines that the following method of calculating
damages is not practical and TVA notifies the Contractor in writing that TVA's
damages will be calculated in some other commercially reasonable manner, (I)
such part of the highest priced coal (of comparable quality under one or more
contracts) which TVA purchases at the next awarding of term or spot contracts
for delivery to any fossil plant in the TVA system as would be required to
replace coal which was scheduled for delivery under this contract after the date
the Contractors right to make deliveries under this contract was terminated
shall be deemed to have been purchased as replacement coal for Contractors
account; and (2) for unexcused deficiencies occurring before termination or
contract expiration, such part of the highest priced coal (of comparable quality
under one or more contracts) for which TVA awards spot contracts in the week
following each such deficiency, for delivery to any plant in the TVA system, as
equals the quantity of Contractor's deficiency shall be deemed to have been
purchased as replacement coal for Contractor's account. If no spot coal was
purchased before contract termination or expiration, TVA shall determine damages
for all unexcused deficiencies in the manner provided in item (1) above, whether
such deficiencies accrued before or after termination or expiration.
c. If TVA suspends or terminates Contractor's right to make further
deliveries hereunder or under any other provision of this contract and such
suspension or termination is finally determined in accordance with Section 18,
Disputes to have been improper, then Contractor's sole remedy for such improper
termination or suspension shall be to require rescheduling of all coal
Contractor was prevented from delivering due to such termination or suspension,
such coal to be rescheduled for delivery on dates acceptable do both parties,
but in any event not later than contract expiration. The price to be paid for
such rescheduled coal shall be that in effect at the time of delivery.
12. Notices: Unless otherwise provided for in the Agreement, any
contractual notice required to be given to either party shall be deemed duly
given by registered, certified, or first-class mail, telecopy or telegram, to
the intended party at the following address or at such changed address as may
from time to time be designated
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in a notice similarly delivered or mailed. Except as expressly provided herein,
any notice shall be deemed to have been given when sent. Communications by
telecopy, or telegram shall be confirmed by depositing a copy of the same in the
post office for transmission by registered, certified, or first-class mail in
any envelope properly addressed as follows:
In the case of Contractor to:
Costain Coal Inc.
249 E. Main Street, Suite 200
Lexington, KY 40507
In the case of TVA to:
Linda Sallee, Contract Administrator
Tennessee Valley Authority
Fossil Fuels
1101 Market Street
Chattanooga, Tennessee 37402-2801
Attention: LP 5G
In addition, Contractor shall send a duplicate copy of every
such notice and communication to TVA's Contract Administrator as designated by
TVA from time to time. Either party may, by written notice to the other, change
the representative or the address to which such notices and communications are
to be sent.
13. Shipping Notices:
a. For all rail-delivered coal Contractor shall forward to the Plant
Manager and Contract Administrator a daily notification, in duplicate, as to
coal shipped. This shipping notice must include the Purchase Order number,
Release number, traffic control number, railcar numbers, origin, name of mine,
size of coal, shipping date, and approximate date of arrival. In addition,
Contractor must complete the bill of lading (provided by TVA), and forward this
document to the railroad and plant for proper identification. TVA shall have the
right to require Contractor to transmit all of the above-referenced information
via electronic data transfer direct to TVA's computer system.
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<PAGE>
b. For all barge-delivered coal Contractor shall forward to the
individual named in the consigning instructions, Plant Manager, Contract
Administrator, and Terminal Supervisor, if applicable, a daily notification, in
duplicate, as to coal shipped. This shipping notice must include the Purchase
Order number, Release number, traffic control number, barge numbers, origin,
name of mine, size of coal, shipping date, and approximate date of arrival. TVA
shall have the right to require Contractor to transmit all of the
above-referenced information via electronic data transfer direct to TVA's
computer system.
c. Contractor must take whatever steps are necessary to ensure that
shipping notices arrive at the plant prior to delivery of the coal. The plant
will not unload coal until a correct shipping notice is received and Contractor
will be responsible to carrier or TVA for any demurrage charges resulting from
delays due to late notification.
14. Transportation:
a. TVA reserves the right to specify reasonable limitations on the
type and size of transportation equipment, the method of transportation
(including train load lots and barge load lots where lots are necessary to
provide the lowest transportation rate possible), and the exact routing to be
used even though transportation charges are prepaid. TVA may reject any shipment
made in disregard of such specifications. If the contract is awarded upon the
basis of a price or prices which include transportation charges in whole or in
part to destination (f.o.b. destination contract), title to the coal (except in
the case of accelerated payments to Small Coal Operators) and risk of loss and
damage shall remain with Contractor until delivery in acceptable condition by
the carrier at destination.
b. For all coal to be delivered hereunder, it shall be Contractor's
responsibility to furnish loading devices which shall be suitable and fit for
the purpose contemplated in this contract. Contractor shall be governed by
carriers instructions regarding the height and distribution of the load, weight
of cargo, and other
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instructions which carrier deems necessary for safe transportation. Contractor
shall allow carrier's inspection of loaded equipment to assure compliance with
carrier's loading instructions.
c. For all coal purchased, it shall be Contractors responsibility to
visually inspect the transportation equipment prior to each loading and
ascertain that the equipment is empty and suitable for loading. Any equipment
found mechanically unsound for loading or contaminated with material shall not
be loaded. Contractor shall be responsible for all costs incurred by TVA,
including the cost of any coal lost in transit, resulting from Contractors
failure to exercise such diligence.
d. For all coal purchased for delivery by rail, whether f.o.b.
railcar or f.o.b. Destination Plant, Contractor shall be responsible for loading
each car to the appropriate capacity as required by the rail carrier. In
addition, each trainload shipment tendered under this contract shall be loaded
to the minimum trainload weight as required by the rail carrier. Contractors
account will be charged with any penalties assessed to TVA because of
Contractor's failure to observe any minimum weight loading requirements. The
gross weight of each car shall not exceed the maximum allowed by the carrier. If
cars are found to be loaded in excess of such maximum, it shall be Contractor's
responsibility to correct the load at Contractor's expense, including but not
limited to, Contractor's payment to the carrier of a per car switching charge,
as well as any demurrage charges which may accrue while the car or cars await
correction in load.
e. For all coal to be delivered hereunder, whether f.o.b. origin or
f.o.b. Destination Plant, Contractor shall be responsible for any demurrage that
accrues at any loading point as a result of Contractor or its subcontractors not
being prepared to load the coal as scheduled. The carrier shall invoice
Contractor and Contractor shall pay said carrier for all origin demurrage
charges which accrue at the loading point(s).
f. The explicit obligation of this contract is that it will be
performed in accordance with all applicable laws. Therefore, transportation of
coal by Contractor to barge or rail loading facilities or, if
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applicable, to the Destination Plant shall comply with applicable highway laws
and regulations governing the weight of vehicles. If any Contractor fails to
comply with such laws or regulations, TVA shall have the same rights provided
under Section 9, Quality and Specifications, for failure to meet the
requirements thereof, including but not limited to the right to reject coal
delivered in overweight trucks. To insure compliance with this provision and to
help protect the roads and highways, TVA may require that Contractor furnish a
copy of the "certified" truck weight ticket. Regardless of the actual weight of
any truck coal received, the maximum gross weight that can be recorded for a
single truck will be limited to the applicable maximum weight enforced by law.
Any weight exceeding that maximum weight may be deducted from the total weight
of coal used for payment purposes.
g. TVA reserves the right to ship to any plant any coal purchased
f.o.b. any shipping point. For coal purchased f.o.b. any plant or shipping
point, TVA may from time to time direct deliveries to any other plant or
shipping point, and if such deliveries cause an increase or decrease in the
transportation cost borne by Contractor in performing this contract, an
adjustment shall be made in the contract price to reflect the changes in such
cost. In addition, for coal purchased f.o.b. railcar and/or f.o.b. barge, TVA
may, by giving prior written notice to Contractor as soon as possible but not
later than thirty (30) days in advance, change the transportation mode of
delivery.
15. Payments, Invoices: Payments under this contract are subject to the
provisions of the Prompt Payment Act (31 U.S.C. Sections 3901-3907). Payments as
are provided for in the contract or by law will be made by check or, if a
participation agreement has been established between TVA and Contractor,
Electronic Fund Transfer (EFT). Except as provided for under TVA's Small Coal
Operators Assistance Program, EFTs will be made not more than thirty-four (34)
calendar days, and checks will be mailed not more than thirty (30) calendar
days, after the later of (1) receipt of a proper invoice(s) by TVA at the
Accounts Payable Department, P.O. Box 15500, Knoxville, Tennessee 37901-5500 or
(2) receipt and unloading of the coal at TVA's fossil plants. In preparing
invoices, Contractor shall multiply the number of tons delivered by the Base
Price applicable at the
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f.o.b. point of delivery plus or minus any adjustments that have been made
effective under contract provisions.
For purposes of this provision only, "proper invoice" shall mean a
numbered and dated invoice containing the complete name of Contractor, agent's
name (if any), Purchase Order number, Release number, destination plant,
breakdown code, total amount due, correct weights (as defined below), traffic
control number, shipping date, mine at which the coal was produced, together
with any documentation required to be submitted therewith by any other provision
of the contract.
16. Weights:
a. Unless TVA determines circumstances require determination by
other methods, all coal delivered to destination by barge shall be weighed by
TVA on belt scales which are maintained and periodically calibrated by TVA or
third parties for accuracy.
b. Where at TVA's election coal is weighed by Contractor at origin,
Contractor shall notify TVA immediately upon the occurrence of inaccurate
weighing or absence of actual weighing. Contractor shall certify such
notification in writing to TVA within seven (7) working days of the date of each
such occurrence. Such certification shall identify each affected coal shipment
by contract number, breakdown code, shipping point, traffic control number,
shipping date, and car or barge number(s). Contractors account shall be adjusted
for any coal inaccurately weighed, or not weighed, and by the amount of the
carrier's weighing charge in effect at the time of shipment, such adjustment to
be made at whatever time such occurrence(s) becomes known to TVA. In the absence
of scale weights from Contractor, TVA and Contractor will mutually agree by what
means the weight of coal delivered hereunder shall be determined. Contractor
shall reimburse TVA for any cost or expense charged to or incurred by TVA as a
result of the absence of appropriate scale weights from Contractor. While TVA
may not undertake to weigh all coal received, it may at its option, check weigh
any coal received. In the event billed (invoiced) weights vary from TVA weights
by more than one and one-half percent
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(1-1/2%), TVA's weights will govern.
If TVA has elected to have Contractor weigh the coal pursuant to
Subsection b., scale tests shall be performed semi-annually and calibrated to a
certified scale at the Contractor's expense. Scale tests shall be performed more
often than semi-annually when requested by TVA. TVA shall be responsible for the
cost of additional requested tests unless the results thereof show that the
scale failed to conform to certification standards, in which event Contractor
shall be responsible for such costs. The aggregate weights determined during any
payment period shall be acceptable as the quantity of coal sold and purchased
during such period for which invoices are to be rendered and payments to be
made.
TVA shall have the right to have a representative present at any and
all times during TVA loadings to observe determination of weights. If TVA should
at any time question the accuracy of the weights thus determined, TVA shall so
advise Contractor and Contractor shall permit TVA's representatives to test
Contractors weighing devices or methods. If such tests show the weighing devices
to be in error, or if the weighing devices otherwise are determined to be in
error, the weighing devices shall be adjusted to an accurate condition. In the
event TVA and Contractor are unable to agree upon such tests and adjustments, or
the devices or methods thereof, the weighing devices and methods shall be tested
and adjusted to a condition of accuracy by a qualified third party, mutually
chosen by TVA and Contractor, and the cost of the testing and adjusting by such
third party shall be shared equally by TVA and Contractor.
If Contractor's weighing devices or methods are determined to be in
error over 0.5%, an appropriate adjustment shall be made to the affected weights
and related invoices and payments. Such adjustments shall be made retroactively
to a date midway between the date on which the weighing devices were last tested
and calibrated and the date on which the inaccuracy in weighing methods or
devices was first questioned and prospectively until the date on which the
weighing methods and devices are corrected.
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c. All scales used by Contractor to determine the governing weight
of coal shall be maintained and operated in accordance with the National
Institute of Standards and Technology Handbook 44.
17. Contract Administrator/Contracting Officer: The Vice President of Fuel
Supply and Engineering has designated the Contract Administrator who administers
this contract for TVA as his/her duly authorized representative to act on behalf
of TVA for all purposes in the administration of this contract, such designation
to continue until revoked or modified by the Vice President of Fuel Supply and
Engineering. The Contract Administrator shall serve as TVA's "Contracting
Officer" with respect to matters arising under terms of this contract that
provide for action by the Contracting Officer.
18. Disputes:
a. This contract is subject to the Contract Disputes Act of 1978,
Public Law No. 95-563, 92 Stat. 2383 ("the Act"), and TVA's implementing
regulations published at 18 C.F.R. pt. 1308, as they may be amended from time to
time.
b. Any dispute relating to this contract, whether arising before or
after completion of performance, including disputes as to any alleged violation
or breach thereof, which is not settled or disposed of by agreement of the
parties shall be decided by the Disputes Contracting Officer (who shall be
appointed by the TVA Vice President of Fuel Supply and Engineering) on the basis
of the contract file and any other facts which he/she may deem pertinent. Any
claim by Contractor shall be submitted in accordance with the Act and TVA's
implementing regulations. The Disputes Contracting Officer shall reduce his/her
decision to writing and promptly mail or otherwise furnish a copy thereof to
Contractor. Within ninety (90) calendar days from the receipt of such copy,
Contractor may appeal to the TVA Board of Contract Appeals by mailing or
otherwise furnishing the Disputes Contracting Officer a written notice of
appeal. Following the filing of a notice of appeal,
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the TVA Board of Contract Appeals shall arrange for the decision of the appeal
in accordance with the Act and TVA's implementing regulations. The decision of
the TVA Board of Contract Appeals on any question of law shall not be final or
conclusive, but the decision on any question of fact shall be final and
conclusive, unless determined by a court of competent jurisdiction to have been
fraudulent, or arbitrary, or capricious, or so grossly erroneous as to
necessarily imply bad faith, or not supported by substantial evidence.
c. In lieu of an appeal to the TVA Board of Contract Appeals from
the decision of the Disputes Contracting Officer, Contractor may bring an action
against TVA directly on the claim in a United States District Court with proper
jurisdiction and venue pursuant to 28 U.S.C. Section 1337. Such an action shall
be brought within twelve (12) months from the date of receipt by Contractor of
the Disputes Contracting Officer's decision hereunder.
d. Pending final decision of an appeal, an action, or final
settlement, the decision of the Disputes Contracting Officer shall govern the
respective rights and obligations of the parties as to the matter in dispute
and, if directed to do so in the decision, Contractor shall proceed diligently
with the performance of the contract in accordance with the Disputes Contracting
Officer's decision; provided, that the decision of the Disputes Contracting
Officer shall be final and conclusive and not subject to review by any forum,
tribunal, or Government agency, unless an appeal or action is timely commenced
as authorized herein.
e. Contractor agrees that TVA's termination or suspension of
Contractor's right to make deliveries under the contract, TVA's withholding of
monies due under the contract, or TVA's pursuit of other remedies specifically
provided for herein shall not constitute relief, under TVA's implementing
regulations at 18 C.F.R. part 1308, as to which TVA must initiate the disputes
process prior to or after effecting; provided, however, nothing in this
Subsection e. shall restrict Contractor from pursuing its right to a Contracting
Officer's decision and other relief available pursuant to this Section 18 with
respect to any such termination, suspension, withholding, setoff, or other
remedy exercised by TVA.
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19. Clean Air Act and Other Environmental Requirements: In the event of
enactment, implementation, amendment, or enforcement of the Clean Air Act, as
amended, or any other applicable federal, state, or local air pollution control
or environmental law, rule, or requirement which causes the continued use of the
coal purchased under this contract to be inconsistent with (i) TVA's air
pollution control strategies, as they may be modified for meeting such air
pollution control or environmental requirements, or (ii) an administrative or
judicial order, TVA may cancel this contract with no further obligation or
liability hereunder or at law by giving Contractor ninety (90) days' advance
notice of such cancellation. In the case of inconsistency with TVA's air
pollution control strategies, the parties will attempt to renegotiate the
contract during such notice period to provide for delivery of coal that will be
of a quality consistent with TVA's new air pollution control strategies. In the
event the parties do not reach agreement on such a renegotiated contract within
the 90-day notice period, the cancellation notice given by TVA shall remain in
effect and the contract shall terminate at the end of such period. In no event
will TVA be obligated to divert deliveries to any alternate coal-fired fossil
plant in TVA's system.
20. Unilateral Termination Right: In addition to any other termination
rights provided in this contract or at law, TVA expressly reserves the right,
upon 60 days' prior written notice to Contractor, to unilaterally terminate this
contract; provided, however, that TVA shall pay to Contractor an amount equal to
ten (10) percent of the Base Price, multiplied by the remaining number of tons
scheduled for delivery from the effective termination date herein through the
earliest applicable date for termination, pursuant to the reopening provisions
under Section 1, Contract Term; provided further, that the remaining number of
tons scheduled for delivery shall be based on the minimum Nominated Quarterly
Quantity in Section 2, Quantity. Said payment by TVA to Contractor shall
constitute Contractor's sole remedy against TVA for any loss, cost, or damage
incurred by Contractor as a result of TVA's termination under this Section. TVA
shall have no further obligation or liability under the contract or at law
except with respect to coal delivered prior to said termination date as
otherwise provided in Section 8, Adjustment for Quality, Section 15, Payment and
Invoices, and Section 16, Weights.
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21. Contract Components: The attached Section I-III of the Request for
Proposals; Appendices A and B (Coal Producers Statement(s); and Specific
Location Map(s)); Exhibits I; Term Coal Proposal form 9910; General Long-Term
Contract Conditions; Award Letter; Limitation on Use of Outside Influence
(ID-67); Requirement for Certificate of Procurement Integrity (ID-50);
Subcontracting Plan.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed as of the aforesaid date by their duly authorized representatives.
ATTEST: COSTAIN COAL INC.
/s/ John C. Dolan By: /s/ Eugene Holdaway
- --------------------------- ---------------------------
(Signature)
Title: Senior Vice President
ATTEST: TENNESSEE VALLEY AUTHORITY
/s/ Charles J. Gray By: /s/ R. Stephen Blackburn
- --------------------------- ---------------------------
(OGC) Asst. Secretary (Signature)
Title: Fuel Buyer
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EXHIBIT I
EXAMPLE CALCULATION OF PRICE ADJUSTMENT
FOR QUALITY VARIATIONS
<TABLE>
<CAPTION>
Assume: Typical Analysis Qtrly. Wtd. Avg. Analysis
<S> <C> <C>
Btu/lb (as-received) 13,000 13,100
Ash (as-received) 10.00% 9.00%
Total Moisture 8.00% 8.50%
SO(2) in lbs./mmBtu at 97.5% 2.50 2.60
</TABLE>
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<PAGE>
Price equals $20.00
Ash Adjustment Increase/Decrease is $0.15 per percentage point
Moisture Adjustment Increase/Decrease is $0.06 per percentage point
Pounds of SO(2) per mmBtu Adjustment Increase is $0.13 and Adjustment Decrease
is $0.52 for each tenth of a pound.
Btu example for Section 8.b.
Btu Adjustment = (Quarterly Average Value - Typical Analysis) X Price
----------------------------------------------------
Typical Analysis
Btu Adjustment = (13,100 - 13,000) X $20.00
--------------------------
13,000
Btu Adjustment = $0.15 per ton
Ash example for Section 8.c.
Ash Adjustment Increase = (Typical Analysis - Quarterly Average Value)
X Adjustment
Ash Adjustment Increase = (10.00 - 9.00) X $0.15
Ash Adjustment Increase = $0.150 per ton
Moisture example for Section 8.d.
Moisture Adjustment Decrease = (Quarterly Average Value - Typical Analysis)
X Adjustment
Moisture Adjustment Decrease = (8.50 - 8.00) X $0.06
Moisture Adjustment Decrease = $0.030 per ton
Sulfur Dioxide example for Section 8.e. - If SO(2) is greater than Typical
Analysis then $0.52 is used and if SO(2) is less than Typical Analysis then
$0.13 is used.
SO(2) Adjustment Decrease = (((Quarterly Average Value - Typical Analysis)
X 10) X Adjustment
SO(2) Adjustment Decrease = (((2.6 - 2.5) X 10) X $0.52)
SO(2) Adjustment Decrease = $0.520 per ton
36
<PAGE>
APPENDIX A
SCHEDULE OF MAINTENANCE/REPAIR OUTAGES
Description of Outage Expected Duration
--------------------- -----------------
1.
2. [INTENTIONALLY OMITTED]
3.
37
<PAGE>
APPENDIX B
COAL PRODUCER'S STATEMENT AND SPECIFIC LOCATION MAP
38
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE February 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Baker
MSHA No(s): I5-14492 - ______________
(Sequence No.)
State Mine Permit No(s): 717-5002
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Sturgis
(Nearest Town)
Webster KY
(County) (State)
Mine Loading Point: Caseyville Dock
Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point: MP
871.6 Ohio CSX - WKY District
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 12,000
Proven mineable reserves: 40 (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY #13 85 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: |X| Slope |X| Shaft | | Drift | | Conventional | | Continuous
|XX| Longwall
Days mine operated last 12 months: 346
Tons produced last 12 months: 4.3 saleable
Average number of production employees at this mine for in the last 12
months: 550
Twelve-month production at normal capacity: 4.8M (tons)
Expected mine life at normal production: 8 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 75 %
Subcontractor(s) | | will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified | | track or | | belt scales;
or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years |X|
owns the described mining property
or | | leases the described mining property from _________________________
on the basis of (royalty or otherwise) ___________________________________
The rights to the property are recorded in the public records of Webster
County, State of KY
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.) Baker
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H - W on a reducing basis) 2465 'F
Ash (dry basis) 12 % Ash Fluid Temperature
Sulfur (as received) 2.1 % (on a reducing basis) 2550 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 36 %
Lbs - of SO(2) per million Btu 3.1-3.6 Grindability (Hardgrove index) 55
| | Raw | | Washed |XX| Both Chlorine (dry basis) 0.29 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |XX| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) |XX| in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
_________________________________________________, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE February 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Smith UG #1
MSHA No(s): 15-16020 - ______________
(Sequence No.)
State Mine Permit No(s): 917-5012
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Providence
(Nearest Town)
Webster KY
(County) (State)
Mine Loading Point: Caseyville Dock
Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point: MP
871.6 Ohio CSX - WKY District
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 2200
Proven mineable reserves: 17 million (tons)
recoverable
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY #14 85 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 340
Tons produced last 12 months: 1.1 million saleable
Average number of production employees at this mine for in the last 12
months: 110
Twelve-month production at normal capacity: 1.2M (tons)
Expected mine life at normal production: 15 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 50 %
Subcontractor(s) | | will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |XX| track or |XX| belt
scales; or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|XX| owns the described mining property
or | | leases the described mining property from _________________________
on the basis of (royalty or otherwise) ___________________________________
The rights to the property are recorded in the public records of Webster
County, State of KY
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.) Smith UG #1
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.5 % (H = W on a reducing basis) 2020 'F
Ash (dry basis) 11 % Ash Fluid Temperature
Sulfur (as received) 3.0 % (on a reducing basis) 2370 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 40 %
Lbs - of SO(2) per million Btu 4.8-5.8 Grindability (Hardgrove index) 55
| | Raw | | Washed |XX| Both 6 Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |XX| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
_________________________________________________, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE 8/29/96
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Indiana "C"
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as _______________________________________________________________
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Jetson -Bull CRK
MSHA No(s): 15-17819 - ______________
(Sequence No.)
State Mine Permit No(s): 816-0091
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Morgantown
(Nearest Town)
Butler Kentucky
(County) (State)
Mine Loading Point: __________________
______________________________________
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
______________________________________
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: ___________(tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Foster 12"
Amos 15"
Type Mine (Check all which apply.):
Surface: |X| Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: New
Tons produced last 12 months: New
Average number of production employees at this mine for in the last 12
months: New
Twelve-month production at normal capacity: 250,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? |X| Yes
| | No If no, what percentage? _____%
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer | | will | | will not weigh on certified | | track or | | belt scales;
or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 1 years | |
owns the described mining property
or |X| leases the described mining property from Osco Bratcher/Dhura Rosg
on the basis of (royalty or otherwise) Royalty
The rights to the property are recorded in the public records of Butler
County, State of ____
volume ___________, page __________.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 10.0 % (H = W on a reducing basis) 2200 'F
Ash (dry basis) 9.4 % Ash Fluid Temperature
Sulfur (as received) ____ % (on a reducing basis) 2400 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 33 %
Lbs - of SO(2) per million Btu 1.50 Grindability (Hardgrove index) 47
|X| Raw | | Washed | | Both Chlorine (dry basis) .03 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |X| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) |X| in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to ______ tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
EEL River Resources, Inc. Douglas J. McDonald
/s/ Douglas J. McDonald Sec/Treas
- --------------------------------------------------------------------------------
Street or Box Number:
P.O. Box 520 Douglas J. McDonald Sec/Treas
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Washington, IN 47501
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF KENTUCKY, COUNTY OF HOPKINS, on the 28th of August, 1996,
Douglas J. McDonald, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she is SEC/TREAS.
(owner/partner*) of the firm described in the foregoing instrument, and
that he/she is executing the same with full authority so to do and as the
free act and deed of such Producer.
Witness my hand and seal this 28th day of August, 1996.
My Commission Expires: 7/1/97 NOTARY PUBLIC Linda Masin
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Miller Creek
MSHA No(s): 15-16855 - ______________
(Sequence No.)
State Mine Permit No(s): 898-5535
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Pikeville
(Nearest Town)
Pike KY
(County) (State)
Mine Loading Point: Patton, KY (Chapperal)
CSX #84118
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: 21.6 (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Fireclay
Elkhorn 2,3
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional |X| Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 720,000
Average number of production employees at this mine for in the last 12
months: _______________________________
Twelve-month production at normal capacity: 750,000 (tons)
Expected mine life at normal production: 20 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Pike
County, State of Kentucky
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H - W on a reducing basis) 2600 'F
Ash (dry basis) 13.0 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,500 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.2-1.7 Grindability (Hardgrove index) 43
| | Raw |X| Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _______________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Name)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Ivy Creek
MSHA No(s): 15-17661 - ______________
(Sequence No.)
State Mine Permit No(s): 836-0216
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd Kentucky
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: 8.9 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Broas
Haddix
Peach Orchard
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger |X| Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 720,000
Average number of production employees at this mine for in the last 12
months: _______________________________
Twelve-month production at normal capacity: 750,000 (tons)
Expected mine life at normal production: 11 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of KY
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.0 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _______________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitation to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Smith Providence Mine
15-17794
MSHA No(s): 15-11935 - ______________
(Sequence No.)
State Mine Permit No(s): 917-0022
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Providence
(Nearest Town)
Webster Kentucky
(County) (State)
Mine Loading Point: Caseyville Dock and Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
Ohio River MP 871.6
CSX - WKY district
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 230
Proven mineable reserves: 3.2 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY # 14 96 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: Since May 1996
Tons produced last 12 months: 200,000 thru Sept. 1996
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 600,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 50 %
Subcontractor(s) |X| will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or |X| belt scales;
or | | will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from Various
(Name and Address)
on the basis of (royalty or otherwise) Royalty
The rights to the property are recorded in the public records of Webster
County, State of Kentucky
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2000 'F
Ash (dry basis) 11.0 % Ash Fluid Temperature
Sulfur (as received) 3.2-4.0% (on a reducing basis) 2360 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 40 %
Lbs - of SO(2) per million Btu 4.8-6.5 Grindability (Hardgrove index) 55
| | Raw | | Washed |X| Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc, as its
(Full Company Name of Agent)
|X| authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 9, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Spurlock Fork
MSHA No(s): 15-17660 - ______________
(Sequence No.)
State Mine Permit No(s): 836-0231
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd KY
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 2.4 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Haddix
Peach Orchard
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 480,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 500,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from Various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of Kentucky
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.0 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 9, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Spradlin Branch
MSHA No(s): 15-17327 - ______________
(Sequence No.)
State Mine Permit No(s): 898-0261
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd KY
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 - Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 3.1 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Broas 2,3,4,5
Peach Orchard
Hazard 1,2
Type Mine (Check all which apply.):
Surface: | | Area |X| Contour | | Auger |X| Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 900,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 1 M (tons)
Expected mine life at normal production: 4 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
| | owns the described mining property
or | | leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of Kentucky
volume various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 14 % Ash Fluid Temperature
Sulfur (as received) 0.8-1.5% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.5 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Red Cedar #3
MSHA No(s): 15-17064 - ______________
(Sequence No.)
State Mine Permit No(s): 898-0324
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Pikeville
(Nearest Town)
Pike Kentucky
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
Big Sandy MP 8.5
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 3.4 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Elkhorn
Fireclay
Amburgy
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 750,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 800,000 (tons)
Expected mine life at normal production: 4 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Pike
County, State of Kentucky
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.75-1.5% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.4 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on it ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
GENERAL LONG-TERM CONTRACT CONDITIONS
1. Verification of Data, Inspection of Records and Mine Sources: TVA, its
employees, agents, or representatives, shall have the right, after prior notice
and at a reasonable time to inspect Contractor's or, if applicable, its
producer's records and mines and related facilities to verify the accuracy of
the data supplied by Contractor to support its request for price adjustments or
to establish Contractor's actual cost change under section 10, Contract Price
Adjustments, in the Base Contract and for purposes of determining Contractor's
compliance with the provisions of this contract. Information obtained by TVA,
its employees, agents, or representatives, in examining Contractor's or its
producer's records or inspecting Contractor's or its producer's mines shall not
be disclosed to third parties without the Contractor's consent, unless
disclosure is ordered by a court of competent jurisdiction, is made for purposes
of any litigation or proceeding (judicial, administrative, or investigatory)
involving this contract, or is otherwise required by law.
2. Coal Mining Reclamation and Conservation Requirements. The following
TVA reclamation and conservation requirements are applicable to all spot
contracts for the purchase of coal:
a. TVA Policy On Areas From Which Coal Will Be Procured: Coal Mining
- - Land and Water Resource Protection. TVA accepts no coal mined from locations
in or near areas officially designated by state or federal agencies, or
identified by TVA, as wild or scenic river areas, wild, wilderness, natural,
scenic, public recreation areas or under study pursuant to legislative authority
for any such official designation, except where special circumstances exist. No
coal will be accepted from locations in or near areas designated under
legislative authority as potential sites for the above uses unless, after
coordination with the appropriate agencies, TVA determines that the coal can be
mined without substantially adversely affecting the area's potential for such
use. In such cases and also in cases involving offerings of coal from mines in
or near other visually important areas such as major highways or population
centers, special provisions designed to protect aesthetic values may be
incorporated in the purchase contracts. No coal will be accepted from areas in
which, in TVA's judgment, mining would adversely affect a public water supply
and such adverse effect cannot be avoided by proper reclamation.
39
<PAGE>
b. Contractor agrees that all sources of coal delivered shall be in
full compliance with all state and federal reclamation laws, including the
Surface Mining Control and Reclamation Act of 1977 and all regulations issued
thereunder. Violations of any such law or regulation shall constitute a breach
of contract, entitling TVA to exercise its remedies under this contract or as
provided by law. TVA will not accept coal mined from any source, stockpile, or
otherwise during any period when the source is subject to a cessation order
issued by the Office of Surface Mining and Reclamation (OSM) or any state
reclamation enforcement agency for violation of reclamation requirements. TVA
also reserves the right to either terminate this contract or suspend deliveries
under the contract from any source whatsoever when any authorized source listed
in the contract, or as it may hereafter be amended, is subject to a cessation
order. Coal which is not delivered due to such cessation order or suspension
shall not be considered excusable, and TVA may purchase replacement coal for the
Contractor's account. If, upon appeal by the Contractor under OSM's or the
appropriate state's regulations, a cessation order is held to have been
improperly issued, the Contractor shall not be liable for the cost of
replacement coal, and any coal not delivered due to the order or suspension may,
at Contractor's option, be cancelled or rescheduled upon delivery terms
reasonably acceptable to TVA. This constitutes Contractor's exclusive remedy
against TVA in the event of a wrongful issuance of a cessation order by OSM or a
state agency.
c. TVA reserves the right to require and Contractor agrees to
perform over and above the requirements specified by law any special or
additional reclamation work which TVA deems necessary to ensure that the mining
operation complies with TVA's overall policy for protection and enhancement of
the environment. TVA agrees to compensate Contractor for the performance of such
work in an amount to be mutually agreed upon before the commencement of work. No
work performed by Contractor shall be deemed special or additional reclamation
work for the purposes hereof unless it is so designated in writing by the
Contract Administrator.
d. TVA, its agents, and assigns shall have the right to enter upon
any of the land affected
40
<PAGE>
by Contractors mining operation, at any time and without the necessity of giving
notice, for any purpose related to enforcing these reclamation and conservation
requirements or to observe mining or reclamation completed or in progress.
e. TVA will not accept coal from sources mined under the 16-2/3
percent exemption allowed under P.L. 95-87, unless it can be documented that the
source will be mined and reclaimed to the performance standards established
under P.L. 95-87 and furthermore, that the operation has the concurrence of the
coal mining and regulatory (primacy) authority established by this law in the
state from which the coal is to be mined.
3. Relationship of Parties - Producer's Statement:
a. Regardless of whether the Contractor is the producer of the coal
to be furnished or is the sales agent of one or more producer, the Contractor
binds and obligates itself for the full and faithful performance of the contract
in its entirety.
b. If the Contractor is not the producer of the coal to be delivered
hereunder, Contractor represents that it has contracted directly with the
producer(s) who has (have) executed the Coal Producer's Statement(s) for the
delivery of the coal to TVA.
4. Nonassignability; Subcontracts; Designation and Termination of Agent:
a. Neither this contract nor any interest herein or any payments
hereunder shall be assigned without the written consent of TVA, which consent
TVA may withhold in its sole discretion. In the event TVA shall give such
consent, the same shall not be construed as a waiver of this provision with
regard to any subsequent assignment.
b. The Contractor shall, on request, file with TVA copies of all
subcontracts and terms of
41
<PAGE>
all commitments with subcontractors, and TVA shall have the right to disapprove
any thereof within five (5) days after receipt of such information.
c. No designation of any agent by the Contractor to submit invoices,
receive payments, or take any other action in connection with the performance or
administration of this contract shall be effective or recognized by TVA until
the Contractor has given written notice of such designation and TVA has given
Contractor specific written notice of its approval thereof.
d. If Contractor notifies TVA in writing of the termination of any
agent that Contractor may have theretofore designated to administer this
contract on its behalf, TVA may thereafter rely on such notice of termination in
all dealings with Contractor or a successor agent.
5. Waivers: No waiver of any breach of this contract shall be held to be a
waiver of any other breach. Unless a remedy is expressly designated as
exclusive, all remedies afforded under the contract shall be in addition to
every other remedy provided herein or by law.
6. Officials Not To Benefit: No member of or delegate to Congress or
Resident Commissioner, or any officers, employee, special Government employee,
or agent of TVA shall be admitted to any share or part of this contract or to
any benefit that may arise therefrom unless it be made with a corporation for
its general benefit; nor shall the Contractor offer or give, directly or
indirectly, to any officer, employee, special Government employee, or agent of
TVA any gift, gratuity, favor, entertainment, loan, or any other thing of
monetary value, except as provided in 5 C.F.R. part 2635. Breach of this
provision shall constitute a material breach of this contract and TVA shall have
the right to exercise all remedies provided in this contract or at law.
7. Contingent Fees: The Contractor warrants that no person or selling
agency has been employed or retained to solicit or secure this contract upon an
agreement or understanding for a commission, percentage,
42
<PAGE>
brokerage, or contingent fee, excepting bona fide employees or bona fide
established commercial or selling agencies maintained by the Contractor for the
purpose of securing business. For breach or violation of this warranty, TVA
shall have the right to terminate this contract without liability or in its
discretion to deduct from the contract price or consideration the full amount of
such commission, percentage, brokerage, or contingent fee.
8. Convict Labor: Contractor shall not employ in the performance of this
contract any person undergoing sentence of imprisonment at hard labor.
9. Walsh-Healey Act. All the representations and stipulations in 41
C.F.R., ss. 50-201, are incorporated by reference.
10. Discrimination on the Basis of Age. Contractor shall comply with
Executive Order 11141.
11. Small Business Policy. The requirements of 15 U.S.C ss. 637(d) are
incorporated by reference.
12. Liquidated Damages for Subcontracting Plans.
a. Failure to make a good-faith effort to comply with the
subcontracting plan, as used in this clause, means a willful or intentional
failure to perform in accordance with the requirements of the subcontracting
plan approved under the section of the Request for Proposals titled SMALL
BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PLAN (attached to this
contract and made a part hereof) or willful or intentional action to frustrate
the plan.
b. If, at contract completion, or in the case of a commercial
products plan, at the close of the fiscal year for which the plan is applicable,
the Contractor has failed to meet its subcontracting goals and the Contracting
Officer decides in accordance with paragraph (c) of this clause that the
Contractor failed to make a good-faith effort to comply with its subcontracting
plan the Contractor shall pay TVA liquidate damages in an
43
<PAGE>
amount stated The amount of damages attributable to the Contractor's failure to
comply shall be an amount equal to the actual dollar amount by which the
Contractor failed to achieve each subcontract goal or, in the case of a
commercial products plan, that portion of the dollar amount allocable to
government contracts by which the Contractor failed to achieve each subcontract
goal.
c. Before the Contracting Officer makes a final decision that the
Contractor has failed to make such good-faith effort, the Contracting Officer
shall give the Contractor written notice specifying the failure and permitting
the Contractor to demonstrate what good-faith efforts have been made. Failure to
respond to the notice may be taken as an admission that no valid explanation
exists. If, after consideration of all the pertinent data, the Contracting
Officer finds that the Contractor failed to make a good-faith effort to comply
with the subcontracting plan, the Contracting Officer shall issue a final
decision to that effect and require that the Contractor pay the government
liquidated damages as provided in paragraph b. of this section.
d. With respect to commercial products plans, i.e., company-wide or
division-wide subcontracting plans, the Contracting Officer of the agency that
originally approved the plan will exercise the functions of the Contracting
Officer under this clause on behalf of all agencies that awarded contracts
covered by that commercial products plan.
e. The Contractor shall have the right of appeal, under the section
in this contract titled DISPUTES, from any final decision of the Contracting
Officer.
f. Liquidated damages shall be in addition to any other remedies
that TVA may have.
13. Utilization of Woman-Owned Business Concerns. It is the policy of the
United States Government that woman-owned businesses shall have the maximum
practicable opportunity to participate in the performance of contracts awarded
by any federal agency.
44
<PAGE>
The Contractor agrees to use its best efforts to carry out this
policy in the award of subcontracts to the fullest extent consistent with the
efficient performance of this contract. As used in this contract, a "woman-owned
business" concern means a business that is at least 51% owned by a woman or
women who also control and operate it. "Control" in this context means
exercising the power to make policy decisions. "Operate" in this context means
being actively involved in the day-to-day management.
14. Affirmative Action and Equal Opportunity. To the extent applicable,
this contract incorporates by reference the "Affirmative Action for Disabled
Veterans and Veterans of the Vietnam Era" clause, 41 C.F.R. ss. 60-250.4; the
"Affirmative Action for Handicapped Workers" clause, 41 C.F.R. ss. 60-741.4; and
the "Equal Opportunity" clause, 41 C.F.R. ss. 60-1.4. Contractor shall comply
with applicable regulatory requirements, including information reports and
affirmative action programs. By submitting its offer, offeror, applicant, or
subcontractor certifies it does not maintain segregated facilities at its
establishments; does not permit employees to perform their services at any
location, under its control, where segregated facilities are maintained; will
not maintain segregated facilities; and will not permit employees to perform
their services at locations, under its control, where segregated facilities are
maintained. It agrees that breach of this certification violates this section.
Segregated facilities means any waiting rooms, work areas, restrooms,
restaurants and other eating areas, time clocks, locker rooms and other storage
or dressing areas, parking lots, drinking fountains, recreation or entertainment
areas, transportation, housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
religion, color, or national origin, because of habit, local custom, or
otherwise. It further agrees that it will obtain identical certifications from
proposed subcontractors prior to award of subcontracts exceeding $10,000 which
are not exempt from this section; will retain such certifications; and will
forward the following notice to such proposed subcontractors (except where
proposed subcontractors have submitted identical certifications for specific
time periods):
Notice to Prospective Subcontractors of Requirement for Certifications of
Nonsegregated Facilities. A Certification of Nonsegregated Facilities must
be submitted prior to award of a subcontract exceeding
45
<PAGE>
$10,000 which is not exempt from this clause. Certification may be
submitted for each subcontract or for all subcontracts during a period
(i.e., quarterly, semiannually, or annually). NOTE: The penalty for making
false statements in offers is prescribed in 18 U.S.C. ss. 1001.
15. Environmental Protection Agency (EPA) Regulations. In accordance with
regulations issued by the EPA pursuant to implementation of Section 306 of the
Clean Air Act, Section 508 of the Federal Water Pollution Control Act, and
Executive Order 11738, the section entitled Environmentally Acceptable
Facilities; Clean Air and Water shall be made a part of any contract exceeding
$100,000 entered into by TVA.
16. Safety and Health. All sources supplying coal purchased under this
contract shall be in full compliance with the Federal Mine Safety and Health Act
of 1977 and regulations issued thereunder. Failure to comply shall constitute a
breach of contract, permitting TVA to exercise its remedies under this contract
or as provided by law.
17. Anti-Kickback Procedures. In its operations and business
relationships, Contractor shall have in place and follow reasonable procedures
designed to prevent and detect possible violations of the Anti-Kickback Act of
1986 (41 U.S.C. ss.ss. 51-58), (Act). If Contractor believes a violation of the
Act may have occurred, it shall promptly give TVA's Inspector General written
notice. Contractor shall cooperate fully with TVA or any other federal agency
investigating a possible violation of the act. Contractor agrees to incorporate
the substance of this section, including this sentence, in all subcontracts
under this contract.
18. Drug-Free Workplace. In submitting its offer, Contractor certifies it
will comply with Public Law No. 100-690, the Drug-Free Workplace Act of 1988.
19. Environmentally Acceptable Facilities; Clean Air and Water. Contractor
hereby stipulates and agrees as follows:
46
<PAGE>
(1) That Contractor included in its offer a statement listing any
facility or facilities to be utilized in performance of this contract or any
subcontract enabling the performance of this contract which are listed on the
Environmental Protection Agency's List of Violating Facilities issued pursuant
to Section 15.20 of Title 40, Code of Federal Regulations. If no such list is
included in accordance with the foregoing, then submission of a offer shall
constitute certification by the offeror that any facility or facilities to be
utilized in performance of this contract or any subcontract enabling the
performance of this contract are not listed on the Environmental Protection
Agency's List of Violating Facilities issued pursuant to Section 15.20 of Title
40, Code of Federal Regulations.
(2) To comply with all the requirements of Section 114 of the Clean
Air Act and Section 308 of the Federal Water Pollution Control Act relating to
inspection, monitoring, entry, reports, and information, as well as all other
requirements specified in Section 114 and Section 308 of the Clean Air Act and
the Federal Water Pollution Control Act, respectively, and all regulations and
guidelines issued thereunder.
(3) That Contractor shall notify the awarding official of the
receipt of any communication from the Director, Office of Federal Activities,
U.S. Environmental Protection Agency, indicating that a facility to be utilized
for this contract is under consideration to be listed on the EPA List of
Violating Facilities. Prompt notification shall be required prior to contract
award.
(4) That Contractor will include or cause to be included the
criteria and requirements in subparagraphs (1) through (4) of this provision in
all subcontracts of $l00,000 or more and all subcontracts for indefinite
quantities which may be $100,000 or more in any year, and Contractor will take
such action as TVA may direct as a means of enforcing such provisions.
Contractor shall not award a subcontract without the prior written approval of
TVA to any subcontractor whose performance would involve the use of any facility
or facilities which are listed on the Environmental Protection Agency's List of
Violating Facilities.
47
<PAGE>
20. Price or Fee Adjustment for Illegal or Improper Activity. The text of
Federal Acquisition Regulation, Section 52.203-10 is incorporated by reference.
48
<PAGE>
[TVA LOGO]
Tennessee Valley Authority, 1101 Market Street, Chattanooga, Tennessee
37402-2801
February 1, 1996
Dear Prospective Offeror:
SECTION I
REQUISITION 33
REQUEST FOR PROPOSALS
The Tennessee Valley Authority (TVA) is interested in receiving three-, six- and
ten-year term proposals to supply coal to meet the fuel requirements of various
fossil plants.
All proposals should specify total tonnage offered for these term periods. TVA
expects to purchase up to 6.0 million tons per year from this solicitation;
provided, however, that TVA may accept all or, with approval of the offerer, any
portion of an individual proposal, and TVA reserves the right to reject any and
all proposals. TVA also reserves the right, at any time, to purchase coal other
than pursuant to this Request for Proposals (RFP). The conditions set forth in
Section III, TERM PROPOSAL INFORMATION AND CONDITIONS, shall apply to this RFP
and offers received hereunder. This RFP consists of this letter (Sections I, II
and III), forms TVA 9910, 9903A, 9903B, 9903C, 9903D, and 19708; Summary of
Offers; and the Term Coal Contract, the terms of which are incorporated herein
by reference as if fully set forth.
If you wish to make an offer, please complete all the information required in
the attachments.
By submission of a completed and executed Term Coal Proposal, form TVA 9910, in
response to this RFP, the offerer agrees that any contract or contracts
resulting from TVA's acceptance of such proposal shall consist of the said Term
Coal Proposal, this RFP, and the Term Coal Contract, executed by the Fuel Buyer
or other authorized TVA representative.
All requested information must be furnished in the detail specified. TVA
encourages all offerors to submit offers which are in conformance with the terms
and conditions of this RFP. TVA reserves the right to reject any proposal that
is incomplete or takes exception to TVA's terms and conditions. TVA reserves the
right to award contracts under this RFP on the basis of initial proposals
without discussions. In any case where the words "bidder" or "bid" are used they
shall be deemed to mean "offerer" and "offer," respectively.
Information contained in unsuccessful proposals will be disclosed to third
parties only as required by law.
<PAGE>
Prospective Offeror
Page 2
February 1, 1996
In order to submit a proposal under this RFP, the offeror must complete and
return only the following:
Form TVA 9910 - Term Coal Proposal (no duplicate needed)
Form TVA 9903A - Typical Coal Quality Analysis (see Note below)
Form TVA 9903B - Requirement for Certificate of Procurement Integrity
Form TVA 9903C - Taxpayer Reporting Requirements
Form TVA 9903D - Equal Opportunity Representation
Form TVA 19708 - Coal Producer's Statement (if not already on file)
Summary of Offer(s)
NOTE: TVA will utilize a Coal Quality Impact Model for the evaluation of
all offers. In order to ensure effective evaluation, it is important that
the coal quality specified by the offeror is the typical quality of the
coal offered. Accordingly, the offeror must indicate its typical
(expected) coal quality specifications when submitting the analysis on
forms 9910 and 9903A. Those offerors submitting proposals for coal to be
washed at the Paradise plant should also provide a washability analysis of
the coal at a 1.6 specific gravity.
Proposals are to be sealed and envelopes marked "Term Coal Proposal" using the
enclosed label. Proposals sent overnight mail (Federal Express, etc.) should be
enclosed in an envelope, sealed, and marked with the enclosed label. No
facsimiles will be accepted. Offers must be received by TVA no later than 4:15
p.m. Eastern Time, March 4, 1996 (Proposal Closing Date). Offers shall remain
open for acceptance by TVA through July 1, 1996 and may not be withdrawn by
offeror during such period. TVA's acceptance may be communicated by phone,
followed by a written acceptance.
Please note the important information in Section II. Direct all your inquiries
to me; however, mail your proposal(s) to the following address:
Tennessee Valley Authority
Fuel Acquisition and Supply
1101 Market Street, LP 5G
Chattanooga, Tennessee 37402-2801
Sincerely,
/s/ R. Stephen Blackburn
- -----------------------------
R. Stephen Blackburn
Fuel Buyer
/s/ James M. Bach
- -----------------------------
James M. Bach
Fuel Buyer
<PAGE>
SECTION II
REQUISITION 33
BIDDERS' MEETING: There will be a meeting to answer any questions
concerning this solicitation on February 8, 1996 at
8:30 A.M. EST in the Missionary Ridge Auditorium of
TVA's Chattanooga Office Complex. Those unable to
attend will be forwarded any information disseminated
at the meeting, as well as any questions asked and
answers provided.
PROPOSAL CLOSING DATE: March 4, 1996
PLANTS: Various
STARTING DATE: Approximately January 1, 1997
TERM: 3 years - Subject to Price Adjustment
6 years - Subject to Price Adjustment with a total
contract reopener effective at the 3rd year
anniversary
10 years - Subject to Price Adjustment with a price
reopener effective at the 5th year
anniversary
TONNAGE REQUIREMENTS: Proposals may be for up to 6.0 million tons per year
with a plus or minus 20% flexibility on 30-days'
notice. Proposals are not subject to a minimum annual
tonnage; provided however, TVA may find it necessary,
and reserves the right, to reject any offers that in
TVA's judgement offer quantities that would result in
inefficient transportation or supply arrangements.
COAL QUALITY: Coals offered in response to this RFP must meet the
following specifications.
<TABLE>
<S> <C>
Moisture 35% maximum
Ash 18% maximum
Volatile Matter 27% minimum
Btu 8200 Btu/lb minimum
SO(2) 5.0 lb/mmBtu maximum
Grind 35 H.G.I. minimum
Chlorine 0.29% maximum
</TABLE>
Offerors must offer their coal at the typical
specifications they expect to deliver. The cost of
plant modifications in order to efficiently burn a
particular coal will be a part of the evaluation
process. The above specifications are not applicable
for raw coal to be washed by TVA at the Paradise plant.
Offerors should refer to the plant specifications for
coal quality of coal to be washed.
<PAGE>
TYPICAL ANALYSIS: The Typical Analysis (See forms TVA 9910 and 9903A)
will be used for evaluating the offeror's proposal and,
if a contract is awarded, for determining the
adjustments for coal quality under Section 8 of the
Term Coal Contract. The Rejection/Suspension
Specifications to be set forth in Subsection 9.a. of
the Term Coal Contract shall be based on the Typical
Analysis and determined as shown in Exhibit I to this
Section II. TVA may reject offers that specify a
Typical Analysis that in TVA's judgement, is not
representative of the coal actually to be shipped.
PRICES ADJUSTMENT: Prices will be adjusted at a flat rate of 1% annually
and for any changes in per ton assessments imposed
industry-wide by state or federal law.
TERMS AND CONDITIONS: In order to ensure TVA is able to evaluate an offeror's
proposal, the proposal should conform to the terms and
conditions of this Request for Proposals (including the
price adjustment provisions). Exceptions to TVA's
standard terms and conditions may impact the evaluation
of offeror's proposal or may result in the rejection of
the proposal without discussion. In the event TVA
elects to accept an offer or offers of raw coal to be
washed at TVA's Paradise plant the terms and conditions
of the Term Coal Contract will be modified accordingly.
TRANSPORTATION REQUIREMENTS: All barge offers should be quoted in the barge at
origin and all rail offers should be quoted in the rail
car at origin.
<PAGE>
PLANT SPECIFICATIONS (1):
<TABLE>
<CAPTION>
PARAMETER COLBERT 1-4 COLBERT 5 JOHNSONVILLE
<S> <C> <C> <C>
Moisture (Max) 13.0% 10.0% 12.0%
Ash (Dry) (Max) 15.0% 15.0% 15.0%
Volatile Matter (Dry) (Min) 35.0% 35.0% 30.0%
SO(2)/mmBtu (Max)(2) 2.0 3.8 3.2
Heating Value (AR) (Min) 11,000 Btu 11,000 Btu 11,500 Btu
Ash Fusion (h=w) (Min) 1950(degrees)F 2300(degrees)F 2100(degrees)F
Chlorine (Dry) (Max) 0.29% 0.29% 0.29%
Grind (Min) 50(3) 50 50
</TABLE>
<TABLE>
<CAPTION>
PARAMETER WIDOWS CK 1-6 GALLATIN PARADISE 3
<S> <C> <C> <C>
Moisture (Max) 13.0% 13.0% 13.0%
Ash (Dry) (Max) 15.0% 15.0% 15.0%
Volatile Matter (Dry) (Min) 27.0% 35.0% 33.0%
SO(2)/mmBtu (Max)(2) 1.4 4.8 5.0
Heating Value (AR) (Min) 11,000 Btu 11,000 Btu 11,000 Btu
Ash Fusion (h=w)(Min) 1950(degrees)F 1950(degrees)F
Chlorine (Dry) (Max) 0.29% 0.29% 0.29%
Grind (Min) 50(3) 50 50
Ash Fluid Temperature (Max) 2400(degrees)F
</TABLE>
<TABLE>
<CAPTION>
PARAMETER PARADISE 3
RAW
<S> <C>
Moisture (Max) 10.0%
Ash (Dry) (Max) 25.0%
Volatile Matter (Dry) (Min) 33.0%
Sulfur (AR) (Max) 5.5%
Sulfur (AR) (Min) 1.5%
Heating Value (AR) (Min) 9,800 Btu
Chlorine (Dry) (Max) 0.29%
Grind (Min) 50
Ash Fluid Temperature (Max) 2400(degrees)F
COAL WASHED @ 1.6 sp. gr.
Moisture (Max) 13.0%
Ash (Dry) (Max) 15.0%
SO(2)/mmBtu (Max)(2) 5.0
Heating Value (AR) (Min) 11,000 Btu
</TABLE>
(1) These specifications are given for reference only. As indicated above
bidders are required to offer the coal quality they expect to ship. TVA
may consider modifications to a plant that could affect its
specifications.
(2) SO(2)/mmBtu is calculated by the following formula:
SO(2)/mmBtu = ((percent sulfur(as-received) X 19500)/(as-received Btu))
(3) For units Widows Ck. 1-6 and Colbert 1-4, TVA will accept coal with a
minimum grindability index of 45, provided the minimum heat value is
12,000 Btu/lb. For each increment decrease in grindability index from 50
to 45, the heat value must increase by 200 Btu/lb in the range from
11-12,000 Btu/lb.
<PAGE>
Exhibit I
CALCULATION OF REJECTION/SUSPENSION SPECIFICATION
The Rejection/Suspension Specifications will be calculated as follows.
Lbs of SO(2) per million Btu Not more than the Typical Analysis + 0.25 pounds
per million Btu or the plant specification,
whichever is less.
Total Moisture Not more than the Typical Analysis + 2.0% or the
plant specification, whichever is less.
Sulfur (as-received) Not more than the Typical Analysis + 0.3% or the
plant specification, whichever is less.
Sulfur (as received) Not less than the Plant Specification, if
applicable
Ash (as-received) Not more than the Typical Analysis + 2.0% or the
plant specification, whichever is less.
Ash (dry basis) Plant Specification
Btu/lb (as-received) Not less than the Typical Analysis X 97.0% or
the plant specification, whichever is more.
Ash fusion temperature
reducing atmosphere
Initial Plant Specification
Softening (Hemispherical) Plant Specification
Fluid Plant Specification
Volatile Matter (dry basis) Plant Specification
Grindability (Hardgrove Index) Plant Specification
Chlorine (dry basis) Plant Specification
<PAGE>
SECTION III
PROPOSAL INFORMATION AND CONDITIONS
REQUISITION 33
1. METHOD OF PROPOSAL. Coal must be offered on TVA's Term Coal Proposal
form TVA 9910. If coal is offered to TVA in accordance with this Request for
Proposals and TVA notifies the offeror of the acceptance of its proposal by July
1, 1996, the offeror's Term Coal Proposal, the Request for Proposals, and the
TVA's Term Coal Contract become a legally binding contract, and no changes can
be made to such except by mutual consent. All proposals must be submitted on
forms provided by TVA and any proposals not so submitted may not be considered.
2. INFORMATION REQUIRED OF OFFERORS. (a) Each offeror must supply all the
information and certifications called for by the Term Coal Proposal, form TVA
9910 and by forms TVA 9903A-D. Additional information which the offeror deems
pertinent may be included on extra sheets of paper (except as provided in
Section 3, ACCEPTANCE/REJECTION OF PROPOSALS).
(b) Offerors must also furnish TVA a Coal Producer's Statement, form TVA
19708, executed by the producer for each mine from which the offeror offers coal
to TVA. If a Producer's Statement covering the mine in a given proposal is not
already on file, it should accompany the proposal. If a Producer's Statement is
not in TVA's possession at the time proposals are closed, the proposals may not
be considered for award. Once on file, the Statement need not accompany each
subsequent proposal. (A specific location map of each mine must also accompany
each Producer's Statement) If a change should occur in the information shown on
the Statement, a new Statement should be filed when coal is offered from that
mine. TVA requires an updated Producer's Statement from offerors or producers no
less frequently than on an annual basis.
(c) TVA reserves the right to require any offeror to furnish information
pertaining to its ability to fulfill the contract, including but not limited to,
the offeror's and producer's capitalization, equipment owned, names of officers
and directors and/or names of partners, recent financial statements, and
satisfactory evidence of ability to meet the quality guarantee (e.g., a copy of
a recent analysis from another customer or a certified laboratory).
3. ACCEPTANCE/REJECTION OF PROPOSALS. (a) Proposals, together with
information required to be submitted with proposals, must be received at TVA's
offices at 1101 Market Street, LP 5G-C, Chattanooga, Tennessee 37402-2801, prior
to 4:15 p.m. (Chattanooga time (Closing Time)) on the Proposal Closing Date
specified in this Request for Proposals. Hand-delivered proposals may not be
delivered to Fuel Acquisition and Supply personnel but shall be left at the
Reception Desk of Lookout Place. If any part of the required information is not
in TVA's possession at the time proposals are closed, TVA may decline to
consider it for award. Offers, together with the required information, not
physically in TVA's possession at the Closing Time will not be considered. After
the Closing Time, no changes in offers will be permitted which would affect the
offeror's competitive position. Offers shall remain open for TVA's acceptance
until July 1,1996 and may not be withdrawn after Closing Time on the Proposal
Closing Date without the consent of the Fuel Buyer. Award of contracts for
supplying coal to each fossil plant will be made to those responsive and
responsible offerors offering coal at the lowest evaluated delivered cost per
million Btu, determined in accordance with Section 4 hereof, except that TVA
reserves the right to consider other pertinent factors in determining which
offers are most advantageous to TVA in terms of price, quality and delivery.
(b) TVA reserves the right to reject all offers and to reject
specifically, without regard to comparative price, any offer which in TVA's sole
judgment (1) offers coal that has undesirable burning, handling, or other
objectionable characteristics; (2) offers coal that, on the basis of TVA's or
the Bureau of Mines records, will not meet the requirements stated in the
Request for Proposals or has been misrepresented in the offer; (3) is submitted
<PAGE>
by or for a supplier or producer who has failed under previous contracts to meet
guaranteed analysis. make deliveries on schedule, or otherwise failed to act
responsibly as contractor or as agent or to meet or comply with other
contractual obligations including failure to perform required reclamation and
conservation work, or who has a record of unsatisfactory compliance with the
Surface Mining Control and Reclamation Act of 1977, as amended, and the rules
and regulations issued pursuant thereto, or the Federal Mine Safety and Health
Act of 1977, as amended, and the rules and regulations issued pursuant thereto;
(4) designates an agent for the administration of the contract or a producer who
has a record of association with contracts with the United States or any of its
agencies which have not been performed satisfactorily or who is debarred from
entering into contracts with the United States or any of its agencies because
of the violation of any Federal law, including but not limited to the
Walsh-Healey Act (41 U.S.C. Sec. 37); (5) fails to forward all required
information or demonstrate to TVA's satisfaction that the offeror has the
ability to fulfill a contract under the terms and from the sources indicated in
the offer; (6) offers coal from a source which in TVA's sole judgment is
unacceptable under applicable environmental laws or regulations or TVA's
environmental policies; and (7) offers coal from a source that has not been
tested by TVA or for which acceptable test analyses are not yet available.
It is very important that all offers be based upon the same contract terms
and conditions. Offers may be rejected if they (or any transmittal letter,
attachment, form or paper which is made a part of the offer) contain any
exception, condition, restriction, or term (1) which is in conflict in any way
with the terms and conditions of this Request for Proposals, including any
addenda thereto, or TVA's Term Coal Contract or (2) which, although not in
conflict with any specific condition, term or provision of the foregoing,
introduces a new condition, term, or provision which is unacceptable to TVA.
(c) TVA reserves the right to waive any informality in the offers.
4. EVALUATED DELIVERED COST. The method of determining the delivered cost
of coal for each offer will be as follows:
(a) The total price per ton of coal delivered to the respective plant
(transportation included) will be used for evaluation purposes. Rail coal will
be evaluated using the price f.o.b. rail cars at the offeror's rail loading
point, with TVA rate(s) for the rail services to the respective plant. Barge
coal will be evaluated using the price f.o.b. barges at the loading dock, with
TVA's rates for the barging services to the respective plant. TVA will utilize a
Coal Quality Impact Model (CQIM) for evaluation of all offers.
(b) TVA reserves the right to ship to any destination coal purchased
f.o.b. any shipping point or any plant.
(c) TVA reserves the right to evaluate western-origin coals separately
from eastern-origin coals and barge coal separately from rail coal.
5. TVA ASSISTANCE. Fossil Fuels' buyers and administrators are available
to assist offerors in completing proposals, explaining any of the provisions
contained in the Request for Proposal document and TVA's procurement procedures.
If you desire such assistance or have any questions, please contact us. Offers
and requests for information should be directed to the Tennessee Valley
Authority Fossil fuels, 1101 Market Street, LP 5G, Chattanooga, Tennessee
37402-2801, telephone number (423)\751-4529.
TVA maintains a staff of geologists and engineers who are also available
to assist offerors in technical matters and on questions related to coal
reserves. Please direct such inquiries to the Manager, Fuel Operations, 1101
Market Street, LP 5H, Chattanooga, Tennessee 37402-2801, telephone number
(423)\751-2064.
6. VIOLATING FACILITIES. TVA will not award a contract pursuant to this
Request For Proposals to any offeror, nor will TVA approve award of a
subcontract to any subcontractor, whose performance would involve the use of any
facility or facilities which are listed on the Environmental Protection Agency's
List of Violating Facilities, except to the extent TVA, in its sole judgment,
determines that such contract or subcontract is exempt at the time of contract
award from the provisions of Part 15 of Title 40, Code of Federal Regulations as
set forth therein. As used herein "facility" shall have the meaning set forth in
Section 15.4 of Title 40, Code of Federal
<PAGE>
Regulations.
7. COAL MINING RECLAMATION AND CONSERVATION REQUIREMENTS. The reclamation
and conservation requirements stated below shall be a part of any contract
awarded for term coal to be produced by surface and/or underground mining. TVA
reserves the right to inspect prior to award, the area(s) to be mined and the
producer's facilities to ensure that the offeror understands and is capable of
complying with these requirements and to reject any proposal that fails to
conform to these requirements, including offers of coal that would be mined from
any of the restricted or unminable areas described in Subsection (a) below.
Consideration may not be given to any proposal for which the specific location
map(s) is not in TVA's possession at the time proposals are due. The map(s)
become a part (by reference) of any contract awarded for coal to be mined from
the described location(s) after approval by TVA. All coal delivered to TVA must
be mined from the area(s) identified in the specific location map(s) applicable
to a given contract. Delivery of coal mined from any other location(s) than as
applicable to a particular term coal contract will constitute a material breach
of such contract.
The following TVA reclamation and conservation requirements are applicable
to all term contracts for the purchase of coal.
(a) Coal Mining--Land and Water Resource Protection. TVA accepts no offers
of coal mined from locations in or near areas officially designated by state or
federal agencies, or identified by TVA as wild or scenic river areas or wild,
wilderness, natural, scenic, public recreation areas or under study pursuant to
legislative authority for any such official designation, except where special
circumstances exist. No such offers will be accepted from locations in or near
areas designated under legislative authority as potential sites for the above
uses unless, after coordination with the appropriate agencies, TVA determines
that the coal can be mined without substantially adversely affecting the area's
potential for such use. In such cases, and also in cases involving offerings of
coal from mines in or near other visually important areas such as major highways
or population centers, special provisions designed to protect aesthetic values
may be incorporated in the purchase contracts. No coal will be accepted from
areas in which, in TVA's judgment, mining would adversely affect a public water
supply and such adverse effect cannot be avoided by proper reclamation.
(b) Specific Location Map. Offerors must furnish a map that specifically
locates and outlines the area(s) to be disturbed during mining. This map should
be approximately 8-1/2 x 11 inches in size, and the information required may be
superimposed over a portion of a TVA or United States geological survey
topographic map, scale 1 inch = 2,000 feet, or 1 inch = 1,000 feet. The map
submitted to TVA must also include the producer's name and address, the state
surface and/or underground mine permit numbers, M.S.H.A. numbers, the
appropriate quadrangle name or designation, and access roads to the mining
area(s). A new map must be submitted for each new mine offered.
8. CERTIFICATION FOR CONTRACTS, GRANTS, LOANS, AND COOPERATIVE AGREEMENTS.
By submission of a proposal under this Request for Proposals, the offeror
certifies as follows:
(a) No Federal appropriated funds have been paid or will be paid by or on
behalf of the offeror to any person for influencing or attempting to influence
an officer or employee of any agency, a Member of Congress, an officer or
employee of Congress, or an employee of a Member of Congress in connection with
the awarding of any Federal contract, the making of any Federal grant, the
making of any Federal loan, the entering into of any cooperative agreement, and
the extension, continuation, renewal, amendment, or modification of any Federal
contract, grant, loan, or cooperative agreement.
(b) If any funds other than Federal appropriated funds have been paid or
will be paid to any person for influencing or attempting to influence an officer
or employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this Federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form-LLL, "Disclosure of Lobbying Activities," in accordance
with its instructions.
(c) The offeror shall require that the language of this certification be
included in the award documents for
<PAGE>
all subawards at all tiers (including subcontracts, subgrants, and contracts
under grants, loans, and cooperative agreements) and that all subrecipients
shall certify and disclose accordingly.
This certification is a material representation of fact upon which
reliance was placed when this transaction was made or entered into. Submission
of this certification is a prerequisite for making or entering into this
transaction imposed by 31\U.S.C. 1352. Any person who fails to file the required
certification shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.
9. EXCEPTIONS. By submission of a term coal proposal in response to this
RFP, offeror conforms its proposal to the terms and conditions of TVA's Term
Coal Contract, unless exceptions are clearly detailed in writing and submitted
with proposal.
<PAGE>
June 6, 1996
Steve Blackburn
LP 5G-C
REQ. 33 -- TERM COAL -- COSTAIN COAL COMPANY -- SUBCONTRACTING PLAN SP 96-38
The attached plan meets the criteria for an acceptable subcontracting plan and
is hereby approved.
This plan should be incorporated and made a material part of the ensuing
contract, and a copy of the acceptance page(s) should be furnished to this
office upon award.
/s/ Vickie F. Thornhill
Vickie F. Thornhill, Specialist
Office of Small and Disadvantaged
Business Utilization
Attachment
1911j
<PAGE>
SMALL-BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PROGRAM
A. PURPOSE:
TO ESTABLISH A GENERAL POLICY AND PROCEDURE RELATING TO THE COMPANY'S
SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PROGRAM.
B. POLICY:
1. PLACE A FAIR PROPORTION OF ITS TOTAL PROCUREMENT FOR SUPPLIES,
SERVICES, AND OTHER MATERIALS, WITH SMALL BUSINESS AND SMALL
DISADVANTAGED BUSINESS CONCERNS, CONSISTENT WITH EFFICIENT AND
TIMELY PERFORMANCE OF ITS CONTRACTS.
2. ESTABLISH PERCENTAGE GOAL OF 21% AND 12,180,0O0 FOR THE UTILIZATION
AS SUBCONTRACTORS OF SMALL BUSINESS CONCERNS: ESTABLISH PERCENTAGE
GOAL 0F 5% AND $2,900,000 FOR THE UTILIZATION AS SUBCONTRACTORS OF
SMALL BUSINESS CONCERNS OWNED AND OPERATED BY SOCIALLY AND
ECONOMICALLY DISADVANTAGED INDIVIDUALS: ESTABLISH PERCENTAGE GOAL OF
3% AND $1,740,000 FOR THE UTILIZATION AS SUBCONTRACTORS OF SMALL
BUSINESS CONCERNS OWNED AND CONTROLLED BY A WOMAN OR WOMEN.
3. ASSIGN PUR & WHSE MANAGER, MR. CLETIS HUNT IS DESIGNATED AS THE
SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS LIAISON OFFICER. HE
OR A DULY AUTHORIZED REPRESENTATIVE SHALL ADMINISTER THE PLAN IN A
MANNER WHICH WILL ENABLE SUCH CONCERNS TO BE CONSIDERED FAIRLY AS
SUBCONTRACTORS AND SUPPLIERS.
4. WILL INCLUDE INSTRUCTION IN THE REQUIREMENTS OF THIS POLICY AND ITS
PROPER APPLICATION IN ALL TRAINING COURSES FOR PROCUREMENT
PERSONNEL. ALSO, ASSURE THAT SMALL BUSINESS AND SMALL DISADVANTAGED
CONCERNS WILL HAVE AN EQUITABLE OPPORTUNITY TO COMPETE FOR
SUBCONTRACTS, PARTICULARLY BY ARRANGING SOLICITATIONS IN TIME FOR
THE PREPARATION OF BIDS, QUANTITIES, SPECIFICATIONS, AND DELIVERY
SCHEDULES SO AS TO FACILITATE THE PARTICIPATION OF SUCH CONCERNS.
5. WILL INCLUDE THE SMALL BUSINESS POLICY CLAIMS IN ALL SUBCONTRACTS
WHICH OFFER FURTHER SUBCONTRACTING OPPORTUNITIES, AND REQUEST ALL
SUBCONTRACTORS WHO RECEIVE SUBCONTRACTS IN EXCESS OF $500,000 TO
ADOPT A PLAN SIMILAR TO THIS PLAN.
6. WHEN REQUIRED BY THE TERMS OF ANY GOVERNMENT PRIME CONTRACT, SUBMIT
REPORTS AS REQUIRED BY THE SMALL DISADVANTAGED BUSINESS
SUBCONTRACTING PROGRAMS. COOPERATE IN ANY STUDY OR SURVEYS CONDUCTED
BY THE GOVERNMENT CONTRACTING OFFICER OR HIS DESIGNEES WHICH MAY BE
NECESSARY TO DETERMINE THE EXTENT 0F THE COMPANY'S COMPLIANCE WITH
APPLICABLE REGULATIONS.
7. MAINTAIN A LIBRARY WHICH INCLUDES SMALL BUSINESS AND SMALL
DISADVANTAGED BUSINESS CONCERNS SOURCE DIRECTORIES AND OTHER
APPLICABLE LITERATURE. ALSO MAINTAIN RECORDS SUCH AS PURCHASE
ORDERS, BID REQUEST, ETC. WHICH WILL DEMONSTRATE PROCEDURES WHICH
HAVE BEEN ADOPTED TO COMPLY WITH THE REQUIREMENT AND GOALS SET FORTH
IN THE PLAN.
<PAGE>
REQUISITION 33
TERM COAL PROPOSAL - PROPOSALS DUE MARCH 4, 1996
To: Tennessee Valley Authority, Fuel Acquisition & Supply, 1101 Market Street,
Chattanooga, Tennessee 37402-2801
The Request for Proposals for Term Coal and Term Coal Contract apply to this
offer and any acceptance of it by TVA. Offers may not be withdrawn after
proposal closing without the consent of the Fuel Buyer. The undersigned offers
and agrees, if this proposal is accepted by July 1, 1996, coal will be furnished
as follows:
<TABLE>
<CAPTION>
=================================================================================================================
Three (3) Years Term Six (6) Years Term Ten (10) Years Term Early Payment Discount
Third (3rd)Year Reopener Fifth (5th)Year Price Reopener
=================================================================================================================
<S> <C> <C> <C>
Base Schedule Base Schedule Base Schedule Offeror may offer discount
for early payment of
Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year invoices by TVA.
$________ Barge ________ $24.28 Barge 1,000,000 $________ Barge ________ Per Ton Price Reduction
$_______ Railcar________ $22.33 Railcar 1,500,000 $_______ Railcar _______ $_______ NET 20 DAYS
(NOTE: Base Contract Provides
$_______ Truck _________ $_______ Truck _________ $_______ Truck _________ net 30 days.)
=================================================================================================================
</TABLE>
================================================================================
TYPICAL ANALYSIS:
The Offeror certifies the following quarterly average coal
quality specification at TVA's sampling point.
<TABLE>
<S> <C>
Total Moisture 8.0%
Ash (as received) 10.5%
Ash (dry) 11.4%
Sulfur (as received) 2.3%
Lbs. SO(2)/mmBtu 3.8
Btu/Lb. (as received) 12,200 Btu
Ash Fusion Temperature/Reducing
Initial 2300(degrees)F
Softening (Hemispherical) 2400(degrees)F
Fluid 2550(degrees)F
Volatile Matter (dry) 36%
Grindability (Hardgrove Index) 55
Chlorine (dry) 0.29%
Raw 25% Washed 75% Size: 2" x 0"
</TABLE>
================================================================================
TRANSPORTATION:
FOB Point:
Railroad CSX
Rail: Tipple: Interchange Tipple No. 44419
City: Providence State: KY
Barge: Terminal: Caseyville
River: Ohio MP: 871.6
Coal should be offered loaded in railcars or barges
at the shipping point.
================================================================================
MINE INFORMATION:
(as shown on Producer's Statement). If offer is offering more than one mine or
producer, and more space is needed to complete all required information for each
mine, please provide the additional information on an attachment.
Mine Name Baker
Mine Permit No. 717-5002
MSHA No. 1514492
Seam Name WKY #13
Type Operation Underground
Nearest Town Sturgis
County Union
State KY
Producer Costain Coal Inc.
P.O. Box 289
Address Sturgis, KY 42459
Offeror Costain Coal Inc.
P.O. Box __________________________________
Street 249 E. Main Street, Suite 200
City & State Lexington, KY
Zip Code 40507
Telephone (606) 255-4006
Fax Number (606) 255-0191
Signature /s/ David L. Vaughn
-------------------
Date March 1, 1996
- --------------------------------------------------------------------------------
Offers must complete and return along with this form, TVA USE ONLY
forms TVA 9903A-D, attached hereto and made a part thereof. T.R.
This proposal is valid until July 1, 1996
================================================================================
OFFEROR MUST ALSO COMPLETE SECOND PAGE OF THIS FORM.
TVA 9910 Page 1 of 2
<PAGE>
CERTIFICATE OF INDEPENDENT PRICE DETERMINATION
(a) By submission of this bid, each bidder certifies, and in the case of a
joint bid each party thereto certifies, as to its own organization, that in
connection with this procurement:
(1) The prices in this bid have been arrived at independently, without
consultation, communication, or agreement, for the purpose of
restricting competition, as to any matter relating to such prices with
any other bidder or with any competitor;
(2) Unless otherwise required by law, the prices which have been
quoted in this bid have not been disclosed knowingly by the bidder and
will not knowingly be disclosed by the bidder prior to bid closing,
directly or indirectly, to any other bidder or to any competitor; and
(3) No attempt has been made or will be made by the bidder to induce
any other person or firm to submit or not to submit a bid for the
purpose of restricting competition.
(b) Each person signing this bid certifies that:
(1) He is the person in the bidder's organization responsible within
that organization for the decision as to the prices being bid herein
and that he has not participated, and will not participate, in any
action contrary to (a)(1) through (a)(3) above; or
(2) (i) He is not the person in the bidder's organization responsible
within that organization for the decision as to the prices being bid
herein but that he has been authorized in writing to act as agent for
the persons responsible for such decision in certifying that such
persons have not participated, and will not participate, in any action
contrary to (a)(1) through (a)(3) above, and as their agent does
hereby so certify; and (ii) he has not participated, and will not
participate, in any action contrary to (a)(1) through (a)(3) above.
(c) A bid will not be considered for award where (a)(1), (a)(3), or (b)
above has been deleted or modified. Where (a)(2) above has been deleted or
modified, the bid will not be considered for award unless the bidder furnishes
with the bid a signed statement which sets forth in detail the circumstances of
the disclosure; and the Contracting Officer determines that such disclosure was
not made for the purpose of restricting competition.
AGENT'S WARRANTY, LIABILITY, AND AGREEMENT
If a bid is submitted by an agent in the name of its principal, said agent
warrants the correctness of all information contained in the bid and that it has
obtained written authority from such principal to make the foregoing bid; and
said agent agrees to be fully [Illegible] for the performance of any contract
awarded on this bid, if agent has submitted it without proper authority from the
principal. Said agent further agrees to hold TVA harmless from any claims,
demands, or actions made against it by the principal on the ground that said
agent has exceeded or acted contrary to its authority in any matter connected
with this bid or any resulting contract.
The bidder represents:
That it is |_|, is not |x|, a small business concern as defined in the Code of
Federal Regulations, Title 13, Chapter 1, Part 121. If the bidder is not the
producer, it also represents that the coal to be furnished hereunder will |_|,
will not |_|, be produced by a small business concern.
That, if the aggregate amount of the bid is greater than $25,000, (a) it has
|_|, has not |x|, employed or retained any company or person (other than bona
fide employees or bona fide established commercial or selling agencies
maintained by the bidder [or contractor] for purposes of securing business) to
solicit or secure this contract; and (b) It has |_|, has not |x|, paid or agreed
to pay any company or person (other than bona fide employees or bona fide
established commercial or selling agencies maintained by the bidder [or
contractor] for purposes of securing business) any fee, commission, percentage,
or brokerage fee, contingent upon or resulting from the award of this contract;
and agrees to furnish information relating thereto as requested.
That it is a regular coal producer |x|, sales agent |_|.
That the producer under this bid does |_|, does not |x|, have any current
instances of noncompliance (including uncorrected violations, unabated cease
orders, overdue fees, and/or fines) with reclamation or health and safety laws
at any mines it owns, controls, or operates. If it does, please attach a full
written explanation to this bid.
That, if surface mined coal is offered, it has read, understands, and will
comply (if an award is received) with the section of the General Conditions for
Spot Coal Purchases entitled Coal Mining Reclamation and Conservation
Requirements. A copy of the specific location map must be attached hereto unless
a previously furnished map is still valid. If map previously furnished is still
valid, please indicate. Yes |_| No |x|
That the offered coal will be produced by mine(s) having all currently required
federal, state, and other regulatory agency coal mining permits, certificates,
and licenses; and agrees to keep such permits, certificates, and licenses
current; and further agrees to furnish TVA with copies thereof if requested.
That, if it is not the producer of the coal to be delivered hereunder, it has
contracted directly with the producer for delivery of the coal to TVA.
TVA 9910 Page 2 of 2
<PAGE>
Note, [Illegible] Term Coal Proposal Form No. 9910
must be completed and signed for each of the
prices and tonnage indicated below.
REQUISITION NUMBER 33
SUMMARY OF OFFERS
Offeror: Costain Coal Inc.
All Tonnage Amounts are in Thousands and Prices are Per Ton
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Typical Analysis Three Year Term Six Year Term Ten Year Term
Third Year Fifth Year
Volatile Price Reopener Price Reopener
Ash Matter Btu/Lb. SO(2) Grind Chlorine Annual F0B FOB FOB
Moisture (A/R) (Dry) (A/R) lbs.mmBtu H.G.I. (DRY) Tonnage Dollars per Ton Dollars per Ton Dollars per Ton
Max. % Max. % Min % Min. Max. Min. Max. % (000) Barge Rail Truck Barge Rail Truck Barge Rail Truck
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,000 24.28
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 750 22.58
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,500 22.33
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 9.0 36 12,400 3.2 55 0.29 1,000 25.50 24.50
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,200
*Total Moisture 8%
*Ash 10.5%
*Sulfur 2.3%
*Volatility 33% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 72.0%
Hydrogen 4.8%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 2.5%
*Ash 11.4%
Oxygen 6.5%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.64%
Alumina (Al(2)O(3)) 26.06%
Ferric Oxide (Fe(2)O(3)) 13.64%
Titania (TiO(2)) 1.00%
Phos Pentoxide (P(2)O(5)) 0.17%
Lime (CaO) 1.57%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.57%
Potassium Oxide (K(2)O) 2.61%
Sulfur Trioxide (SO(3)) 1.16%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,400
*Total Moisture 8%
*Ash 9%
*Sulfur 2.0%
*Volatility 33.5% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 74.26%
Hydrogen 4.9%
Nitrogen 1.6%
*Chlorine 0.29%
*Sulfur 2.15%
*Ash 10.0%
Oxygen 6.8%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)0(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)0) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.40%
Alumina (Al(2)0(3)) 26.40%
Ferric Oxide (Fe(2)O(3)) 13.58%
Titania (TiO(2)) 0.99%
Phos Pentoxide (P(2)O(5)) 0.16%
Lime (CaO) 1.47%
Magnesia (MgO) 0.94%
Sodium Oxide (Na(2)O) 0.58%
Potassium Oxide (K(2)O) 2.57%
Sulfur Trioxide (SO(3)) 1.13%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (Negotiated)
(a) Definitions. The definitions in the Federal Acquisition Regulation (FAR) are
hereby incorporated in this provision.
(b) Certifications. As required in paragraph (c) of this provision, the officer
or employee responsible for this offer shall execute the following
certification:
Certificate of Procurement Integrity
(1) I, Daniel L. Vaughn, [Name of Certifier] am the officer or employee
or employee responsible for the preparation of this and hereby
certify that, to the best of my knowledge and belief, with the
exception of any information described in this certificate, I have
no information concerning a violation or possible violation of
Subsection 27(a), (b), (d), or (f) of the Office of the Federal
Procurement Policy Act (act) as amended* (Title 41 United States
Code Section 423), hereinafter referred to as "the act"), as
implemented in the FAR occurring during the conduct of this
procurement Requisition #33 [Solicitation Number].
(2) As required by subsection 27(e)(l)(B) of the act, I further certify
that, to the best of my knowledge and belief, each officer,
employee, agent, representative, and consultant of Costain Coal Inc.
[Name of Offeror]
who has participated personally and substantially in the preparation
or submission of this offer has certified that he or she is familiar
with, and will comply with, the requirements of subsection 27(a) of
the act, as implementation the FAR, and will report immediately to
me any information concerning a violation or possible violation of
subsection (a), (b), (d), or (f) of the act, as implemented in the
FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity
(Continuation Sheet). Enter "NONE" if none exists.
None
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
(4) I agree that, if awarded a contract under this solicitation, the
certifications required by subsection 27(e)(l)(B) of the act shall
be maintained in accordance with paragraph (f) of this provision.
/s/ Daniel L. Vaughn March 1, 1996
-------------------------------------- -------------------
Signature of Officer or Employee Date
Responsible for the Offer
Daniel L. Vaughn
-------------------------------------- -------------------
Typed Name of Officer or Employee Date
Responsible for Offer
*Subsections 27(a), (b), and (d) are effective on December 1, 1990.
Subsection 27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN
AGENCY OF THE UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS,
OR FRAUDULENT CERTIFICATION MAY RENDER THE MAKER SUBJECT TO
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
(End of certification)
TVA 9903B
Page 1 of 3
<PAGE>
(c) For procurement, including contract modifications, in excess of $100,000
made using procedures other than sealed bidding, the signed certifications
shall be submitted by the successful Offeror to the Contracting Officer
within the time period specified by the Contracting Officer when
requesting the certificates except as provided in subparagraphs (c)(1)
through (c)(5) of this clause. In no event shall the certificate be
submitted subsequent to award of a contract or execution of a contract
modification:
(1) For letter contracts, other unpriced contracts, or unpriced contract
modifications, whether or not the unpriced contract or modification
contains a maximum or not to exceed price, the signed certifications shall
be submitted prior to the award of the letter contract, unpriced contract,
or the unpriced contract modification, and prior to the definitization of
the letter contract or the establishment of the price of the unpriced
contract or unpriced contract modification. The second certification shall
apply only to the period between award of the letter contract and
execution of the document definitizing the letter contract or award of the
unpriced contract or unpriced contract modification and execution of the
document establishing the definitive price of such unpriced contract or
unpriced contract modification.
(2) For basic ordering agreements, prior to the execution of a priced
order; prior to the execution of an unpriced order, whether or not the
unpriced order contains a maximum or not to exceed price and, prior to
establishing the price of an unpriced order. The second certification to
be submitted for unpriced orders shall apply only to the period between
award of the unpriced order and execution of the document establishing the
definitive price for such order.
(3) A certificate is not required for indefinite delivery contracts (see
FAR subpart 16.5) unless the total estimated value of all orders
eventually to be placed under the contract is expected to exceed $100,000.
(4) For contracts and contract modifications which include options, a
certificate is required when the aggregate value of the contract or
contract modification and all options (see FAR 3.104-4(e)) exceeds
$100,000.
(5) For purposes of contracts entered into under Section 8(a) of the Small
Business Act, the business entity with whom the Small Business
Administration (SBA) contracts, and not the SBA, shall be required to
comply with the certification requirements of subsection 27(e). The SBA
shall obtain the signed certificate from the business entity and forward
the certificate to the Contracting Officer prior to the award of a
contract to the SBA.
(6) Failure of an Offeror to submit the signed certificate within the time
prescribed by the Contracting Officer shall cause the offer to be
rejected.
(d) Pursuant to FAR 3.104-9(d), the offerer may be requested to execute
additional certifications at the request of the Tennessee Valley Authority
(TVA). Failure of an offeror to submit the additional certifications shall
cause its offer to be rejected.
(e) A certification containing a disclosure of a violation or possible
violation will not necessarily result in the withholding of an award under
this solicitation. However, TVA, after evaluation of the disclosure. may
cancel this procurement or take any other appropriate actions in the
interests of TVA, such as disqualification of the offeror.
(f) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by
periodic training. These certifications shall be obtained
TVA 9903B
Page 2 of 3
<PAGE>
at the earliest possible date after an individual required to certify
begins employment or association with the Offeror. If a Offeror decides to
rely on a certification executed prior to the suspension of section 27
(i.e., prior to December 1989), the Contractor shall ensure that an
individual who has so certified is notified that section 27 has been
reinstated. These certifications shall be maintained by the offeror for
six years from the date a certifying employee's employment with the
company ends or, for an agent, representative, or consultant, six years
from the date such individual ceases to act on behalf offeror
(g) Certifications under paragraphs (b) and (d) of this provision are material
representations of fact upon which reliance will be placed in awarding a
contract.
TVA 9903B
Page 3 of 3
<PAGE>
TAXPAYER IDENTIFICATION NUMBER AND
PARENT COMPANY
Full company name of Bidder/Offeror: Costain Coal Inc.
a. The offeror is required to submit the information outlined in paragraphs b
through d of this solicitation provision in order to comply with reporting
requirements of the Internal Revenue Code and implementing regulations issued by
the Internal Revenue Service (IRS).
b. Taxpayer Identification Number (TIN) (the number required by the IRS to be
used by the offeror in reporting income tax and other returns).
(x) TIN: 95-2623858
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien foreign corporation or foreign
partnership that does not have income effectively connected with the
conduct of a trade or business in the United States and does not
have an office or place of business or fiscal paying agent in the
United States;
( ) Offeror is an agency or instrumentality of a foreign government;
( ) Other basis: ________________________________________________.
c. Corporate status:
( ) Corporation providing medical and health care services, or engaged in
the billing and collecting of payments for such services;
( ) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Hospital or extended care facility described in 26 C.F.R. ss.
501(c)(3) that is exempt from taxation under 26 C.F.R. ss. 501(a).
d. Common Parent:
( ) Offeror is a member of an affiliated group of corporations that files
its Federal income tax returns on a consolidated basis.
(x) Name and TIN of common parent
Name: Costain Coal Inc.
TIN: 95-2623858
TVA 9903C
<PAGE>
DISADVANTAGED SMALL BUSINESS STATEMENT
Vendor Represents:
A. That it is |_|, is not |x|, a small business concern as defined in the
Code of Federal Regulations, Title 13, Part 121.
B. That it is |_|, is not |x|, a disadvantaged small business concern. A
disadvantaged small business concern is defined as a business which is at
least 51 percent owned by one or more socially and economically
disadvantaged individuals or, in the case of any publicly owned business,
at least 51 percent of the stock of which is owned by one or more socially
and economically disadvantaged individuals, and whose management and daily
business operations are controlled by one or more of such individuals. For
the purposes of this definition, it should be presumed that socially and
economically disadvantaged individuals include Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Asian-Indian
Americans. and other individuals found to be disadvantaged by the Small
Business Administration in accordance with the Small Business Act. If
vendor represents it is a small disadvantaged business concern as defined
above, the applicable presumptively covered group is:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
C. That it is |_|, is not |x|, a small business concern owned and controlled
by women. A small business owned and controlled by women means a business
that is small for purposes of the Small Business Act, that is at least 51
percent owned by one or more women, and whose management and daily
business operations are controlled by one or more women.
D. This is |_|, is not |x|, the vendor's first purchase order/contract with
TVA.
PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEWS. Before award of a contract of $1
million or more under this Invitation to Bid, the prospective contractor and
each of his known first-tier subcontractors who will receive a subcontract of $1
million or more, will be subject to a review to determine compliance with the
Equal Opportunity clause (form TVA 9923) and the regulations issued pursuant to
Executive Order 11246. In order to qualify in this respect for award, the
contractor and such subcontractors must be found, on the basis of such review,
to be able, to comply with these requirements.
Where a previous compliance review has been made within twelve months of the
expected date of award, an additional full review will ordinarily not be needed
to determine compliance.
If your offer is $1 million or more, supply the following data for each of your
establishments (and subcontractor establishments if subcontract is $1 million or
more) where work on the contract will be performed.
Name and Location of All Mines
That Would Furnish Any of the Latest Compliance Review
Coal Offered Under This Invitation Date Agency Which Made the Review
to Bid: ___________________________
Costain's West Kentucky Operations Not Known
Costain's East Kentucky Operations
TVA 9903D
<PAGE>
REQUISITION 33
TERM COAL PROPOSAL - PROPOSALS DUE MARCH 4, 1996
To: Tennessee Valley Authority, Fuel Acquisition & Supply, 1101 Market Street,
Chattanooga, Tennessee 37402-2801
The Request for Proposals for Term Coal and Term Coal Contract apply to this
offer and any acceptance of it by TVA. Offers may not be withdrawn after
proposal closing without the consent of the Fuel Buyer. The undersigned offers
and agrees, if this proposal is accepted by July 1, 1996, coal will be furnished
as follows:
<TABLE>
<CAPTION>
=================================================================================================================
Three (3) Years Term Six (6) Years Term Ten (10) Years Term Early Payment Discount
Third (3rd)Year Reopener Fifth (5th)Year Price Reopener
=================================================================================================================
<S> <C> <C> <C>
Base Schedule Base Schedule Base Schedule Offeror may offer discount
for early payment of
Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year invoices by TVA.
$________ Barge ________ $24.28 Barge 1,000,000 $________ Barge ________ Per Ton Price Reduction
$_______ Railcar________ $22.58 Railcar 750,000 $_______ Railcar _______ $_______ NET 20 DAYS
(NOTE: Base Contract Provides
$_______ Truck _________ $_______ Truck _________ $_______ Truck _________ net 30 days.)
=================================================================================================================
</TABLE>
================================================================================
TYPICAL ANALYSIS:
The Offeror certifies the following quarterly average coal
quality specification at TVA's sampling point:
<TABLE>
<S> <C>
[Illegible] Moisture 8.0%
Ash (as received) 10.5
Ash (dry) 11.4
Sulfur (as received) 2.3%
Lbs. SO2/mmBtu 3.8
Btu/Lb. (as received) 12,200 Btu
Ash Fusion Temperature/Reducing
Initial 2300(degrees)F
Softening(Hemispherical) 2400(degrees)F
Fluid 2550(degrees)F
Volatile Matter (dry) 36%
Grindability (Hardgrove Index) 55
Chlorine (dry) 0.29%
Raw 25% Washed 75% Size: 2" x 0"
</TABLE>
================================================================================
TRANSPORTATION:
FOB Point:
Railroad CSX
Rail: Tipple: Interchange Tipple No. 44419
City: Providence State: KY
Barge: Terminal: Caseyville
River: Ohio MP: 871.6
Coal should be offered loaded in railcars or barges
[Illegible] shipping point.
================================================================================
MINE INFORMATION:
(as shown on Producer's Statement). If offer is offering more than one mine or
producer, and more space is needed to complete all required information for each
mine, please provide the additional information on an attachment.
Mine Name Baker
Mine Permit No. 717-5002
MSHA No. 1514492
Seam Name WKY #13
Type Operation Underground
Nearest Town Sturgis
County Union
State KY
Producer Costain Coal Inc.
P.O. Box 289
Address Sturgis, KY 42459
Offeror Costain Coal Inc.
P.O. Box __________________________________
Street 249 E. Main Street, Suite 200
City & State Lexington, KY
Zip Code 40507
Telephone (606) 255-4006
Fax Number (606) 255-0191
Signature /s/ David L. Vaughn
-------------------
Date March 1, 1996
- --------------------------------------------------------------------------------
Offers must complete and return along with this form, TVA USE ONLY
forms TVA 9903A-D, attached hereto and made a part thereof. T.R.
This proposal is valid until July 1, 1996
================================================================================
OFFEROR MUST ALSO COMPLETE SECOND PAGE OF THIS FORM.
TVA 9910 Page 1 of 2
<PAGE>
CERTIFICATE OF INDEPENDENT PRICE DETERMINATION
(a) By submission of this bid, each bidder certifies, and in the case of a
joint bid each party thereto certifies, as to its own organization, that in
connection with this procurement:
(1) The prices in this bid have been arrived at independently, without
consultation, communication, or agreement, for the purpose of
restricting competition, as to any matter relating to such prices with
any other bidder or with any competitor;
(2) Unless otherwise required by law, the prices which have been quoted
in this bid have not been disclosed knowingly by the bidder and will
not knowingly be disclosed by the bidder prior to bid closing, directly
or indirectly, to any other bidder or to any competitor; and
(3) No attempt has been made or will be made by the bidder to induce
any other person or firm to submit or not to submit a bid for the
purpose of restricting competition.
(b) Each person signing this bid certifies that:
(1) He is the person in the bidder's organization responsible within
that organization for the decision as to the prices being bid herein
and that he has not participated, and will not participate, in any
action contrary to (a)(l) through (a)(3) above; or
(2) (i) He is not the person in the bidder's organization responsible
within that organization for the decision as to the prices being bid
herein but that he has been authorized in writing to act as agent for
the persons responsible for such decision in certifying that such
persons have not participated, and will not participate, in any action
contrary to (a)(1) through (a)(3) above, and as their agent does hereby
so certify; and (ii) he has not participated, and will not participate,
in any action contrary to (a)(1) through (a)(3) above.
(c) A bid will not be considered for award where (a)(1), (a)(3), or (b)
above has been deleted or modified. Where (a)(2) above has been deleted or
modified, the bid will not be considered for award unless the bidder furnishes
with the bid a signed statement which sets forth in detail the circumstances of
the disclosure; and the Contracting Officer determines that such disclosure was
not made for the purpose of restricting competition.
AGENT'S WARRANTY, LIABILITY, AND AGREEMENT
If a bid is submitted by an agent in the name of its principal, said agent
warrants the correctness of all information contained in the bid and that it has
obtained written authority from such principal to make the foregoing bid; and
said agent agrees to be fully liable for the performance of any contract
awarded on this bid, if agent has submitted it without proper authority from the
principal. Said agent further agrees to hold TVA harmless from any claims,
demands, or actions made against it by the principal on the ground that said
agent has exceeded or acted contrary to its authority in any matter connected
with this bid or any resulting contract.
The bidder represents:
That it is |_|, is not |x|, a small business concern as defined in the Code of
Federal Regulations, Title 13, Chapter 1, Part 121. If the bidder is not the
producer, it also represents that the coal to be furnished hereunder will |_|,
will not |_|, be produced by a small business concern.
That, if the aggregate amount of the bid is greater than $25,000, (a) it has
|_|, has not |x|, employed or retained any company or person (other than bona
fide employees or bona fide established commercial or selling agencies
maintained by the bidder [or contractor] for purposes of securing business) to
solicit or secure this contract; and (b) it has |_|, has not |x|, paid or agreed
to pay any company or person (other than bona fide employees or bona fide
established commercial or selling agencies maintained by the bidder [or
contractor] or purposes of securing business) any fee, commission, percentage,
or brokerage fee, contingent upon or resulting from the award of this contract;
and agrees to furnish information relating thereto as requested.
That it is a regular coal producer |x|, sales agent |_|.
That the producer under this bid does |_|, does not |x|, have any current
instances of noncompliance (including uncorrected violations, unabated cease
orders, overdue fees, and/or fines) with reclamation or health and safety laws
at any mines it owns, controls, or operates. If it does, please attach a full
written explanation to this bid.
That, if surface mined coal is offered, it has read, understands, and will
comply (if an award is received) with the section of the General Conditions for
Spot Coal Purchases entitled Coal Mining Reclamation and Conservation
Requirements. A copy of the specific location map must be attached hereto unless
a previously furnished map is still valid. If map previously furnished is still
valid, please indicate. Yes |_| No |x|
That the offered coal will be produced by mine(s) having all currently required
federal, state, and other regulatory agency coal mining permits, certificates,
and licenses; and agrees to keep such permits, certificates, and licenses
current; and further agrees to furnish TVA with copies thereof if requested.
That, if it is not the producer of the coal to be delivered hereunder, it has
contracted directly with the producer for delivery of the coal to TVA.
TVA 9910 Page 2 of 2
<PAGE>
Note, [Illegible] Term Coal Proposal Form No. 9910
must be completed and signed for each of the
prices and tonnage indicated below.
REQUISITION NUMBER 33
SUMMARY OF OFFERS
Offeror: Costain Coal Inc.
All Tonnage Amounts are in Thousands and Prices are Per Ton
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Typical Analysis Three Year Term Six Year Term Ten Year Term
Third Year Fifth Year
Volatile Price Reopener Price Reopener
Ash Matter Btu/Lb. SO(2) Grind Chlorine Annual F0B FOB FOB
Moisture (A/R) (Dry) (A/R) lbs.mmuBtu H.G.I. (DRY) Tonnage Dollars per Ton Dollars per Ton Dollars per Ton
Max. % Max. % Min % Min. Max. Min. Max. % (000) Barge Rail Truck Barge Rail Truck Barge Rail Truck
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,000 24.28
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 750 22.58
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,500 22.33
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 9.0 36 12,400 3.2 55 0.29 1,000 25.50 24.50
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,200
*Total Moisture 8%
*Ash 10.5%
*Sulfur 2.3%
*Volatility 33% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 72.0%
Hydrogen 4.8%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 2.5%
*Ash 11.4%
Oxygen 6.5%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere---
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.64%
Alumina (Al(2)0(3)) 26.06%
Ferric Oxide (Fe(2)O(3)) 13.64%
Titania (TiO(2)) 1.00%
Phos Pentoxide (P(2)O(5)) 0.17%
Lime (CaO) 1.57%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.57%
Potassium Oxide (K(2)0) 2.61%
Sulfur Trioxide (SO(3)) 1.16%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,400
*Total Moisture 8%
*Ash 9%
*Sulfur 2.0%
*Volatility 33.5% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 74.26%
Hydrogen 4.9%
Nitrogen 1.6%
*Chlorine 0.29%
*Sulfur 2.15%
*Ash 10.0%
Oxygen 6.8%
Fluorine --%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.40%
Alumina (Al(2)O(3)) 26.40%
Ferric Oxide (Fe(2)O(3)) 13.58%
Titania (TiO(2)) 0.99%
Phos Pentoxide (P(2)O(5)) 0.16%
Lime (CaO) 1.47%
Magnesia (MgO) 0.94%
Sodium Oxide (Na(2)O) 0.58%
Potassium Oxide (K(2)O) 2.57%
Sulfur Trioxide (SO(3)) 1.13%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (Negotiated)
(a) Definitions. The definitions in the Federal Acquisition Regulation (FAR) are
hereby incorporated in this provision.
(b) Certifications. As required in paragraph (c) of this provision, the officer
or employee responsible for this offer shall execute the following
certification:
Certificate of Procurement Integrity
(1) I, Daniel L. Vaughn, [Name of Certifier] am the officer or employee
or employee responsible for the preparation of this and hereby
certify that, to the best of my knowledge and belief, with the
exception of any information described in this certificate, I have
no information concerning a violation or possible violation of
Subsection 27(a), (b), (d), or (f) of the Office of the Federal
Procurement Policy Act (act) as amended* (Title 41 United States
Code Section 423), hereinafter referred to as "the acts"), as
implemented in the FAR occurring during the conduct of this
procurement Requisition #33 [Solicitation Number].
(2) As required by subsection 27(e)(1)(B) of the act, I further certify
that, to the best of my knowledge and belief, each officer,
employee, agent, representative, and consultant of Costain Coal Inc.
[Name of Offeror]
who has participated personally and substantially in the preparation
or submission of this offer has certified that he or she is familiar
with, and will comply with, the requirements of subsection 27(a) of
the act, as implementation the FAR, and will report immediately to
me any information concerning a violation or possible violation of
subsection (a), (b), (d), or (f) of the act, as implemented in the
FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity
(Continuation Sheet). Enter "NONE" if none exists.
None
--------------------------------------------------------------------
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--------------------------------------------------------------------
(4) I agree that, if awarded a contract under this solicitation, the
certifications required by subsection 27(e)(1)(B) of the act shall
be maintained in accordance with paragraph (f) of this provision.
/s/ Daniel L. Vaughn March 1, 1996
-------------------------------------- -------------------
Signature of Officer or Employee Date
Responsible for the Offer
Daniel L. Vaughn
-------------------------------------- -------------------
Typed Name of Officer or Employee Date
Responsible for Offer
*Subsections 27(a), (b), and (d) are effective on December 1, 1990.
Subsection 27(1) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN
AGENCY OF THE UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS,
OR FRAUDULENT CERTIFICATION MAY RENDER THE MAKER SUBJECT TO
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
(End of certification)
TVA 9903B
Page 1 of 3
<PAGE>
(c) For procurement, including contract modifications, in excess of $100,000
made using procedures other than sealed bidding, the signed certifications
shall be submitted by the successful Offeror to the Contracting Officer
within the time period specified by the Contracting Officer when
requesting the certificates except as provided in subparagraphs (c)(1)
through (c)(5) of this clause. In no event shall the certificate be
submitted subsequent to award of a contract or execution of a contract
modification:
(1) For letter contracts, other unpriced contracts, or unpriced contract
modifications, whether or not the unpriced contract or modification
contains a maximum or not to exceed price, the signed certifications shall
be submitted prior to the award of the letter contract, unpriced contract,
or the unpriced contract modification, and prior to the definitization of
the letter contract or the establishment of the price of the unpriced
contract or unpriced contract modification. The second certification shall
apply only to the period between award of the letter contract and
execution of the document definitizing the letter contract or award of the
unpriced contract or unpriced contract modification and execution of the
document establishing the definitive price of such unpriced contract or
unpriced contract modification.
(2) For basic ordering agreements, prior to the execution of a priced
order; prior to the execution of an unpriced order, whether or not the
unpriced order contains a maximum or not to exceed price and, prior to
establishing the price of an unpriced order. The second certification to
be submitted for unpriced orders shall apply only to the period between
award of the unpriced order and execution of the document establishing the
definitive price for such order.
(3) A certificate is not required for indefinite delivery contracts (see
FAR subpart 16.5) unless the total estimated value of all orders
eventually to be placed under the contract is expected to exceed $100,000.
(4) For contracts and contract modifications which include options, a
certificate is required when the aggregate value of the contract or
contract modification and all options (see FAR 3.104-4(e)) exceeds
$100,000.
(5) For purposes of contracts entered into under Section 8(a) of the Small
Business Act, the business entity with whom the Small Business
Administration (SBA) contracts, and not the SBA, shall be required to
comply with the certification requirements of subsection 27(e). The SBA
shall obtain the signed certificate from the business entity and forward
the certificate to the Contracting Officer prior to the award of a
contract to the SBA.
(6) Failure of an Offeror to submit the signed certificate within the time
prescribed by the Contracting Officer shall cause the offer to be
rejected.
(d) Pursuant to FAR 3.104-9(d), the offerer may be requested to execute
additional certifications at the request of the Tennessee Valley Authority
(TVA). Failure of an offeror to submit the additional certifications shall
cause its offer to be rejected.
(e) A certification containing a disclosure of a violation or possible
violation will not necessarily result in the withholding of an award under
this solicitation. However, TVA, after evaluation of the disclosure, may
cancel this procurement or take any other appropriate actions in the
interests of TVA, such as disqualification of the offeror.
(f) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by
periodic training. These certifications shall be obtained
TVA 9903B
Page 2 of 3
<PAGE>
at the earliest possible date after an individual required to certify
begins employment or association with the Offeror. If a Offeror decides to
rely on a certification executed prior to the suspension of section 27
(i.e., prior to December 1989), the Contractor shall ensure that an
individual who has so certified is notified that section 27 has been
reinstated. These certifications shall be maintained by the offeror for
six years from the date a certifying employee's employment with the
company ends or, for an agent, representative, or consultant, six years
from the date such individual ceases to act on behalf offeror
(g) Certifications under paragraphs (b) and (d) of this provision are material
representations of fact upon which reliance will be placed in awarding a
contract.
TVA 9903B
Page 3 of 3
<PAGE>
TAXPAYER IDENTIFICATION NUMBER AND
PARENT COMPANY
Full company name of Bidder/Offeror: Costain Coal Inc.
a. The offeror is required to submit the information outlined in paragraphs b
through d of this solicitation provision in order to comply with reporting
requirements of the Internal Revenue Code and implementing regulations issued by
the Internal Revenue Service (IRS).
b. Taxpayer Identification Number (TIN) (the number required by the IRS to be
used by the offeror in reporting income tax and other returns).
(x) TIN: 95-2623858
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien foreign corporation or foreign
partnership that does not have income effectively connected with the
conduct of a trade or business in the United States and does not
have an office or place of business or fiscal paying agent in the
United States;
( ) Offeror is an agency or instrumentality of a foreign government;
( ) Other basis: ________________________________________________.
c. Corporate status:
( ) Corporation providing medical and health care services, or engaged in
the billing and collecting of payments for such services;
( ) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Hospital or extended care facility described in 26 C.F.R. ss.
501(c)(3) that is exempt from taxation under 26 C.F.R. ss. 501(a).
d. Common Parent:
( ) Offeror is a member of an affiliated group of corporations that files
its Federal income tax returns on a consolidated basis.
(x) Name and TIN of common parent:
Name: Costain Coal Inc.
TIN: 95-2623858
TVA 9903C
<PAGE>
DISADVANTAGED SMALL BUSINESS STATEMENT
Vendor Represents:
A. That it is |_|, is not |x|, a small business concern as defined in the
Code of Federal Regulations, Title 13, Part 121.
B. That it is |_|, is not |x|, a disadvantaged small business concern. A
disadvantaged small business concern is defined as a business which is at
least 51 percent owned by one or more socially and economically
disadvantaged individuals or, in the case of any publicly owned business,
at least 51 percent of the stock of which is owned by one or more socially
and economically disadvantaged individuals, and whose management and daily
business operations are controlled by one or more of such individuals. For
the purposes of this definition, it should be presumed that socially and
economically disadvantaged individuals include Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Asian-Indian
Americans, and other individuals found to be disadvantaged by the Small
Business Administration in accordance with the Small Business Act. If
vendor represents it is a small disadvantaged business concern as defined
above, the applicable presumptively covered group is:
--------------------------------------------------------------------------
-------------------------------------------------------------------------.
C. That it is |_|, is not |x|, a small business concern owned and controlled
by women. A small business owned and controlled by women means a business
that is small for purposes of the Small Business Act, that is at least 51
percent owned by one or more women, and whose management and daily
business operations are controlled by one or more women.
D. This is |_|, is not |x|, the vendor's first purchase order/contract with
TVA.
PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEWS. Before award of a contract of $1
million or more under this Invitation to Bid, the prospective contractor and
each of his known first-tier subcontractors who will receive a subcontract of $1
million or more, will be subject to a review to determine compliance with the
Equal Opportunity clause (form TVA 9923) and the regulations issued pursuant to
Executive Order 11246. In order to qualify in this respect for award, the
contractor and such subcontractor must be found, on the basis of such review, to
be able to comply with these requirements.
Where a previous compliance review has been made within twelve months of the
expected date of award, an additional full review will ordinarily not be needed
to determine compliance.
If your offer is $1 million or more, supply the following data for each of your
establishments (and subcontractor establishments if subcontract is $1 million or
more) where work on the contract will be performed.
Name and Location of All Mines
That Would Furnish Any of the Latest Compliance Review
Coal Offered Under This Invitation Date Agency Which Made the Review
to Bid: ___________________________
Costain's West Kentucky Operations Not Known
Costain's East Kentucky Operations
TVA 9903D
<PAGE>
TENNESSEE VALLEY AUTHORITY
1101 Market Street, LP 5G
Chattanooga, Tennessee 37402-2801
Fax: 423/751-3837
ADDENDUM
No. 1
Requisition 33
Date February 22, 1996
NOTICE TO BIDDERS:
THIS ADDENDUM IS HEREBY MADE A PART OF THIS INVITATION. ONE COPY MUST BE
SIGNED AND RETURNED WITH EACH COPY OF YOUR BID. FAILURE TO DO THIS MAY RESULT IN
REJECTION OF YOUR BID.
TENNESSEE VALLEY AUTHORITY
/s/ James M. Bach, Jr. /s/ R. Stephen Blackburn
- ------------------------------ --------------------------------
James M. Bach, Jr., Fuel Buyer R. Stephen Blackburn, Fuel Buyer
423/751-6682 423/751-6015
Costain Coal Inc.
- ---------------------
Offeror's Company Name
/s/ Daniel L. Vaughn
Director Business Development (9/18/96)
- ---------------------------------------
Signature and Title of Person
Authorized to sign offer (date)
<PAGE>
LIMITATION ON USE OF OUTSIDE INFLUENCE
ID-67 -- Lobbying. This solicitation and any resulting contract are subject to
the requirements of Public Law No. 101-121 (to be codified at 31 U.S.C. 1352),
which prohibits certain lobbying activities and requires disclosure of certain
others, and to TVA's implementing regulations published at 55 Fed Reg. 6736 (to
be codified at 18 C.F.R. 1315).
A. Prohibition, Certification, and Disclosure.
(1) Appropriated Funds. Section 319 of Public Law No. 101-121 provides
that none of the funds appropriated by any act of Congress may be
expended by the recipient of a federal contract, grant, loan, or
cooperative agreement to pay any person for influencing or
attempting to influence an officer or employee of any agency, a
Member of Congress, an officer or employee of Congress, or an
employee of a cooperative agreement to pay any person for
influencing or attempting to influence an officer or employee of any
agency, a Member of Congress, an officer or employee of Congress, or
an employee of a Member of Congress in connection with: (a) the
awarding of any federal contract; (b) the making of any federal
grant; (c) the making of any federal loan; (d) the entering into of
any cooperative agreement; or (e) the extension, continuation,
renewal, amendment, or modification of any federal contract, grant,
loan, or cooperative agreement.
(2) Certification. By signing the certification entitled "Certification
for Contracts, Grants, Loans, and Cooperative Agreements," at the
end of this section ("Certification"), the offeror shall certify
that it has not violated the foregoing prohibition.
(3) Other Than Appropriated Funds. Except as provided in subsection D,
below, if offeror has paid or will pay any funds other than federal
appropriated funds to any person for influencing or attempting to
influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this offer, the offeror shall
complete and submit to TVA Standard Form-LLL, "Disclosure of
Lobbying an officer or employee of Congress, or an employee of a
Member of Congress in connection with this offer, the offeror shall
complete and submit to TVA Standard Form-LLL, "Disclosure of
Lobbying Activities," in accordance with its instructions. (Copies
of Standard Form-LLL may be obtained from the TVA representative for
this solicitation.) The requirements of this subsection A(3) shall
not apply to payments of reasonable compensation to regularly
employed officers or employees. The term "regularly employed," with
respect to an officer or employee of a person requesting or
receiving a contract, means an officer or employee who is employed
by such person for at least 130 working days within one year
immediately preceding the date of the submission that initiates
TVA's consideration of such person for receipt of such contract.
B. Updating. At the end of each calendar quarter in which there occurs any
event that materially affects the accuracy of the information contained in
the Certification or, if applicable, Standard Form-LLL, the offeror shall
file with TVA an initial or new Standard Form-LLL with such new
information or modifications as are necessary to correct any inaccuracies
in the information originally declared and certified.
C. Subcontractors. In the event a contract is awarded to the offeror under
this solicitation, the successful offeror shall include or cause to be
included the form of the Certification in any subcontract exceeding
$100,000 at any tier. The successful offeror shall promptly file with TVA
each Standard Form-LLL provided by a subcontractor.
D. Exceptions. The prohibition described in subsection A(1) above and the
disclosure requirements in subsection A(3) do not apply in the case of
(1)\a payment of reasonable compensation made to an officer or employee of
the offeror to the extent that the payment is for agency and legislative
liaison
<PAGE>
activities not directly related to a federal action referred to in
subsection A; or (2) any reasonable payment to a person, or any payment or
reasonable compensation to an officer or employee of the ntractor, if the
payment is for professional or technical services rendered directly in the
preparation or negotiation of this offer or any resulting contract.
E. Definitions. Terms not defined herein shall have the meanings ascribed to
them in Public Law No. 101-121 and TVA's implementing regulations.
F. Penalties. (1) Any person who makes an expenditure prohibited by Public
Law No. 101-121 shall be subject to a civil penalty of not less than
$10,000 and not more than $100,000 for each such expenditure; and (2) any
person who fails to file or amend a certification required under
subsection A(2) above or a disclosure required to be filed or amended
under subsection A(3) above shall be subject to a civil penalty of not
less than $10,000 and not more than $100,000 and to such other remedies as
may apply for each such failure.
Certification for Contracts, Grants, Loans, and Cooperative Agreements
The undersigned certifies, to the best of his or her knowledge and belief, that:
(1) No federal appropriated funds have been paid or will be paid by or on behalf
of the undersigned to any person for influencing or attempting to influence an
officer or employee of any agency, a Member of Congress, an officer or employee
of Congress, or an employee of a Member of Congress in connection with the
awarding of any federal contract, the making of any federal grant, the making of
any federal loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment, or modification of any federal
contract, grant, loan, or cooperative agreement.
(2) If any funds other than federal appropriated funds have been paid or will be
paid to any person for influencing or attempting to influence an officer or
employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form-LLL, "Disclosure of Lobbying Activities," in accordance
with its instructions.
(3) The undersigned shall require that the language of this certification be
included in the award documents for all subawards at all tiers (including
subcontracts, subgrants, and contracts under grants, loans, and cooperative
agreements) and that all subrecipients shall certify and disclose accordingly.
This certification is a material representation of fact upon which reliance was
placed when this transaction was made or entered into. Submission of this
certification is a prerequisite for making or entering into this transaction
imposed by 31 U.S.C. 1352. Any person who fails to file the required
certification shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.
By /s/ Eugene C. Holdaway
---------------------------
Title Senior Vice President
------------------------
November 12, 1996
------------------------
<PAGE>
ID-50 -- REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY--MODIFICATION
(Supplemental)
(a) Definitions. The definitions set forth in the Federal Acquisition
Regulation (FAR) at 3.104-4 are hereby incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the Contracting Officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer or
employee responsible for the modification proposal shall execute the
following certification:
Certificate of Procurement Integrity-Modification
(1) I, Eugene C. Holdaway, [Name of Certifier] am the officer or employee
responsible for the
preparation of this modification proposal and hereby certify that, to the
best of my knowledge and belief, with the exception of any information
described in this certification, I have no information concerning a
violation or possible violation of Subsection 27(a), (b), (d), or (f) of
the Office of Federal Procurement Policy Act (act) as amended* (Title 41,
United States Code, Section 423) (hereinafter referred to as "the act"),
as implemented in the FAR, occurring during the conduct of this
procurement _______________________________ [Contract and Modification
Number].
(2) As required by subsection 27(e)(1)(B) of the act, I further certify
that to the best of my knowledge and belief, each officer, employee,
agent, representative, and consultant of Costain Coal Inc. [Name of
Offeror].
who has participated personally and substantially in the preparation or
submission of this proposal has certified that he or she is familiar with
and will comply with the requirements of subsection 27(a) of the act, as
implemented in the FAR, and will report immediately to me any information
concerning a violation or possible violation of subsection 27(a), (b),
(d), or (f) of the act, as implemented in the FAR, pertaining to this
procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity-Modification
(Continuation Sheet). Enter "NONE" if none exists.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
/s/ Eugene C. Holdaway 11/12/96
----------------------------------------------- ----------------
Signature of Officer or Employee Date
Responsible for Modification Proposal
/s/ Eugene C. Holdaway
----------------------------------------------
Typed Name of Officer or Employee
Responsible for Proposal
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF THE
UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED
STATES CODE, SECTION 1001.
(End of Certification)
<PAGE>
ID-50 (Continued)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
or bid, may rely upon a one-time certification from each individual
required to submit a certification to the competing Contractor,
supplemented by periodic training. These certifications shall be obtained
at the earliest possible date after an individual required to certify
begins employment or association with the Contractor. If a Contractor
decides to rely on a certification executed prior to the suspension of
section 27 (i.e., prior to December 1, 1989), the Contractor shall ensure
that an individual who has so certified is notified that section 27 has
been reinstated. These certifications shall be maintained by the
Contractor for a period of six years from the date a certifying employee's
employment with the company ends or, for an agent, representative, or
consultant, six years from the date such individual ceases to act on
behalf of the Contractor.
(e) The certification required by paragraph (c) of this clause is material
representation of fact upon which reliance will be placed in executing
this modification.
<PAGE>
COSTAIN COAL INC.
September 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Contract Term ......................................................... 4
2. Quantity .............................................................. 4
3. Scheduling ............................................................ 6
4. Variations, Delays, and Interruptions in Deliveries ................... 7
5. Source ................................................................ 9
6. Price ................................................................. 11
7. Sampling and Analysis ................................................. 11
8. Adjustment for Quality ................................................ 16
9. Quality and Specifications ............................................ 18
10. Contract Price Adjustments ............................................ 20
11. Remedies .............................................................. 22
12. Notices ............................................................... 24
13. Shipping Notices ...................................................... 25
14. Transportation ........................................................ 26
15. Payments, Invoices .................................................... 28
16. Weights ............................................................... 29
17. Contract Administrator/Contracting Officer ............................ 31
18. Disputes .............................................................. 31
19. Clean Air Act and Other Environmental Requirements. ................... 33
20. Unilateral Termination Right .......................................... 33
21. Contract Components ................................................... 34
EXHIBIT I ................................................................. 35
APPENDIX A ................................................................ 37
APPENDIX B ................................................................ 38
</TABLE>
<PAGE>
GENERAL LONG-TERM CONTRACT CONDITIONS
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Verification of Data, Inspection of Records and Mine Sources .......... 39
2. Coal Mining Reclamation and Conservation Requirements ................. 39
3. Relationship of Parties - Producer's Statement ........................ 41
4. Nonassignability; Subcontracts; Designation and Termination of Agent .. 41
5. Waivers ............................................................... 42
6. Officials Not To Benefit .............................................. 42
7. Contingent Fees ....................................................... 42
8. Convict Labor ......................................................... 43
9. Walsh-Healey Act ...................................................... 43
10. Discrimination on the Basis of Age .................................... 43
11. Small Business Policy ................................................. 43
12. Liquidated Damages for Subcontracting Plans ........................... 43
13. Utilization of Woman-Owned Business Concerns .......................... 44
14. Affirmative Action and Equal Opportunity .............................. 45
15. Environmental Protection Agency (EPA) Regulations ..................... 46
16. Safety and Health ..................................................... 46
17. Anti-Kickback Procedures .............................................. 46
18. Drug-Free Workplace ................................................... 46
19. Environmentally Acceptable Facilities; Clean Air and Water ............ 46
20. Price or Fee Adjustment for Illegal or Improper Activity .............. 48
</TABLE>
<PAGE>
Contract___________________
CONTRACT FOR PURCHASE AND SALE OF COAL
THIS AGREEMENT, is made and entered into this 20 day of Sept, 1996, by and
between TENNESSEE VALLEY AUTHORITY, a corporation organized and existing under
an Act of Congress (hereinafter called "TVA"), and COSTAIN COAL INC.
(hereinafter called "Contractor").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter stated, the parties
hereto agree as follows:
Definitions: "Contract Year" shall mean a twelve-month period
commencing with the first day of the calendar month in which the Delivery
Commencement Date (as hereinafter defined) occurs.
"Delivery Commencement Date" shall be that date set forth in Section
1 hereof for commencement of deliveries. Such date may be changed only by
supplement to this contract that expressly refers to the term "Delivery
Commencement Date." The actual date of commencement of deliveries shall not
affect the Delivery Commencement Date.
"Contract Quarter" shall mean any of the four quarters of a Contract
Year.
"Contract Administrator" shall be that TVA representative designated
to administer the contract on behalf of TVA.
3
<PAGE>
"Destination Plant" shall mean TVA's Colbert, New Johnsonville and
Gallatin Fossil Plant or such other destination as TVA may elect under
Subsection 14.g. of this contract.
1. Contract Term: The Delivery Commencement Date shall be July 1, 1997 and
deliveries shall continue for six years unless terminated by agreement or as
otherwise provided herein. Provided, however, this contract may be reopened by
either party (9) months prior to the 36th-month anniversary of the Delivery
Commencement Date for the purpose of renegotiating price and other terms and
conditions or for the sole purpose of terminating deliveries. The party desiring
to exercise such reopener shall give the other party written notice at least (9)
months prior to the anniversary date and may, but shall not be required to,
specifics the purpose of such reopening. Nothing herein is intended to require a
party who has commenced renegotiations hereunder to continue such renegotiations
if, for any reason, such party determines it is not in its interests to do so.
If the reopener provision has been exercised, this contract will terminate on
the said 36-'month anniversary date unless TVA and the Contractor have mutually
agreed in writing six (6) months prior to the said anniversary date to continue
this contract. Neither party shall be under any obligation or liability to
continue this contract beyond said termination or have any liability for
refusing to do so, if either party desires to terminate deliveries in accordance
herewith. The Contract Administrator's agreement to any contract modification
arriving out of such renegotiations shall be subject to approval by TVA's Board
of Directors.
2. Quantity:
a. Subject to TVA's right to reduce or increase quantities to be
delivered, as hereinafter provided, the quantity of coal to be sold and
purchased hereunder during each Contract Year shall be 2,000,000 nominal tons,
which shall be divided into four (4) equal amounts to determine the quantity of
coal to be delivered per Contract Quarter, provided, however each Contract
Quarter TVA may either increase or decrease such purchases from Contractor by an
amount up to twenty percent (20%) of the quantity of coal per Contract Quarter
by giving at least thirty (30) days' written notice prior to the beginning of
each Contract Quarter (said
4
<PAGE>
nominated quantity being hereinafter referred to as the "Nominated Quarterly
Quantity'). Such notice shall also indicate the quantities to be delivered each
month for the Contract Quarter. In establishing such monthly quantities, subject
to meeting the Nominated Quarterly Quantity, TVA may elect as much as one
hundred and ten percent (110%) of the base monthly schedule or as little as
ninety percent (90%) of the base monthly schedule to be delivered in any one
month by providing notice in accordance with this Subsection 2.a.
TVA shall not be required to accept any quantity of coal
shipped during a month that is in excess of the total monthly amount scheduled,
but if TVA accepts such excess quantity of coal, TVA may, upon written notice to
Contractor, require that such excess amount be deducted from the quantities to
be shipped during the following or subsequent month(s).
This contract is not and shall not be construed as a contract
for all of TVA's coal requirements for the Destination Plant. TVA reserves the
right to purchase coal from other suppliers in any amount during the term of
this contract.
b. Notwithstanding the provisions of a. above, if generation of
electricity at the Destination Plant is curtailed or interrupted for a period of
one week or more as a result of the operating requirements of TVA's integrated,
electric generating system, including considerations of economic dispatch of
TVA's generating units, TVA may, from time to time, direct Contractor to (i)
suspend deliveries if the electric output of the Destination Plant is
interrupted or (ii) reduce scheduled shipments of coal by a percentage equal to
the percentage reduction in electric output of the Destination Plant resulting
from a curtailment. Such suspension or reduction in deliveries may continue as
long as generation at the Destination Plant is curtailed or interrupted;
provided, however, if TVA continues any such reduction or suspension for more
than one hundred eighty (180) days, Contractor may notify TVA in writing of
Contractor's intent to terminate this contract ninety (90) days from the date of
TVA's receipt of such written notice, and this contract shall, upon the passing
of such ninety-day (90-day) period, terminate without further cost or obligation
to either party, unless TVA shall have
5
<PAGE>
directed resumption of the suspended or reduced deliveries within forty-five
(45) days of TVA's receipt of Contractor's notice of termination.
Except as provided in the preceding sentence, suspensions or
reductions under this subsection shall not affect the enforceability of this
contract, and, on termination of the suspension or reduction, shipments shall
resume pursuant to the terms and conditions of this contract. Both TVA and
Contractor shall be excused from their respective obligations hereunder with
respect to deliveries suspended or reduced pursuant to this Section and such
deliveries shall not be rescheduled for delivery except by mutual consent of the
parties.
c. Except in the case of any failure to deliver that is excused
under Subsection 4.b., TVA may exercise the remedies afforded it under Section
11, Remedies or as otherwise provided by law, in the event Contractor fails to
deliver coal as provided in this Section 2 or Section 3, Scheduling provided,
however, in lieu of other remedies, TVA may elect to reschedule for delivery any
deficiencies. This rescheduled coal shall be delivered in accordance with the
provisions of this contract and at the price in effect at the time during which
such deficiencies occurred.
3. Scheduling:
a. TVA shall provide Contractor with a monthly shipment schedule
indicating the dates and quantities of coal to be delivered to TVA consistent
with TVA's Nominated Quarterly Quantity and the requirements of Subsection 2.a.
Such schedule will be provided by TVA no later than fifteen (15) days prior to
the beginning of the affected month. Contractor shall deliver all coal in
accordance with such schedules. Provided Contractor provides at least one
hundred fifty (150) days' notice to TVA of the holiday and vacation periods for
its sources, TVA shall not schedule deliveries during such periods, unless such
deliveries are critical to the prudent operation of the plant(s) during such
periods.
6
<PAGE>
TVA maintains the right to coordinate all deliveries under
this contract and others for purposes of establishing a uniform daily delivery
schedule for placement at TVA plants.
b. Whether TVA or Contractor contracts for transportation services
necessary to transport coal purchased and sold hereunder to the Destination
Plant, unless otherwise agreed, it shall be Contractors responsibility to make
timely arrangements for the availability of transportation equipment for moving
the coal at the scheduled rate of delivery. Contractor shall be responsible for
any demurrage that accrues at the loading point as provided in Section 14,
Transportation.
4. Variations, Delays, and Interruptions in Deliveries:
a. Time of delivery is of major importance to TVA. Contractor shall
immediately notify TVA's Fuel Transportation Department of any expected
deviation from the delivery schedule established in accordance with Section 2,
Quantity. and Subsection 3.a. of this contract and of the cause and extent of
deviation, except in the case of variations from schedule of up to five percent
(5%).
b. Subject to the conditions hereinafter stated, neither party shall
be liable to the other for failure to mine, deliver, take, or unload coal as
provided for in this contract if such failure was due to supervening causes
beyond its control and not due to its own negligence, and which cannot
reasonably be overcome by the exercise of due diligence. Such causes shall
include by way of illustration, but not limitation: acts of God or of the public
enemy; insurrection; riots; strikes; nuclear disaster; partial or total outages
of coal-fired units; floods; accidents; major breakdown of equipment or
facilities (including emergency outages of equipment or facilities to make
repairs to avoid breakdowns thereof or damage thereto); fires; shortages of
carriers' equipment; embargoes; orders or acts of civil or military authority;
or industry-wide shortages of materials and supplies. Nor shall TVA be obligated
to take coal hereunder so long as such causes wholly or partially prevent the
unloading, stockpiling, or burning of coal at the plant to which deliveries are
consigned at
7
<PAGE>
the time the cause occurs, in which case, TVA shall have no obligation to
consign coal shipments to another plant in order to avoid the effect of an
excusable cause. Nor shall the refusal of either party to settle a strike on
terms other than it considers satisfactory preclude the strike from being
considered an excusable cause. TVA shall have the right, but not the obligation,
to require Contractor to make up any tonnage not delivered in accordance with
this Section.
A party's delays due to delays of its subcontractors will not
be excusable under this provision unless the delay of the subcontractor was also
due to causes beyond the control and without the fault of the subcontractor,
such as the causes listed above. The failure by Contractor or its subcontractor
to obtain and maintain all federal, state, and other regulatory agency coal
mining permits, certificates, and licenses shall not excuse Contractor from any
obligation under this contract. The provisions of this Subsection b. shall not
excuse a party unless such party failing to deliver or take coal shall give
written notice to the other of such failure and furnish full information as to
the cause and probable extent thereof within ten (10) calendar days after the
failure first occurs. In the case of the Contractor, said ten-day (10-day)
period shall begin with the day following that on which tonnage first becomes
deficient under the established delivery schedule. In the case of TVA, this
period shall begin on the day following that on which TVA first fails to take
coal duly and properly delivered. Failure to give such notice and furnish such
information within the time specified shall be deemed a waiver of all rights
under this provision with respect to tonnage scheduled for delivery prior to the
date such notice and information are actually furnished.
In the event of partial failure to deliver, take, or unload
coal which is excusable under this Subsection, the parties shall prorate
deliveries or receipts of coal in substantially the same proportion based upon
contractual commitments, (e.g. a fifty percent (50%) reduction in receiving or
production capacity would result in a fifty percent (50%) reduction in
scheduled deliveries for each supplier or consumer). However, the parties shall
not be obligated to prorate a reduction in receipts or deliveries under coal
supply contracts not affected by the failure because they have different modes
of delivery or have substantially different quality
8
<PAGE>
requirements, or because their scheduled delivery dates are not affected by the
failure. During the periods TVA may experience such failures to take or unload
coal, Contractor shall be permitted to sell such coal normally intended for TVA.
In the case of the period during which Contractor may experience such failures
to deliver coal, TVA may purchase replacement coal. The disabling effects of
such failures to deliver, take, or unload coal shall be corrected by the party
experiencing such failure as soon as and to the extent reasonably practicable.
If a party's excused failure to deliver or receive coal in
amounts substantially in conformance with the schedule established under Section
2, Quantity, and Subsection 3.a. continues for a period exceeding one-hundred
eighty (180) days, the other party may terminate this contract. In the event of
such a termination, neither party shall have any further liability to the other
except for those liabilities which may have accrued with respect to performance
or defaults prior to said termination.
c. TVA, by providing at least forty-five (45) days' prior written
notice to Contractor, shall have the right to refuse any shipments otherwise
scheduled for delivery during plant maintenance or repair periods and shall have
no obligation to accept such shipments at a later time.
5. Source:
a. The source of coal delivered under this contract is of major
importance to TVA. The provisions of this contract pertaining to coal quality
and quantity requirements, price adjustments, federal and state legislation, and
other matters are directly related to the source of coal. As used in this
Section 5, "Source Area" shall mean the total coal reserve areas outlined in the
Specific Location Map(s) identified in Appendix B; provided, that, within the
Source Area, only the area(s), for surfaced-mined coal, or mine opening(s), for
underground-mined coal, covered by the mining permit(s) listed in the Term Offer
is an "Authorized Source" of coal for delivery under this contract. The mine
area(s) and/or opening(s) located -within the Source Area shown on the Specific
Location Map(s), but not covered by the mining permit(s) listed in the Term
Offer, may become
9
<PAGE>
an Authorized Source under the following procedures as mining progresses and the
appropriate permit(s) and license(s) are obtained. Contractor shall notify TVA
in writing at least forty-five (45) days in advance of its intention to deliver
coal from any additional area(s) or mine opening(s) in the Source Area which is
not then authorized. TVA may, if it deems it is in TVA's best interests,
authorize such areas, but is under no obligation to do so. TVA reserves the
right to require Contractor to furnish any information and/or any guarantees TVA
deems necessary bearing on the ability of the source to meet the requirements of
this contract and to make that information a part of this contract
b. Contractor shall immediately notify TVA in writing of any events
affecting the size or location of the Authorized Source(s). All Authorized
Sources under this contract shall be in compliance with the Federal Mine Safety
and Health Act of 1977, as amended, all state and federal reclamation laws,
including the Surface Mining Control and Reclamation Act of 1977, as amended,
and regulations issued under such laws. If Contractor fails to comply with this
requirement, whether or not coal from such Authorized Source is then being
delivered hereunder, TVA may exercise its rights under Section 11, Remedies.
c. Contractor expressly assumes the risk that the Authorized
Source(s) will permit the production of coal in such quantities and of such
quality as will meet the requirements of this contract. Coal shall not be
delivered from any other source(s), or shipped from any other origin(s), or
mined by any other producer(s) or subcontractor(s), unless authorized by TVA in
writing prior to delivery.
d. Regardless of the cause of or reason for a request by Contractor
to approve a new Authorized Source, TVA shall be under no obligation to approve
the tendered source as an Authorized Source, and TVA may withhold its approval
on any basis or bases that TVA may deem appropriate, including purely economic
considerations.
10
<PAGE>
6. Price:
TVA shall pay Contractor $25.50 f.o.b. barge at Caseyville
Dock and $24.50 f.o.b. railcar (hereinafter referred to as the "Base Price")
at the CSX Providence interchange for each net ton of coal purchased and
delivered under this contract, plus or minus such adjustments as herein
provided. The Base Price shall be reduced by $0.25 per ton for barged shipped
coal should TVA elect, from time to time, to use Contractor weights and
sampling. The Base Price shall remain constant.
7. Sampling and Analysis:
a. The sampling location shall be the Destination Plant unless TVA
notifies Contractor in writing that samples will be taken at other locations.
Contractor may be present at the taking of samples, but TVA shall be under no
obligation to notify Contractor to be present. Samples shall be collected from
as much as is practical, but not less than fifty percent (50%) of the tonnage
delivered in each quarter.
b. Sampling and analysis shall be conducted generally in accordance
with the methods described in the latest published edition of the Annual Book of
ASTM Standards volume 05.05. The analysis location shall be the TVA Central Coal
Laboratory unless TVA notifies Contractor in writing that samples will be
analyzed at other locations. Contractor has observed the sampling and analysis
equipment and facilities or has taken such other steps as Contractor deems
appropriate to familiarize itself with such equipment and facilities, and
Contractor waives any claim, demand, defense, or objection thereto based on any
lack of conformance of such equipment and facilities to the requirements of this
Section 7, provided they are properly maintained during the term of this
contract.
c. Analysis data shall be promptly made available to Contractor
through access to a computer system or, at TVA's option, such data may be
provided by other means. Moisture, ash, and sulfur values shall be reported to
the nearest hundredth (.01) of a percent. Heat content in Btu/lb. SO2 content
shall be calculated and reported to the nearest hundredth (.01) of a pound.
11
<PAGE>
d. All samples collected by TVA shall be prepared to No. 60 mesh
according to ASTM D 2013 and shall be divided into at least two parts and put in
suitable airtight containers, the first container in each case to be used by
TVA, or its designated commercial laboratory, and the second container in each
case to be held available by TVA for a period of not less than forty-five (45)
days from actual sampling date of the coal by TVA, properly sealed and labeled,
to be analyzed if a dispute arises between TVA and Contractor. If Contractor
wishes to dispute a sample or analysis, it shall notify TVA in writing within
such forty-five day (45) period. If Contractor fails to provide such notice of
dispute within such forty-five day (45) period, Contractor shall be deemed to
have waived any claim or defense based on errors or omissions in the sampling or
analysis operations as to the affected samples.
If a dispute is made over the result or method of such sampling
or analysis, TVA shall review and inspect the sampling and analysis equipment
and procedures, and the second sample split will be analyzed by a third party
commercial laboratory to check for reproducibility. The third party lab will
follow the same ASTM analysis procedures outlined in Subsection b and the
reproducibility limits in those same standards will be used to judge
reproducibility. If the review of the sampling and/or analysis indicates the
sampling or analysis was improperly performed or the results of the second
analysis are not within ASTM reproducibility limits, the original analysis
report shall be declared erroneous, and both the original and the second
analysis report shall be ignored. Otherwise, the original analysis report shall
remain in full force and effect.
e. Contractor shall also sample and analyze, or obtain services of a
third party to sample and analyze, all shipments of coal to TVA under this
contract. These analyses shall specify, at a minimum, the total moisture
content, the ash content (as-received), the heat content Btu/lb (as-received),
and the sulfur content (as-received), and must be electronically transmitted to
both the Destination Plant and the Contract Administrator in a format acceptable
to TVA. These analyses are required in order to provide information on the
contents of coal received by TVA prior to unloading. TVA reserves the right not
to unload coal at the Destination Plant until after the appropriate analysis is
received. Contractor shall be responsible for any demurrage charges
12
<PAGE>
incurred by TVA as the result of Contractors failure to transmit the analyses
when and as required. TVA may reject coal based on these analyses; however,
nothing in this Subsection e. shall affect in any way TVA's rights to
appropriate contractual actions and adjustments for quality based on samples
collected and analyzed in accordance with Subsections a. and b. of this Section
7.
f. In the event that TVA does not sample at least fifty percent
(50%) of the tonnage received for a quarterly adjustment, the Contractor's
samples shall be used for the quality adjustment for such quarter under Section
8, Adjustments for Quality provided all Contractor samples for such quarter meet
all criteria below:
(1) One-hundred. percent (100%) of shipments shall have been sampled
and analyzed in accordance with the methods described in the latest published
edition of the Annual Book of ASTM Standards. volume 05.05. Samples must have
been collected utilizing mechanical systems meeting ASTM D 2234 Type I,
Condition B, which have been shown to be free of bias within the past year. The
bias testing procedure and precision used must be approved by TVA. Systems will
be subject to a critical inspections according to ASTM D 4702 prior to approval.
Analysis procedures used should be as follows unless otherwise approved in
writing by TVA:
<TABLE>
<CAPTION>
Parameter Method
--------- ------
<S> <C>
Residual Moisture ASTM D 5142
Ash ASTM D 5142
Sulfur ASTM D 4239
Btu ASTM D 1989
</TABLE>
13
<PAGE>
(2) Sample analysis and other data required by TVA to match data
with shipment shall be provided to TVA in a format approved by TVA.
(3) The lot size for each sample shall be by barge for barge coal,
by trainload for rail coal, and by daily delivery for truck coal.
(4) Analysis for each sample shall have been received by TVA by
electronic data interchange within seven (7) days of collection of said sample.
(5) The sampling system shall be located such that the sample
collected for shipment is collected only from coal that is loaded for said
shipment.
If TVA samples twenty percent (20%) or more but less than
fifty percent(50%) of the tonnage received, and if any of Contractors samples
for the quarter do not meet all of the above criteria, TVA samples shall be used
for the quarterly adjustment.. If TVA samples less than twenty percent (20%) of
the tonnage received and any of Contractor's samples do not meet all of the
above criteria, no adjustment for quality will be made for the quarter.
7a. Optional Sampling:
TVA has the option from time to time, with 30 days' notice, to
switch the coal sampling location to Contractor's barge loading facility. In the
event TVA exercises this option then (during the period such option is in
effect) the following shall supersede Section 7:
a. The coal to be delivered hereunder shall be sampled by Contractor
at the barge loading point by use of a mechanical sampling device, conforming to
ASTM Standard D2234, Collection of a Gross
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<PAGE>
Sample of Coal. Unless otherwise mutually agreed, sampling shall be conducted in
accordance with the most current published revision of the Annual Book of ASTM
Standards, Volume 05.05. Unless otherwise mutually agreed, sampling shall be on
a barge load by barge load basis. These samples shall be used to determine the
quality of the coal sold hereunder for contract purposes. In the event the
mechanical sampling system is not operating due to mechanical, electrical or
operational failure, Contractor shall notify TVA and accept TVA's samples at the
Destination Plant.
Contractor agrees to ensure that all sampling equipment is
properly maintained and adjusted so that each sample taken is proportionate and
representative of the coal delivered. TVA or its designated representative may
observe any sampling or sample preparation performed by Contractor. Contractor
shall furnish the results of bias tests on the sampling system, and the results
must be acceptable to TVA. The sample system shall be bias tested (dynamic bias
test) at least every twelve (12) months.
Contractor shall prepare the samples obtained as directed by
TVA and shall divide such samples into three splits. Contractor will analyze the
first split and fax the results to the Fuel Contract Administrator who
administers this contract for TVA and to the Coal Records Clerk and Yard
Operations Supervisor at the Destination Plant. Except as provided below, the
Contractor's results obtained on this first split will be utilized by TVA to
determine whether or not the coal covered by the sample will be unloaded at the
Destination Plant. TVA reserves the right not to unload coal at the Destination
Plant until after the appropriate analysis is received. Contractor shall be
responsible for any demurrage charges incurred by TVA as the result of
Contractor's failure to transmit the analyses when and as required. Contractor
will promptly obtain a TVA sample number from the Coal Records Clerk at the
Destination Plant and send, within twenty-four (24) hours of barge loading, the
second split identified by such sample number directly to TVA's Central
Laboratory by expedited delivery for analysis. The TVA analysis results obtained
from the second split shall supersede the first split sample results and will be
utilized for all contract purposes, including rejection of shipments and
determining the price adjustment required to compensate for the difference
between the quality of the coal
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<PAGE>
actually shipped and the contract guaranteed analysis. The third split ("referee
sample") will be retained by Contractor to be analyzed by an independent
laboratory (to be agreed upon by TVA and Contractor) in the event of a
disagreement between the parties regarding the results obtained on either of the
other two splits. If the results of the referee analysis indicate the analysis
was improperly performed or the results of the referee analysis are not within
ASTM reproducibility limits with the Central Laboratory results, then the
referee analysis result will be conclusive between the parties in regard to the
analysis of the sample in question. The cost of any such referee analysis shall
be borne by the party that requested it. If adjustment is made, then the cost of
any such analysis shall be equally shared by both parties.
8. Adjustment for Quality:
a. As used in this Section 8, a "Quarterly Average Value" shall mean
the weighted average value of the appropriate quality component determined from
all samples collected in accordance with Subsections 7.a. and 7.b. (or 7a., as
applicable) during a calendar quarter based, at TVA's election, on the tonnage,
number of railcars, or barges represented by the samples.
b. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest cent per ton and using the Base Price, shall be
applied to the contract price to account for variations in the Quarterly Average
Value for as-received Btu/lb compared to the Typical Analysis for as-received
Btu. This adjustment shall in no way be affected by contract price adjustments
under Section 10, Contract Price Adjustments hereof. (See Exhibit I for example
of calculations)
c. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest tenth of a cent per ton at a rate of either (I) $ 0.15
per ton (decrease) for each percentage point the Quarterly Average Value of ash
(on an as-received basis) exceeds the Typical Analysis for ash, or (2) $ 0.15
per ton (increase) for each percentage point for the Quarterly Average Value for
ash (on an as-received basis) is less
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<PAGE>
than the Typical Analysis for ash, shall be applied to the contract price. The
calculation shall be prorated to cover any fractional percentage. (see Exhibit I
for example of calculations)
d. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest tenth of a cent per ton at a rate of either (1) $0.06
per ton (decrease) for each percentage point the Quarterly Average Value of
moisture exceeds the Typical Analysis for Moisture, or (2) $0.06 per ton
(increase) for each percentage point the Quarterly Average Value for Moisture is
less than the Typical Analysis for moisture, shall be applied to the contract
price. The calculation shall be prorated to cover any fractional percentage.
(see Exhibit I for example of calculations)
e. For the coal accepted in each calendar quarter, an adjustment,
calculated to the nearest cent per ton at a rate of either (1) $ 0.52 per ton
(decrease) for each tenth (1/10) of a pound per million Btus the Quarterly
Average Value of sulfur dioxide exceeds the Typical Analysis for sulfur dioxide,
or (2) $0.13 per ton (increase) for each tenth (1/10) of a pound per million
Btus the Quarterly Average Value for sulfur dioxide is less than the Typical
Analysis for sulfur dioxide, shall be applied to the contract price. The
calculation shall be prorated to cover any fractional amount tenth (1/10) of a
pound. (see Exhibit I for example of calculations)
f. As soon as practicable after the end of each calendar quarter,
TVA shall submit to Contractor a report showing the Quarterly Average Values and
any adjustments determined under this Section 8 of the contract. The number of
tons of coal received by TVA which are subject to adjustment shall be multiplied
by said adjustments, and any resulting amount shall be paid promptly (or
credited to the extent of any offsetting debit) to the party to whom it is due.
The assessment of adjustments in accordance with the foregoing does not in any
way impair TVA's rights under the contract or at law with respect to any failure
by Contractor to meet the Typical Analysis that gives rise to such adjustments.
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9. Quality and Specifications:
a. All coal delivered under this contract shall conform to the
following Typical Analysis on a Quarterly average as determined by sampling and
analyses performed in accordance with Section 7, Sampling and Analysis:
<TABLE>
<CAPTION>
TYPICAL REJECTION/SUSPENSION
ANALYSIS (1) SPECIFICATIONS(3)
<S> <C> <C> <C>
Lbs of SO(2) per
million Btu(2) 3.2 lbs Not more than 3.3 lbs
Total Moisture 8.0 % Not more than 10.5 %
Sulfur (as-received) 2.0 % Not more than 2.3 %
Sulfur (as received) Not less than 1.7 %
Ash (as-received) 9.0 % Not more than 11.5 %
Ash (dry basis) 9.9 % Not more than 15.0 %
Btu/lb (as-received) 12,400 Not less than 12,028
Ash fusion temperature
reducing atmosphere
Initial 2300 (degrees)(F)
2300 (degrees)(F)
for Colbert and
Softening 2400 (degrees)(F)
(Hemispherical) Not less than 2100 (degrees)(F)
for all other plants
Fluid 2550 (degrees)(F)
Volatile Matter (dry basis) 36.0 % Not less than 30.0 %
Grindability (Hardgrove Index) 55 Not less than 50
Chlorine (dry basis) 0.29 % Not more than 0.29 %
</TABLE>
(1) The Typical Analysis shall be used for the quality adjustment under
Section 8.
(2) At 97.5%
(3) Failure to comply with any of these specifications shall be basis
for rejections and suspensions or termination pursuant to
Subsections 9.c. and 9.d.
b. The coal as-received shall have a top size not greater than two
(2) inches or less than one and one-fourth (1-1/4) inches, with at least
fifty-five percent (55%) of the product larger than one-fourth (1/4) inch, and
with at least eighty-five percent (85%) of the product larger than 28 mesh. Such
sizes shall be determined by using screens with square openings. Coal shall not
exhibit a temperature in excess of 120 (degrees)(F), and
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it shall be substantially free from mining impurities and scrap such as drill
bits, pieces of scrap metal or plate, plastic, rubber, rope, cloth, wire, cable,
bone, slate, earth, rock, pyrite, wood, or water, which can be kept out or
removed with the exercise of reasonable care during mining, preparation, and
loading. It shall be loaded in a manner that will ensure reasonably uniform
consistency as to size and quality and shall not contain slurry pond material
(washer tailings), gob pile material (mine refuse), petroleum-coke, oxidized
coal, or blends of such materials, or create excessive amounts of dust during
the unloading and transferring to storage.
c. If any coal delivered fails to meet any of the
Rejection/Suspension Specifications in Subsection 9.a. or the requirements of
Subsections 9.b. on the basis of visual inspection or laboratory analysis, TVA
may reject the coal at the source, loading point, or Destination Plant. TVA's
acceptance of any amount of coal which does not meet these requirements shall
not constitute a waiver of any right which TVA may have under this contract or
as provided by law on account of the delivery of such coal. In case of rejection
of any coal in accordance with this Section, TVA will immediately notify
Contractor of the rejection and of the cause of rejection. In the case of coal
rejected after loading, unless the cause for rejection is corrected, Contractor
shall promptly remove the coal from the carrier's equipment or from TVA
premises, as the case may be, at Contractors expense. Contractor shall reimburse
TVA for any additional transportation costs, demurrage, equipment repair costs,
or handling expenses incurred by TVA in connection with any such rejection. TVA
shall not be under any obligation or liability to assist Contractor in any
corrective actions required to remedy the cause for rejection.
d. If any coal delivered fails to meet any of the
Rejection/Suspension Specifications stated in Subsection 9.a. or the
requirements of Subsection 9.b., TVA shall have the right to refuse to accept
further deliveries from any or all mine sources authorized under the contract
until Contractor provides assurance satisfactory to TVA that Contractor will
comply with the Rejection/Suspension Specifications and the Subsection 9.b.
requirements. Such assurance must be given in writing within seven (7) days
after the beginning of such suspension. If Contractor fails to provide such
satisfactory assurance within the time specified or provides such
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<PAGE>
assurance but does not correct the deficiencies that resulted in the
Contractor's failure to comply with any of the Rejection/Suspension
Specifications or the requirements of Subsection 9.b. within seven (7) days
after giving such assurance, TVA may then terminate Contractors right to make
further deliveries under this contract. Contractor shall be responsible for all
costs or damages incurred by TVA resulting from Contractors failure to comply
with the contract requirements. Damages or excess reprocurement cost may be
determined in accordance with Section 11, Remedies.
e. If the normal operations in conformance with the design
capabilities of TVA's fossil plants cannot be accomplished with the coal
delivered hereunder, although the coal complies with the quality and size
requirements of this Section 9, TVA may then terminate Contractor's right to
make further deliveries, and this contract shall be canceled without further
obligation or liability to either party. In the event of such a termination, the
Contractor may be given a reasonable opportunity to remedy the cause for
termination, which may include the offer of replacement coal. However, TVA is
not obligated to accept offers of replacement coal.
10. Contract Price Adjustments:
a. Effective the first day of the second Contract Year and each such
first day of each Contract Year thereafter, the then current adjusted price of
coal shipped under this contract will be increased by one percent (1%) of the
Base Price specified in Section 6, Price as such price may be modified under
Subsection d., below.
b. (1) In the event of enactment or amendment, after the proposal
closing date for the requisition under which this contract was awarded (or in
the case of establishment of a new Base Price under Subsections d., below, after
the effective date of such new Base Price), of a federal or state statute that
assesses on a per ton basis a tax, fee, or other similar charge on the coal
delivered hereunder ("Law Change"), Contractor shall notify TVA of such Law
Change and supply from its records information satisfactory to TVA showing the
20
<PAGE>
effect, if any, of the Law Change upon the cost per ton of furnishing coal under
this contract. If a Law Change increases Contractors cost of providing coal to
TVA, a contract price increase shall be made by TVA for such Law Change
effective on the later of (a) the date TVA receives Contractors notice of the
Law Change or (b) the date Contractors cost of providing coal is increased by
the Law Change. If a Law Change decreases Contractor's cost of providing coal to
TVA, a price decrease shall be made by TVA for such Law Change effective on the
date such Law Change could be utilized to reduce Contractors costs whether or
not Contractor actually reduces such costs on such date. This Section l0.b.(l)
does not apply to (i) promulgation or amendment of rules and regulations except
to the extent such promulgation or amendment results from a Law Change, or (ii)
to implementation of statutes or amendments to statutes that are enacted on or
before the proposal closing date as described above.
(2) If (i) a price adjustment requested by Contractor under
this Subsection b. would result in a contract price increase exceeding ten
percent (10%) of the Base Price, or (ii) a combination of price adjustments
under this Subsection b. and any other provision of this contract that
collectively come into effect during any one-year period would result in a
contract increase exceeding ten percent (10%) of the Base Price, then TVA may,
at its sole discretion, terminate the contract upon sixty (60) days' written
notice given after such an adjustment(s) is requested by Contractor.
c. The increase or decrease under each subsection shall be
calculated separately to the nearest one-tenth (1/10) cent per ton. Any changes
(including a recalculation of a previously granted tentative price adjustment)
considered applicable by Contractor shall be reported to TVA by Contractor with
appropriate data necessary to verify the change. Contractor must furnish such
supporting evidence as may be requested by TVA. A request for a price adjustment
considered applicable by Contractor must be submitted to TVA with appropriate
documentation within one hundred eighty (180) days of the date Contractor incurs
a cost change. Failure to do so shall constitute a waiver of Contractor's right
to any upward adjustment. Any overpayment made under these provisions may be
deducted from any amounts otherwise due Contractor.
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<PAGE>
Contractor agrees chat, in the event TVA reimburses Contractor
under this Section 10 for a cost incurred by Contractor and it is later
determined that Contractor is entitled to recover such cost from a third party,
at TVA's request Contractor shall use its best efforts to recover such cost and
upon such recovery shall reimburse TVA for amounts previously paid by TVA based
on said cost. Reasonable costs incurred by Contractor in pursuing such recovery
at TVA's request shall be reimbursed by TVA; provided that where contractor
and/or other purchasers from Contractor also receive a benefit from pursuing
such recovery, the cost thereof shall be equitably shared.
d. In the event TVA's transportation cost for shipment of coal
delivered hereunder increases during any one-year period at a rate greater than
ten percent (10%) of the transportation cost in effect at the time of contract
award, TVA may terminate the Contractors right to proceed under this contract
without further obligation or liability to either party hereunder or at law by
giving Contractor sixty (60) days' advance notice of such termination any time
within one year after TVA begins incurring such cost increase. However, in lieu
of termination, Contractor may elect to reduce the Base Price of coal to cover
the increased portion of the transportation cost above the aforementioned limit,
in which case the contract shall remain in full force and effect. Contractors
election must be set forth in writing within thirty (30) days of TVA's notice of
termination. Such election by Contractor shall be irrevocable and binding for
that increase and, shall be effective as of the date of notification by TVA of
the cost increase. TVA may invoke the provisions of this Subsection d. each and
every time its costs exceed the limit set forth above.
11. Remedies:
a. This Subsection 11.a. does not apply to a situation where another
contract provision provides a different procedure, such as Subsection 9.d. If
TVA in good faith believes that Contractor has failed to comply with any term or
condition of this contract, the Contract Administrator shall give Contractor
oral notice, to be followed by written confirmation, of any such violation.
22
<PAGE>
(i) If Contractor fails to correct a curable contract
violation within seven (7) days of first notice, TVA shall have the right to
suspend Contractors right to make further deliveries until Contractor provides
adequate assurance to TVA that Contractor will comply with all provisions of
this contract, such assurance to be given in writing within seven (7) days after
such suspension. If Contractor fails to provide such adequate assurance within
the time specified or timely provides such satisfactory assurance but Contractor
does not correct the curable contract violation(s) within seven (7) days after
giving such assurance, TVA shall have the right, but not the obligation, to
terminate Contractor's right to make further deliveries under this contract.
(ii) In the case of a contract violation by Contractor that is
not curable (including, but not limited to, violations of Section 5, Source, of
this contract or of Section 6, Officials Not to Benefit of the General Long-Term
Contract Conditions), upon providing notice as described above, TVA shall have
the immediate right, but not the obligation, to terminate or suspend for up to
thirty (30) days, Contractors right to make further deliveries under this
contract. If TVA suspends Contractor's right to make further deliveries,
then, upon expiration of said thirty-day period, TVA shall either direct
Contractor to continue performance of this contract or terminate Contractors
right to make further deliveries.
b. Contractor shall be responsible for all costs or damages incurred
by TVA resulting from Contractor's failure to comply with the contract
requirements. TVA may, at its option, purchase in the open market or by contract
or otherwise procure coal to replace all or any part of that which the
Contractor has failed to deliver, except as provided in Subsection b. of Section
4, Variations. Delays. and Interruptions in Deliveries or that as to which its
right to deliver was terminated or suspended. Contractor shall be liable to TVA
for the excess cost occasioned by such purchase(s) and any other loss or damage
caused by Contractor's breach of the contract, including, but without limitation
to, liability incurred by TVA with respect to the transportation or other
handling of the coal. In the alternative, TVA may determine the loss or damage
sustained by Contractor's breach of contract by other methods as provided by
law. In addition to all other means of recovery, TVA may deduct any such excess
costs and damages from any amount otherwise due Contractor.
23
<PAGE>
Unless TVA determines that the following method of calculating
damages is not practical and TVA notifies the Contractor in writing that TVA's
damages will be calculated in some other commercially reasonable manner, (I)
such part of the highest priced coal (of comparable quality under one or more
contracts) which TVA purchases at the next awarding of term or spot contracts
for delivery to any fossil plant in the TVA system as would be required to
replace coal which was scheduled for delivery under this contract after the date
the Contractors right to make deliveries under this contract was terminated
shall be deemed to have been purchased as replacement coal for Contractors
account; and (2) for unexcused deficiencies occurring before termination or
contract expiration, such part of the highest priced coal (of comparable quality
under one or more contracts) for which TVA awards spot contracts in the week
following each such deficiency, for delivery to any plant in the TVA system, as
equals the quantity of Contractor's deficiency shall be deemed to have been
purchased as replacement coal for Contractor's account. If no spot coal was
purchased before contract termination or expiration, TVA shall determine damages
for all unexcused deficiencies in the manner provided in item (1) above, whether
such deficiencies accrued before or after termination or expiration.
c. If TVA suspends or terminates Contractor's right to make further
deliveries hereunder or under any other provision of this contract and such
suspension or termination is finally determined in accordance with Section 18,
Disputes to have been improper, then Contractor's sole remedy for such improper
termination or suspension shall be to require rescheduling of all coal
Contractor was prevented from delivering due to such termination or suspension,
such coal to be rescheduled for delivery on dates acceptable do both parties,
but in any event not later than contract expiration. The price to be paid for
such rescheduled coal shall be that in effect at the time of delivery.
12. Notices: Unless otherwise provided for in the Agreement, any
contractual notice required to be given to either party shall be deemed duly
given by registered, certified, or first-class mail, telecopy or telegram, to
the intended party at the following address or at such changed address as may
from time to time be designated
24
<PAGE>
in a notice similarly delivered or mailed. Except as expressly provided herein,
any notice shall be deemed to have been given when sent. Communications by
telecopy, or telegram shall be confirmed by depositing a copy of the same in the
post office for transmission by registered, certified, or first-class mail in
any envelope properly addressed as follows:
In the case of Contractor to:
Costain Coal Inc.
249 E. Main Street, Suite 200
Lexington, KY 40507
In the case of TVA to:
Linda Sallee, Contract Administrator
Tennessee Valley Authority
Fossil Fuels
1101 Market Street
Chattanooga, Tennessee 37402-2801
Attention: LP 5G
In addition, Contractor shall send a duplicate copy of every
such notice and communication to TVA's Contract Administrator as designated by
TVA from time to time. Either party may, by written notice to the other, change
the representative or the address to which such notices and communications are
to be sent.
13. Shipping Notices:
a. For all rail-delivered coal Contractor shall forward to the Plant
Manager and Contract Administrator a daily notification, in duplicate, as to
coal shipped. This shipping notice must include the Purchase Order number,
Release number, traffic control number, railcar numbers, origin, name of mine,
size of coal, shipping date, and approximate date of arrival. In addition,
Contractor must complete the bill of lading (provided by TVA), and forward this
document to the railroad and plant for proper identification. TVA shall have the
right to require Contractor to transmit all of the above-referenced information
via electronic data transfer direct to TVA's computer system.
25
<PAGE>
b. For all barge-delivered coal Contractor shall forward to the
individual named in the consigning instructions, Plant Manager, Contract
Administrator, and Terminal Supervisor, if applicable, a daily notification, in
duplicate, as to coal shipped. This shipping notice must include the Purchase
Order number, Release number, traffic control number, barge numbers, origin,
name of mine, size of coal, shipping date, and approximate date of arrival. TVA
shall have the right to require Contractor to transmit all of the
above-referenced information via electronic data transfer direct to TVA's
computer system.
c. Contractor must take whatever steps are necessary to ensure that
shipping notices arrive at the plant prior to delivery of the coal. The plant
will not unload coal until a correct shipping notice is received and Contractor
will be responsible to carrier or TVA for any demurrage charges resulting from
delays due to late notification.
14. Transportation:
a. TVA reserves the right to specify reasonable limitations on the
type and size of transportation equipment, the method of transportation
(including train load lots and barge load lots where lots are necessary to
provide the lowest transportation rate possible), and the exact routing to be
used even though transportation charges are prepaid. TVA may reject any shipment
made in disregard of such specifications. If the contract is awarded upon the
basis of a price or prices which include transportation charges in whole or in
part to destination (f.o.b. destination contract), title to the coal (except in
the case of accelerated payments to Small Coal Operators) and risk of loss and
damage shall remain with Contractor until delivery in acceptable condition by
the carrier at destination.
b. For all coal to be delivered hereunder, it shall be Contractor's
responsibility to furnish loading devices which shall be suitable and fit for
the purpose contemplated in this contract. Contractor shall be governed by
carriers instructions regarding the height and distribution of the load, weight
of cargo, and other
26
<PAGE>
instructions which carrier deems necessary for safe transportation. Contractor
shall allow carrier's inspection of loaded equipment to assure compliance with
carrier's loading instructions.
c. For all coal purchased, it shall be Contractors responsibility to
visually inspect the transportation equipment prior to each loading and
ascertain that the equipment is empty and suitable for loading. Any equipment
found mechanically unsound for loading or contaminated with material shall not
be loaded. Contractor shall be responsible for all costs incurred by TVA,
including the cost of any coal lost in transit, resulting from Contractors
failure to exercise such diligence.
d. For all coal purchased for delivery by rail, whether f.o.b.
railcar or f.o.b. Destination Plant, Contractor shall be responsible for loading
each car to the appropriate capacity as required by the rail carrier. In
addition, each trainload shipment tendered under this contract shall be loaded
to the minimum trainload weight as required by the rail carrier. Contractors
account will be charged with any penalties assessed to TVA because of
Contractor's failure to observe any minimum weight loading requirements. The
gross weight of each car shall not exceed the maximum allowed by the carrier. If
cars are found to be loaded in excess of such maximum, it shall be Contractor's
responsibility to correct the load at Contractor's expense, including but not
limited to, Contractor's payment to the carrier of a per car switching charge,
as well as any demurrage charges which may accrue while the car or cars await
correction in load.
e. For all coal to be delivered hereunder, whether f.o.b. origin or
f.o.b. Destination Plant, Contractor shall be responsible for any demurrage that
accrues at any loading point as a result of Contractor or its subcontractors not
being prepared to load the coal as scheduled. The carrier shall invoice
Contractor and Contractor shall pay said carrier for all origin demurrage
charges which accrue at the loading point(s).
f. The explicit obligation of this contract is that it will be
performed in accordance with all applicable laws. Therefore, transportation of
coal by Contractor to barge or rail loading facilities or, if
27
<PAGE>
applicable, to the Destination Plant shall comply with applicable highway laws
and regulations governing the weight of vehicles. If any Contractor fails to
comply with such laws or regulations, TVA shall have the same rights provided
under Section 9, Quality and Specifications, for failure to meet the
requirements thereof, including but not limited to the right to reject coal
delivered in overweight trucks. To insure compliance with this provision and to
help protect the roads and highways, TVA may require that Contractor furnish a
copy of the "certified" truck weight ticket. Regardless of the actual weight of
any truck coal received, the maximum gross weight that can be recorded for a
single truck will be limited to the applicable maximum weight enforced by law.
Any weight exceeding that maximum weight may be deducted from the total weight
of coal used for payment purposes.
g. TVA reserves the right to ship to any plant any coal purchased
f.o.b. any shipping point. For coal purchased f.o.b. any plant or shipping
point, TVA may from time to time direct deliveries to any other plant or
shipping point, and if such deliveries cause an increase or decrease in the
transportation cost borne by Contractor in performing this contract, an
adjustment shall be made in the contract price to reflect the changes in such
cost. In addition, for coal purchased f.o.b. railcar and/or f.o.b. barge, TVA
may, by giving prior written notice to Contractor as soon as possible but not
later than thirty (30) days in advance, change the transportation mode of
delivery.
15. Payments, Invoices: Payments under this contract are subject to the
provisions of the Prompt Payment Act (31 U.S.C. Sections 3901-3907). Payments as
are provided for in the contract or by law will be made by check or, if a
participation agreement has been established between TVA and Contractor,
Electronic Fund Transfer (EFT). Except as provided for under TVA's Small Coal
Operators Assistance Program, EFTs will be made not more than thirty-four (34)
calendar days, and checks will be mailed not more than thirty (30) calendar
days, after the later of (1) receipt of a proper invoice(s) by TVA at the
Accounts Payable Department, P.O. Box 15500, Knoxville, Tennessee 37901-5500 or
(2) receipt and unloading of the coal at TVA's fossil plants. In preparing
invoices, Contractor shall multiply the number of tons delivered by the Base
Price applicable at the
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<PAGE>
f.o.b. point of delivery plus or minus any adjustments that have been made
effective under contract provisions.
For purposes of this provision only, "proper invoice" shall mean a
numbered and dated invoice containing the complete name of Contractor, agent's
name (if any), Purchase Order number, Release number, destination plant,
breakdown code, total amount due, correct weights (as defined below), traffic
control number, shipping date, mine at which the coal was produced, together
with any documentation required to be submitted therewith by any other provision
of the contract.
16. Weights:
a. Unless TVA determines circumstances require determination by
other methods, all coal delivered to destination by barge shall be weighed by
TVA on belt scales which are maintained and periodically calibrated by TVA or
third parties for accuracy.
b. Where at TVA's election coal is weighed by Contractor at origin,
Contractor shall notify TVA immediately upon the occurrence of inaccurate
weighing or absence of actual weighing. Contractor shall certify such
notification in writing to TVA within seven (7) working days of the date of each
such occurrence. Such certification shall identify each affected coal shipment
by contract number, breakdown code, shipping point, traffic control number,
shipping date, and car or barge number(s). Contractors account shall be adjusted
for any coal inaccurately weighed, or not weighed, and by the amount of the
carrier's weighing charge in effect at the time of shipment, such adjustment to
be made at whatever time such occurrence(s) becomes known to TVA. In the absence
of scale weights from Contractor, TVA and Contractor will mutually agree by what
means the weight of coal delivered hereunder shall be determined. Contractor
shall reimburse TVA for any cost or expense charged to or incurred by TVA as a
result of the absence of appropriate scale weights from Contractor. While TVA
may not undertake to weigh all coal received, it may at its option, check weigh
any coal received. In the event billed (invoiced) weights vary from TVA weights
by more than one and one-half percent
29
<PAGE>
(1-1/2%), TVA's weights will govern.
If TVA has elected to have Contractor weigh the coal pursuant to
Subsection b., scale tests shall be performed semi-annually and calibrated to a
certified scale at the Contractor's expense. Scale tests shall be performed more
often than semi-annually when requested by TVA. TVA shall be responsible for the
cost of additional requested tests unless the results thereof show that the
scale failed to conform to certification standards, in which event Contractor
shall be responsible for such costs. The aggregate weights determined during any
payment period shall be acceptable as the quantity of coal sold and purchased
during such period for which invoices are to be rendered and payments to be
made.
TVA shall have the right to have a representative present at any and
all times during TVA loadings to observe determination of weights. If TVA should
at any time question the accuracy of the weights thus determined, TVA shall so
advise Contractor and Contractor shall permit TVA's representatives to test
Contractors weighing devices or methods. If such tests show the weighing devices
to be in error, or if the weighing devices otherwise are determined to be in
error, the weighing devices shall be adjusted to an accurate condition. In the
event TVA and Contractor are unable to agree upon such tests and adjustments, or
the devices or methods thereof, the weighing devices and methods shall be tested
and adjusted to a condition of accuracy by a qualified third party, mutually
chosen by TVA and Contractor, and the cost of the testing and adjusting by such
third party shall be shared equally by TVA and Contractor.
If Contractor's weighing devices or methods are determined to be in
error over 0.5%, an appropriate adjustment shall be made to the affected weights
and related invoices and payments. Such adjustments shall be made retroactively
to a date midway between the date on which the weighing devices were last tested
and calibrated and the date on which the inaccuracy in weighing methods or
devices was first questioned and prospectively until the date on which the
weighing methods and devices are corrected.
30
<PAGE>
c. All scales used by Contractor to determine the governing weight
of coal shall be maintained and operated in accordance with the National
Institute of Standards and Technology Handbook 44.
17. Contract Administrator/Contracting Officer: The Vice President of Fuel
Supply and Engineering has designated the Contract Administrator who administers
this contract for TVA as his/her duly authorized representative to act on behalf
of TVA for all purposes in the administration of this contract, such designation
to continue until revoked or modified by the Vice President of Fuel Supply and
Engineering. The Contract Administrator shall serve as TVA's "Contracting
Officer" with respect to matters arising under terms of this contract that
provide for action by the Contracting Officer.
18. Disputes:
a. This contract is subject to the Contract Disputes Act of 1978,
Public Law No. 95-563, 92 Stat. 2383 ("the Act"), and TVA's implementing
regulations published at 18 C.F.R. pt. 1308, as they may be amended from time to
time.
b. Any dispute relating to this contract, whether arising before or
after completion of performance, including disputes as to any alleged violation
or breach thereof, which is not settled or disposed of by agreement of the
parties shall be decided by the Disputes Contracting Officer (who shall be
appointed by the TVA Vice President of Fuel Supply and Engineering) on the basis
of the contract file and any other facts which he/she may deem pertinent. Any
claim by Contractor shall be submitted in accordance with the Act and TVA's
implementing regulations. The Disputes Contracting Officer shall reduce his/her
decision to writing and promptly mail or otherwise furnish a copy thereof to
Contractor. Within ninety (90) calendar days from the receipt of such copy,
Contractor may appeal to the TVA Board of Contract Appeals by mailing or
otherwise furnishing the Disputes Contracting Officer a written notice of
appeal. Following the filing of a notice of appeal,
31
<PAGE>
the TVA Board of Contract Appeals shall arrange for the decision of the appeal
in accordance with the Act and TVA's implementing regulations. The decision of
the TVA Board of Contract Appeals on any question of law shall not be final or
conclusive, but the decision on any question of fact shall be final and
conclusive, unless determined by a court of competent jurisdiction to have been
fraudulent, or arbitrary, or capricious, or so grossly erroneous as to
necessarily imply bad faith, or not supported by substantial evidence.
c. In lieu of an appeal to the TVA Board of Contract Appeals from
the decision of the Disputes Contracting Officer, Contractor may bring an action
against TVA directly on the claim in a United States District Court with proper
jurisdiction and venue pursuant to 28 U.S.C. Section 1337. Such an action shall
be brought within twelve (12) months from the date of receipt by Contractor of
the Disputes Contracting Officer's decision hereunder.
d. Pending final decision of an appeal, an action, or final
settlement, the decision of the Disputes Contracting Officer shall govern the
respective rights and obligations of the parties as to the matter in dispute
and, if directed to do so in the decision, Contractor shall proceed diligently
with the performance of the contract in accordance with the Disputes Contracting
Officer's decision; provided, that the decision of the Disputes Contracting
Officer shall be final and conclusive and not subject to review by any forum,
tribunal, or Government agency, unless an appeal or action is timely commenced
as authorized herein.
e. Contractor agrees that TVA's termination or suspension of
Contractor's right to make deliveries under the contract, TVA's withholding of
monies due under the contract, or TVA's pursuit of other remedies specifically
provided for herein shall not constitute relief, under TVA's implementing
regulations at 18 C.F.R. part 1308, as to which TVA must initiate the disputes
process prior to or after effecting; provided, however, nothing in this
Subsection e. shall restrict Contractor from pursuing its right to a Contracting
Officer's decision and other relief available pursuant to this Section 18 with
respect to any such termination, suspension, withholding, setoff, or other
remedy exercised by TVA.
32
<PAGE>
19. Clean Air Act and Other Environmental Requirements: In the event of
enactment, implementation, amendment, or enforcement of the Clean Air Act, as
amended, or any other applicable federal, state, or local air pollution control
or environmental law, rule, or requirement which causes the continued use of the
coal purchased under this contract to be inconsistent with (i) TVA's air
pollution control strategies, as they may be modified for meeting such air
pollution control or environmental requirements, or (ii) an administrative or
judicial order, TVA may cancel this contract with no further obligation or
liability hereunder or at law by giving Contractor ninety (90) days' advance
notice of such cancellation. In the case of inconsistency with TVA's air
pollution control strategies, the parties will attempt to renegotiate the
contract during such notice period to provide for delivery of coal that will be
of a quality consistent with TVA's new air pollution control strategies. In the
event the parties do not reach agreement on such a renegotiated contract within
the 90-day notice period, the cancellation notice given by TVA shall remain in
effect and the contract shall terminate at the end of such period. In no event
will TVA be obligated to divert deliveries to any alternate coal-fired fossil
plant in TVA's system.
20. Unilateral Termination Right: In addition to any other termination
rights provided in this contract or at law, TVA expressly reserves the right,
upon 60 days' prior written notice to Contractor, to unilaterally terminate this
contract; provided, however, that TVA shall pay to Contractor an amount equal to
ten (10) percent of the Base Price, multiplied by the remaining number of tons
scheduled for delivery from the effective termination date herein through the
earliest applicable date for termination, pursuant to the reopening provisions
under Section 1, Contract Term; provided further, that the remaining number of
tons scheduled for delivery shall be based on the minimum Nominated Quarterly
Quantity in Section 2, Quantity. Said payment by TVA to Contractor shall
constitute Contractor's sole remedy against TVA for any loss, cost, or damage
incurred by Contractor as a result of TVA's termination under this Section. TVA
shall have no further obligation or liability under the contract or at law
except with respect to coal delivered prior to said termination date as
otherwise provided in Section 8, Adjustment for Quality, Section 15, Payment and
Invoices, and Section 16, Weights.
33
<PAGE>
21. Contract Components: The attached Section I-III of the Request for
Proposals; Appendices A and B (Coal Producers Statement(s); and Specific
Location Map(s)); Exhibits I; Term Coal Proposal form 9910; General Long-Term
Contract Conditions; Award Letter; Limitation on Use of Outside Influence
(ID-67); Requirement for Certificate of Procurement Integrity (ID-50);
Subcontracting Plan.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed as of the aforesaid date by their duly authorized representatives.
ATTEST: COSTAIN COAL INC.
/s/ John C. Dolan By: /s/ Eugene Holdaway
- --------------------------- ---------------------------
(Signature)
Title: Senior Vice President
ATTEST: TENNESSEE VALLEY AUTHORITY
/s/ Charles J. Gray By: /s/ R. Stephen Blackburn
- --------------------------- ---------------------------
(OGC) Asst. Secretary (Signature)
Title: Fuel Buyer
34
<PAGE>
EXHIBIT I
EXAMPLE CALCULATION OF PRICE ADJUSTMENT
FOR QUALITY VARIATIONS
<TABLE>
<CAPTION>
Assume: Typical Analysis Qtrly. Wtd. Avg. Analysis
<S> <C> <C>
Btu/lb (as-received) 13,000 13,100
Ash (as-received) 10.00% 9.00%
Total Moisture 8.00% 8.50%
SO(2) in lbs./mmBtu at 97.5% 2.50 2.60
</TABLE>
35
<PAGE>
Price equals $20.00
Ash Adjustment Increase/Decrease is $0.15 per percentage point
Moisture Adjustment Increase/Decrease is $0.06 per percentage point
Pounds of SO(2) per mmBtu Adjustment Increase is $0.13 and Adjustment Decrease
is $0.52 for each tenth of a pound.
Btu example for Section 8.b.
Btu Adjustment = (Quarterly Average Value - Typical Analysis) X Price
----------------------------------------------------
Typical Analysis
Btu Adjustment = (13,100 - 13,000) X $20.00
--------------------------
13,000
Btu Adjustment = $0.15 per ton
Ash example for Section 8.c.
Ash Adjustment Increase = (Typical Analysis - Quarterly Average Value)
X Adjustment
Ash Adjustment Increase = (10.00 - 9.00) X $0.15
Ash Adjustment Increase = $0.150 per ton
Moisture example for Section 8.d.
Moisture Adjustment Decrease = (Quarterly Average Value - Typical Analysis)
X Adjustment
Moisture Adjustment Decrease = (8.50 - 8.00) X $0.06
Moisture Adjustment Decrease = $0.030 per ton
Sulfur Dioxide example for Section 8.e. - If SO(2) is greater than Typical
Analysis then $0.52 is used and if SO(2) is less than Typical Analysis then
$0.13 is used.
SO(2) Adjustment Decrease = (((Quarterly Average Value - Typical Analysis)
X 10) X Adjustment
SO(2) Adjustment Decrease = (((2.6 - 2.5) X 10) X $0.52)
SO(2) Adjustment Decrease = $0.520 per ton
36
<PAGE>
APPENDIX A
SCHEDULE OF MAINTENANCE/REPAIR OUTAGES
Description of Outage Expected Duration
--------------------- -----------------
1.
2. [INTENTIONALLY OMITTED]
3.
37
<PAGE>
APPENDIX B
COAL PRODUCER'S STATEMENT AND SPECIFIC LOCATION MAP
38
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE February 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Baker
MSHA No(s): I5-14492 - ______________
(Sequence No.)
State Mine Permit No(s): 717-5002
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Sturgis
(Nearest Town)
Webster KY
(County) (State)
Mine Loading Point: Caseyville Dock
Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point: MP
871.6 Ohio CSX - WKY District
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 12,000
Proven mineable reserves: 40 (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY #13 85 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: |X| Slope |X| Shaft | | Drift | | Conventional | | Continuous
|XX| Longwall
Days mine operated last 12 months: 346
Tons produced last 12 months: 4.3 saleable
Average number of production employees at this mine for in the last 12
months: 550
Twelve-month production at normal capacity: 4.8M (tons)
Expected mine life at normal production: 8 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 75 %
Subcontractor(s) | | will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified | | track or | | belt scales;
or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years |X|
owns the described mining property
or | | leases the described mining property from _________________________
on the basis of (royalty or otherwise) ___________________________________
The rights to the property are recorded in the public records of Webster
County, State of KY
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.) Baker
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H - W on a reducing basis) 2465 'F
Ash (dry basis) 12 % Ash Fluid Temperature
Sulfur (as received) 2.1 % (on a reducing basis) 2550 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 36 %
Lbs - of SO(2) per million Btu 3.1-3.6 Grindability (Hardgrove index) 55
| | Raw | | Washed |XX| Both Chlorine (dry basis) 0.29 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |XX| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) |XX| in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
_________________________________________________, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE February 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Smith UG #1
MSHA No(s): 15-16020 - ______________
(Sequence No.)
State Mine Permit No(s): 917-5012
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Providence
(Nearest Town)
Webster KY
(County) (State)
Mine Loading Point: Caseyville Dock
Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point: MP
871.6 Ohio CSX - WKY District
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 2200
Proven mineable reserves: 17 million (tons)
recoverable
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY #14 85 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 340
Tons produced last 12 months: 1.1 million saleable
Average number of production employees at this mine for in the last 12
months: 110
Twelve-month production at normal capacity: 1.2M (tons)
Expected mine life at normal production: 15 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 50 %
Subcontractor(s) | | will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |XX| track or |XX| belt
scales; or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|XX| owns the described mining property
or | | leases the described mining property from _________________________
on the basis of (royalty or otherwise) ___________________________________
The rights to the property are recorded in the public records of Webster
County, State of KY
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.) Smith UG #1
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.5 % (H = W on a reducing basis) 2020 'F
Ash (dry basis) 11 % Ash Fluid Temperature
Sulfur (as received) 3.0 % (on a reducing basis) 2370 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 40 %
Lbs - of SO(2) per million Btu 4.8-5.8 Grindability (Hardgrove index) 55
| | Raw | | Washed |XX| Both 6 Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |XX| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
_________________________________________________, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE 8/29/96
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9910B, Part B, General Conditions For Spot Coal
Purchases, for spot or short-term coal, regarding the information required by
this statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Indiana "C"
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as _______________________________________________________________
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Jetson -Bull CRK
MSHA No(s): 15-17819 - ______________
(Sequence No.)
State Mine Permit No(s): 816-0091
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Morgantown
(Nearest Town)
Butler Kentucky
(County) (State)
Mine Loading Point: __________________
______________________________________
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
______________________________________
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: ___________(tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Foster 12"
Amos 15"
Type Mine (Check all which apply.):
Surface: |X| Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: New
Tons produced last 12 months: New
Average number of production employees at this mine for in the last 12
months: New
Twelve-month production at normal capacity: 250,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? |X| Yes
| | No If no, what percentage? _____%
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer | | will | | will not weigh on certified | | track or | | belt scales;
or | | will weight barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 1 years | |
owns the described mining property
or |X| leases the described mining property from Osco Bratcher/Dhura Rosg
on the basis of (royalty or otherwise) Royalty
The rights to the property are recorded in the public records of Butler
County, State of ____
volume ___________, page __________.
- --------------------------------------------------------------------------------
TVA 19708 (PPROD 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 10.0 % (H = W on a reducing basis) 2200 'F
Ash (dry basis) 9.4 % Ash Fluid Temperature
Sulfur (as received) ____ % (on a reducing basis) 2400 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 33 %
Lbs - of SO(2) per million Btu 1.50 Grindability (Hardgrove index) 47
|X| Raw | | Washed | | Both Chlorine (dry basis) .03 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc. as its |X| authorized or | |
exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) |X| in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to ______ tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
EEL River Resources, Inc. Douglas J. McDonald
/s/ Douglas J. McDonald Sec/Treas
- --------------------------------------------------------------------------------
Street or Box Number:
P.O. Box 520 Douglas J. McDonald Sec/Treas
- --------------------------------------------------------------------------------
City, State, and Zip Code:
Washington, IN 47501
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF KENTUCKY, COUNTY OF HOPKINS, on the 28th of August, 1996,
Douglas J. McDonald, to me personally known
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she is SEC/TREAS.
(owner/partner*) of the firm described in the foregoing instrument, and
that he/she is executing the same with full authority so to do and as the
free act and deed of such Producer.
Witness my hand and seal this 28th day of August, 1996.
My Commission Expires: 7/1/97 NOTARY PUBLIC Linda Masin
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P PROD 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Miller Creek
MSHA No(s): 15-16855 - ______________
(Sequence No.)
State Mine Permit No(s): 898-5535
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Pikeville
(Nearest Town)
Pike KY
(County) (State)
Mine Loading Point: Patton, KY (Chapperal)
CSX #84118
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: 21.6 (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Fireclay
Elkhorn 2,3
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional |X| Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 720,000
Average number of production employees at this mine for in the last 12
months: _______________________________
Twelve-month production at normal capacity: 750,000 (tons)
Expected mine life at normal production: 20 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Pike
County, State of Kentucky
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H - W on a reducing basis) 2600 'F
Ash (dry basis) 13.0 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,500 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.2-1.7 Grindability (Hardgrove index) 43
| | Raw |X| Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _______________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be that of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Name)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Ivy Creek
MSHA No(s): 15-17661 - ______________
(Sequence No.)
State Mine Permit No(s): 836-0216
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd Kentucky
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): ______________________________
Proven mineable reserves: 8.9 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Broas
Haddix
Peach Orchard
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger |X| Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 720,000
Average number of production employees at this mine for in the last 12
months: _______________________________
Twelve-month production at normal capacity: 750,000 (tons)
Expected mine life at normal production: 11 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of KY
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.0 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _______________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitation to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___.
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Smith Providence Mine
15-17794
MSHA No(s): 15-11935 - ______________
(Sequence No.)
State Mine Permit No(s): 917-0022
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Providence
(Nearest Town)
Webster Kentucky
(County) (State)
Mine Loading Point: Caseyville Dock and Providence, KY Tipple
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
Ohio River MP 871.6
CSX - WKY district
Acres of property (coal reserves) controlled at this mine (See Item 3
below): 230
Proven mineable reserves: 3.2 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
WKY # 14 96 inches
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: Since May 1996
Tons produced last 12 months: 200,000 thru Sept. 1996
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 600,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 50 %
Subcontractor(s) |X| will | | will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or |X| belt scales;
or | | will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from Various
(Name and Address)
on the basis of (royalty or otherwise) Royalty
The rights to the property are recorded in the public records of Webster
County, State of Kentucky
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2000 'F
Ash (dry basis) 11.0 % Ash Fluid Temperature
Sulfur (as received) 3.2-4.0% (on a reducing basis) 2360 'F
Btu/lb. (as received) 12,000 Volatile Matter (dry basis) 40 %
Lbs - of SO(2) per million Btu 4.8-6.5 Grindability (Hardgrove index) 55
| | Raw | | Washed |X| Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated Costain Coal Inc, as its
(Full Company Name of Agent)
|X| authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 9, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Spurlock Fork
MSHA No(s): 15-17660 - ______________
(Sequence No.)
State Mine Permit No(s): 836-0231
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd KY
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 2.4 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Haddix
Peach Orchard
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 480,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 500,000 (tons)
Expected mine life at normal production: 5 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from Various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of Kentucky
volume various, page various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.7-1.0% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.0 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
_________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 9, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Spradlin Branch
MSHA No(s): 15-17327 - ______________
(Sequence No.)
State Mine Permit No(s): 898-0261
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Prestonburg
(Nearest Town)
Floyd KY
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
MP 8.5 - Big Sandy
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 3.1 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Broas 2,3,4,5
Peach Orchard
Hazard 1,2
Type Mine (Check all which apply.):
Surface: | | Area |X| Contour | | Auger |X| Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 900,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 1 M (tons)
Expected mine life at normal production: 4 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
| | owns the described mining property
or | | leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Floyd
County, State of Kentucky
volume various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 14 % Ash Fluid Temperature
Sulfur (as received) 0.8-1.5% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.5 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on its ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
TENNESSEE VALLEY AUTHORITY
COAL PRODUCER'S STATEMENT
DATE October 8, 1996
If the coal offered will be produced by more than one producer or mine, or when
the coal reserves are not contiguous, the Producer must complete additional
copies of this form with an attachment estimating the percentage of coal to be
supplied from each source. Extra copies of this form will be provided upon
request. (See the section on required information and the source provisions of
the Base Contract, for term coal, or the section on required information and the
source provisions in form TVA 9900, General Conditions For Spot Coal Purchases,
for spot or short-term coal, regarding the information required by this
statement.)
This statement must be completed and signed by the Producer. The signature must
be original and be than of an authorized official, if the Producer is a
corporation, or a partner when the Producer is a partnership, or the named
individual.
Part A
- --------------------------------------------------------------------------------
(1) The undersigned, herein referred to as Producer, is (check and complete the
one which applies):
|X| A corporation organized under the laws of the State of Delaware
or | | A partnership consisting of ________________________________________
(List All Partners' Full Names)
or | | An individual ______________________ of ____________________________
(Name) (City, State, and Zip Code)
trading as Costain Coal Inc.
(Full Company Name)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Coal is available for sale from the mine described below and, outlined on
the Specific Location Map. This mine is controlled by the Producer:
Mine Name: Red Cedar #3
MSHA No(s): 15-17064 - ______________
(Sequence No.)
State Mine Permit No(s): 898-0324
Name of permittee if different from Producer. (Explain the relationship of
the parties on a separate sheet.):
______________________________________
______________________________________
Previous mine name and Producer, if any:
______________________________________
Mine Location: Pikeville
(Nearest Town)
Pike Kentucky
(County) (State)
Mine Loading Point: Ivel, KY (Transcontinental)
CSX #84091
(Dock or Tipple Name, City/State)
River name and mile point and/or rail lines serving loading point:
Big Sandy MP 8.5
Kentucky Coal Terminal
Acres of property (coal reserves) controlled at this mine (See Item 3
below): _________________________________
Proven mineable reserves: 3.4 million (tons)
Seam Name(s) Average Thickness Elevation
------------ ----------------- ---------
Elkhorn
Fireclay
Amburgy
Type Mine (Check all which apply.):
Surface: | | Area | | Contour | | Auger | | Mtn. Top Removal | | Other
Underground: | | Slope | | Shaft | | Drift | | Conventional | | Continuous
| | Longwall
Days mine operated last 12 months: 250
Tons produced last 12 months: 750,000
Average number of production employees at this mine for the last 12
months: _______________________________
Twelve-month production at normal capacity: 800,000 (tons)
Expected mine life at normal production: 4 (years)
Is mine's full production at normal capacity available for sale? | | Yes
|X| No If no, what percentage? 20 %
Subcontractor(s) | | will |X| will not mine any coal described herein.
List on a separate sheet each subcontractor's name, address, type of mine
operation, and the contractual basis for the production of coal.
Producer |X| will | | will not weigh on certified |X| track or | | belt scales;
or |X| will weigh barge coal by displacement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Producer has been in the business of operating coal mines for 17 years and
|X| owns the described mining property
or |X| leases the described mining property from various
(Name and Address)
on the basis of (royalty or otherwise) royalty
The rights to the property are recorded in the public records of Pike
County, State of Kentucky
volume Various, page Various.
- --------------------------------------------------------------------------------
TVA 19708 (P.PROD. 3-91) Page 1 of 2
<PAGE>
- --------------------------------------------------------------------------------
(4) Representative analysis of coal available for sale to TVA from this mine:
(The analysis shown in the term, spot, or short-term coal offer shall be
used for evaluation and shall become the Guaranteed Analysis in the event
a contract is awarded.)
<TABLE>
<S> <C> <C> <C>
Ash Softening temperature
Total Moisture 8.0 % (H = W on a reducing basis) 2600 'F
Ash (dry basis) 13.5 % Ash Fluid Temperature
Sulfur (as received) 0.75-1.5% (on a reducing basis) 2700 'F
Btu/lb. (as received) 12,200 Volatile Matter (dry basis) 38 %
Lbs - of SO(2) per million Btu 1.3-2.4 Grindability (Hardgrove index) 44
|X| Raw | | Washed | | Both Chlorine (dry basis) 0.1 %
Size: 2 " X 0 "
</TABLE>
- --------------------------------------------------------------------------------
Part B (Part B is to be completed ONLY if the offer is submitted by an agent on
behalf of a coal Producer.)
- --------------------------------------------------------------------------------
Producer has designated _________________________________________ as its
(Full Company Name of Agent)
| | authorized or | | exclusive
sales agent to offer the described coal to TVA until revoked in writing.
The Producer also designates said agent as its attorney-in-fact for the
purpose of handling (check one) | | in Producer's name or | | in said
agent's name all transactions and relationships with TVA affecting the
Producer that are related to offering the described coal, including
specifically, but without limitations to, (1) entering into, amending, or
terminating a coal supply contract; (2) complying with contract's
reclamation and conservation requirements, including submitting,
modifying, and interpreting any required maps or plans; (3) settling any
claim or dispute and executing any release; (4) giving and receiving
notices; (5) billing for coal furnished; (6) receiving payment for coal
furnished; and (7) assigning money due or to become due.
- --------------------------------------------------------------------------------
Part C
- --------------------------------------------------------------------------------
The Producer has read and understands the provisions of the coal
solicitation which will become part of any contract awarded and is
prepared to produce and deliver in accordance with and subject to such
contract up to quoted tons of coal a week.
The Producer hereby certifies that the foregoing statements are true and
correct. If requested by TVA, the Producer will furnish additional
information bearing on it ability to produce the coal offered.
- --------------------------------------------------------------------------------
Producer (Full Company Name): Signature (must be original -
Please Print/Type and Sign):
Costain Coal Inc. /s/ Daniel L. Vaughn
- --------------------------------------------------------------------------------
Street or Box Number: Title of Person Authorized to Sign:
249 E. Main Street Director, Business Development
- --------------------------------------------------------------------------------
City, State, and Zip Code: Producer's Telephone:
Lexington, KY 40507 (606) 255-4006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING NOTARIZATION IS NOT REQUIRED IF THE PRODUCER IS OFFERING THE
COAL IN ITS OWN NAME WITHOUT THE SERVICES OF AN AGENT.
STATE OF__________________, COUNTY OF________________, on
the_______________ day of________________, 19___,
________________________________________________, to me personally known,
(Name of Person Signing this Producer's Statement)
appeared before me and being by me duly sworn did say he/she
is_________(owner/partner*) of the firm described in the foregoing
instrument, and that he/she is executing the same with full authority so
to do and as the free act and deed of such Producer.
Witness my hand and seal this__________________________day of
___________________, 19_______.
My Commission Expires: __________________NOTARY PUBLIC___________________
- --------------------------------------------------------------------------------
*Designate which is applicable; if the Producer is a corporation, the person
signing the instrument should insert his/her official title.
TVA 19708 (P.PROD. 3-91) Page 2 of 2
<PAGE>
GENERAL LONG-TERM CONTRACT CONDITIONS
1. Verification of Data, Inspection of Records and Mine Sources: TVA, its
employees, agents, or representatives, shall have the right, after prior notice
and at a reasonable time to inspect Contractor's or, if applicable, its
producer's records and mines and related facilities to verify the accuracy of
the data supplied by Contractor to support its request for price adjustments or
to establish Contractor's actual cost change under section 10, Contract Price
Adjustments, in the Base Contract and for purposes of determining Contractor's
compliance with the provisions of this contract. Information obtained by TVA,
its employees, agents, or representatives, in examining Contractor's or its
producer's records or inspecting Contractor's or its producer's mines shall not
be disclosed to third parties without the Contractor's consent, unless
disclosure is ordered by a court of competent jurisdiction, is made for purposes
of any litigation or proceeding (judicial, administrative, or investigatory)
involving this contract, or is otherwise required by law.
2. Coal Mining Reclamation and Conservation Requirements. The following
TVA reclamation and conservation requirements are applicable to all spot
contracts for the purchase of coal:
a. TVA Policy On Areas From Which Coal Will Be Procured: Coal Mining
- - Land and Water Resource Protection. TVA accepts no coal mined from locations
in or near areas officially designated by state or federal agencies, or
identified by TVA, as wild or scenic river areas, wild, wilderness, natural,
scenic, public recreation areas or under study pursuant to legislative authority
for any such official designation, except where special circumstances exist. No
coal will be accepted from locations in or near areas designated under
legislative authority as potential sites for the above uses unless, after
coordination with the appropriate agencies, TVA determines that the coal can be
mined without substantially adversely affecting the area's potential for such
use. In such cases and also in cases involving offerings of coal from mines in
or near other visually important areas such as major highways or population
centers, special provisions designed to protect aesthetic values may be
incorporated in the purchase contracts. No coal will be accepted from areas in
which, in TVA's judgment, mining would adversely affect a public water supply
and such adverse effect cannot be avoided by proper reclamation.
39
<PAGE>
b. Contractor agrees that all sources of coal delivered shall be in
full compliance with all state and federal reclamation laws, including the
Surface Mining Control and Reclamation Act of 1977 and all regulations issued
thereunder. Violations of any such law or regulation shall constitute a breach
of contract, entitling TVA to exercise its remedies under this contract or as
provided by law. TVA will not accept coal mined from any source, stockpile, or
otherwise during any period when the source is subject to a cessation order
issued by the Office of Surface Mining and Reclamation (OSM) or any state
reclamation enforcement agency for violation of reclamation requirements. TVA
also reserves the right to either terminate this contract or suspend deliveries
under the contract from any source whatsoever when any authorized source listed
in the contract, or as it may hereafter be amended, is subject to a cessation
order. Coal which is not delivered due to such cessation order or suspension
shall not be considered excusable, and TVA may purchase replacement coal for the
Contractor's account. If, upon appeal by the Contractor under OSM's or the
appropriate state's regulations, a cessation order is held to have been
improperly issued, the Contractor shall not be liable for the cost of
replacement coal, and any coal not delivered due to the order or suspension may,
at Contractor's option, be cancelled or rescheduled upon delivery terms
reasonably acceptable to TVA. This constitutes Contractor's exclusive remedy
against TVA in the event of a wrongful issuance of a cessation order by OSM or a
state agency.
c. TVA reserves the right to require and Contractor agrees to
perform over and above the requirements specified by law any special or
additional reclamation work which TVA deems necessary to ensure that the mining
operation complies with TVA's overall policy for protection and enhancement of
the environment. TVA agrees to compensate Contractor for the performance of such
work in an amount to be mutually agreed upon before the commencement of work. No
work performed by Contractor shall be deemed special or additional reclamation
work for the purposes hereof unless it is so designated in writing by the
Contract Administrator.
d. TVA, its agents, and assigns shall have the right to enter upon
any of the land affected
40
<PAGE>
by Contractors mining operation, at any time and without the necessity of giving
notice, for any purpose related to enforcing these reclamation and conservation
requirements or to observe mining or reclamation completed or in progress.
e. TVA will not accept coal from sources mined under the 16-2/3
percent exemption allowed under P.L. 95-87, unless it can be documented that the
source will be mined and reclaimed to the performance standards established
under P.L. 95-87 and furthermore, that the operation has the concurrence of the
coal mining and regulatory (primacy) authority established by this law in the
state from which the coal is to be mined.
3. Relationship of Parties - Producer's Statement:
a. Regardless of whether the Contractor is the producer of the coal
to be furnished or is the sales agent of one or more producer, the Contractor
binds and obligates itself for the full and faithful performance of the contract
in its entirety.
b. If the Contractor is not the producer of the coal to be delivered
hereunder, Contractor represents that it has contracted directly with the
producer(s) who has (have) executed the Coal Producer's Statement(s) for the
delivery of the coal to TVA.
4. Nonassignability; Subcontracts; Designation and Termination of Agent:
a. Neither this contract nor any interest herein or any payments
hereunder shall be assigned without the written consent of TVA, which consent
TVA may withhold in its sole discretion. In the event TVA shall give such
consent, the same shall not be construed as a waiver of this provision with
regard to any subsequent assignment.
b. The Contractor shall, on request, file with TVA copies of all
subcontracts and terms of
41
<PAGE>
all commitments with subcontractors, and TVA shall have the right to disapprove
any thereof within five (5) days after receipt of such information.
c. No designation of any agent by the Contractor to submit invoices,
receive payments, or take any other action in connection with the performance or
administration of this contract shall be effective or recognized by TVA until
the Contractor has given written notice of such designation and TVA has given
Contractor specific written notice of its approval thereof.
d. If Contractor notifies TVA in writing of the termination of any
agent that Contractor may have theretofore designated to administer this
contract on its behalf, TVA may thereafter rely on such notice of termination in
all dealings with Contractor or a successor agent.
5. Waivers: No waiver of any breach of this contract shall be held to be a
waiver of any other breach. Unless a remedy is expressly designated as
exclusive, all remedies afforded under the contract shall be in addition to
every other remedy provided herein or by law.
6. Officials Not To Benefit: No member of or delegate to Congress or
Resident Commissioner, or any officers, employee, special Government employee,
or agent of TVA shall be admitted to any share or part of this contract or to
any benefit that may arise therefrom unless it be made with a corporation for
its general benefit; nor shall the Contractor offer or give, directly or
indirectly, to any officer, employee, special Government employee, or agent of
TVA any gift, gratuity, favor, entertainment, loan, or any other thing of
monetary value, except as provided in 5 C.F.R. part 2635. Breach of this
provision shall constitute a material breach of this contract and TVA shall have
the right to exercise all remedies provided in this contract or at law.
7. Contingent Fees: The Contractor warrants that no person or selling
agency has been employed or retained to solicit or secure this contract upon an
agreement or understanding for a commission, percentage,
42
<PAGE>
brokerage, or contingent fee, excepting bona fide employees or bona fide
established commercial or selling agencies maintained by the Contractor for the
purpose of securing business. For breach or violation of this warranty, TVA
shall have the right to terminate this contract without liability or in its
discretion to deduct from the contract price or consideration the full amount of
such commission, percentage, brokerage, or contingent fee.
8. Convict Labor: Contractor shall not employ in the performance of this
contract any person undergoing sentence of imprisonment at hard labor.
9. Walsh-Healey Act. All the representations and stipulations in 41
C.F.R., ss. 50-201, are incorporated by reference.
10. Discrimination on the Basis of Age. Contractor shall comply with
Executive Order 11141.
11. Small Business Policy. The requirements of 15 U.S.C ss. 637(d) are
incorporated by reference.
12. Liquidated Damages for Subcontracting Plans.
a. Failure to make a good-faith effort to comply with the
subcontracting plan, as used in this clause, means a willful or intentional
failure to perform in accordance with the requirements of the subcontracting
plan approved under the section of the Request for Proposals titled SMALL
BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PLAN (attached to this
contract and made a part hereof) or willful or intentional action to frustrate
the plan.
b. If, at contract completion, or in the case of a commercial
products plan, at the close of the fiscal year for which the plan is applicable,
the Contractor has failed to meet its subcontracting goals and the Contracting
Officer decides in accordance with paragraph (c) of this clause that the
Contractor failed to make a good-faith effort to comply with its subcontracting
plan the Contractor shall pay TVA liquidate damages in an
43
<PAGE>
amount stated The amount of damages attributable to the Contractor's failure to
comply shall be an amount equal to the actual dollar amount by which the
Contractor failed to achieve each subcontract goal or, in the case of a
commercial products plan, that portion of the dollar amount allocable to
government contracts by which the Contractor failed to achieve each subcontract
goal.
c. Before the Contracting Officer makes a final decision that the
Contractor has failed to make such good-faith effort, the Contracting Officer
shall give the Contractor written notice specifying the failure and permitting
the Contractor to demonstrate what good-faith efforts have been made. Failure to
respond to the notice may be taken as an admission that no valid explanation
exists. If, after consideration of all the pertinent data, the Contracting
Officer finds that the Contractor failed to make a good-faith effort to comply
with the subcontracting plan, the Contracting Officer shall issue a final
decision to that effect and require that the Contractor pay the government
liquidated damages as provided in paragraph b. of this section.
d. With respect to commercial products plans, i.e., company-wide or
division-wide subcontracting plans, the Contracting Officer of the agency that
originally approved the plan will exercise the functions of the Contracting
Officer under this clause on behalf of all agencies that awarded contracts
covered by that commercial products plan.
e. The Contractor shall have the right of appeal, under the section
in this contract titled DISPUTES, from any final decision of the Contracting
Officer.
f. Liquidated damages shall be in addition to any other remedies
that TVA may have.
13. Utilization of Woman-Owned Business Concerns. It is the policy of the
United States Government that woman-owned businesses shall have the maximum
practicable opportunity to participate in the performance of contracts awarded
by any federal agency.
44
<PAGE>
The Contractor agrees to use its best efforts to carry out this
policy in the award of subcontracts to the fullest extent consistent with the
efficient performance of this contract. As used in this contract, a "woman-owned
business" concern means a business that is at least 51% owned by a woman or
women who also control and operate it. "Control" in this context means
exercising the power to make policy decisions. "Operate" in this context means
being actively involved in the day-to-day management.
14. Affirmative Action and Equal Opportunity. To the extent applicable,
this contract incorporates by reference the "Affirmative Action for Disabled
Veterans and Veterans of the Vietnam Era" clause, 41 C.F.R. ss. 60-250.4; the
"Affirmative Action for Handicapped Workers" clause, 41 C.F.R. ss. 60-741.4; and
the "Equal Opportunity" clause, 41 C.F.R. ss. 60-1.4. Contractor shall comply
with applicable regulatory requirements, including information reports and
affirmative action programs. By submitting its offer, offeror, applicant, or
subcontractor certifies it does not maintain segregated facilities at its
establishments; does not permit employees to perform their services at any
location, under its control, where segregated facilities are maintained; will
not maintain segregated facilities; and will not permit employees to perform
their services at locations, under its control, where segregated facilities are
maintained. It agrees that breach of this certification violates this section.
Segregated facilities means any waiting rooms, work areas, restrooms,
restaurants and other eating areas, time clocks, locker rooms and other storage
or dressing areas, parking lots, drinking fountains, recreation or entertainment
areas, transportation, housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
religion, color, or national origin, because of habit, local custom, or
otherwise. It further agrees that it will obtain identical certifications from
proposed subcontractors prior to award of subcontracts exceeding $10,000 which
are not exempt from this section; will retain such certifications; and will
forward the following notice to such proposed subcontractors (except where
proposed subcontractors have submitted identical certifications for specific
time periods):
Notice to Prospective Subcontractors of Requirement for Certifications of
Nonsegregated Facilities. A Certification of Nonsegregated Facilities must
be submitted prior to award of a subcontract exceeding
45
<PAGE>
$10,000 which is not exempt from this clause. Certification may be
submitted for each subcontract or for all subcontracts during a period
(i.e., quarterly, semiannually, or annually). NOTE: The penalty for making
false statements in offers is prescribed in 18 U.S.C. ss. 1001.
15. Environmental Protection Agency (EPA) Regulations. In accordance with
regulations issued by the EPA pursuant to implementation of Section 306 of the
Clean Air Act, Section 508 of the Federal Water Pollution Control Act, and
Executive Order 11738, the section entitled Environmentally Acceptable
Facilities; Clean Air and Water shall be made a part of any contract exceeding
$100,000 entered into by TVA.
16. Safety and Health. All sources supplying coal purchased under this
contract shall be in full compliance with the Federal Mine Safety and Health Act
of 1977 and regulations issued thereunder. Failure to comply shall constitute a
breach of contract, permitting TVA to exercise its remedies under this contract
or as provided by law.
17. Anti-Kickback Procedures. In its operations and business
relationships, Contractor shall have in place and follow reasonable procedures
designed to prevent and detect possible violations of the Anti-Kickback Act of
1986 (41 U.S.C. ss.ss. 51-58), (Act). If Contractor believes a violation of the
Act may have occurred, it shall promptly give TVA's Inspector General written
notice. Contractor shall cooperate fully with TVA or any other federal agency
investigating a possible violation of the act. Contractor agrees to incorporate
the substance of this section, including this sentence, in all subcontracts
under this contract.
18. Drug-Free Workplace. In submitting its offer, Contractor certifies it
will comply with Public Law No. 100-690, the Drug-Free Workplace Act of 1988.
19. Environmentally Acceptable Facilities; Clean Air and Water. Contractor
hereby stipulates and agrees as follows:
46
<PAGE>
(1) That Contractor included in its offer a statement listing any
facility or facilities to be utilized in performance of this contract or any
subcontract enabling the performance of this contract which are listed on the
Environmental Protection Agency's List of Violating Facilities issued pursuant
to Section 15.20 of Title 40, Code of Federal Regulations. If no such list is
included in accordance with the foregoing, then submission of a offer shall
constitute certification by the offeror that any facility or facilities to be
utilized in performance of this contract or any subcontract enabling the
performance of this contract are not listed on the Environmental Protection
Agency's List of Violating Facilities issued pursuant to Section 15.20 of Title
40, Code of Federal Regulations.
(2) To comply with all the requirements of Section 114 of the Clean
Air Act and Section 308 of the Federal Water Pollution Control Act relating to
inspection, monitoring, entry, reports, and information, as well as all other
requirements specified in Section 114 and Section 308 of the Clean Air Act and
the Federal Water Pollution Control Act, respectively, and all regulations and
guidelines issued thereunder.
(3) That Contractor shall notify the awarding official of the
receipt of any communication from the Director, Office of Federal Activities,
U.S. Environmental Protection Agency, indicating that a facility to be utilized
for this contract is under consideration to be listed on the EPA List of
Violating Facilities. Prompt notification shall be required prior to contract
award.
(4) That Contractor will include or cause to be included the
criteria and requirements in subparagraphs (1) through (4) of this provision in
all subcontracts of $l00,000 or more and all subcontracts for indefinite
quantities which may be $100,000 or more in any year, and Contractor will take
such action as TVA may direct as a means of enforcing such provisions.
Contractor shall not award a subcontract without the prior written approval of
TVA to any subcontractor whose performance would involve the use of any facility
or facilities which are listed on the Environmental Protection Agency's List of
Violating Facilities.
47
<PAGE>
20. Price or Fee Adjustment for Illegal or Improper Activity. The text of
Federal Acquisition Regulation, Section 52.203-10 is incorporated by reference.
48
<PAGE>
[TVA LOGO]
Tennessee Valley Authority, 1101 Market Street, Chattanooga, Tennessee
37402-2801
February 1, 1996
Dear Prospective Offeror:
SECTION I
REQUISITION 33
REQUEST FOR PROPOSALS
The Tennessee Valley Authority (TVA) is interested in receiving three-, six- and
ten-year term proposals to supply coal to meet the fuel requirements of various
fossil plants.
All proposals should specify total tonnage offered for these term periods. TVA
expects to purchase up to 6.0 million tons per year from this solicitation;
provided, however, that TVA may accept all or, with approval of the offerer, any
portion of an individual proposal, and TVA reserves the right to reject any and
all proposals. TVA also reserves the right, at any time, to purchase coal other
than pursuant to this Request for Proposals (RFP). The conditions set forth in
Section III, TERM PROPOSAL INFORMATION AND CONDITIONS, shall apply to this RFP
and offers received hereunder. This RFP consists of this letter (Sections I, II
and III), forms TVA 9910, 9903A, 9903B, 9903C, 9903D, and 19708; Summary of
Offers; and the Term Coal Contract, the terms of which are incorporated herein
by reference as if fully set forth.
If you wish to make an offer, please complete all the information required in
the attachments.
By submission of a completed and executed Term Coal Proposal, form TVA 9910, in
response to this RFP, the offerer agrees that any contract or contracts
resulting from TVA's acceptance of such proposal shall consist of the said Term
Coal Proposal, this RFP, and the Term Coal Contract, executed by the Fuel Buyer
or other authorized TVA representative.
All requested information must be furnished in the detail specified. TVA
encourages all offerors to submit offers which are in conformance with the terms
and conditions of this RFP. TVA reserves the right to reject any proposal that
is incomplete or takes exception to TVA's terms and conditions. TVA reserves the
right to award contracts under this RFP on the basis of initial proposals
without discussions. In any case where the words "bidder" or "bid" are used they
shall be deemed to mean "offerer" and "offer," respectively.
Information contained in unsuccessful proposals will be disclosed to third
parties only as required by law.
<PAGE>
Prospective Offeror
Page 2
February 1, 1996
In order to submit a proposal under this RFP, the offeror must complete and
return only the following:
Form TVA 9910 - Term Coal Proposal (no duplicate needed)
Form TVA 9903A - Typical Coal Quality Analysis (see Note below)
Form TVA 9903B - Requirement for Certificate of Procurement Integrity
Form TVA 9903C - Taxpayer Reporting Requirements
Form TVA 9903D - Equal Opportunity Representation
Form TVA 19708 - Coal Producer's Statement (if not already on file)
Summary of Offer(s)
NOTE: TVA will utilize a Coal Quality Impact Model for the evaluation of
all offers. In order to ensure effective evaluation, it is important that
the coal quality specified by the offeror is the typical quality of the
coal offered. Accordingly, the offeror must indicate its typical
(expected) coal quality specifications when submitting the analysis on
forms 9910 and 9903A. Those offerors submitting proposals for coal to be
washed at the Paradise plant should also provide a washability analysis of
the coal at a 1.6 specific gravity.
Proposals are to be sealed and envelopes marked "Term Coal Proposal" using the
enclosed label. Proposals sent overnight mail (Federal Express, etc.) should be
enclosed in an envelope, sealed, and marked with the enclosed label. No
facsimiles will be accepted. Offers must be received by TVA no later than 4:15
p.m. Eastern Time, March 4, 1996 (Proposal Closing Date). Offers shall remain
open for acceptance by TVA through July 1, 1996 and may not be withdrawn by
offeror during such period. TVA's acceptance may be communicated by phone,
followed by a written acceptance.
Please note the important information in Section II. Direct all your inquiries
to me; however, mail your proposal(s) to the following address:
Tennessee Valley Authority
Fuel Acquisition and Supply
1101 Market Street, LP 5G
Chattanooga, Tennessee 37402-2801
Sincerely,
/s/ R. Stephen Blackburn
- -----------------------------
R. Stephen Blackburn
Fuel Buyer
/s/ James M. Bach
- -----------------------------
James M. Bach
Fuel Buyer
<PAGE>
SECTION II
REQUISITION 33
BIDDERS' MEETING: There will be a meeting to answer any questions
concerning this solicitation on February 8, 1996 at
8:30 A.M. EST in the Missionary Ridge Auditorium of
TVA's Chattanooga Office Complex. Those unable to
attend will be forwarded any information disseminated
at the meeting, as well as any questions asked and
answers provided.
PROPOSAL CLOSING DATE: March 4, 1996
PLANTS: Various
STARTING DATE: Approximately January 1, 1997
TERM: 3 years - Subject to Price Adjustment
6 years - Subject to Price Adjustment with a total
contract reopener effective at the 3rd year
anniversary
10 years - Subject to Price Adjustment with a price
reopener effective at the 5th year
anniversary
TONNAGE REQUIREMENTS: Proposals may be for up to 6.0 million tons per year
with a plus or minus 20% flexibility on 30-days'
notice. Proposals are not subject to a minimum annual
tonnage; provided however, TVA may find it necessary,
and reserves the right, to reject any offers that in
TVA's judgement offer quantities that would result in
inefficient transportation or supply arrangements.
COAL QUALITY: Coals offered in response to this RFP must meet the
following specifications.
<TABLE>
<S> <C>
Moisture 35% maximum
Ash 18% maximum
Volatile Matter 27% minimum
Btu 8200 Btu/lb minimum
SO(2) 5.0 lb/mmBtu maximum
Grind 35 H.G.I. minimum
Chlorine 0.29% maximum
</TABLE>
Offerors must offer their coal at the typical
specifications they expect to deliver. The cost of
plant modifications in order to efficiently burn a
particular coal will be a part of the evaluation
process. The above specifications are not applicable
for raw coal to be washed by TVA at the Paradise plant.
Offerors should refer to the plant specifications for
coal quality of coal to be washed.
<PAGE>
TYPICAL ANALYSIS: The Typical Analysis (See forms TVA 9910 and 9903A)
will be used for evaluating the offeror's proposal and,
if a contract is awarded, for determining the
adjustments for coal quality under Section 8 of the
Term Coal Contract. The Rejection/Suspension
Specifications to be set forth in Subsection 9.a. of
the Term Coal Contract shall be based on the Typical
Analysis and determined as shown in Exhibit I to this
Section II. TVA may reject offers that specify a
Typical Analysis that in TVA's judgement, is not
representative of the coal actually to be shipped.
PRICES ADJUSTMENT: Prices will be adjusted at a flat rate of 1% annually
and for any changes in per ton assessments imposed
industry-wide by state or federal law.
TERMS AND CONDITIONS: In order to ensure TVA is able to evaluate an offeror's
proposal, the proposal should conform to the terms and
conditions of this Request for Proposals (including the
price adjustment provisions). Exceptions to TVA's
standard terms and conditions may impact the evaluation
of offeror's proposal or may result in the rejection of
the proposal without discussion. In the event TVA
elects to accept an offer or offers of raw coal to be
washed at TVA's Paradise plant the terms and conditions
of the Term Coal Contract will be modified accordingly.
TRANSPORTATION REQUIREMENTS: All barge offers should be quoted in the barge at
origin and all rail offers should be quoted in the rail
car at origin.
<PAGE>
PLANT SPECIFICATIONS (1):
<TABLE>
<CAPTION>
PARAMETER COLBERT 1-4 COLBERT 5 JOHNSONVILLE
<S> <C> <C> <C>
Moisture (Max) 13.0% 10.0% 12.0%
Ash (Dry) (Max) 15.0% 15.0% 15.0%
Volatile Matter (Dry) (Min) 35.0% 35.0% 30.0%
SO(2)/mmBtu (Max)(2) 2.0 3.8 3.2
Heating Value (AR) (Min) 11,000 Btu 11,000 Btu 11,500 Btu
Ash Fusion (h=w) (Min) 1950(degrees)F 2300(degrees)F 2100(degrees)F
Chlorine (Dry) (Max) 0.29% 0.29% 0.29%
Grind (Min) 50(3) 50 50
</TABLE>
<TABLE>
<CAPTION>
PARAMETER WIDOWS CK 1-6 GALLATIN PARADISE 3
<S> <C> <C> <C>
Moisture (Max) 13.0% 13.0% 13.0%
Ash (Dry) (Max) 15.0% 15.0% 15.0%
Volatile Matter (Dry) (Min) 27.0% 35.0% 33.0%
SO(2)/mmBtu (Max)(2) 1.4 4.8 5.0
Heating Value (AR) (Min) 11,000 Btu 11,000 Btu 11,000 Btu
Ash Fusion (h=w)(Min) 1950(degrees)F 1950(degrees)F
Chlorine (Dry) (Max) 0.29% 0.29% 0.29%
Grind (Min) 50(3) 50 50
Ash Fluid Temperature (Max) 2400(degrees)F
</TABLE>
<TABLE>
<CAPTION>
PARAMETER PARADISE 3
RAW
<S> <C>
Moisture (Max) 10.0%
Ash (Dry) (Max) 25.0%
Volatile Matter (Dry) (Min) 33.0%
Sulfur (AR) (Max) 5.5%
Sulfur (AR) (Min) 1.5%
Heating Value (AR) (Min) 9,800 Btu
Chlorine (Dry) (Max) 0.29%
Grind (Min) 50
Ash Fluid Temperature (Max) 2400(degrees)F
COAL WASHED @ 1.6 sp. gr.
Moisture (Max) 13.0%
Ash (Dry) (Max) 15.0%
SO(2)/mmBtu (Max)(2) 5.0
Heating Value (AR) (Min) 11,000 Btu
</TABLE>
(1) These specifications are given for reference only. As indicated above
bidders are required to offer the coal quality they expect to ship. TVA
may consider modifications to a plant that could affect its
specifications.
(2) SO(2)/mmBtu is calculated by the following formula:
SO(2)/mmBtu = ((percent sulfur(as-received) X 19500)/(as-received Btu))
(3) For units Widows Ck. 1-6 and Colbert 1-4, TVA will accept coal with a
minimum grindability index of 45, provided the minimum heat value is
12,000 Btu/lb. For each increment decrease in grindability index from 50
to 45, the heat value must increase by 200 Btu/lb in the range from
11-12,000 Btu/lb.
<PAGE>
Exhibit I
CALCULATION OF REJECTION/SUSPENSION SPECIFICATION
The Rejection/Suspension Specifications will be calculated as follows.
Lbs of SO(2) per million Btu Not more than the Typical Analysis + 0.25 pounds
per million Btu or the plant specification,
whichever is less.
Total Moisture Not more than the Typical Analysis + 2.0% or the
plant specification, whichever is less.
Sulfur (as-received) Not more than the Typical Analysis + 0.3% or the
plant specification, whichever is less.
Sulfur (as received) Not less than the Plant Specification, if
applicable
Ash (as-received) Not more than the Typical Analysis + 2.0% or the
plant specification, whichever is less.
Ash (dry basis) Plant Specification
Btu/lb (as-received) Not less than the Typical Analysis X 97.0% or
the plant specification, whichever is more.
Ash fusion temperature
reducing atmosphere
Initial Plant Specification
Softening (Hemispherical) Plant Specification
Fluid Plant Specification
Volatile Matter (dry basis) Plant Specification
Grindability (Hardgrove Index) Plant Specification
Chlorine (dry basis) Plant Specification
<PAGE>
SECTION III
PROPOSAL INFORMATION AND CONDITIONS
REQUISITION 33
1. METHOD OF PROPOSAL. Coal must be offered on TVA's Term Coal Proposal
form TVA 9910. If coal is offered to TVA in accordance with this Request for
Proposals and TVA notifies the offeror of the acceptance of its proposal by July
1, 1996, the offeror's Term Coal Proposal, the Request for Proposals, and the
TVA's Term Coal Contract become a legally binding contract, and no changes can
be made to such except by mutual consent. All proposals must be submitted on
forms provided by TVA and any proposals not so submitted may not be considered.
2. INFORMATION REQUIRED OF OFFERORS. (a) Each offeror must supply all the
information and certifications called for by the Term Coal Proposal, form TVA
9910 and by forms TVA 9903A-D. Additional information which the offeror deems
pertinent may be included on extra sheets of paper (except as provided in
Section 3, ACCEPTANCE/REJECTION OF PROPOSALS).
(b) Offerors must also furnish TVA a Coal Producer's Statement, form TVA
19708, executed by the producer for each mine from which the offeror offers coal
to TVA. If a Producer's Statement covering the mine in a given proposal is not
already on file, it should accompany the proposal. If a Producer's Statement is
not in TVA's possession at the time proposals are closed, the proposals may not
be considered for award. Once on file, the Statement need not accompany each
subsequent proposal. (A specific location map of each mine must also accompany
each Producer's Statement) If a change should occur in the information shown on
the Statement, a new Statement should be filed when coal is offered from that
mine. TVA requires an updated Producer's Statement from offerors or producers no
less frequently than on an annual basis.
(c) TVA reserves the right to require any offeror to furnish information
pertaining to its ability to fulfill the contract, including but not limited to,
the offeror's and producer's capitalization, equipment owned, names of officers
and directors and/or names of partners, recent financial statements, and
satisfactory evidence of ability to meet the quality guarantee (e.g., a copy of
a recent analysis from another customer or a certified laboratory).
3. ACCEPTANCE/REJECTION OF PROPOSALS. (a) Proposals, together with
information required to be submitted with proposals, must be received at TVA's
offices at 1101 Market Street, LP 5G-C, Chattanooga, Tennessee 37402-2801, prior
to 4:15 p.m. (Chattanooga time (Closing Time)) on the Proposal Closing Date
specified in this Request for Proposals. Hand-delivered proposals may not be
delivered to Fuel Acquisition and Supply personnel but shall be left at the
Reception Desk of Lookout Place. If any part of the required information is not
in TVA's possession at the time proposals are closed, TVA may decline to
consider it for award. Offers, together with the required information, not
physically in TVA's possession at the Closing Time will not be considered. After
the Closing Time, no changes in offers will be permitted which would affect the
offeror's competitive position. Offers shall remain open for TVA's acceptance
until July 1,1996 and may not be withdrawn after Closing Time on the Proposal
Closing Date without the consent of the Fuel Buyer. Award of contracts for
supplying coal to each fossil plant will be made to those responsive and
responsible offerors offering coal at the lowest evaluated delivered cost per
million Btu, determined in accordance with Section 4 hereof, except that TVA
reserves the right to consider other pertinent factors in determining which
offers are most advantageous to TVA in terms of price, quality and delivery.
(b) TVA reserves the right to reject all offers and to reject
specifically, without regard to comparative price, any offer which in TVA's sole
judgment (1) offers coal that has undesirable burning, handling, or other
objectionable characteristics; (2) offers coal that, on the basis of TVA's or
the Bureau of Mines records, will not meet the requirements stated in the
Request for Proposals or has been misrepresented in the offer; (3) is submitted
<PAGE>
by or for a supplier or producer who has failed under previous contracts to meet
guaranteed analysis. make deliveries on schedule, or otherwise failed to act
responsibly as contractor or as agent or to meet or comply with other
contractual obligations including failure to perform required reclamation and
conservation work, or who has a record of unsatisfactory compliance with the
Surface Mining Control and Reclamation Act of 1977, as amended, and the rules
and regulations issued pursuant thereto, or the Federal Mine Safety and Health
Act of 1977, as amended, and the rules and regulations issued pursuant thereto;
(4) designates an agent for the administration of the contract or a producer who
has a record of association with contracts with the United States or any of its
agencies which have not been performed satisfactorily or who is debarred from
entering into contracts with the United States or any of its agencies because
of the violation of any Federal law, including but not limited to the
Walsh-Healey Act (41 U.S.C. Sec. 37); (5) fails to forward all required
information or demonstrate to TVA's satisfaction that the offeror has the
ability to fulfill a contract under the terms and from the sources indicated in
the offer; (6) offers coal from a source which in TVA's sole judgment is
unacceptable under applicable environmental laws or regulations or TVA's
environmental policies; and (7) offers coal from a source that has not been
tested by TVA or for which acceptable test analyses are not yet available.
It is very important that all offers be based upon the same contract terms
and conditions. Offers may be rejected if they (or any transmittal letter,
attachment, form or paper which is made a part of the offer) contain any
exception, condition, restriction, or term (1) which is in conflict in any way
with the terms and conditions of this Request for Proposals, including any
addenda thereto, or TVA's Term Coal Contract or (2) which, although not in
conflict with any specific condition, term or provision of the foregoing,
introduces a new condition, term, or provision which is unacceptable to TVA.
(c) TVA reserves the right to waive any informality in the offers.
4. EVALUATED DELIVERED COST. The method of determining the delivered cost
of coal for each offer will be as follows:
(a) The total price per ton of coal delivered to the respective plant
(transportation included) will be used for evaluation purposes. Rail coal will
be evaluated using the price f.o.b. rail cars at the offeror's rail loading
point, with TVA rate(s) for the rail services to the respective plant. Barge
coal will be evaluated using the price f.o.b. barges at the loading dock, with
TVA's rates for the barging services to the respective plant. TVA will utilize a
Coal Quality Impact Model (CQIM) for evaluation of all offers.
(b) TVA reserves the right to ship to any destination coal purchased
f.o.b. any shipping point or any plant.
(c) TVA reserves the right to evaluate western-origin coals separately
from eastern-origin coals and barge coal separately from rail coal.
5. TVA ASSISTANCE. Fossil Fuels' buyers and administrators are available
to assist offerors in completing proposals, explaining any of the provisions
contained in the Request for Proposal document and TVA's procurement procedures.
If you desire such assistance or have any questions, please contact us. Offers
and requests for information should be directed to the Tennessee Valley
Authority Fossil fuels, 1101 Market Street, LP 5G, Chattanooga, Tennessee
37402-2801, telephone number (423)\751-4529.
TVA maintains a staff of geologists and engineers who are also available
to assist offerors in technical matters and on questions related to coal
reserves. Please direct such inquiries to the Manager, Fuel Operations, 1101
Market Street, LP 5H, Chattanooga, Tennessee 37402-2801, telephone number
(423)\751-2064.
6. VIOLATING FACILITIES. TVA will not award a contract pursuant to this
Request For Proposals to any offeror, nor will TVA approve award of a
subcontract to any subcontractor, whose performance would involve the use of any
facility or facilities which are listed on the Environmental Protection Agency's
List of Violating Facilities, except to the extent TVA, in its sole judgment,
determines that such contract or subcontract is exempt at the time of contract
award from the provisions of Part 15 of Title 40, Code of Federal Regulations as
set forth therein. As used herein "facility" shall have the meaning set forth in
Section 15.4 of Title 40, Code of Federal
<PAGE>
Regulations.
7. COAL MINING RECLAMATION AND CONSERVATION REQUIREMENTS. The reclamation
and conservation requirements stated below shall be a part of any contract
awarded for term coal to be produced by surface and/or underground mining. TVA
reserves the right to inspect prior to award, the area(s) to be mined and the
producer's facilities to ensure that the offeror understands and is capable of
complying with these requirements and to reject any proposal that fails to
conform to these requirements, including offers of coal that would be mined from
any of the restricted or unminable areas described in Subsection (a) below.
Consideration may not be given to any proposal for which the specific location
map(s) is not in TVA's possession at the time proposals are due. The map(s)
become a part (by reference) of any contract awarded for coal to be mined from
the described location(s) after approval by TVA. All coal delivered to TVA must
be mined from the area(s) identified in the specific location map(s) applicable
to a given contract. Delivery of coal mined from any other location(s) than as
applicable to a particular term coal contract will constitute a material breach
of such contract.
The following TVA reclamation and conservation requirements are applicable
to all term contracts for the purchase of coal.
(a) Coal Mining--Land and Water Resource Protection. TVA accepts no offers
of coal mined from locations in or near areas officially designated by state or
federal agencies, or identified by TVA as wild or scenic river areas or wild,
wilderness, natural, scenic, public recreation areas or under study pursuant to
legislative authority for any such official designation, except where special
circumstances exist. No such offers will be accepted from locations in or near
areas designated under legislative authority as potential sites for the above
uses unless, after coordination with the appropriate agencies, TVA determines
that the coal can be mined without substantially adversely affecting the area's
potential for such use. In such cases, and also in cases involving offerings of
coal from mines in or near other visually important areas such as major highways
or population centers, special provisions designed to protect aesthetic values
may be incorporated in the purchase contracts. No coal will be accepted from
areas in which, in TVA's judgment, mining would adversely affect a public water
supply and such adverse effect cannot be avoided by proper reclamation.
(b) Specific Location Map. Offerors must furnish a map that specifically
locates and outlines the area(s) to be disturbed during mining. This map should
be approximately 8-1/2 x 11 inches in size, and the information required may be
superimposed over a portion of a TVA or United States geological survey
topographic map, scale 1 inch = 2,000 feet, or 1 inch = 1,000 feet. The map
submitted to TVA must also include the producer's name and address, the state
surface and/or underground mine permit numbers, M.S.H.A. numbers, the
appropriate quadrangle name or designation, and access roads to the mining
area(s). A new map must be submitted for each new mine offered.
8. CERTIFICATION FOR CONTRACTS, GRANTS, LOANS, AND COOPERATIVE AGREEMENTS.
By submission of a proposal under this Request for Proposals, the offeror
certifies as follows:
(a) No Federal appropriated funds have been paid or will be paid by or on
behalf of the offeror to any person for influencing or attempting to influence
an officer or employee of any agency, a Member of Congress, an officer or
employee of Congress, or an employee of a Member of Congress in connection with
the awarding of any Federal contract, the making of any Federal grant, the
making of any Federal loan, the entering into of any cooperative agreement, and
the extension, continuation, renewal, amendment, or modification of any Federal
contract, grant, loan, or cooperative agreement.
(b) If any funds other than Federal appropriated funds have been paid or
will be paid to any person for influencing or attempting to influence an officer
or employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this Federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form-LLL, "Disclosure of Lobbying Activities," in accordance
with its instructions.
(c) The offeror shall require that the language of this certification be
included in the award documents for
<PAGE>
all subawards at all tiers (including subcontracts, subgrants, and contracts
under grants, loans, and cooperative agreements) and that all subrecipients
shall certify and disclose accordingly.
This certification is a material representation of fact upon which
reliance was placed when this transaction was made or entered into. Submission
of this certification is a prerequisite for making or entering into this
transaction imposed by 31\U.S.C. 1352. Any person who fails to file the required
certification shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.
9. EXCEPTIONS. By submission of a term coal proposal in response to this
RFP, offeror conforms its proposal to the terms and conditions of TVA's Term
Coal Contract, unless exceptions are clearly detailed in writing and submitted
with proposal.
<PAGE>
June 6, 1996
Steve Blackburn
LP 5G-C
REQ. 33 -- TERM COAL -- COSTAIN COAL COMPANY -- SUBCONTRACTING PLAN SP 96-38
The attached plan meets the criteria for an acceptable subcontracting plan and
is hereby approved.
This plan should be incorporated and made a material part of the ensuing
contract, and a copy of the acceptance page(s) should be furnished to this
office upon award.
/s/ Vickie F. Thornhill
Vickie F. Thornhill, Specialist
Office of Small and Disadvantaged
Business Utilization
Attachment
1911j
<PAGE>
SMALL-BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PROGRAM
A. PURPOSE:
TO ESTABLISH A GENERAL POLICY AND PROCEDURE RELATING TO THE COMPANY'S
SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS SUBCONTRACTING PROGRAM.
B. POLICY:
1. PLACE A FAIR PROPORTION OF ITS TOTAL PROCUREMENT FOR SUPPLIES,
SERVICES, AND OTHER MATERIALS, WITH SMALL BUSINESS AND SMALL
DISADVANTAGED BUSINESS CONCERNS, CONSISTENT WITH EFFICIENT AND
TIMELY PERFORMANCE OF ITS CONTRACTS.
2. ESTABLISH PERCENTAGE GOAL OF 21% AND 12,180,0O0 FOR THE UTILIZATION
AS SUBCONTRACTORS OF SMALL BUSINESS CONCERNS: ESTABLISH PERCENTAGE
GOAL 0F 5% AND $2,900,000 FOR THE UTILIZATION AS SUBCONTRACTORS OF
SMALL BUSINESS CONCERNS OWNED AND OPERATED BY SOCIALLY AND
ECONOMICALLY DISADVANTAGED INDIVIDUALS: ESTABLISH PERCENTAGE GOAL OF
3% AND $1,740,000 FOR THE UTILIZATION AS SUBCONTRACTORS OF SMALL
BUSINESS CONCERNS OWNED AND CONTROLLED BY A WOMAN OR WOMEN.
3. ASSIGN PUR & WHSE MANAGER, MR. CLETIS HUNT IS DESIGNATED AS THE
SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS LIAISON OFFICER. HE
OR A DULY AUTHORIZED REPRESENTATIVE SHALL ADMINISTER THE PLAN IN A
MANNER WHICH WILL ENABLE SUCH CONCERNS TO BE CONSIDERED FAIRLY AS
SUBCONTRACTORS AND SUPPLIERS.
4. WILL INCLUDE INSTRUCTION IN THE REQUIREMENTS OF THIS POLICY AND ITS
PROPER APPLICATION IN ALL TRAINING COURSES FOR PROCUREMENT
PERSONNEL. ALSO, ASSURE THAT SMALL BUSINESS AND SMALL DISADVANTAGED
CONCERNS WILL HAVE AN EQUITABLE OPPORTUNITY TO COMPETE FOR
SUBCONTRACTS, PARTICULARLY BY ARRANGING SOLICITATIONS IN TIME FOR
THE PREPARATION OF BIDS, QUANTITIES, SPECIFICATIONS, AND DELIVERY
SCHEDULES SO AS TO FACILITATE THE PARTICIPATION OF SUCH CONCERNS.
5. WILL INCLUDE THE SMALL BUSINESS POLICY CLAIMS IN ALL SUBCONTRACTS
WHICH OFFER FURTHER SUBCONTRACTING OPPORTUNITIES, AND REQUEST ALL
SUBCONTRACTORS WHO RECEIVE SUBCONTRACTS IN EXCESS OF $500,000 TO
ADOPT A PLAN SIMILAR TO THIS PLAN.
6. WHEN REQUIRED BY THE TERMS OF ANY GOVERNMENT PRIME CONTRACT, SUBMIT
REPORTS AS REQUIRED BY THE SMALL DISADVANTAGED BUSINESS
SUBCONTRACTING PROGRAMS. COOPERATE IN ANY STUDY OR SURVEYS CONDUCTED
BY THE GOVERNMENT CONTRACTING OFFICER OR HIS DESIGNEES WHICH MAY BE
NECESSARY TO DETERMINE THE EXTENT 0F THE COMPANY'S COMPLIANCE WITH
APPLICABLE REGULATIONS.
7. MAINTAIN A LIBRARY WHICH INCLUDES SMALL BUSINESS AND SMALL
DISADVANTAGED BUSINESS CONCERNS SOURCE DIRECTORIES AND OTHER
APPLICABLE LITERATURE. ALSO MAINTAIN RECORDS SUCH AS PURCHASE
ORDERS, BID REQUEST, ETC. WHICH WILL DEMONSTRATE PROCEDURES WHICH
HAVE BEEN ADOPTED TO COMPLY WITH THE REQUIREMENT AND GOALS SET FORTH
IN THE PLAN.
<PAGE>
REQUISITION 33
TERM COAL PROPOSAL - PROPOSALS DUE MARCH 4, 1996
To: Tennessee Valley Authority, Fuel Acquisition & Supply, 1101 Market Street,
Chattanooga, Tennessee 37402-2801
The Request for Proposals for Term Coal and Term Coal Contract apply to this
offer and any acceptance of it by TVA. Offers may not be withdrawn after
proposal closing without the consent of the Fuel Buyer. The undersigned offers
and agrees, if this proposal is accepted by July 1, 1996, coal will be furnished
as follows:
<TABLE>
<CAPTION>
=================================================================================================================
Three (3) Years Term Six (6) Years Term Ten (10) Years Term Early Payment Discount
Third (3rd)Year Reopener Fifth (5th)Year Price Reopener
=================================================================================================================
<S> <C> <C> <C>
Base Schedule Base Schedule Base Schedule Offeror may offer discount
for early payment of
Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year invoices by TVA.
$________ Barge ________ $24.28 Barge 1,000,000 $________ Barge ________ Per Ton Price Reduction
$_______ Railcar________ $22.33 Railcar 1,500,000 $_______ Railcar _______ $_______ NET 20 DAYS
(NOTE: Base Contract Provides
$_______ Truck _________ $_______ Truck _________ $_______ Truck _________ net 30 days.)
=================================================================================================================
</TABLE>
================================================================================
TYPICAL ANALYSIS:
The Offeror certifies the following quarterly average coal
quality specification at TVA's sampling point.
<TABLE>
<S> <C>
Total Moisture 8.0%
Ash (as received) 10.5%
Ash (dry) 11.4%
Sulfur (as received) 2.3%
Lbs. SO(2)/mmBtu 3.8
Btu/Lb. (as received) 12,200 Btu
Ash Fusion Temperature/Reducing
Initial 2300(degrees)F
Softening (Hemispherical) 2400(degrees)F
Fluid 2550(degrees)F
Volatile Matter (dry) 36%
Grindability (Hardgrove Index) 55
Chlorine (dry) 0.29%
Raw 25% Washed 75% Size: 2" x 0"
</TABLE>
================================================================================
TRANSPORTATION:
FOB Point:
Railroad CSX
Rail: Tipple: Interchange Tipple No. 44419
City: Providence State: KY
Barge: Terminal: Caseyville
River: Ohio MP: 871.6
Coal should be offered loaded in railcars or barges
at the shipping point.
================================================================================
MINE INFORMATION:
(as shown on Producer's Statement). If offer is offering more than one mine or
producer, and more space is needed to complete all required information for each
mine, please provide the additional information on an attachment.
Mine Name Baker
Mine Permit No. 717-5002
MSHA No. 1514492
Seam Name WKY #13
Type Operation Underground
Nearest Town Sturgis
County Union
State KY
Producer Costain Coal Inc.
P.O. Box 289
Address Sturgis, KY 42459
Offeror Costain Coal Inc.
P.O. Box __________________________________
Street 249 E. Main Street, Suite 200
City & State Lexington, KY
Zip Code 40507
Telephone (606) 255-4006
Fax Number (606) 255-0191
Signature /s/ David L. Vaughn
-------------------
Date March 1, 1996
- --------------------------------------------------------------------------------
Offers must complete and return along with this form, TVA USE ONLY
forms TVA 9903A-D, attached hereto and made a part thereof. T.R.
This proposal is valid until July 1, 1996
================================================================================
OFFEROR MUST ALSO COMPLETE SECOND PAGE OF THIS FORM.
TVA 9910 Page 1 of 2
<PAGE>
CERTIFICATE OF INDEPENDENT PRICE DETERMINATION
(a) By submission of this bid, each bidder certifies, and in the case of a
joint bid each party thereto certifies, as to its own organization, that in
connection with this procurement:
(1) The prices in this bid have been arrived at independently, without
consultation, communication, or agreement, for the purpose of
restricting competition, as to any matter relating to such prices with
any other bidder or with any competitor;
(2) Unless otherwise required by law, the prices which have been
quoted in this bid have not been disclosed knowingly by the bidder and
will not knowingly be disclosed by the bidder prior to bid closing,
directly or indirectly, to any other bidder or to any competitor; and
(3) No attempt has been made or will be made by the bidder to induce
any other person or firm to submit or not to submit a bid for the
purpose of restricting competition.
(b) Each person signing this bid certifies that:
(1) He is the person in the bidder's organization responsible within
that organization for the decision as to the prices being bid herein
and that he has not participated, and will not participate, in any
action contrary to (a)(1) through (a)(3) above; or
(2) (i) He is not the person in the bidder's organization responsible
within that organization for the decision as to the prices being bid
herein but that he has been authorized in writing to act as agent for
the persons responsible for such decision in certifying that such
persons have not participated, and will not participate, in any action
contrary to (a)(1) through (a)(3) above, and as their agent does
hereby so certify; and (ii) he has not participated, and will not
participate, in any action contrary to (a)(1) through (a)(3) above.
(c) A bid will not be considered for award where (a)(1), (a)(3), or (b)
above has been deleted or modified. Where (a)(2) above has been deleted or
modified, the bid will not be considered for award unless the bidder furnishes
with the bid a signed statement which sets forth in detail the circumstances of
the disclosure; and the Contracting Officer determines that such disclosure was
not made for the purpose of restricting competition.
AGENT'S WARRANTY, LIABILITY, AND AGREEMENT
If a bid is submitted by an agent in the name of its principal, said agent
warrants the correctness of all information contained in the bid and that it has
obtained written authority from such principal to make the foregoing bid; and
said agent agrees to be fully [Illegible] for the performance of any contract
awarded on this bid, if agent has submitted it without proper authority from the
principal. Said agent further agrees to hold TVA harmless from any claims,
demands, or actions made against it by the principal on the ground that said
agent has exceeded or acted contrary to its authority in any matter connected
with this bid or any resulting contract.
The bidder represents:
That it is |_|, is not |x|, a small business concern as defined in the Code of
Federal Regulations, Title 13, Chapter 1, Part 121. If the bidder is not the
producer, it also represents that the coal to be furnished hereunder will |_|,
will not |_|, be produced by a small business concern.
That, if the aggregate amount of the bid is greater than $25,000, (a) it has
|_|, has not |x|, employed or retained any company or person (other than bona
fide employees or bona fide established commercial or selling agencies
maintained by the bidder [or contractor] for purposes of securing business) to
solicit or secure this contract; and (b) It has |_|, has not |x|, paid or agreed
to pay any company or person (other than bona fide employees or bona fide
established commercial or selling agencies maintained by the bidder [or
contractor] for purposes of securing business) any fee, commission, percentage,
or brokerage fee, contingent upon or resulting from the award of this contract;
and agrees to furnish information relating thereto as requested.
That it is a regular coal producer |x|, sales agent |_|.
That the producer under this bid does |_|, does not |x|, have any current
instances of noncompliance (including uncorrected violations, unabated cease
orders, overdue fees, and/or fines) with reclamation or health and safety laws
at any mines it owns, controls, or operates. If it does, please attach a full
written explanation to this bid.
That, if surface mined coal is offered, it has read, understands, and will
comply (if an award is received) with the section of the General Conditions for
Spot Coal Purchases entitled Coal Mining Reclamation and Conservation
Requirements. A copy of the specific location map must be attached hereto unless
a previously furnished map is still valid. If map previously furnished is still
valid, please indicate. Yes |_| No |x|
That the offered coal will be produced by mine(s) having all currently required
federal, state, and other regulatory agency coal mining permits, certificates,
and licenses; and agrees to keep such permits, certificates, and licenses
current; and further agrees to furnish TVA with copies thereof if requested.
That, if it is not the producer of the coal to be delivered hereunder, it has
contracted directly with the producer for delivery of the coal to TVA.
TVA 9910 Page 2 of 2
<PAGE>
Note, [Illegible] Term Coal Proposal Form No. 9910
must be completed and signed for each of the
prices and tonnage indicated below.
REQUISITION NUMBER 33
SUMMARY OF OFFERS
Offeror: Costain Coal Inc.
All Tonnage Amounts are in Thousands and Prices are Per Ton
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Typical Analysis Three Year Term Six Year Term Ten Year Term
Third Year Fifth Year
Volatile Price Reopener Price Reopener
Ash Matter Btu/Lb. SO(2) Grind Chlorine Annual F0B FOB FOB
Moisture (A/R) (Dry) (A/R) lbs.mmBtu H.G.I. (DRY) Tonnage Dollars per Ton Dollars per Ton Dollars per Ton
Max. % Max. % Min % Min. Max. Min. Max. % (000) Barge Rail Truck Barge Rail Truck Barge Rail Truck
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,000 24.28
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 750 22.58
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,500 22.33
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 9.0 36 12,400 3.2 55 0.29 1,000 25.50 24.50
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,200
*Total Moisture 8%
*Ash 10.5%
*Sulfur 2.3%
*Volatility 33% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 72.0%
Hydrogen 4.8%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 2.5%
*Ash 11.4%
Oxygen 6.5%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.64%
Alumina (Al(2)O(3)) 26.06%
Ferric Oxide (Fe(2)O(3)) 13.64%
Titania (TiO(2)) 1.00%
Phos Pentoxide (P(2)O(5)) 0.17%
Lime (CaO) 1.57%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.57%
Potassium Oxide (K(2)O) 2.61%
Sulfur Trioxide (SO(3)) 1.16%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,400
*Total Moisture 8%
*Ash 9%
*Sulfur 2.0%
*Volatility 33.5% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 74.26%
Hydrogen 4.9%
Nitrogen 1.6%
*Chlorine 0.29%
*Sulfur 2.15%
*Ash 10.0%
Oxygen 6.8%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)0(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)0) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.40%
Alumina (Al(2)0(3)) 26.40%
Ferric Oxide (Fe(2)O(3)) 13.58%
Titania (TiO(2)) 0.99%
Phos Pentoxide (P(2)O(5)) 0.16%
Lime (CaO) 1.47%
Magnesia (MgO) 0.94%
Sodium Oxide (Na(2)O) 0.58%
Potassium Oxide (K(2)O) 2.57%
Sulfur Trioxide (SO(3)) 1.13%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (Negotiated)
(a) Definitions. The definitions in the Federal Acquisition Regulation (FAR) are
hereby incorporated in this provision.
(b) Certifications. As required in paragraph (c) of this provision, the officer
or employee responsible for this offer shall execute the following
certification:
Certificate of Procurement Integrity
(1) I, Daniel L. Vaughn, [Name of Certifier] am the officer or employee
or employee responsible for the preparation of this and hereby
certify that, to the best of my knowledge and belief, with the
exception of any information described in this certificate, I have
no information concerning a violation or possible violation of
Subsection 27(a), (b), (d), or (f) of the Office of the Federal
Procurement Policy Act (act) as amended* (Title 41 United States
Code Section 423), hereinafter referred to as "the act"), as
implemented in the FAR occurring during the conduct of this
procurement Requisition #33 [Solicitation Number].
(2) As required by subsection 27(e)(l)(B) of the act, I further certify
that, to the best of my knowledge and belief, each officer,
employee, agent, representative, and consultant of Costain Coal Inc.
[Name of Offeror]
who has participated personally and substantially in the preparation
or submission of this offer has certified that he or she is familiar
with, and will comply with, the requirements of subsection 27(a) of
the act, as implementation the FAR, and will report immediately to
me any information concerning a violation or possible violation of
subsection (a), (b), (d), or (f) of the act, as implemented in the
FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity
(Continuation Sheet). Enter "NONE" if none exists.
None
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
(4) I agree that, if awarded a contract under this solicitation, the
certifications required by subsection 27(e)(l)(B) of the act shall
be maintained in accordance with paragraph (f) of this provision.
/s/ Daniel L. Vaughn March 1, 1996
-------------------------------------- -------------------
Signature of Officer or Employee Date
Responsible for the Offer
Daniel L. Vaughn
-------------------------------------- -------------------
Typed Name of Officer or Employee Date
Responsible for Offer
*Subsections 27(a), (b), and (d) are effective on December 1, 1990.
Subsection 27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN
AGENCY OF THE UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS,
OR FRAUDULENT CERTIFICATION MAY RENDER THE MAKER SUBJECT TO
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
(End of certification)
TVA 9903B
Page 1 of 3
<PAGE>
(c) For procurement, including contract modifications, in excess of $100,000
made using procedures other than sealed bidding, the signed certifications
shall be submitted by the successful Offeror to the Contracting Officer
within the time period specified by the Contracting Officer when
requesting the certificates except as provided in subparagraphs (c)(1)
through (c)(5) of this clause. In no event shall the certificate be
submitted subsequent to award of a contract or execution of a contract
modification:
(1) For letter contracts, other unpriced contracts, or unpriced contract
modifications, whether or not the unpriced contract or modification
contains a maximum or not to exceed price, the signed certifications shall
be submitted prior to the award of the letter contract, unpriced contract,
or the unpriced contract modification, and prior to the definitization of
the letter contract or the establishment of the price of the unpriced
contract or unpriced contract modification. The second certification shall
apply only to the period between award of the letter contract and
execution of the document definitizing the letter contract or award of the
unpriced contract or unpriced contract modification and execution of the
document establishing the definitive price of such unpriced contract or
unpriced contract modification.
(2) For basic ordering agreements, prior to the execution of a priced
order; prior to the execution of an unpriced order, whether or not the
unpriced order contains a maximum or not to exceed price and, prior to
establishing the price of an unpriced order. The second certification to
be submitted for unpriced orders shall apply only to the period between
award of the unpriced order and execution of the document establishing the
definitive price for such order.
(3) A certificate is not required for indefinite delivery contracts (see
FAR subpart 16.5) unless the total estimated value of all orders
eventually to be placed under the contract is expected to exceed $100,000.
(4) For contracts and contract modifications which include options, a
certificate is required when the aggregate value of the contract or
contract modification and all options (see FAR 3.104-4(e)) exceeds
$100,000.
(5) For purposes of contracts entered into under Section 8(a) of the Small
Business Act, the business entity with whom the Small Business
Administration (SBA) contracts, and not the SBA, shall be required to
comply with the certification requirements of subsection 27(e). The SBA
shall obtain the signed certificate from the business entity and forward
the certificate to the Contracting Officer prior to the award of a
contract to the SBA.
(6) Failure of an Offeror to submit the signed certificate within the time
prescribed by the Contracting Officer shall cause the offer to be
rejected.
(d) Pursuant to FAR 3.104-9(d), the offerer may be requested to execute
additional certifications at the request of the Tennessee Valley Authority
(TVA). Failure of an offeror to submit the additional certifications shall
cause its offer to be rejected.
(e) A certification containing a disclosure of a violation or possible
violation will not necessarily result in the withholding of an award under
this solicitation. However, TVA, after evaluation of the disclosure. may
cancel this procurement or take any other appropriate actions in the
interests of TVA, such as disqualification of the offeror.
(f) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by
periodic training. These certifications shall be obtained
TVA 9903B
Page 2 of 3
<PAGE>
at the earliest possible date after an individual required to certify
begins employment or association with the Offeror. If a Offeror decides to
rely on a certification executed prior to the suspension of section 27
(i.e., prior to December 1989), the Contractor shall ensure that an
individual who has so certified is notified that section 27 has been
reinstated. These certifications shall be maintained by the offeror for
six years from the date a certifying employee's employment with the
company ends or, for an agent, representative, or consultant, six years
from the date such individual ceases to act on behalf offeror
(g) Certifications under paragraphs (b) and (d) of this provision are material
representations of fact upon which reliance will be placed in awarding a
contract.
TVA 9903B
Page 3 of 3
<PAGE>
TAXPAYER IDENTIFICATION NUMBER AND
PARENT COMPANY
Full company name of Bidder/Offeror: Costain Coal Inc.
a. The offeror is required to submit the information outlined in paragraphs b
through d of this solicitation provision in order to comply with reporting
requirements of the Internal Revenue Code and implementing regulations issued by
the Internal Revenue Service (IRS).
b. Taxpayer Identification Number (TIN) (the number required by the IRS to be
used by the offeror in reporting income tax and other returns).
(x) TIN: 95-2623858
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien foreign corporation or foreign
partnership that does not have income effectively connected with the
conduct of a trade or business in the United States and does not
have an office or place of business or fiscal paying agent in the
United States;
( ) Offeror is an agency or instrumentality of a foreign government;
( ) Other basis: ________________________________________________.
c. Corporate status:
( ) Corporation providing medical and health care services, or engaged in
the billing and collecting of payments for such services;
( ) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Hospital or extended care facility described in 26 C.F.R. ss.
501(c)(3) that is exempt from taxation under 26 C.F.R. ss. 501(a).
d. Common Parent:
( ) Offeror is a member of an affiliated group of corporations that files
its Federal income tax returns on a consolidated basis.
(x) Name and TIN of common parent
Name: Costain Coal Inc.
TIN: 95-2623858
TVA 9903C
<PAGE>
DISADVANTAGED SMALL BUSINESS STATEMENT
Vendor Represents:
A. That it is |_|, is not |x|, a small business concern as defined in the
Code of Federal Regulations, Title 13, Part 121.
B. That it is |_|, is not |x|, a disadvantaged small business concern. A
disadvantaged small business concern is defined as a business which is at
least 51 percent owned by one or more socially and economically
disadvantaged individuals or, in the case of any publicly owned business,
at least 51 percent of the stock of which is owned by one or more socially
and economically disadvantaged individuals, and whose management and daily
business operations are controlled by one or more of such individuals. For
the purposes of this definition, it should be presumed that socially and
economically disadvantaged individuals include Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Asian-Indian
Americans. and other individuals found to be disadvantaged by the Small
Business Administration in accordance with the Small Business Act. If
vendor represents it is a small disadvantaged business concern as defined
above, the applicable presumptively covered group is:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
C. That it is |_|, is not |x|, a small business concern owned and controlled
by women. A small business owned and controlled by women means a business
that is small for purposes of the Small Business Act, that is at least 51
percent owned by one or more women, and whose management and daily
business operations are controlled by one or more women.
D. This is |_|, is not |x|, the vendor's first purchase order/contract with
TVA.
PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEWS. Before award of a contract of $1
million or more under this Invitation to Bid, the prospective contractor and
each of his known first-tier subcontractors who will receive a subcontract of $1
million or more, will be subject to a review to determine compliance with the
Equal Opportunity clause (form TVA 9923) and the regulations issued pursuant to
Executive Order 11246. In order to qualify in this respect for award, the
contractor and such subcontractors must be found, on the basis of such review,
to be able, to comply with these requirements.
Where a previous compliance review has been made within twelve months of the
expected date of award, an additional full review will ordinarily not be needed
to determine compliance.
If your offer is $1 million or more, supply the following data for each of your
establishments (and subcontractor establishments if subcontract is $1 million or
more) where work on the contract will be performed.
Name and Location of All Mines
That Would Furnish Any of the Latest Compliance Review
Coal Offered Under This Invitation Date Agency Which Made the Review
to Bid: ___________________________
Costain's West Kentucky Operations Not Known
Costain's East Kentucky Operations
TVA 9903D
<PAGE>
REQUISITION 33
TERM COAL PROPOSAL - PROPOSALS DUE MARCH 4, 1996
To: Tennessee Valley Authority, Fuel Acquisition & Supply, 1101 Market Street,
Chattanooga, Tennessee 37402-2801
The Request for Proposals for Term Coal and Term Coal Contract apply to this
offer and any acceptance of it by TVA. Offers may not be withdrawn after
proposal closing without the consent of the Fuel Buyer. The undersigned offers
and agrees, if this proposal is accepted by July 1, 1996, coal will be furnished
as follows:
<TABLE>
<CAPTION>
=================================================================================================================
Three (3) Years Term Six (6) Years Term Ten (10) Years Term Early Payment Discount
Third (3rd)Year Reopener Fifth (5th)Year Price Reopener
=================================================================================================================
<S> <C> <C> <C>
Base Schedule Base Schedule Base Schedule Offeror may offer discount
for early payment of
Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year Price/Ton FOB Tons/Year invoices by TVA.
$________ Barge ________ $24.28 Barge 1,000,000 $________ Barge ________ Per Ton Price Reduction
$_______ Railcar________ $22.58 Railcar 750,000 $_______ Railcar _______ $_______ NET 20 DAYS
(NOTE: Base Contract Provides
$_______ Truck _________ $_______ Truck _________ $_______ Truck _________ net 30 days.)
=================================================================================================================
</TABLE>
================================================================================
TYPICAL ANALYSIS:
The Offeror certifies the following quarterly average coal
quality specification at TVA's sampling point:
<TABLE>
<S> <C>
[Illegible] Moisture 8.0%
Ash (as received) 10.5
Ash (dry) 11.4
Sulfur (as received) 2.3%
Lbs. SO2/mmBtu 3.8
Btu/Lb. (as received) 12,200 Btu
Ash Fusion Temperature/Reducing
Initial 2300(degrees)F
Softening(Hemispherical) 2400(degrees)F
Fluid 2550(degrees)F
Volatile Matter (dry) 36%
Grindability (Hardgrove Index) 55
Chlorine (dry) 0.29%
Raw 25% Washed 75% Size: 2" x 0"
</TABLE>
================================================================================
TRANSPORTATION:
FOB Point:
Railroad CSX
Rail: Tipple: Interchange Tipple No. 44419
City: Providence State: KY
Barge: Terminal: Caseyville
River: Ohio MP: 871.6
Coal should be offered loaded in railcars or barges
[Illegible] shipping point.
================================================================================
MINE INFORMATION:
(as shown on Producer's Statement). If offer is offering more than one mine or
producer, and more space is needed to complete all required information for each
mine, please provide the additional information on an attachment.
Mine Name Baker
Mine Permit No. 717-5002
MSHA No. 1514492
Seam Name WKY #13
Type Operation Underground
Nearest Town Sturgis
County Union
State KY
Producer Costain Coal Inc.
P.O. Box 289
Address Sturgis, KY 42459
Offeror Costain Coal Inc.
P.O. Box __________________________________
Street 249 E. Main Street, Suite 200
City & State Lexington, KY
Zip Code 40507
Telephone (606) 255-4006
Fax Number (606) 255-0191
Signature /s/ David L. Vaughn
-------------------
Date March 1, 1996
- --------------------------------------------------------------------------------
Offers must complete and return along with this form, TVA USE ONLY
forms TVA 9903A-D, attached hereto and made a part thereof. T.R.
This proposal is valid until July 1, 1996
================================================================================
OFFEROR MUST ALSO COMPLETE SECOND PAGE OF THIS FORM.
TVA 9910 Page 1 of 2
<PAGE>
CERTIFICATE OF INDEPENDENT PRICE DETERMINATION
(a) By submission of this bid, each bidder certifies, and in the case of a
joint bid each party thereto certifies, as to its own organization, that in
connection with this procurement:
(1) The prices in this bid have been arrived at independently, without
consultation, communication, or agreement, for the purpose of
restricting competition, as to any matter relating to such prices with
any other bidder or with any competitor;
(2) Unless otherwise required by law, the prices which have been quoted
in this bid have not been disclosed knowingly by the bidder and will
not knowingly be disclosed by the bidder prior to bid closing, directly
or indirectly, to any other bidder or to any competitor; and
(3) No attempt has been made or will be made by the bidder to induce
any other person or firm to submit or not to submit a bid for the
purpose of restricting competition.
(b) Each person signing this bid certifies that:
(1) He is the person in the bidder's organization responsible within
that organization for the decision as to the prices being bid herein
and that he has not participated, and will not participate, in any
action contrary to (a)(l) through (a)(3) above; or
(2) (i) He is not the person in the bidder's organization responsible
within that organization for the decision as to the prices being bid
herein but that he has been authorized in writing to act as agent for
the persons responsible for such decision in certifying that such
persons have not participated, and will not participate, in any action
contrary to (a)(1) through (a)(3) above, and as their agent does hereby
so certify; and (ii) he has not participated, and will not participate,
in any action contrary to (a)(1) through (a)(3) above.
(c) A bid will not be considered for award where (a)(1), (a)(3), or (b)
above has been deleted or modified. Where (a)(2) above has been deleted or
modified, the bid will not be considered for award unless the bidder furnishes
with the bid a signed statement which sets forth in detail the circumstances of
the disclosure; and the Contracting Officer determines that such disclosure was
not made for the purpose of restricting competition.
AGENT'S WARRANTY, LIABILITY, AND AGREEMENT
If a bid is submitted by an agent in the name of its principal, said agent
warrants the correctness of all information contained in the bid and that it has
obtained written authority from such principal to make the foregoing bid; and
said agent agrees to be fully liable for the performance of any contract
awarded on this bid, if agent has submitted it without proper authority from the
principal. Said agent further agrees to hold TVA harmless from any claims,
demands, or actions made against it by the principal on the ground that said
agent has exceeded or acted contrary to its authority in any matter connected
with this bid or any resulting contract.
The bidder represents:
That it is |_|, is not |x|, a small business concern as defined in the Code of
Federal Regulations, Title 13, Chapter 1, Part 121. If the bidder is not the
producer, it also represents that the coal to be furnished hereunder will |_|,
will not |_|, be produced by a small business concern.
That, if the aggregate amount of the bid is greater than $25,000, (a) it has
|_|, has not |x|, employed or retained any company or person (other than bona
fide employees or bona fide established commercial or selling agencies
maintained by the bidder [or contractor] for purposes of securing business) to
solicit or secure this contract; and (b) it has |_|, has not |x|, paid or agreed
to pay any company or person (other than bona fide employees or bona fide
established commercial or selling agencies maintained by the bidder [or
contractor] or purposes of securing business) any fee, commission, percentage,
or brokerage fee, contingent upon or resulting from the award of this contract;
and agrees to furnish information relating thereto as requested.
That it is a regular coal producer |x|, sales agent |_|.
That the producer under this bid does |_|, does not |x|, have any current
instances of noncompliance (including uncorrected violations, unabated cease
orders, overdue fees, and/or fines) with reclamation or health and safety laws
at any mines it owns, controls, or operates. If it does, please attach a full
written explanation to this bid.
That, if surface mined coal is offered, it has read, understands, and will
comply (if an award is received) with the section of the General Conditions for
Spot Coal Purchases entitled Coal Mining Reclamation and Conservation
Requirements. A copy of the specific location map must be attached hereto unless
a previously furnished map is still valid. If map previously furnished is still
valid, please indicate. Yes |_| No |x|
That the offered coal will be produced by mine(s) having all currently required
federal, state, and other regulatory agency coal mining permits, certificates,
and licenses; and agrees to keep such permits, certificates, and licenses
current; and further agrees to furnish TVA with copies thereof if requested.
That, if it is not the producer of the coal to be delivered hereunder, it has
contracted directly with the producer for delivery of the coal to TVA.
TVA 9910 Page 2 of 2
<PAGE>
Note, [Illegible] Term Coal Proposal Form No. 9910
must be completed and signed for each of the
prices and tonnage indicated below.
REQUISITION NUMBER 33
SUMMARY OF OFFERS
Offeror: Costain Coal Inc.
All Tonnage Amounts are in Thousands and Prices are Per Ton
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Typical Analysis Three Year Term Six Year Term Ten Year Term
Third Year Fifth Year
Volatile Price Reopener Price Reopener
Ash Matter Btu/Lb. SO(2) Grind Chlorine Annual F0B FOB FOB
Moisture (A/R) (Dry) (A/R) lbs.mmuBtu H.G.I. (DRY) Tonnage Dollars per Ton Dollars per Ton Dollars per Ton
Max. % Max. % Min % Min. Max. Min. Max. % (000) Barge Rail Truck Barge Rail Truck Barge Rail Truck
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,000 24.28
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 750 22.58
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 10.5 36 12,200 3.8 55 0.29 1,500 22.33
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
8 9.0 36 12,400 3.2 55 0.29 1,000 25.50 24.50
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,200
*Total Moisture 8%
*Ash 10.5%
*Sulfur 2.3%
*Volatility 33% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 72.0%
Hydrogen 4.8%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 2.5%
*Ash 11.4%
Oxygen 6.5%
Fluorine -%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere---
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.64%
Alumina (Al(2)0(3)) 26.06%
Ferric Oxide (Fe(2)O(3)) 13.64%
Titania (TiO(2)) 1.00%
Phos Pentoxide (P(2)O(5)) 0.17%
Lime (CaO) 1.57%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.57%
Potassium Oxide (K(2)0) 2.61%
Sulfur Trioxide (SO(3)) 1.16%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
TYPICAL COAL QUALITY ANALYSIS
OFFEROR WILL STATE THE TYPICAL COAL QUALITY ANALYSIS OF THE COAL THAT OFFEROR IS
CAPABLE OF MEETING ON A CONTINUOUS BASIS AND THAT IS REPRESENTATIVE OF THE
QUALITY OF THE COAL ACTUALLY TO BE SHIPPED ("TYPICAL ANALYSIS"). SEE SECTION
9.a. OF THE TERM COAL CONTRACT.
If offer is for prepared coal, an analysis for raw run-of-mine coal should also
included.
<TABLE>
<S> <C>
Raw Run-of-Mine Coal Quality
- ----------------------------
Proximate Analysis (as-received):
*Btu/lb 10,060
*Total Moisture 5.6%
*Ash 18.8%
*Sulfur 2.8%
*Volatility 30.8%
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 66.3%
Hydrogen 4.3%
Nitrogen 1.5%
*Chlorine 0.29%
*Sulfur 3.0%
*Ash 19.9%
Oxygen 4.8%
Fluorine -%
Prepared or Washed Coal Quality
- -------------------------------
Proximate Analysis (as-received):
*Btu/lb 12,400
*Total Moisture 8%
*Ash 9%
*Sulfur 2.0%
*Volatility 33.5% (+36% dry)
*Grindability 55
Ultimate Analysis (Dry Basis):
Carbon 74.26%
Hydrogen 4.9%
Nitrogen 1.6%
*Chlorine 0.29%
*Sulfur 2.15%
*Ash 10.0%
Oxygen 6.8%
Fluorine --%
ASH ANALYSIS
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2500(degrees)F
*Softening (H=W) 2550(degrees)F
Softening (H=1/2W) 2600(degrees)F
*Fluid 2650(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2600(degrees)F
Softening (H=W) 2650(degrees)F
Softening (H=1/2W) 2680(degrees)F
Fluid 2700(degrees)F
T(250) Temperature 2755(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 54.37%
Alumina (Al(2)O(3)) 26.80%
Ferric Oxide (Fe(2)O(3)) 9.35%
Titania (TiO(2)) 1.18%
Phos Pentoxide (P(2)O(5)) 0.13%
Lime (CaO) 1.42%
Magnesia (MgO) 0.92%
Sodium Oxide (Na(2)O) 0.78%
Potassium Oxide (K(2)O) 3.00%
Sulfur Trioxide (SO(3)) 1.83%
Ash Fusion Temperatures:
Reducing Atmosphere--
*Initial Deformation 2300(degrees)F
*Softening (H=W) 2400(degrees)F
Softening (H=1/2W) 2500(degrees)F
*Fluid 2550(degrees)F
Oxidizing Atmosphere--
Initial Deformation 2550(degrees)F
Softening (H=W) 2600(degrees)F
Softening (H=1/2W) 2625(degrees)F
Fluid 2650(degrees)F
T(250) Temperature 2635(degrees)F
Mineral Analysis of Ash:
Silica (SiO(2)) 50.40%
Alumina (Al(2)O(3)) 26.40%
Ferric Oxide (Fe(2)O(3)) 13.58%
Titania (TiO(2)) 0.99%
Phos Pentoxide (P(2)O(5)) 0.16%
Lime (CaO) 1.47%
Magnesia (MgO) 0.94%
Sodium Oxide (Na(2)O) 0.58%
Potassium Oxide (K(2)O) 2.57%
Sulfur Trioxide (SO(3)) 1.13%
</TABLE>
*These values must be the same as those submitted on form TVA 9910.
TVA 9903A
<PAGE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (Negotiated)
(a) Definitions. The definitions in the Federal Acquisition Regulation (FAR) are
hereby incorporated in this provision.
(b) Certifications. As required in paragraph (c) of this provision, the officer
or employee responsible for this offer shall execute the following
certification:
Certificate of Procurement Integrity
(1) I, Daniel L. Vaughn, [Name of Certifier] am the officer or employee
or employee responsible for the preparation of this and hereby
certify that, to the best of my knowledge and belief, with the
exception of any information described in this certificate, I have
no information concerning a violation or possible violation of
Subsection 27(a), (b), (d), or (f) of the Office of the Federal
Procurement Policy Act (act) as amended* (Title 41 United States
Code Section 423), hereinafter referred to as "the acts"), as
implemented in the FAR occurring during the conduct of this
procurement Requisition #33 [Solicitation Number].
(2) As required by subsection 27(e)(1)(B) of the act, I further certify
that, to the best of my knowledge and belief, each officer,
employee, agent, representative, and consultant of Costain Coal Inc.
[Name of Offeror]
who has participated personally and substantially in the preparation
or submission of this offer has certified that he or she is familiar
with, and will comply with, the requirements of subsection 27(a) of
the act, as implementation the FAR, and will report immediately to
me any information concerning a violation or possible violation of
subsection (a), (b), (d), or (f) of the act, as implemented in the
FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity
(Continuation Sheet). Enter "NONE" if none exists.
None
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
(4) I agree that, if awarded a contract under this solicitation, the
certifications required by subsection 27(e)(1)(B) of the act shall
be maintained in accordance with paragraph (f) of this provision.
/s/ Daniel L. Vaughn March 1, 1996
-------------------------------------- -------------------
Signature of Officer or Employee Date
Responsible for the Offer
Daniel L. Vaughn
-------------------------------------- -------------------
Typed Name of Officer or Employee Date
Responsible for Offer
*Subsections 27(a), (b), and (d) are effective on December 1, 1990.
Subsection 27(1) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN
AGENCY OF THE UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS,
OR FRAUDULENT CERTIFICATION MAY RENDER THE MAKER SUBJECT TO
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001.
(End of certification)
TVA 9903B
Page 1 of 3
<PAGE>
(c) For procurement, including contract modifications, in excess of $100,000
made using procedures other than sealed bidding, the signed certifications
shall be submitted by the successful Offeror to the Contracting Officer
within the time period specified by the Contracting Officer when
requesting the certificates except as provided in subparagraphs (c)(1)
through (c)(5) of this clause. In no event shall the certificate be
submitted subsequent to award of a contract or execution of a contract
modification:
(1) For letter contracts, other unpriced contracts, or unpriced contract
modifications, whether or not the unpriced contract or modification
contains a maximum or not to exceed price, the signed certifications shall
be submitted prior to the award of the letter contract, unpriced contract,
or the unpriced contract modification, and prior to the definitization of
the letter contract or the establishment of the price of the unpriced
contract or unpriced contract modification. The second certification shall
apply only to the period between award of the letter contract and
execution of the document definitizing the letter contract or award of the
unpriced contract or unpriced contract modification and execution of the
document establishing the definitive price of such unpriced contract or
unpriced contract modification.
(2) For basic ordering agreements, prior to the execution of a priced
order; prior to the execution of an unpriced order, whether or not the
unpriced order contains a maximum or not to exceed price and, prior to
establishing the price of an unpriced order. The second certification to
be submitted for unpriced orders shall apply only to the period between
award of the unpriced order and execution of the document establishing the
definitive price for such order.
(3) A certificate is not required for indefinite delivery contracts (see
FAR subpart 16.5) unless the total estimated value of all orders
eventually to be placed under the contract is expected to exceed $100,000.
(4) For contracts and contract modifications which include options, a
certificate is required when the aggregate value of the contract or
contract modification and all options (see FAR 3.104-4(e)) exceeds
$100,000.
(5) For purposes of contracts entered into under Section 8(a) of the Small
Business Act, the business entity with whom the Small Business
Administration (SBA) contracts, and not the SBA, shall be required to
comply with the certification requirements of subsection 27(e). The SBA
shall obtain the signed certificate from the business entity and forward
the certificate to the Contracting Officer prior to the award of a
contract to the SBA.
(6) Failure of an Offeror to submit the signed certificate within the time
prescribed by the Contracting Officer shall cause the offer to be
rejected.
(d) Pursuant to FAR 3.104-9(d), the offerer may be requested to execute
additional certifications at the request of the Tennessee Valley Authority
(TVA). Failure of an offeror to submit the additional certifications shall
cause its offer to be rejected.
(e) A certification containing a disclosure of a violation or possible
violation will not necessarily result in the withholding of an award under
this solicitation. However, TVA, after evaluation of the disclosure, may
cancel this procurement or take any other appropriate actions in the
interests of TVA, such as disqualification of the offeror.
(f) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by
periodic training. These certifications shall be obtained
TVA 9903B
Page 2 of 3
<PAGE>
at the earliest possible date after an individual required to certify
begins employment or association with the Offeror. If a Offeror decides to
rely on a certification executed prior to the suspension of section 27
(i.e., prior to December 1989), the Contractor shall ensure that an
individual who has so certified is notified that section 27 has been
reinstated. These certifications shall be maintained by the offeror for
six years from the date a certifying employee's employment with the
company ends or, for an agent, representative, or consultant, six years
from the date such individual ceases to act on behalf offeror
(g) Certifications under paragraphs (b) and (d) of this provision are material
representations of fact upon which reliance will be placed in awarding a
contract.
TVA 9903B
Page 3 of 3
<PAGE>
TAXPAYER IDENTIFICATION NUMBER AND
PARENT COMPANY
Full company name of Bidder/Offeror: Costain Coal Inc.
a. The offeror is required to submit the information outlined in paragraphs b
through d of this solicitation provision in order to comply with reporting
requirements of the Internal Revenue Code and implementing regulations issued by
the Internal Revenue Service (IRS).
b. Taxpayer Identification Number (TIN) (the number required by the IRS to be
used by the offeror in reporting income tax and other returns).
(x) TIN: 95-2623858
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien foreign corporation or foreign
partnership that does not have income effectively connected with the
conduct of a trade or business in the United States and does not
have an office or place of business or fiscal paying agent in the
United States;
( ) Offeror is an agency or instrumentality of a foreign government;
( ) Other basis: ________________________________________________.
c. Corporate status:
( ) Corporation providing medical and health care services, or engaged in
the billing and collecting of payments for such services;
( ) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Hospital or extended care facility described in 26 C.F.R. ss.
501(c)(3) that is exempt from taxation under 26 C.F.R. ss. 501(a).
d. Common Parent:
( ) Offeror is a member of an affiliated group of corporations that files
its Federal income tax returns on a consolidated basis.
(x) Name and TIN of common parent:
Name: Costain Coal Inc.
TIN: 95-2623858
TVA 9903C
<PAGE>
DISADVANTAGED SMALL BUSINESS STATEMENT
Vendor Represents:
A. That it is |_|, is not |x|, a small business concern as defined in the
Code of Federal Regulations, Title 13, Part 121.
B. That it is |_|, is not |x|, a disadvantaged small business concern. A
disadvantaged small business concern is defined as a business which is at
least 51 percent owned by one or more socially and economically
disadvantaged individuals or, in the case of any publicly owned business,
at least 51 percent of the stock of which is owned by one or more socially
and economically disadvantaged individuals, and whose management and daily
business operations are controlled by one or more of such individuals. For
the purposes of this definition, it should be presumed that socially and
economically disadvantaged individuals include Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Asian-Indian
Americans, and other individuals found to be disadvantaged by the Small
Business Administration in accordance with the Small Business Act. If
vendor represents it is a small disadvantaged business concern as defined
above, the applicable presumptively covered group is:
--------------------------------------------------------------------------
-------------------------------------------------------------------------.
C. That it is |_|, is not |x|, a small business concern owned and controlled
by women. A small business owned and controlled by women means a business
that is small for purposes of the Small Business Act, that is at least 51
percent owned by one or more women, and whose management and daily
business operations are controlled by one or more women.
D. This is |_|, is not |x|, the vendor's first purchase order/contract with
TVA.
PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEWS. Before award of a contract of $1
million or more under this Invitation to Bid, the prospective contractor and
each of his known first-tier subcontractors who will receive a subcontract of $1
million or more, will be subject to a review to determine compliance with the
Equal Opportunity clause (form TVA 9923) and the regulations issued pursuant to
Executive Order 11246. In order to qualify in this respect for award, the
contractor and such subcontractor must be found, on the basis of such review, to
be able to comply with these requirements.
Where a previous compliance review has been made within twelve months of the
expected date of award, an additional full review will ordinarily not be needed
to determine compliance.
If your offer is $1 million or more, supply the following data for each of your
establishments (and subcontractor establishments if subcontract is $1 million or
more) where work on the contract will be performed.
Name and Location of All Mines
That Would Furnish Any of the Latest Compliance Review
Coal Offered Under This Invitation Date Agency Which Made the Review
to Bid: ___________________________
Costain's West Kentucky Operations Not Known
Costain's East Kentucky Operations
TVA 9903D
<PAGE>
TENNESSEE VALLEY AUTHORITY
1101 Market Street, LP 5G
Chattanooga, Tennessee 37402-2801
Fax: 423/751-3837
ADDENDUM
No. 1
Requisition 33
Date February 22, 1996
NOTICE TO BIDDERS:
THIS ADDENDUM IS HEREBY MADE A PART OF THIS INVITATION. ONE COPY MUST BE
SIGNED AND RETURNED WITH EACH COPY OF YOUR BID. FAILURE TO DO THIS MAY RESULT IN
REJECTION OF YOUR BID.
TENNESSEE VALLEY AUTHORITY
/s/ James M. Bach, Jr. /s/ R. Stephen Blackburn
- ------------------------------ --------------------------------
James M. Bach, Jr., Fuel Buyer R. Stephen Blackburn, Fuel Buyer
423/751-6682 423/751-6015
Costain Coal Inc.
- ---------------------
Offeror's Company Name
/s/ Daniel L. Vaughn
Director Business Development (9/18/96)
- ---------------------------------------
Signature and Title of Person
Authorized to sign offer (date)
<PAGE>
LIMITATION ON USE OF OUTSIDE INFLUENCE
ID-67 -- Lobbying. This solicitation and any resulting contract are subject to
the requirements of Public Law No. 101-121 (to be codified at 31 U.S.C. 1352),
which prohibits certain lobbying activities and requires disclosure of certain
others, and to TVA's implementing regulations published at 55 Fed Reg. 6736 (to
be codified at 18 C.F.R. 1315).
A. Prohibition, Certification, and Disclosure.
(1) Appropriated Funds. Section 319 of Public Law No. 101-121 provides
that none of the funds appropriated by any act of Congress may be
expended by the recipient of a federal contract, grant, loan, or
cooperative agreement to pay any person for influencing or
attempting to influence an officer or employee of any agency, a
Member of Congress, an officer or employee of Congress, or an
employee of a cooperative agreement to pay any person for
influencing or attempting to influence an officer or employee of any
agency, a Member of Congress, an officer or employee of Congress, or
an employee of a Member of Congress in connection with: (a) the
awarding of any federal contract; (b) the making of any federal
grant; (c) the making of any federal loan; (d) the entering into of
any cooperative agreement; or (e) the extension, continuation,
renewal, amendment, or modification of any federal contract, grant,
loan, or cooperative agreement.
(2) Certification. By signing the certification entitled "Certification
for Contracts, Grants, Loans, and Cooperative Agreements," at the
end of this section ("Certification"), the offeror shall certify
that it has not violated the foregoing prohibition.
(3) Other Than Appropriated Funds. Except as provided in subsection D,
below, if offeror has paid or will pay any funds other than federal
appropriated funds to any person for influencing or attempting to
influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this offer, the offeror shall
complete and submit to TVA Standard Form-LLL, "Disclosure of
Lobbying an officer or employee of Congress, or an employee of a
Member of Congress in connection with this offer, the offeror shall
complete and submit to TVA Standard Form-LLL, "Disclosure of
Lobbying Activities," in accordance with its instructions. (Copies
of Standard Form-LLL may be obtained from the TVA representative for
this solicitation.) The requirements of this subsection A(3) shall
not apply to payments of reasonable compensation to regularly
employed officers or employees. The term "regularly employed," with
respect to an officer or employee of a person requesting or
receiving a contract, means an officer or employee who is employed
by such person for at least 130 working days within one year
immediately preceding the date of the submission that initiates
TVA's consideration of such person for receipt of such contract.
B. Updating. At the end of each calendar quarter in which there occurs any
event that materially affects the accuracy of the information contained in
the Certification or, if applicable, Standard Form-LLL, the offeror shall
file with TVA an initial or new Standard Form-LLL with such new
information or modifications as are necessary to correct any inaccuracies
in the information originally declared and certified.
C. Subcontractors. In the event a contract is awarded to the offeror under
this solicitation, the successful offeror shall include or cause to be
included the form of the Certification in any subcontract exceeding
$100,000 at any tier. The successful offeror shall promptly file with TVA
each Standard Form-LLL provided by a subcontractor.
D. Exceptions. The prohibition described in subsection A(1) above and the
disclosure requirements in subsection A(3) do not apply in the case of
(1)\a payment of reasonable compensation made to an officer or employee of
the offeror to the extent that the payment is for agency and legislative
liaison
<PAGE>
activities not directly related to a federal action referred to in
subsection A; or (2) any reasonable payment to a person, or any payment or
reasonable compensation to an officer or employee of the ntractor, if the
payment is for professional or technical services rendered directly in the
preparation or negotiation of this offer or any resulting contract.
E. Definitions. Terms not defined herein shall have the meanings ascribed to
them in Public Law No. 101-121 and TVA's implementing regulations.
F. Penalties. (1) Any person who makes an expenditure prohibited by Public
Law No. 101-121 shall be subject to a civil penalty of not less than
$10,000 and not more than $100,000 for each such expenditure; and (2) any
person who fails to file or amend a certification required under
subsection A(2) above or a disclosure required to be filed or amended
under subsection A(3) above shall be subject to a civil penalty of not
less than $10,000 and not more than $100,000 and to such other remedies as
may apply for each such failure.
Certification for Contracts, Grants, Loans, and Cooperative Agreements
The undersigned certifies, to the best of his or her knowledge and belief, that:
(1) No federal appropriated funds have been paid or will be paid by or on behalf
of the undersigned to any person for influencing or attempting to influence an
officer or employee of any agency, a Member of Congress, an officer or employee
of Congress, or an employee of a Member of Congress in connection with the
awarding of any federal contract, the making of any federal grant, the making of
any federal loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment, or modification of any federal
contract, grant, loan, or cooperative agreement.
(2) If any funds other than federal appropriated funds have been paid or will be
paid to any person for influencing or attempting to influence an officer or
employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form-LLL, "Disclosure of Lobbying Activities," in accordance
with its instructions.
(3) The undersigned shall require that the language of this certification be
included in the award documents for all subawards at all tiers (including
subcontracts, subgrants, and contracts under grants, loans, and cooperative
agreements) and that all subrecipients shall certify and disclose accordingly.
This certification is a material representation of fact upon which reliance was
placed when this transaction was made or entered into. Submission of this
certification is a prerequisite for making or entering into this transaction
imposed by 31 U.S.C. 1352. Any person who fails to file the required
certification shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.
By /s/ Eugene C. Holdaway
---------------------------
Title Senior Vice President
------------------------
November 12, 1996
------------------------
<PAGE>
ID-50 -- REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY--MODIFICATION
(Supplemental)
(a) Definitions. The definitions set forth in the Federal Acquisition
Regulation (FAR) at 3.104-4 are hereby incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the Contracting Officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer or
employee responsible for the modification proposal shall execute the
following certification:
Certificate of Procurement Integrity-Modification
(1) I, Eugene C. Holdaway, [Name of Certifier] am the officer or employee
responsible for the
preparation of this modification proposal and hereby certify that, to the
best of my knowledge and belief, with the exception of any information
described in this certification, I have no information concerning a
violation or possible violation of Subsection 27(a), (b), (d), or (f) of
the Office of Federal Procurement Policy Act (act) as amended* (Title 41,
United States Code, Section 423) (hereinafter referred to as "the act"),
as implemented in the FAR, occurring during the conduct of this
procurement _______________________________ [Contract and Modification
Number].
(2) As required by subsection 27(e)(1)(B) of the act, I further certify
that to the best of my knowledge and belief, each officer, employee,
agent, representative, and consultant of Costain Coal Inc. [Name of
Offeror].
who has participated personally and substantially in the preparation or
submission of this proposal has certified that he or she is familiar with
and will comply with the requirements of subsection 27(a) of the act, as
implemented in the FAR, and will report immediately to me any information
concerning a violation or possible violation of subsection 27(a), (b),
(d), or (f) of the act, as implemented in the FAR, pertaining to this
procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity-Modification
(Continuation Sheet). Enter "NONE" if none exists.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
/s/ Eugene C. Holdaway 11/12/96
----------------------------------------------- ----------------
Signature of Officer or Employee Date
Responsible for Modification Proposal
/s/ Eugene C. Holdaway
----------------------------------------------
Typed Name of Officer or Employee
Responsible for Proposal
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF THE
UNITED STATES; AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED
STATES CODE, SECTION 1001.
(End of Certification)
<PAGE>
ID-50 (Continued)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer
or bid, may rely upon a one-time certification from each individual
required to submit a certification to the competing Contractor,
supplemented by periodic training. These certifications shall be obtained
at the earliest possible date after an individual required to certify
begins employment or association with the Contractor. If a Contractor
decides to rely on a certification executed prior to the suspension of
section 27 (i.e., prior to December 1, 1989), the Contractor shall ensure
that an individual who has so certified is notified that section 27 has
been reinstated. These certifications shall be maintained by the
Contractor for a period of six years from the date a certifying employee's
employment with the company ends or, for an agent, representative, or
consultant, six years from the date such individual ceases to act on
behalf of the Contractor.
(e) The certification required by paragraph (c) of this clause is material
representation of fact upon which reliance will be placed in executing
this modification.
<PAGE>
Indiantown Cogeneration, L.P.
Document Control No. 3637
File No. 6.7.7
June 30, 1995
Gene Holdaway
Costain Coal, Inc.
249 E. Main Street
Lexington, Kentucky 40507
Re: Ash Disposal
Dear Gene:
Pursuant to the Coal Purchase Agreement, dated as of August 4, 1992, between
Indiantown Cogeneration, L.P. ("ICL") and Costain Coal, Inc. ("Costain"), as
amended and supplemented (the "Coal Purchase Agreement"), Costain is obligated
to remove and dispose of ash from ICL's cogeneration facility (the "Facility")
during the start-up period. Costain and ICL have discussed this obligation and
have agreed to proceed as follows:
1. Commencing on the date hereof and continuing until terminated pursuant to
paragraph 6, ICL shall have the right, but not the obligation, to arrange
for, and effect, the disposal of all bottom ash/pyrites produced by the
Facility at a disposal site other than as contemplated by the Coal
Purchase Agreement.
2. Costain agrees that any action ICL may take pursuant to Paragraph 1 hereof
will be in lieu of Costain's performance of such services under the Coal
Purchase Agreement.
3. Costain hereby waives any claims, fees, actions, and demands whatsoever
which Costain, its successors, assigns or heirs, could or may have against
ICL under the Coal Purchase Agreement (including, but not limited to,
Section 10.8 thereof), or otherwise as a result of ICL's actions pursuant
to Paragraph 1 hereof.
4. ICL hereby waives any claim which ICL, its successors, assigns or heirs,
could or may have against Costain under the Coal Purchase Agreement or
otherwise for incremental costs incurred as a result of ICL's actions
pursuant to Paragraph 1 hereof.
[GRAPHIC OMITTED]
Doing business in Florida as Indiantown Cogeneration, L.P. Limited Partnership
<PAGE>
June 30, 1995
Page 2
5. Costain acknowledges that this letter agreement in no way diminishes its
obligations under the Coal Purchase Agreement, including the
transportation and disposal of bottom ash/pyrites that is not disposed of
pursuant to Paragraph 1 hereof.
6. Either Costain or ICL may terminate this letter agreement upon seven (7)
days' written notice.
7. The Coal Purchase Agreement in all other respects remains in full force
and effect.
Please indicate your acceptance of the terms and conditions contained herein by
executing a copy of this letter agreement in the space provided below.
INDIANTOWN COGENERATION, L.P.
By: /s/ Joseph P. Kearney
----------------------------
Name:
---------------------------
Title:
--------------------------
Accepted and Agreed,
COSTAIN COAL, INC.
By: /s/ Eugene C. Holdaway
---------------------------
Name: Eugene C. Holdaway
--------------------------
Title: VP -- Sales & Marketing
-------------------------
<PAGE>
AMENDMENT NO. 2 TO COAL PURCHASE AGREEMENT
BETWEEN
COSTAIN COAL INC.
AND
INDIANTOWN COGENERATION, L.P.
This Amendment No. 2 to Coal Purchase Agreement ("Amendment No. 2")
is made and entered into as of April 19, 1995 by and between COSTAIN COAL
INC., a Delaware Corporation ("Seller") and INDIANTOWN COGENERATION, L.P.,
a Delaware limited partnership ("Buyer").
RECITALS:
WHEREAS, Seller and Buyer have entered into a Coal Purchase
Agreement (the "Agreement") dated as of August 4,1992, as amended as of
September 30, 1992, which provides for, among other things, the supply and
sale of coal by Seller to Buyer and the removal, transportation and
disposal by Seller of ash residue from the Facility;
WHEREAS, Buyer and Seller desire to amend the Agreement as set forth
in this Amendment No. 2;
NOW, THEREFORE, in consideration of the premises and mutual
agreements and covenants contained in this Amendment No. 2 and for other
good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree that the Agreement is hereby
amended as follows:
Section 1. Definitions. Capitalized terms used but not defined in
this Amendment No. 2 have the respective meanings given to them in the
Agreement.
Section 2. Amendment of Exhibit 3.2. All references to Elkhorn #54,
Eagle Land (Area 8) and Buchannon Land (Area 1 & 2) and to the Seam and
Recoverable Coal Tons (1,000) for the three referenced leases as currently
set forth in Exhibit 3.2 are hereby deleted and the following substituted
therefore:
<PAGE>
<TABLE>
<CAPTION>
(Various Leases Shown (Various Leases Shown
on Attached Map) on Attached Map)
Seams Seams
- ----- -----
<S> <C> <C> <C>
Clarion Elkhorn #2
Broas #3
Broas #2
Broas #1
Peach Orchard
Upper Hazard
Middle Hazard
Lower Hazard
Subtotal Subtotal
--------- ---------
4,635,056 6,175,000
</TABLE>
Section 3. Balance of Agreement Unamended. The Agreement shall in all
other respects remain unamended.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 by
their respective duly-authorized officers as of the date first stated above.
Seller:
COSTAIN COAL INC.
By: /s/ Eugene C. Holdaway
---------------------------------
Its: Vice President
---------------------------------
Buyer:
INDIANTOWN COGENERATION, L.P.
By: /s/ P. Chrisman Iribe
---------------------------------
Its: P. Chrisman Iribe
Senior Vice President
---------------------------------
-2-
<PAGE>
---------------
EXHIBIT 4
MAP OF ORR AREA
---------------
[MAP OMITTED]
<PAGE>
Chapperal Reserves
[MAP OMITTED]
<PAGE>
AMENDMENT NO. 1 TO COAL PURCHASE AGREEMENT
BETWEEN
COSTAIN COAL INC.
AND
INDIANTOWN COGENERATION, L.P.
This Amendment No. 1 to Coal Purchase Agreement ("Amendment No. 1") is
made and entered into as of September 30, 1992 by and between COSTAIN COAL
INC., a Delaware corporation ("Seller"), and INDIANTOWN COGENERATION, L.P., a
Delaware limited partnership ("Buyer").
RECITALS:
WHEREAS, Seller and Buyer have entered into a Coal Purchase Agreement (the
"CPA") dated as of August 4, 1992 which provides for, among other things, the
supply and sale of coal by Seller to Buyer and the removal, transportation and
disposal by Seller of ash residue from the Facility; and
WHEREAS, Buyer and Seller desire to amend the Coal Purchase Agreement,
as set forth in this Amendment No. 1;
NOW, THEREFORE, in consideration of the premises and mutual agreements and
covenants contained in this Amendment No. 1 and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree that the Coal Purchase Agreement is hereby amended as
follows:
<PAGE>
ss. 1. Definitions. Capitalized terms used but not defined in this
Amendment No. 1 have the respective meanings given to them in the Coal Purchase
Agreement.
ss. 2. Amendment of CPA ss. 2.4. ss. 2.4 of the CPA is hereby amended by
deleting ss. 2.4(d) in its entirety and renumbering ss. 2.4(e) as ss. 2.4(d).
ss. 3. Amendment of CPA ss. 3.2. (a) The final sentence of ss. 3.2 of the
CPA is hereby amended by deleting the words "provided, however" and replacing
those words with the words "it being expressly understood that"; and by adding
the following words:
"and the purchaser"
between the words "party" and "is."
(b) Replacement Exhibit 3.2. The original Exhibit 3.2 is replaced
with Exhibit 3.2 attached to this Amendment.
ss. 4. Amendment of CPA ss. 6.5(b). The first five sentences of ss. 6.5(b)
of the CPA are deleted and replaced with the following:
"In the event ICL reasonably determines that the quality of coal
delivered hereunder is the primary cause of an operating problem at the
Facility because such coal quality is outside the range of specifications
set forth in Exhibit 6.5(b) hereto, ICL and Seller shall promptly meet to
discuss possible remedies to such operating problem. The term "operating
problem" as used herein shall include, but is not limited to, problems
experienced by ICL in complying with the terms, conditions or provisions
of any permit applicable to the Facility ("a permit problem"). As soon as
is practicable Seller shall inform ICL
-2-
<PAGE>
(i) whether in order to remedy the operating problem it would be capable
of delivering coal from the Primary Source that meets the specifications
in Exhibit 6.5(b) by altering its operating or other procedures, and if
not thus capable of delivering from the Primary Source then from other
sources that will meet the specifications in Exhibit 6.5(b) and (ii) if
so, the additional reasonable expenses it would incur in making such
alterations or use of such other sources (which might include but not be
limited to additional expenses for ash disposal). Within 30 days of
receiving such information, ICL may at its option agree to adjust the
price provisions in Article VII to fully compensate Seller for such
expenses, in which event Seller shall to the extent it is capable proceed
to deliver coal meeting such specifications. If Seller is not capable of
delivering such coal by making such alterations, or ICL does not agree to
adjust the price provisions, ICL will take other economically reasonable
steps to eliminate the operating problems, and, if there are none to be
taken, then ICL will take reasonable steps to seek amendment of its
Permits (if in its reasonable judgment taking such steps cannot be
expected to have an adverse effect on the Facility or its operations). If
and when the "operating problem" includes a "permit problem" primarily
caused by the coal quality being outside the range of specifications set
forth in Exhibit 6.5(b), ICL may suspend its purchases of coal hereunder
until the earlier of (i) such time as any of the aforesaid results in a
remedy to the permit problem and (ii) a period of 90 days, which period
may be extended by mutually reasonable agreement. If none of the aforesaid
results in a remedy to the operating problem, or if Seller and ICL are
unable to agree on the terms relating to the supply of coal from other
sources which will eliminate the operating problem, ICL may terminate this
Agreement upon 30 days written notice to Seller, as its exclusive remedy
with respect to the matters referred to in this Section 6.5(b)."
ss. 5. Amendment of CPA ss. 10.4. (a) Clause (ii) in subsection (c) of ss.
10.4 of the CPA is hereby amended by
-3-
<PAGE>
deleting the period at the end thereof and inserting thereafter the following:
", except for the addition of lime, ammonia and waste water from the
combustion process."
ss. 5A. Amendment of CPA ss. 8.3. The phrase "OS" at the end of the
definitions of "CF" in the formula set forth in ss. 8.3 of the CPA is replaced
with the phrase "GS."
ss. 6. Amendment of CPA ss. 10.7. Section 10.7 of the CPA is hereby
amended by adding the following sentence at the end thereof:
"Seller agrees that it will endeavor but not be obligated to find ways to
recycle and/or market Ash Residue as contemplated by this Section."
ss. 7. Amendment of CPA ss. 13.5. Clause (ii) in subsection (c) of ss.
13.5 of the CPA is hereby amended by deleting the period at the end thereof and
inserting thereafter the following:
", except for the addition of lime, ammonia and waste water from the
combustion process."
ss. 8. Amendment of CPA ss. 13.8. ss. 13.8 of the CPA is hereby amended by
adding the following sentence at the end thereof:
"Seller agrees that it will endeavor but not be obligated to find ways to
recycle and/or market Ash Residue as contemplated by this Section."
ss. 9. Amendment of CPA ss. 13.17. ss. 13.17 of the CPA is hereby amended
by adding as a last sentence thereto the following:
-4-
<PAGE>
Any disposition (other than the grant of a security interest) of the
Pelletizing Facility or any substantial part thereof shall be subject to
ICL's following right of first refusal. If Seller wishes to make any such
disposition, it shall first offer the subject property to ICL in a notice
stating the material terms of such offer, and ICL shall have 60 days
within which to accept the subject offer, and if ICL exercises such right
Seller and ICL shall consummate the transaction within 120 days of the
initial notice to ICL of the offer's material terms. If ICL does not
exercise such right within such 60-day period, then Seller shall have the
unrestricted right to offer or dispose of the subject property to any
third party during such 120-day period; provided that such other offer or
disposition is not on terms more favorable to such third party than those
offered to ICL. Seller shall use its best efforts (to the extent within
its control) to assure that any lien imposed upon the Pelletizing Facility
or any part thereof, and any disposition resulting from the exercise of
remedies with regard to such liens, shall be subject to ICL's right of
first refusal described in this Section 13.17.
ss. 10. Amendment of CPA ss. 21.5. ss. 21.5 of the CPA is amended by
deleting "Delaware" and inserting in place thereof "Kentucky".
ss. 11. New CPA ss. 7.8. In the event that the Florida Public Service
Commission does not approve Amendment No. 2 to the Agreement for the Purchase of
Firm Capacity and Energy between Indiantown Cogeneration, L.P. and Florida Power
& Light Company, a new ss. 7.8 will be added to the CPA to read as follows:
"Section 7.8 Market Price Reopener.
(a) In addition to the market price reopener provisions the
effects of which are reflected in the provisions of Sections 7.1
through 7.7 of this Agreement, it is agreed
-5-
<PAGE>
that every five years ICL will collect available FERC data for
Comparable Quality Coal bid to Florida Utilities for contracts with
a term of not less than fifteen years. In the event three or more
bona-fide bids are identified on a good faith basis, the three
lowest bids (FOB mine price) will be averaged and compared to the
then Current Coal Price payable to Seller pursuant to this
Agreement. If the difference calculated pursuant to the immediately
preceding sentence is greater or less than 5%, the then Current Coal
Price paid to Seller will be increased or decreased (as the case may
be) by 10% of such difference.
(b) The maximum Adjustment for any five year reopener period
pursuant to Section 7.8(a) shall be +/- 1% of the then Current Coal
Price paid to Seller.
(c) For purposes of this Section 7.8, "Comparable Quality
Coal" shall mean coal with the following characteristics:
12,500 btu/lb
1.6 1bSO2/mm btu
9% Ash
Appalachian Source
CSX Rail Origin
Non Union Production
(d) It is recited for the avoidance of doubt that this Section
7.8 shall be in effect only if the condition stated in the first
sentence of this Section of this Amendment No. 1 is not met.
ss. 12. Amendment of CPA ss. 18.2(b). ss. 18.2(b) of the CPA is hereby
amended by inserting a period (i.e., ".") after the words "Consent of ICL" in
the seventh line of that section and deleting all of the words following that
period.
ss. 13. Amendment of CPA ss. 18.3(c). ss. 18.3(c) of the CPA is hereby
amended by moving the figure (i) from its
-6-
<PAGE>
present location in the third line to the location immediately following the
words "provided that" and by deleting all clauses (ii) and (iii) and the figure
(iv) and replacing them with the following:
"(ii) the FPL Power Purchase Agreement between FPL and ICL shall
have been contemporaneously assigned to the proposed Assignee in
accordance in all respects with ss. 2 of the Consent to Assignment of FPL
dated as of September 30, 1992 and ss.ss. 21.3 and 24.1 of the FPL Power
Purchase Agreement, (iii) all then-existing defaults of ICL under this
Agreement shall have been remedied in all material respects, and (iv) the
proposed Assignee".
ss. 14. Amendment of CPA Exhibit 6.1. The figure in column 2 of Exhibit
6.1 opposite the reference to Ash Fusion is changed from "2,600" to "2,400."
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 by
their respective duly-authorized officers as of the date first stated above.
Seller:
COSTAIN COAL INC.
By: /s/ John C. Wilson
---------------------------------
Its: Vice President
---------------------------------
Buyer:
INDIANTOWN COGENERATION, L.P.
By: /s/ J.R. Cooper
---------------------------------
Its: Vice President
---------------------------------
-7-
<PAGE>
EXHIBIT 3.2
Description of Dedicated Coal Reserves
<TABLE>
<CAPTION>
Recoverable Coal
Lease Seam Tons (1,000)
- ---------------- ----------- ----------------
<S> <C> <C>
Leslie Elkhorn #2
Elkhorn #3
Fireclay
Subtotal
------------
2,800,000
Waddington Elkhorn #2
Elkhorn #3
Fireclay
Subtotal
------------
6,000,000
Beusy Elkhorn #2
Elkhorn #3
Fireclay
Subtotal
------------
12,000,000
Elkhorn #631 Elkhorn #3
Fireclay
Subtotal
------------
4,500,000
Elkhorn #642 Haddix
L. Peach Orchard
H. Peach Orchard
U. Peach Orchard
Subtotal
------------
1,000,000
Elkhorn #54 Peach Orchard
L. Broas
U. Broas
Subtotal
------------
5,000,000
Eagle Land U. Cedar Grove
(Area 8) L. Cedar Grove
Williamson
Hernshaw
Chilton
Winifrede
Coalburg
Subtotal
------------
2,281,270
Buchannon Land Peerless
(Area 1 & 2) No. 2 Gas
UCC
Powerton
Eagle A
Eagle
Subtotal
------------
3,999,755
Total Dedicated Reserves 37,581,025
</TABLE>
-5-
<PAGE>
Execution Copy
COAL PURCHASE AGREEMENT
Between
COSTAIN COAL INC. (Seller)
and
INDIANTOWN COGENERATION, L.P. (ICL)
for
Indiantown Cogeneration Project
Indiantown, Florida
Dated August 4, 1992
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- DEFINED TERMS ................................................ 2
1.1 Calendar Periods ............................................ 3
1.2 Singular and Plural ......................................... 3
1.3 Sections of the Agreement ................................... 3
1.4 Terms of Art ................................................ 3
1.5 Certain Defined Terms ....................................... 4
ARTICLE II -- TERM; COMMENCEMENT OF DELIVERIES AND CONDITIONS PRECEDENT ... 7
2.1 Term ........................................................ 7
2.2 [Not used] .................................................. 7
2.3 Commencement of Deliveries .................................. 7
2.4 Conditions Precedent of ICL ................................. 8
2.5 ICL's Right to Terminate .................................... 9
2.6 Seller's Right To Terminate ................................. 9
2.7 ICL's Obligation to Construct ............................... 9
ARTICLE III -- SOURCE OF COAL ............................................. 9
3.1 Source ...................................................... 9
3.2 Dedication of Coal .......................................... 10
3.3 Substitution ................................................ 11
3.4 ICL's Right to Purchase Replacement Coal .................... 12
ARTICLE IV -- QUANTITY, ESTIMATES AND ORDERS .............................. 13
4.1 Coal Requirements ........................................... 13
4.2 Estimates of Requirements ................................... 13
4.3 Monthly Orders .............................................. 14
4.4 First Delivery of Coal ...................................... 14
4.5 Stockpiles .................................................. 15
ARTICLE V -- POINT OF DELIVERY; METHOD OF DELIVERY ........................ 15
5.1 Point of Delivery ........................................... 15
5.2 Method of Delivery .......................................... 15
5.3 [Not used] .................................................. 16
5.4 Notices of Shipments ........................................ 16
ARTICLE VI -- QUALITY ..................................................... 17
6.1 General Quality Provisions .................................. 17
6.2 [Not used] .................................................. 17
6.3 Rejection of Coal ........................................... 17
6.4 Suspension of Shipments ..................................... 18
6.5 Coal Handling or Operating Problems ......................... 19
6.6 Corrective Actions .......................................... 21
ARTICLE VII -- PRICE FOR COAL ............................................. 22
7.1 Phase 2 Base Coal Price ..................................... 22
7.2 Phase 2 Base Mine Price ..................................... 22
7.3 Current Coal Price During Phase 2 ........................... 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.4 Calculation of Current Mine Price
During Phase 2 .......................................... 23
7.5 Calculation of the Current Transportation Price ............. 26
7.6 Substitute Method of Calculating the Current
Mine Price ............................................... 27
7.7 Intent of the Parties ....................................... 27
ARTICLE VIII -- PREMIUMS AND PENALTIES FOR VARIATIONS IN QUALITY .......... 28
8.1 Premiums and Penalties for Calorific Value .................. 28
8.2 Premiums and Penalties for Ash .............................. 28
8.3 Premiums and Penalties for SO(2)............................. 29
ARTICLE IX -- BILLING AND PAYMENT ......................................... 30
9.1 Billing ..................................................... 30
9.2 Payment ..................................................... 31
9.3 Disputed Invoices ........................................... 31
9.4 Records of Seller ........................................... 31
ARTICLE X -- DISPOSAL OF ASH RESIDUE (NON-PELLETIZED) ..................... 32
10.1 Election of Seller .......................................... 32
10.2 Disposal of Ash Residue ..................................... 33
10.3 Quantity and Removal Schedules .............................. 33
10.4 Quality of Ash Residue ...................................... 34
10.5 Ash Disposal Site ........................................... 34
10.6 Loading, Weighing and Transportation of Ash
Residue ................................................... 35
10.7 Seller's Right to Utilize Alternative Ash
Residue Disposal Methods .................................. 36
10.8 Ash Residue Disposal Fee .................................... 37
10.9 Provisions Regarding PD Cars ................................ 37
10.10 Permits For Ash Disposal Site ............................... 38
10.11 Ash Residue From Replacement Coal ........................... 39
10.12 Failure of Seller to Dispose of Ash Residue ................. 40
10.13 Title and Risk of Loss ...................................... 41
10.14 Hazardous Ash Residue ....................................... 41
10.15 Noncomplying Ash Residue other than
Hazardous Ash Residue ..................................... 42
10.16 Governmental Impositions .................................... 42
ARTICLE XI -- WEIGHING, SAMPLING AND ANALYSIS ............................. 43
11.1 Weighing .................................................... 43
11.2 Sampling .................................................... 44
11.3 Analysis .................................................... 44
11.4 Independent Laboratory ...................................... 45
ARTICLE XII -- FORCE MAJEURE .............................................. 46
12.1 Definition of Force Majeure ................................. 46
12.2 Consequence of Force Majeure ................................ 47
12.3 Events Beyond Control of a Party ............................ 47
12.4 Substitute Coal Obligation of Seller ........................ 48
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE XIII -- DISPOSAL OF PELLETIZED ASH ................................ 49
13.1 Election of Seller .......................................... 49
13.2 Ash Pelletizing Facility .................................... 50
13.3 Pelletizing, Transportation, and Disposal
Obligation ................................................ 50
13.4 Quantity and Removal Schedules .............................. 51
13.5 Quality of Ash Residue ...................................... 52
13.6 Ash Disposal Site ........................................... 52
13.7 Pelletizing, Storage and Weighing ........................... 53
13.8 Seller's Right To Utilize Alternative Ash
Residue Disposal Methods .................................. 54
13.9 Ash Residue Disposal Fee .................................... 55
13.10 Permits For Ash Residue Disposal Site ....................... 55
13.11 Ash Residue From Replacement Coal ........................... 57
13.12 Damages for Failure of Seller to Pelletize,
Transport and Dispose of Ash Residue ...................... 58
13.13 Title and Risk of Loss ...................................... 58
13.14 Hazardous Ash Residue ....................................... 59
13.15 Noncomplying Ash Residue other than Hazardous
Ash Residue ............................................... 59
13.16 Governmental Impositions .................................... 60
13.17 Seller's Right to Subcontract the Pelletizing
Facility .................................................. 61
13.18 ICL's Option to Acquire the Pelletizing Facility ............ 61
ARTICLE XIV -- DEFAULT AND REMEDIES ....................................... 62
14.1 Events of Default ........................................... 62
14.2 Remedies for Default ........................................ 63
14.3 Other Defaults and Remedies ................................. 64
14.4 Disclaimer of Certain Damages ............................... 65
14.5 Limitation of Liability ..................................... 65
14.6 Waiver of Default ........................................... 65
14.7 Cumulative Remedies ......................................... 65
ARTICLE XV -- REPRESENTATIONS, WARRANTIES AND COVENANTS ................... 66
15.1 Seller's Representations and Warranties ..................... 66
15.2 Representations and Warranties of ICL ....................... 66
15.3 Exclusions of Warranties .................................... 68
15.4 Special Covenants of Seller ................................. 68
15.5 Covenants of Good Faith ..................................... 68
ARTICLE XVI -- INDEMNIFICATION ............................................ 69
16.1 Seller Indemnity ............................................ 69
16.2 ICL Indemnity ............................................... 69
16.3 Effect of Indemnification ................................... 70
16.4 Notice and Legal Defense .................................... 70
16.5 Failure to Defend Claim ..................................... 71
16.6 Joint Cause ................................................. 71
16.7 Survival .................................................... 72
ARTICLE XVII -- NOTICES ................................................... 72
17.1 Notices ..................................................... 72
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE XVIII -- ASSIGNMENT .............................................. 73
18.1 General ..................................................... 73
18.2 Seller's Right to Assign .................................... 73
18.3 ICL's Right to Assign ....................................... 74
18.4 Curing of Prior Defaults .................................... 78
ARTICLE XIX -- INSURANCE .................................................. 79
19.1 Seller Coverages ............................................ 79
19.2 Certificates ................................................ 80
19.3 Required ICL Insurance Coverages ............................ 80
ARTICLE XX -- DISPUTE RESOLUTION .......................................... 80
20.1 Negotiations to Resolve Disputes ............................ 80
20.2 Arbitration ................................................. 80
20.3 Appointment of Arbitrators .................................. 81
20.4 Conclusion of Arbitration Proceedings ....................... 81
ARTICLE XXI -- MISCELLANEOUS PROVISIONS .................................. 82
21.1 Rounding .................................................... 82
21.2 Consequences of Termination ................................. 82
21.3 Amendments; Waiver .......................................... 83
21.4 Severability ................................................ 83
21.5 Governing Law ............................................... 83
21.6 Independent Contractor; No Partnership ...................... 83
21.7 Captions, Exhibits and the Table of Contents ................ 84
21.8 Entire Agreement ............................................ 84
21.9 Counterparts ................................................ 84
21.10 Confidentiality ............................................. 84
21.11 Attorney Fees ............................................... 85
21.12 Further Assurances .......................................... 85
</TABLE>
<PAGE>
TABLE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.5 Description of the Facility
2.4(d) Amendment to Appendix I of the Power Purchase Agreement between ICL
and FP&L
3.1 Source of Coal
3.2 Description of Dedicated Coal Reserves
5.1 Map Showing the Facility, Tracks, Unloading Area, Holding Area for
Empty Cars, etc.
6.1 Coal Quality Specifications
6.5(b) Handling and Operating Specifications of the Coal
7.2(a) Example of calculation of Phase 1 Spot Price FOB mine
7.2(b) Example of calculation of Phase 2 Base Mine Price
7.4 Example of calculation of Current Mine Price
10.4 Ash Residue Chemical Composition and Handling Characteristics
10.5 Description of Dry Ash Residue Disposal Sites and Services
11.3 Seller's Procedure for Sampling and Analysis
13.5 Ash Residue Chemical Composition and Handling Characteristics
13.6 Description of Pelletized Ash Residue Disposal Sites and Services
19.3 Copy of Section 16.0 of the FPL Power Purchase Agreement.
</TABLE>
<PAGE>
COAL PURCHASE AGREEMENT - INDIANTOWN COGENERATION PROJECT
This COAL PURCHASE AGREEMENT (the "Agreement"), entered into as of August
4, 1992, is by and between COSTAIN COAL INC., a Delaware corporation, with a
place of business at 249 East Main Street, Lexington, Kentucky 40507 ("Seller")
and INDIANTOWN COGENERATION L.P. ("ICL"), a Delaware limited partnership, having
its principal place of business in Bethesda, Maryland. Seller and ICL shall be
referred to herein collectively as the "Parties" and each may individually be
referred to as a "Party."
RECITALS
A. ICL intends to finance, design, construct, own, operate and maintain a
330 MW coal-fired cogeneration facility (the "Facility") to be located on a site
north of Indiantown, an unincorporated area in Martin County, Florida.
B. It is contemplated that the Facility will produce steam and electricity
and will burn coal with the specifications set forth in this Agreement as a
source of fuel.
C. Seller is engaged in the mining and selling of bituminous coal for use
as fuel in boilers to produce steam and electricity.
D. ICL desires to purchase the coal requirements of the Facility from
Seller, and Seller agrees to supply and sell such coal to ICL on the terms and
conditions set forth herein.
E. ICL desires that Seller remove, transport and dispose of the Ash
Residue (as defined below) produced at the Facility, and Seller agrees to
perform such service on the terms and conditions set forth herein.
<PAGE>
F. ICL will sell electricity generated at the Facility to Florida Power &
Light Company ("FPL") under an Agreement for the Purchase of Firm Capacity and
Energy dated as of March 31, 1990, hereinafter referred to as the FPL Power
Purchase Agreement, and ICL will sell steam to a qualifying facility.
G. FPL is a joint owner with Jacksonville Electric Authority of Units No.
1 and 2 of St. Johns River Power Park, an electric generating station consisting
of two coal-fired units, the first of which commenced commercial operation in
1987.
H. It is expected that coal will be delivered to the Facility by CSX
Transportation, Inc., a railroad serving coal mines in the Eastern states of the
United States.
I. ICL will enter into a Private Car Use, Demurrage and Guarantee
Agreement with CSX ("Private Car Agreement"), and will provide to Seller a copy
of such agreement and all amendments thereto.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, Seller and ICL hereby agree as follows:
ARTICLE I
DEFINED TERMS
Some of the terms used in this Agreement are defined in this Article I.
Other terms are defined in the opening paragraph and in the Recitals. Additional
terms are defined in the Agreement in the
2
<PAGE>
Section where such terms are first used. Except for the defined terms set forth
in Sections 1.1 and 1.4 below, the first letter of a defined term is
capitalized.
1.1 Calendar Periods. The terms "day", "week", "month", and "quarter"
shall mean, respectively, a period of 24 hours commencing at 12:01 a.m. local
time, a period of seven days beginning on Sunday, a calendar month, and a
calendar quarter. The term "year" shall mean a period of 365 days, except that
if February has 29 days during any such period, the term "year" shall mean a
period of 366 days.
1.2 Singular and Plural. The singular of a defined term shall include the
plural and the plural shall include the singular as the context requires.
1.3 Sections of the Agreement. The term "Section" when used in combination
with a section number refers to that Section of this Agreement. For the sake of
brevity, the text of the various Sections of this Agreement does not include the
word "Section" immediately preceding such number.
1.4 Terms of Art. Certain terms used in this Agreement are terms of art in
the coal and electric generation industries and have commonly understood
meanings. Examples include, but are not limited to, terms such as "Appalachian
coal fields," "Btu," "as received," "bottom ash," "fly ash" and other terms of
this nature. The parties hereto agree that such terms shall have such commonly
understood meanings and that it is not necessary to define such terms.
3
<PAGE>
1.5 Certain Defined Terms:
"Adequate Assurances" means adequate assurance of performance as described
in Section 2-609 of the UCC.
"Applicable Laws" means any valid statute, ordinance, regulation, order,
rule, directive, decree, judgment or Permit enacted, adopted, issued or
promulgated by any legislative, executive or judicial branch of any federal,
state or local government or any administrative tribunal or agency thereof,
including any interpretation or enforcement thereof binding on the Parties as a
matter of law.
"ASTM" means the American Society for Testing Materials.
"Ash Disposal Site" means the physical locations at which Seller shall
dispose of the Ash Residue in accordance with Article X or Article XIII,
whichever is applicable.
"Ash Residue" means fly ash and bottom ash generated or produced by
combustion of coal with lime at the Facility and made available by ICL to Seller
for removal by Seller in accordance with this Agreement. Fly ash includes dry
scrubber waste but excludes boiler cleaning sludge produced during boiler
cleaning operations.
"Commercial Operations Date" means the date which ICL notifies Seller in
writing is the initial date of commercial operation of the Facility pursuant to
Section 1.14 of the FPL Power Purchase Agreement.
"CSX" means the CSX Transportation, Inc.
4
<PAGE>
"Facility" means the cogeneration facility, described in Recital A and in
Exhibit 1.5 attached hereto, to be built and operated by ICL on the Site.
"Financing Closing Date" means the date on which ICL obtains initial
funding and binding commitments for substantially all additional funding needed
by ICL to provide for the construction and operation of the Facility.
"Financing Documents" means any and all loan agreements, notes,
indentures, security agreements, registration statements, disclosure statements,
subordination agreements, mortgages, partnership agreements, subscription
agreements, participation agreements and other documents relating to the
construction, interim and long-term financing (both debt and equity) of the
Facility and any refinancing of the Facility (including a leveraged lease),
including any and all modifications, extensions, renewals and replacements of
any such financing or refinancing.
"Financing Parties" means any and all equity participants, lenders,
lessors and bondholders providing funds for the construction, interim or
long-term financing (including any refinancing thereof, including a leveraged
lease) of the Facility, and any trustee or agent acting on their behalf.
"JEA" means Jacksonville Electric Authority, operator of the St. Johns
Station.
"Operating Year" means a period of 12 full calendar months beginning at
the end of the preceding Operating Year. The first Operating Year shall be a
period beginning on the first day of the
5
<PAGE>
calendar month following the Commercial Operations Date (except that it shall
begin on the Commercial Operations Date if the Commercial Operations Date is on
the first day of such month) and continuing for a period of 12 full calendar
months.
"Pelletize" or "Pelletizing" the Ash Residue shall mean any processing of
dry ash to a form which is acceptable to ICL in accordance with Section 13.1.
"Permit" means any valid waiver, exemption, variance, franchise, permit,
authorization, license or similar order of or from any Federal, state or local
government, authority, agency, court or other body having jurisdiction over the
matter in question, as in effect from time to time.
"Preliminary Operations Date" means the date that the Facility first burns
coal for Start-up, testing and shakedown.
"Prime Rate" means the interest rate publicly announced from time to time
as its prime rate by Morgan Guaranty Trust Company of New York. If such banking
entity should cease to exist, the parties will agree on a successor banking
entity for this purpose.
"Private Car Agreement" has the meaning provided in Recital I, above.
"St. Johns Station" means the St. Johns River Power Park described in
Recital G.
"Shipment" shall mean a unit train of coal delivered to ICL, as described
in Section 5.2.
6
<PAGE>
"Site" means the tract of land acquired by ICL in Martin County, Florida
on which the Facility will be constructed.
"Start-up" means the period from the initial firing of the boiler until
the Commercial Operations Date.
"Transportation Agreement" means the Coal and Ash Waste Transportation
Agreement referred to in Section 5.2.
"Ton" means a short Ton of 2,000 pounds (avoirdupois).
"UCC" means the Uniform Commercial Code as in effect in the state of
Delaware.
ARTICLE II
TERM; COMMENCEMENT OF DELIVERIES
AND CONDITIONS PRECEDENT
2.1 Term. This Agreement shall be effective from the date hereof and,
unless earlier terminated in accordance with the provisions hereof, shall
continue for a Term of 30 Operating Years.
2.2 [Not used]
2.3 Commencement of Deliveries. Seller shall commence deliveries of coal
hereunder pursuant to the first monthly Order of ICL sent to Seller pursuant to
Section 4.3. ICL agrees to provide reports to Seller (and such related
information as Seller may reasonably request) at least quarterly beginning as of
January 1, 1993 as to the status of the construction of the Facility and
promptly to provide notices to Seller of any changes in the now anticipated
Preliminary Operations Date of June 1, 1995 or the anticipated Commercial
Operations Date of December 1, 1995.
7
<PAGE>
2.4 Conditions Precedent of ICL. The obligations of ICL under this
Agreement are subject to the following conditions precedent:
(a) The occurrence of the Financing Closing Date. In connection with
ICL's efforts to obtain financing for the Facility, Seller will provide
such financial information as ICL and the Financing Parties may reasonably
request (subject to any confidentiality agreement that Seller may
reasonably request) concerning Seller's financial condition and its
ability to perform its obligations under this Agreement. On written
request of Seller, ICL will provide status reports and such other
information regarding the proposed Financing Parties, financing
arrangements, and the matters referred to in Section 2.3, as Seller may
reasonably request;
(b) The execution of the Transportation Agreement.
(c) The execution of the Private Car Agreement on terms acceptable
to CSX and ICL.
(d) The final execution of all agreements, leases, licenses and
other undertakings of any kind between ICL and third parties reasonably
deemed necessary by ICL on terms reasonably satisfactory to ICL.
8
<PAGE>
2.5 ICL's Right to Terminate. ICL will make good faith efforts to obtain
financing in order that the Financing Closing Date can be achieved at the
earliest possible date. ICL agrees that it will give written notice to Seller
within ten days after Financial Closing has occurred and also within ten days
after the conditions precedent set forth in Section 2.4 have been met. If
despite the good faith best efforts of ICL, the conditions precedent in Section
2.4 have not been satisfied by February 1, 1993, ICL may terminate this
Agreement without any liability to Seller upon ten days written notice to the
Seller, unless such date has been extended by agreement of the Parties.
2.6 Seller's Right To Terminate. If ICL has failed to satisfy all
conditions precedent set forth in Section 2.4 by August 1, 1993 (and Seller has
not waived any unsatisfied conditions precedent), or if the Commercial
Operations Date does not occur by May 1, 1997 (all without regard to any delays
due to Force Majeure), Seller may terminate this Agreement without any liability
to ICL on 30 days written notice to ICL.
2.7 ICL's Obligation To Construct. After the Financing Closing Date, ICL
shall diligently proceed with the construction and completion of the Facility.
ARTICLE III
SOURCE OF COAL
3.1 Source. Subject to Seller's right of substitution pursuant to Section
3.3, the primary source of the coal to be
9
<PAGE>
supplied hereunder shall be as described on Exhibit 3.1 attached hereto,
("Primary Source") and the coal loading facility therein described shall be
known as the "Ivel Loading Facility."
3.2 Dedication of Coal.
(a) Seller represents and warrants that it owns, leases or otherwise
controls a sufficient number of Tons of recoverable coal from the Primary
Source or from other sources which meet the specifications hereunder (the
"Coal Reserves") to provide the quantity of coal with the quality
specified in Article VI which ICL may require during the Term of this
Agreement. Seller hereby dedicates for ICL 30,000,000 Tons of coal (the
"Dedicated Quantity") from the Coal Reserves for this purpose. Attached as
Exhibit 3.2 is a description of the recoverable coal constituting or
including the Coal Reserves. From time to time, Seller may substitute
recoverable coal from other sources which Seller owns, leases or otherwise
controls for recoverable coal then included in the Coal Reserves if such
substitute coal meets the specifications hereunder, subject to the
approval of ICL which will not be unreasonably withheld. Nothing in this
Section 3.2(a) shall limit Seller's right to deliver coal from another
source which meets the specifications hereunder, subject to the additional
requirements of subsections (ii), (iii) and (iv) of Section 3.3. Except
for transactions in accordance with Article XVIII, Seller covenants that
it will not lease, convey, assign, sell, transfer, mortgage, grant a
security interest in
10
<PAGE>
or otherwise dispose of, encumber or agree to dispose of or encumber any
of its interests in the Coal Reserves in any quantity which could
jeopardize Seller's ability to supply the Dedicated Quantity; it being
expressly understood that, this covenant shall not prohibit Seller from
granting a mortgage or other security interest in the Coal Reserves
pursuant to any arms length transaction providing secured financing to
Seller or an affiliate of Seller on commercially reasonable terms under
which the secured party and the purchaser is subject to ICL's rights to
the Coal Reserves under this Section 3.2.
(b) Seller agrees to provide such information as ICL may reasonably
request at any time during the Term hereof, and to permit ICL, its
consultants, or representatives of any Financing Parties to inspect the
Coal Reserves and any mines operating thereon to verify the covenants,
representations and warranties contained in this Section 3.2 at any time
during the Term hereof.
(c) The Dedicated Quantity shall be reduced by the quantity of coal
delivered hereunder each Operating Year, but if such delivery is less than
1,000,000 Tons in an Operating Year, the Dedicated Quantity shall be
reduced by 1,000,000 Tons for that Operating Year.
3.3 Substitution. Seller shall have the right to deliver coal to ICL under
this Agreement from a source other than the Primary Source if the following four
conditions are met: (i) the coal shall meet the specifications set forth in this
Agreement,
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(ii) the monthly average delivered cost per million Btus (as adjusted for
quality) to ICL of such substituted coal shall be the Current Coal Price, (iii)
ICL shall have given its prior written consent to such substitution which
consent shall not be unreasonably withheld, and (iv) compliance by Seller with
the first sentence of Section 10.6(d). It shall be unreasonable for ICL to
withhold consent if ICL shall reasonably determine, based on information
provided by Seller, that such substitute coal will not be the primary cause of
operating problems within the meaning of Section 6.5(a), and Section 6.5(b).
3.4 ICL's Right to Purchase Replacement Coal. ICL shall have the right to
purchase replacement coal (to the extent and for the duration reasonably
necessary to enable ICL to replace the coal not delivered by Seller) under the
following circumstances:
(a) Force Majeure preventing delivery of coal by Seller, as provided
in Section 12.2.
(b) The suspension of Shipments by ICL under Section 6.3, Section
6.4, or Section 6.5(a).
(c) Seller's failure to arrange for the delivery of replacement coal
for a rejected Shipment within the time specified in Section 6.3.
(d) Seller's unexcused failure to load coal for the delivery of
Shipments of coal pursuant to Orders of ICL submitted under Section 4.3
within seven days of the date specified for the loading of the Shipment.
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ARTICLE IV
QUANTITY, ESTIMATES AND ORDERS
4.1 Coal Requirements. Seller agrees to sell and cause coal to be
delivered to ICL, pursuant to Orders sent by ICL to Seller in accordance with
Section 4.3, and ICL agrees to purchase from Seller, 100% of the coal
requirements of the Facility. ICL has no obligation to purchase any minimum
quantity of coal hereunder, but Seller shall not be obligated to supply more
than 1,200,000 tons during any Operating Year. ICL shall have the right to use
fuels other than coal for ignition and Start-up of the main boiler and for
operation of its two non-coal auxiliary boilers. ICL agrees that it will burn
coal for at least 95% (measured in Btus) of the fuel requirements of the
Facility after the Commercial Operations Date.
4.2 Estimates of Requirements. For the sole purpose of assisting Seller in
its planning of production, ICL estimates the Facility will require
approximately 700,000 to 1,200,000 Tons of coal of the quality specified herein
per Operating Year. At least 120 days prior to the beginning of each Operating
Year, ICL will provide Seller with a forecast of the quantity of coal to be
delivered by Seller hereunder during each month of the ensuing Operating Year.
ICL shall provide Seller with a revised forecast for the balance of any
Operating Year promptly if ICL becomes aware of material changes (more than 10%)
in its pre-Operating Year forecast previously given to Seller. Thirty days prior
to the beginning of each three month period during each Operating Year,
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ICL shall provide an estimate of the quantity of coal to be delivered during
each of such months. ICL will provide Seller with an estimate of the quantity of
coal required during each month of the period between the first delivery of coal
hereunder and the Commercial Operations Date at least 12 months prior to the
date when the first delivery of coal is required hereunder.
4.3 Monthly Orders. On or before the 15th day of each month beginning with
the month preceding the month when the first delivery of coal is required
hereunder, ICL shall give to Seller an order ("Order") setting forth the number
of Shipments of coal to be delivered by Seller during each week which begins
during the following month. ICL may increase or decrease by one Shipment the
number of Shipments of coal to be delivered during any week by notifying Seller
at least seven days in advance of the beginning of such week, but the total
number of Shipments during any week shall not exceed five unless mutually agreed
to by the parties. The specific date of loading and estimated date of delivery
of each Shipment shall be mutually agreed upon by Seller and ICL at least five
days before the beginning of each week. Subject to seasonal variations and fuel
requirements of the Facility, ICL will submit Orders for Shipments of coal in
substantially equal numbers of Shipments each month.
4.4 First Delivery of Coal. ICL may submit an Order for the first delivery
of coal hereunder and subsequent monthly Orders prior to the first Operating
Year for the purpose of the stockpiles described in Section 4.5 hereof, and for
testing and Start-up
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purposes. Such Order will be given by ICL approximately 60 days prior to the
estimated Preliminary Operations Date.
4.5 Stockpiles. ICL will establish a permanent stockpile of a quantity of
coal sufficient to operate the Facility for a period of approximately 30 days
(in addition to a live storage stockpile of 10 days of operations) at the
Facility. Seller agrees to deliver approximately 90,000 Tons of coal for the
permanent stockpile pursuant to monthly Orders, as described in Sections 4.3 and
4.4.
ARTICLE V
POINT OF DELIVERY: METHOD OF DELIVERY
5.1 Point of Delivery. The Point of Delivery shall be in rail cars on
tracks at the holding area for unloading at the Site, as shown on Exhibit 5.1.
Title to the coal shall pass to ICL at the Point of Delivery, and risk of loss
shall follow passage of title.
5.2 Method of Delivery. The coal is to be delivered to the Point of
Delivery by CSX, or its successor or assigns or other rail carrier reasonably
acceptable to the Parties, in unit trains of a minimum of 75 open top hopper
rail cars of a type compatible with ICL's unloading facility. Rail cars will be
furnished by CSX. Seller shall enter into the Transportation Agreement with CSX
and shall pay all freight charges related to the direct haul from origin to
destination incurred thereunder which are not the direct responsibility of ICL
to CSX under the Private Car Agreement.
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Seller will provide ICL with a copy of the Transportation Agreement and any
amendments thereto. The Transportation Agreement and any amendments thereto
which have an economic impact on ICL, shall be subject to ICL's approval. The
Transportation Agreement is for the mutual benefit of Seller and ICL and each
shall have the right to enforce the Transportation Agreement as it affects its
respective interests. Seller and ICL shall cooperate in any enforcement thereof
which affects both of their respective interests. Seller shall not be liable to
ICL for any performance, act or omission of CSX under the Transportation
Agreement. ICL will be responsible for constructing rail unloading facilities at
the Site, and for dispatching and unloading the rail cars.
5.3 [Not used]
5.4 Notices of Shipments. For each Shipment, Seller shall send ICL a
shipping notice within 24 hours following loading thereof by legible facsimile
or by other mutually agreed upon means. The shipping notice shall include the
train number, mine or other source from which supplied, tonnage shipped,
shipping date, destination and other information reasonably required by ICL to
the extent it is reasonably available to Seller. Bills of Lading shall include
name of Seller, contract number, train number, date loaded and Seller's shipped
weights.
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ARTICLE VI
QUALITY
6.1 General Quality Provisions. Seller represents and warrants that all
coal delivered hereunder will be substantially free from impurities and
extraneous materials. Seller further represents and warrants that the quality of
each Shipment of coal hereunder shall conform to each Rejection Limit set forth
in Exhibit 6.1 and that the weighted average quality ("as received") of all coal
delivered during any month hereunder shall conform to the monthly weighted
average specifications set forth in Exhibit 6.1.
6.2 [Not used]
6.3 Rejection of Coal. Any Shipment of coal which does not conform to each
Rejection Limit as set forth in Exhibit 6.1 shall be deemed to be Rejection
Point Coal. ICL may reject any Shipment of coal which is Rejection Point Coal by
notice to Seller by telephone, confirmed in writing. Any such notice of
rejection shall be given within 12 hours after receipt of the analysis of the
Shipment of coal given pursuant to Section 11.3. In lieu of rejecting Rejection
Point Coal, ICL may elect to accept delivery thereof on terms mutually agreeable
to the Parties in which event such Shipment shall not count as a rejected
Shipment for any purpose under this Agreement, including quality averages. If a
rejected Shipment has reached the Point of Delivery before the expiration of the
12 hour period during which ICL may reject a Shipment, then Seller shall cause
such Shipment of coal to be
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removed from the Site within three days after notice of such rejection, and
Seller shall be responsible for all costs of such removal. If a Shipment of coal
is rejected by ICL, then Seller shall cause a replacement Shipment of coal which
meets Rejection Limits to be loaded within five days of such rejection. If two
Shipments of coal are rejected by ICL during any three month period, and Seller
fails to load replacement Shipments for both Shipments as specified above, ICL
may suspend delivery of further Shipments pending receipt of Adequate Assurances
that future Shipments will comply with the Rejection Limits. If such Adequate
Assurances are not received within 30 days after receiving notice of suspension
from ICL, Seller shall have committed a Default as specified in Section 14.1.
Seller shall have no obligation to replace Shipments of Rejection Point Coal
which are accepted by ICL on terms mutually agreeable to the Parties.
6.4 Suspension of Shipments. If the monthly weighted average quality of
all coal delivered during any month hereunder, as reported by Seller to ICL
pursuant to Section 11.3, fails to conform to each monthly weighted average
specifications set forth in Exhibit 6.1, and Seller does not provide Adequate
Assurances with such report that future Shipments will conform to such monthly
weighted average quality, ICL may suspend further Shipments not then in transit
by notice to Seller given within ten days following receipt of Seller's report
on quality pursuant to Section 11.3. Such suspension shall continue until Seller
provides Adequate Assurances satisfactory to ICL that future Shipments will
conform
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to the monthly weighted average quality specifications set forth in Exhibit 6.1.
If Seller has not provided such Adequate Assurances within 30 days after
receiving notice from ICL of the suspension of Shipments, then Seller shall have
committed a Default as specified in Section 14.1.
6.5 Coal Handling or Operating Problems.
(a) If ICL experiences any coal handling or operating problem at the
Facility which ICL reasonably concludes is the direct result of Seller's
delivering coal hereunder which has any of the following characteristics (and
which is not the direct result of design deficiencies of the Facility): (i)
contains, on a monthly average basis, in excess of 10% coal with a top size of
greater than two inches; (ii) contains, on a monthly average basis, in excess of
50% coal of less than 1/4 inch size, (iii) a monthly average grindability (HGI)
of less than 40, or (iv) a monthly average ash fusion temperature (I.D. -
Reducing) of less than 2,600 degrees F., then ICL may notify Seller of the
nature of such problem and the particular specification(s) which ICL concludes
to be causing such problem, together with such additional information
reasonably available to ICL which Seller may request. Unless Seller has provided
Adequate Assurances to ICL within 30 days following receipt of such notice that
future deliveries hereunder will conform to the specifications set forth in this
Section 6.5(a), ICL may, by a second notice to Seller, suspend further Shipments
until Seller can provide such Adequate Assurances. If Seller has not provided
such Adequate Assurances to ICL within 30
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days following receipt of such notice of suspension of Shipments, then Seller
shall have committed a Default as specified in Section 14.1.
(b) In the event ICL reasonably determines that the quality of the
coal delivered hereunder is the primary cause of an operating problem at the
Facility because such coal quality is outside the range of specifications set
forth in Exhibit 6.5(b) hereto, ICL and Seller shall promptly meet to discuss
possible remedies to such operating problem. The term "operating problem," as
used herein shall include, but is not limited to, problems experienced by ICL in
complying with the terms, conditions or provisions of any Permit applicable to
the Facility ("a permit problem").
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If Article X is in effect, ICL shall arrange and pay for the transportation of
the Ash Residue to the Ash Disposal Site, and Seller shall unload and dispose of
such Ash Residue at the Current Ash Disposal Fee set forth in Section 10.8. If
Seller has elected to Pelletize the Ash Residue pursuant to Section 13.1, Seller
shall Pelletize, load, unload and dispose of the Ash Residue at the Current Ash
Residue Disposal Fee set forth in Section 13.9, less the amount thereof payable
to CSX for transportation of the Ash Residue as provided in the Transportation
Agreement. ICL shall arrange and pay for the transportation of Pelletized Ash
Residue to the Ash Disposal Site.
6.6 Corrective Actions. Promptly following any suspension of deliveries
hereunder pursuant to Section 6.3, Section 6.4 or Section 6.5(a), Seller shall,
to the extent practicable, undertake corrective actions diligently and in good
faith in order to provide ICL Adequate Assurances as required under such
Sections. During the continuance of any such suspension, Seller shall no less
frequently than once every week advise ICL of Seller's determinations as to the
nature of the conditions causing such noncompliance with such specifications,
all efforts underway by Seller to correct such conditions, and the results of
such efforts.
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ARTICLE VII
PRICE FOR COAL
7.1 Phase 2 Base Coal Price. The Base Coal Price per ton for coal
delivered by Seller to the Point of Delivery effective as of the beginning of
Phase 2 as defined in Section 7.4(h) shall be the sum of (a) an FOB mine
component per Ton ("Phase 2 Base Mine Price") as determined pursuant to Section
7.2, (b) a rail transportation component per Ton (the "Current Transportation
Price") as determined pursuant to Section 7.5, and (c) an administrative charge
equal to 0.7% of the Current Transportation Price (the "Administrative Charge").
7.2 Phase 2 Base Mine Price. The Base Mine Price to be effective as of the
beginning of Phase 2 (Phase 2 Base Mine Price) shall be determined by
multiplying (a) the fraction the numerator of which is (i) the weighted average
Spot Price FOB mine, as adjusted for coal quality, on a cost per million Btu
basis for Qualifying Coal (all references to coal purchased for St. Johns
Station herein refer to qualifying coal as defined in Section 7.4(c)) purchased
for the St. Johns Station during the last calendar quarter of Phase 1 as defined
in Section 7.4(h), provided such Spot Coal purchases are equal to or more than
20% of the total quantity of all coal purchased for the St. Johns Station during
such calendar quarter, and the denominator of which is (ii) $0.833 per million
Btu's times (b) $26.00 per Ton. In the event the quantity of Spot Coal purchased
for the St. Johns Station during the last calendar quarter of Phase 1 is less
than 20% of the total
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quantity of all coal purchased during such calendar quarter, then the numerator
above referenced shall be determined by calculating a weighted average of Spot
Coal actually purchased and a sufficient tonnage of coal included in lowest bona
fide bids for Spot Coal evaluated in accordance with JEA criteria and which JEA
would have next purchased if additional Spot Coal had been purchased during such
calendar quarter to equal 20% of all coal purchases during such calendar
quarter. An example of determining the Spot Price FOB mine pursuant to the
preceding sentence is set forth on Exhibit 7.2(a). The Phase 2 Base Mine Price
shall become effective as of the first day of the first calendar quarter of
Phase 2. An example is set forth on Exhibit 7.2(b).
7.3 Current Coal Price During Phase 2. The Current Coal Price in effect
during Phase 2 shall be the sum of the Current Mine Price as calculated pursuant
to Section 7.4, the Current Transportation Price as calculated pursuant to
Section 7.5 and the Administrative Charge. The quarterly adjustment dates to
determine the Current Mine Price, the Current Transportation Price and the
Administrative Charge shall be January 1, April 1, July 1 and October 1 (the
"Quarterly Adjustment Dates") of each year.
7.4 Calculation of Current Mine Price During Phase 2.
(a) The Current Mine Price shall be determined as of each Quarterly
Adjustment Date beginning with the first Quarterly Adjustment Date during Phase
2 by multiplying (a) the fraction the numerator of which is (i) the weighted
average FOB mine price for the current quarter on a cost per million Btu's (as
adjusted for
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coal quality) for coal purchased for the St. Johns Station pursuant to term coal
contracts (as defined in subsection 7.4(d)) and spot coal contracts (as defined
in subsection 7.4(e)) and the denominator of which is (ii) the weighted average
FOB mine price on a cost per million Btu's basis (as adjusted for coal quality)
for coal purchased for the St. Johns Station pursuant to term coal contracts and
spot coal contracts during the last full calendar quarter of Phase 1 times (b)
the Phase 2 Base Mine Price. An example of the above is set forth in Exhibit
7.4. If actual quantities and prices are not available for any portion of such
purchases during the applicable calendar quarter, the then Current Mine Price
shall remain in effect until such information becomes available, at which time
appropriate retroactive adjustments shall be made in the Current Mine Price.
(b) Adjustment for coal quality as used herein shall be made as reported
by FPL on FPSC Forms No. 423-2 and 423-2(a) or any forms which supersede such
forms.
(c) The term "qualifying coal," as used in this Article VII, means coal
which has a low/medium sulfur content (0.60 to 2.00%) and coal which is
medium/high in Btu content (11,000 to 13,500 Btus per pound) which has been
produced from mines in the Appalachian coal fields of the United States. (Both
sulfur and Btu content are on an "as received" basis.) Coal which is "purchased"
means coal which has been purchased and delivered to St. Johns Station.
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(d) "Term coal contracts" means qualifying coal purchased pursuant to
contracts which have a delivery term of one year or more.
(e) "Spot coal contracts", (sometimes called "Spot Price" or "Spot Coal")
means qualifying coal purchased pursuant to contracts which have a delivery term
of less than one year.
(f) If coal is purchased for St. Johns Station during Phase 2 pursuant to
a term coal contract entered into after the date of this Agreement which does
not provide for the adjustment of the price of the coal delivered thereunder to
reflect increased costs due to changes in Applicable Laws, for the purposes of
the calculations made under Section 7.4(a), the FOB mine price in cost per
million Btus for purchases made for St. Johns Station pursuant to such term coal
contract shall be increased by the amount per million Btu's which would have
been in effect if such term coal contract had included a provision which
provided for the adjustment of the FOB mine price to recover increased costs of
the producer and seller due to changes in Applicable Laws. Seller shall provide
such substantiating information to support any such calculations made under such
formula as may be reasonably requested by ICL, and ICL shall provide such
information relating to qualifying coal purchases at St. Johns Station pursuant
to term coal contracts as may be reasonably required by Seller for the purpose
of implementing this Section 7.4(f).
(g) ICL has made arrangements with FPL to obtain the information relating
to qualifying coal purchases at St. Johns
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Station on a monthly basis, and ICL shall make all calculations required by this
Section 7.4. ICL shall furnish Seller with supporting information for all such
calculations. Seller shall have the right to audit any such information and
calculations.
(h) Phase 1 shall be the period between January 1, 1992 and the end of the
first full calendar quarter after the effect of the 1992 contract reopener
provision in the Term Coal Supply Contract between Jacksonville Electric
Authority and Ashland Coal, Inc. dated February 20, 1986 (the Ashland Contract)
is reflected in the weighted average FOB mine price paid for qualifying coal
purchases for the St. Johns Station. The period thereafter shall be known as
Phase 2.
(i) For the purpose of computing the Current Mine Price hereunder, any tax
imposed by the State of Florida on the purchase, use or consumption of coal at
the St. Johns Station shall be excluded from the F.O.B. mine price of coal
purchased for the St. Johns Station.
7.5 Calculation of the Current Transportation Price. The Current
Transportation Price for coal shall be the Base Transportation Price for coal,
as adjusted on the Quarterly Adjustment Dates as provided in the Transportation
Agreement. The Base Transportation Price for coal shall be the rate for Four
Hour Loading from Ivel, Kentucky for 75 and 90 car Unit Trains in Carrier
Equipment, as set forth in Appendix A to the Transportation Agreement. Any
rebates received by Seller from CSX as a result of exceeding specified volumes
of coal delivered pursuant to the
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Transportation Agreement or any credits received by Seller from CSX for
non-delivery of loaded coal shall be promptly credited against amounts due by
ICL to Seller hereunder.
7.6 Substitute Method of Calculating the Current Mine Price. In the event
of a long term interruption (more than one full quarter) in or permanent
cancellation of the delivery of coal to St. Johns Station, as described in
Section 1.4 of Exhibit 2.4(d), the Parties shall, within one year of such
interruption or cancellation, agree upon a comparable replacement index. Until
such "replacement index" becomes effective, the Current Coal Price will be
calculated as described in Exhibit 2.4(d), but with the following assumptions
and adjustments:
(a) The quantities of coal assumed to be taken from each of the then current
long term domestic contract(s) will be the same as they were during the
quarter prior to the interruption.
(b) The F.O.B. coal price will be escalated according to the indices in the
St. Johns Station long term domestic Appalachian coal contracts which had
been in effect until the interruption in deliveries.
(c) The remaining components will continue to escalate according to Section
1.3(ii) of Exhibit 2.4(d).
7.7 Intent of the Parties. It is the intent of the Parties that the coal
and transportation prices be indexed in accordance with the index provisions of
this Agreement and the Transportation Agreement, respectively, which were
prepared to be connected with Exhibit 2.4(d), Sections 1.3 and 1.4.
7.8 See Amend #1 pgs 5-6. N/A
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ARTICLE VIII
PREMIUMS AND PENALTIES FOR VARIATIONS IN QUALITY
8.1 Premiums and Penalties for Calorific Value. The Current Coal Price is
based on coal with a calorific value of 12,500 Btus per pound (the "Btu
Specification"). The following formula shall be utilized to determine the
premium or penalty for Btu content:
BA = [ P x A-B] x T
---
[ B ]
Where:
BA is the premium or penalty for calorific value in dollars for the
month.
P is the Current Coal Price in effect for the month.
A is the weighted average Btus per pound of all coal delivered
hereunder during the month.
B is the Btu Specification.
T is the number of Tons of coal delivered hereunder during the month.
If BA is a positive number, then such amount shall be added as a premium
to the amount due Seller for the month. If BA is a negative number, then such
amount shall be deducted as a penalty from the amount due Seller for the month.
8.2 Premiums and Penalties for Ash. The Current Coal Price is based on
coal with an ash content of 9 percent (the "Ash
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Specification"). The following formula shall be utilized to determine the
premium or penalty for ash content:
AA = [A(1) - A(2)] x ADP x T
-----------
[ 100% ]
Where:
AA is the premium or penalty for ash content in dollars for the month.
A(1) is the Ash Specification.
A(2) is the weighted average ash content of all coal delivered hereunder
during the month (stated as a percentage).
T is the number of Tons of coal delivered hereunder during the month.
ADP is the weighted average per Ton cost to ICL of disposal of Ash
Residue for the month, including loading, Pelletizing (if
applicable), transporting, unloading and disposal.
If AA is a positive number, then such amount shall be added as a premium
to the amount due Seller for the month. If AA is a negative number, then such
amount shall be deducted as a penalty from the amount due Seller for the month.
8.3 Premiums and Penalties for SO(2). The Current Coal Price is based on
coal with a sulfur content which produces SO(2) emissions of 1.6 pounds of
sulfur per million Btus (the "SO(2) Specification"). The following formula shall
be utilized to determine the premium or penalty due each month for sulfur
content: SA = ({[GS - AS) x CF] x CT/BT} x T)
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Where:
SA is the premium or penalty amount in dollars for the month for sulfur
content.
GS is the SO(2) Specification.
AS is the calculated weighted average sulfur dioxide content of all coal
delivered hereunder during the month (stated in pounds per million Btus).
CF is a cost factor of (a) 2.0124 if AS is less than GS or (b) 2.5194 if AS
is greater than GS.
CT is the Current Transportation Price for coal excluding any consideration
for rebate amounts.
BT is the Base Transportation Price for coal excluding any consideration for
rebate amounts.
T is the number of Tons of coal delivered hereunder during the month.
If SA is a positive number, then such amount shall be added as a premium
to the amount due Seller for the month. If SA is a negative number, then such
amount shall be deducted as a penalty from the amount due Seller for the month.
ARTICLE IX
BILLING AND PAYMENT
9.1 Billing. Seller shall submit to ICL an invoice by the 10th of each
month for all coal loaded for delivery to ICL and Ash Residue loaded into rail
cars or trucks at the Facility during the preceding month. Each monthly invoice
shall show the quantity of coal loaded for delivery and Ash Residue loaded
during the month, itemized by Shipment, the Current Mine Price, the Current
Transportation Price, premiums and penalties for variations in
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quality as provided for in Article VIII and the Current Ash Residue Disposal
Fee. If any revision of the Current Mine Price, Current Transportation Price or
Current Ash Residue Disposal Fee is in process, invoicing shall be made on the
basis of the existing Current Mine Price, Current Transportation Price and
Current Ash Residue Disposal Fee, and appropriate retroactive adjustments shall
be made when the new Current Mine Price, Current Transportation Price and
Current Ash Residue Disposal Fee has been calculated.
9.2 Payment. ICL shall pay Seller all undisputed amounts due as shown on
invoices rendered pursuant to Section 9.1 within 20 days of receipt of the
invoice. Payments shall be made by wire transfer in immediately available funds
to Seller's account at a bank designated by Seller. In the event part or all of
a payment is not made when due, interest shall accrue and be payable on the
overdue amount at the Prime Rate plus one percentage point computed for the
number of days that payment is late, without prejudice to Seller's remedies
under Section 14.2, Section 14.7 or otherwise.
9.3 Disputed Invoices. If any portion of any invoice is in dispute, ICL
shall inform Seller of the particulars of such dispute and shall pay the
undisputed portion thereof, and the disputed portion shall be paid with interest
at the rate specified in Section 9.2 upon settlement of the dispute. Any dispute
concerning an invoice shall be raised by ICL within eighteen (18) months of
receipt of such invoice.
9.4 Records of Seller. Seller shall maintain complete and accurate records
to support and document all invoices submitted
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pursuant to Section 9.1 hereof for a period of seven years. ICL shall have the
right to inspect and review at Seller's offices such records at any reasonable
time for the purpose of verifying the correctness of any invoice submitted by
Seller to ICL, any adjustment to the Current Coal Price, the Current
Transportation Price and the Current Ash Residue Disposal Fee and any
calculation of premiums and penalties for variations in quality. ICL has called
to the attention of Seller the provisions of Section 10.0 of the FPL Power
Purchase Agreement.
ARTICLE X
DISPOSAL OF ASH RESIDUE
Dry (Non-Pelletized)
10.1. Election of Seller. Not later than 12 months after the Financing
Closing Date, Seller shall notify ICL in writing whether or not it elects to
exercise the right to pelletize the Ash Residue as provided for in Section 13.1.
If Seller elects to pelletize the Ash Residue, the provisions of Article XIII
shall be applicable and the provisions of this Article X shall become
inapplicable until such time as the Parties agree that this Article X shall be
applicable in lieu of Article XIII. If no such notice is given by Seller by the
date specified, the provisions of this Article X shall remain applicable and the
provisions of Article XIII shall become applicable only upon agreement of the
Parties. The provisions which follow in this Article X pertain only to
non-pelletized or dry ash.
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10.2. Disposal of Ash Residue. ICL shall give Seller at least 12 months
notice of the date on which ICL expects Seller to commence disposal of Ash
Residue. Such notice shall provide Seller with an estimate of the quantities of
fly ash and bottom ash to be produced on a weekly basis between such date and
the Commercial Operations Date. ICL shall also give Seller prompt notice of any
change in such date and any change in tonnage. Upon commencement of Ash Residue
removal and disposal hereunder, ICL will load fly ash into pneumatic rail cars
(PD Cars) provided by ICL in accordance with Section 10.9 and bottom ash into
open top hopper cars (0Th Cars) of CSX in accordance with the Transportation
Agreement. Seller shall dispose and ICL shall provide and load one-hundred
percent (100%) of the Ash Residue produced at the Facility. ICL guarantees to
Seller that fly ash and bottom ash will be free flowing from the rail car at the
unloading point for the Ash Disposal Site except to the extent caused by factors
beyond the control of ICL after it is loaded into rail cars. ICL agrees that it
will reimburse Seller for all reasonable additional costs incurred by Seller in
unloading fly ash and bottom ash which is not in accordance with such guarantee.
10.3. Quantity and Removal Schedules.
ICL estimates that the quantity of fly ash to be disposed of by Seller is
approximately 144,000 Tons per Operating Year and that the quantity of bottom
ash to be disposed of by Seller is approximately 16,000 Tons per Operating Year.
ICL will provide estimates of the quantities of fly ash and bottom ash to be
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disposed of by Seller at the same time and for the same periods as provided for
coal requirements pursuant to Section 4.2. ICL will provide Seller with a
definitive estimate of the quantity of fly ash and bottom ash to be disposed of
during any month at the same time an Order for coal is submitted pursuant to
Section 4.3.
10.4 Quality of Ash Residue.
(a) ICL agrees that the specifications and handling characteristics
of the fly ash and bottom ash will be in compliance with Exhibit 10.4
attached hereto.
(b) ICL shall reimburse Seller for all reasonable additional costs
incurred by Seller in unloading or disposing of fly ash or bottom ash
which are the result of noncompliance with Exhibit 10.4 except to the
extent such deviation in specifications is the result of the quality of
the coal delivered by Seller hereunder.
(c) ICL represents and warrants that (i) the fly ash and bottom ash
as delivered to Seller will consist only of the reaction products
resulting from the burning of Seller's coal or substitute coal of
comparable quality at the Facility, including byproducts of the sulfur
removal process, and (ii) such fly ash and bottom ash will be free of any
foreign or extraneous materials, except for the addition of lime, ammonia
and waste water from the combustion process.
10.5 Ash Disposal Site. Seller agrees to dispose of all Ash Residue at
landfills which are authorized by Permits to receive such Ash Residue outside
the state of Florida unless ICL permits disposal within the state of Florida,
and agrees to dedicate
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sufficient landfill capacity to dispose of ICL's Ash Residue during the Term.
Seller's initial Ash Disposal Site is located near Ivel, Kentucky and is further
described on Exhibit 10.5. Seller will provide regular reports to ICL on the
status of all Permits and will provide ICL with access to applications for
Permits, correspondence relating thereto, and of draft Permits, and copies of
final Permits relating to the Ash Disposal Site. ICL agrees that all such
documents shall be subject to the provisions of Section 21.10. Seller represents
and warrants that it will obtain all necessary Permits for the disposal of Ash
Residue at the initial or any subsequent Ash Disposal Site utilized or as may be
required for any other method of such disposal utilized by Seller. Seller
further represents and warrants that it will comply with all Applicable Laws
relating to receiving, removal, transporting, and disposing of Ash Residue.
10.6. Loading. Weighing and Transportation of Ash Residue.
(a) [Not used]
(b) Storage Silos. ICL will construct a storage silo for fly ash
with a minimum capacity of 4,000 Tons, with a discharge rate of 250 Tons
per hour. ICL will construct a storage building for bottom ash with a
storage capacity of a minimum 130 Tons.
(c) Loading and Weighing. ICL will provide all equipment required
for loading fly ash into PD Cars and bottom ash into OTH Cars. Using
certified scales, ICL will determine the weight of fly ash loaded into PD
Cars and bottom ash
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loaded into OTH Cars, and will deliver a statement of such weight to
Seller within 24 hours after loading. Such scales will be certified,
maintained and operated in accordance with the Association of American
Railroads' Scale Handbook. Such weights will be used to calculate the Ash
Disposal Fees due hereunder. If ICL's scales are inoperable for any
reason, ICL shall be responsible for the cost of weighing Ash Residue
utilizing other certified scales.
(d) Trains. Not every train delivering Coal will necessarily include
PD Cars and OTH Cars for Ash Residue transportation, but Seller agrees to
instruct CSX that two out of every three consecutive trains will include
PD cars and OTH cars for transportation of Ash Residue, unless agreed to
otherwise by ICL. Seller will designate which trains include rail cars for
transportation of Ash Residue. The Transportation Agreement provides for
the transportation of Ash Residue from the Site to Seller's Ash Disposal
Site.
10.7. Seller's Right to Utilize Alternative Ash Residue Disposal Methods.
It is the intent of the Parties to provide Seller with the option to dispose of
the Ash Residue using methods different from those designated by Seller pursuant
to Exhibit 10.5, subject to ICL's prior written consent, not to be unreasonably
withheld. It shall not be unreasonable to withhold consent if after considering
all relevant factors, ICL reasonably determines that it would be materially
adversely affected by such alternative plan. Such alternative methods of
disposal shall include, without
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limitation, the sale of the Ash Residue for commercial use. Seller shall provide
ICL with a detailed plan for any such proposed alternative disposal method for
the Ash Residue and shall provide such additional information related to such
plan as ICL shall reasonably request. Seller agrees that it will endeavor but
not be obligated to find ways to recycle and/or market Ash Residue as
contemplated by this Section.
10.8. Ash Residue Disposal Fee. The Base Ash Residue Disposal Fee ("Base
Disposal Fee") to be paid to Seller for the disposal of Ash Residue under this
Article X shall be $14.00 per Ton as of January 1, 1992, which Fee is for
handling and disposal of the Ash Residue at the Ash Disposal Site. The Base
Disposal Fee shall be adjusted as of the Quarterly Adjustment Dates in the same
manner as the Transportation Price is adjusted pursuant to Section 7.5 hereof,
and as adjusted shall be known as the Current Ash Residue Disposal Fee. ICL
shall also reimburse Seller for the Ash Waste Rates per Ton paid by Seller to
CSX for the transportation of Ash Residue as set forth in Appendix A of the
Transportation Agreement (as adjusted on the Quarterly Adjustment Dates), plus
the Administrative Charge. ICL will provide PD Cars at no cost to Seller for the
transportation of fly ash.
10.9. Provisions Regarding PD Cars.
(a) ICL will provide such number of PD Cars as will be necessary to
transport all of the fly ash produced at the Facility in accordance with
the schedule provided for in Section 10.6(d), and ICL will enter into a
separate agreement with CSX regarding the operation of such PD Cars. A
copy of
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such agreement and any amendments thereto will be provided to Seller.
(b) ICL agrees that all PD Cars will be maintained in accordance
with Association of American Railroad (AAR) standards. Seller shall have
no responsibility for the operating condition of PD Cars and for payment
of any taxes associated with ownership or operation of PD Cars.
(c) Seller will be responsible for the PD Cars while in its custody
and not in the custody of CSX. If due to the negligence or other fault of
Seller, PD Cars are damaged or destroyed while in the custody of Seller
and not in the custody of CSX, Seller shall be liable therefor.
10.10. Permits For Ash Disposal Site.
(a) Obtaining of Permits. ICL and Seller will cooperate in
developing the data necessary for Seller to obtain Permits or modified
Permits required in connection with the disposal of Ash Residue. ICL and
Seller agree to cooperate in the Permit application process to ensure that
the modified Permits for the Ash Residue Disposal Sites will allow for the
disposal of Ash Residue having the chemical composition set forth on
Exhibit 10.4. If the Ash Residue is not in compliance with Seller's
Permits, Seller shall immediately notify ICL and the Parties shall meet to
determine the cause of such non-compliance. If such non-compliance is the
result of coal supplied by Seller, Seller shall continue to be required to
dispose of such Ash Residue and shall bear
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any additional costs and fines resulting from such disposal. If the Ash
Residue is not in compliance with Seller's Permits due to constituents
added by ICL, Seller and ICL shall cooperate in determining and
implementing a cure to such noncompliance and ICL shall bear any
additional costs and fines resulting from such non-compliance including
interim disposal costs in excess of Seller's normal disposal costs.
(b) Testing by Seller. Seller shall test the performance and impact
of the Ash Disposal Sites periodically to the extent such testing is
required by Applicable Laws. Testing shall include ground water monitoring
and water leaching tests as required by law.
(c) Testing by ICL. ICL shall test the Ash Residue at the Facility
every three months. Testing shall include the EPA toxicity test and the
TCLP leaching test. ICL shall provide Seller with results of such tests as
soon as available. Seller shall have the right at its own expense to test
the Ash Residue more frequently if necessary in its discretion or in order
to ensure compliance with Seller's Permits and Applicable Laws. Seller
recognizes that the chemical composition of the fly ash will be determined
by the characteristics of the ash in the coal delivered hereunder, except
for the addition of lime, ammonia and waste water.
10.11. Ash Residue From Replacement Coal. Subject to the limitations of
Seller's Permits and Applicable Laws, Seller shall have a continuing obligation
to dispose of Ash Residue produced
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from the burning of replacement coal purchased by ICL pursuant to Section 3.4.
If such replacement coal is purchased for the reason specified in Section
3.4(a), ICL shall be responsible for the transportation of such Ash Residue to
the Ash Disposal Site. If such replacement coal is purchased for the reasons
specified in Section 3.4(b), (c) or (d), Seller shall be paid (i) the Current
Ash Residue Disposal Fee as specified in Section 10.8, (ii) the adjusted Ash
Waste Rate for transportation of Ash Residue, as specified in the Transportation
Agreement, and (iii) the Administrative Charge on the adjusted Ash Waste Rate
paid by Seller. Seller shall have the right to make such arrangements as it
deems appropriate for the transportation and disposal of such Ash Residue. The
provisions of this Section 10.11 shall not be construed to limit other rights
and remedies of the Parties hereto including the right to terminate this
Agreement under applicable legal principles by reason of the events specified in
Section 3.4(a).
10.12. Failure of Seller to Dispose of Ash Residue. If Seller shall fail
to dispose of any Ash Residue as required under this Agreement, (unless such
failure shall be excused by Force Majeure) and if such failure by Seller is not
remedied within 120 hours of written notice given to Seller by ICL, and Seller
has not located and made available alternative Ash Residue disposal services,
ICL shall have the right to purchase replacement Ash Residue removal,
transportation, and disposal services from alternative sources to the extent and
for the duration reasonably
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necessary to enable ICL to replace the services not provided by Seller. In the
event that ICL purchases replacement Ash Residue removal, transportation, or
disposal services pursuant to this Section 10.12 which is not excused by Force
Majeure, Seller shall reimburse ICL for (i) any fines or penalties that ICL
incurs under any Applicable Laws as a direct result of such failure by Seller,
and (ii) the excess, if any, of the reasonable net costs incurred by ICL for the
purchase of such replacement services over the costs that otherwise would have
been incurred for the removal, transportation, or disposal of Ash Residue under
the terms of this Agreement. Seller shall have the right to audit and verify
such costs of replacement services purchased by ICL.
10.13. Title and Risk of Loss. Title to and risk of loss with respect to
the Ash Residue to be transported, and disposed of hereunder shall pass from ICL
to Seller upon loading of such Ash Residue into rail cars at the Site.
10.14. Hazardous Ash Residue. Except as provided in this Section 10.14,
Seller shall not be required at any time to dispose of any Ash Residue hereunder
which is reclassified as a hazardous waste under Applicable Laws. If Ash Residue
is reclassified as a hazardous waste, Seller shall submit to ICL a proposal as
soon as possible containing the terms under which Seller will arrange for the
disposal of such hazardous Ash Residue, which proposal may include an increase
in the Ash Residue Disposal Fee provided for in Section 10.8 based on additional
costs reasonably incurred as a result of disposing of such hazardous Ash
Residue. If ICL accepts
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Seller's proposal, an amendment to this Agreement shall be executed embodying
the terms of such proposal. If ICL rejects Seller's proposal, either Party may
terminate this Article X relating to disposal of Ash Residue without further
liability to the other Party.
10.15. Noncomplying Ash Residue other than Hazardous Ash Residue. Except
as provided in this Section 10.15, Seller shall not be required at any time to
dispose of any Ash Residue which is reclassified by Applicable Laws to a
category similar to that of a hazardous waste if such reclassification causes
such Ash Residue to violate existing Permits of Seller, or if such
reclassification prevents Seller from carrying out its Ash Residue disposal
obligations hereunder. If Ash Residue is reclassified to such category and
cannot be disposed of under Seller's existing Permits, Seller shall submit to
ICL a proposal as soon as possible containing terms under which Seller would
modify its Permits to allow Seller to dispose of such reclassified Ash Residue,
which proposal may include an increase in the Ash Residue Disposal Fee provided
for in Section 10.8 based on Seller's additional costs reasonably incurred as a
result of disposing of such reclassified Ash Residue. If ICL accepts Seller's
proposal, an amendment to this Agreement shall be executed embodying the terms
of such proposal. If ICL rejects Seller's proposal, the dispute shall be subject
to Dispute Resolution under Article XX.
10.16. Governmental Impositions. In the event Seller's costs of
transporting, handling or disposing of the Ash Residue are
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increased after the date of this Agreement due to (1) the enactment or adoption
of new federal, state or local laws or regulations; (2) the amendment of
existing federal, state or local laws or regulations; or (3) judicial or
administrative decisions affecting the interpretation and enforcement of
existing laws or regulations, the Current Ash Residue Disposal Fee shall be
increased by an amount necessary to reimburse Seller for such cost increases.
Seller shall submit to ICL substantiating documentation to show the cause and
amount of such cost increases. Seller shall notify ICL of any such cost
increases. Such cost increases shall be billed to ICL as a part of Seller's
regular monthly billings pursuant to Section 9.1. ICL will have full audit
rights to verify Seller's claim under this provision.
ARTICLE XI
WEIGHING, SAMPLING AND ANALYSIS
11.1 Weighing. The weights of coal delivered hereunder shall be determined
by use of Seller's belt or batch scales at the source mines. Such scales shall
be certified, maintained and tested by Seller in accordance with the Association
of American Railroads' Scale Handbook. ICL shall have the right, at its expense,
to have a representative present at any and all times to observe the weighing of
coal hereunder or Seller's maintenance or testing of its scales. If, for any
reason, Seller's scales are unavailable or do not record a weight for any
Shipment, then the nearest available railroad scales shall be used at Seller's
expense. If no railroad scales are reasonably available, then weights shall be
determined
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by reference to the average loaded weight per rail car of the same size which
was utilized to deliver coal hereunder during the most recent five prior
Shipments, or by other accepted common carrier methods.
11.2 Sampling. A representative sample of all coal from each loading
facility contained in each Shipment of coal shall be taken by Seller at the time
the coal is loaded into rail cars using a mechanical sampling system taking full
stream increments or other approved ASTM method. Each representative sample of a
Shipment shall be divided into three parts, and each part shall be placed into
an airtight container and suitably labeled. One part of each sample shall be
retained for analysis by Seller; one part shall be delivered to ICL if requested
by ICL; and the third part shall be retained by Seller for a period of 45 days
from the date of sampling for referee analysis pursuant to Section 11.4.
Seller's sampling and sample preparation shall be performed in accordance with
ASTM Methods D-2234 and D-2013, respectively. ICL shall have the right at its
expense to have a representative present at any and all times to observe the
sampling and sample preparation hereunder and to obtain sample splits for check
purposes.
11.3 Analysis. Seller shall analyze Seller's part of each sample in
accordance with the procedures set forth in Exhibit 11.3. The analysis of each
Shipment consisting of coal loaded at more than one loading facility shall be
the mathematical weighted average analysis of all samples taken from such
Shipment. The analysis for moisture, ash, sulfur (expressed in pounds of SO(2)
per
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million Btus) and Btus per pound shall be reported by Seller to ICL by fax or
telephone within 24 hours following the loading of such Shipment, and shall be
confirmed in writing. Such analysis shall be used to determine ICL's right to
reject coal pursuant to Section 6.3. As soon as practicable following the end of
each month, Seller shall provide to ICL a report of the monthly average analysis
of each of the characteristics listed in Exhibit 6.1 for all coal delivered
hereunder during such month. If ICL disputes any analysis made by Seller, then
the referee part of the same sample shall be sent promptly by Seller to an
independent laboratory as specified in Section 11.4. Seller's analysis shall be
determinative of coal quality under this Agreement unless such analysis is
superseded pursuant to the provisions of Section 11.4. ICL shall have the right
at its expense to have a representative present at any and all times to observe
Seller's analyses hereunder.
11.4 Independent Laboratory. The parties hereby designate Mineral Labs,
Inc., headquartered at Salyersville, Kentucky, as the Independent Laboratory for
referee analysis of any disputed analysis made by Seller. The parties hereby
designate Standard Laboratories, Inc. with an office at South Charleston, West
Virginia, as an alternate Independent Laboratory if for any reason the first
named Independent Laboratory is unavailable or becomes unacceptable to either
party. With respect to the characteristics of the coal in dispute, the analysis
of Seller shall be deemed to have been confirmed if the difference between the
analysis of such
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Independent Laboratory and Seller's analysis is within the tolerance as
specified within the applicable ASTM standards. If Seller's analysis is so
confirmed, then all costs of such referee analysis shall be borne by ICL. If
Seller's analysis is not so confirmed, then such analysis shall be superseded by
the analysis of the Independent Laboratory, and all costs of such referee
analysis shall be borne by Seller.
ARTICLE XII
FORCE MAJEURE
12.1 Definition of Force Majeure. The term "Force Majeure" shall mean any
event beyond the control of a Party and not caused by the fault of such Party,
including, but not limited to, an act of God or of the public enemy; sabotage;
fire; flood; war; tornado, hurricane or other severe weather or climatic
condition; riot; insurrection; vandalism; sabotage; explosion; embargo;
blockade; changes in any Applicable Laws; act or restraint of any civil or
military governmental authority; a strike or other labor dispute; or any other
event, whether or not foreseen or foreseeable by either or both of the parties,
and whether similar or dissimilar to those enumerated herein, which causes a
failure or inability of such Party to perform any obligation hereunder,
including (i) production, loading or delivery of the coal by Seller, (ii)
receiving, removal, transportation or disposal of Ash Residue by Seller, (iii)
the receiving, transporting, unloading, storing or burning of the coal by ICL,
(iv) the loading of Ash Residue by ICL,
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or otherwise prevents the performance of a Party's obligations hereunder.
12.2 Consequence of Force Majeure. A Party's failure or inability to
perform any of its obligations hereunder, except obligations to make payments of
money due to the other Party hereunder, shall be excused to the extent caused by
Force Majeure. Deficiencies in the quantity of coal delivered hereunder due to
Force Majeure shall not be made up except by mutual consent of the Parties. The
Party claiming excuse because of Force Majeure shall give notice by telephone to
the other Party immediately upon becoming aware of such Force Majeure, with such
notice being confirmed in writing as soon as practicable under the
circumstances. Such notice to the other Party shall describe the circumstances
of the event or cause giving rise to the claim of Force Majeure and the
anticipated duration thereof. During the existence of any Force Majeure
preventing delivery of coal by Seller, ICL shall have the right to purchase and
utilize replacement coal from other suppliers to the extent of such nondelivery.
During the existence of any Force Majeure preventing utilization of coal by ICL,
Seller shall have the right to sell coal dedicated to ICL to third parties in
the quantity which would have been delivered to ICL but for such Force Majeure.
12.3 Events Beyond Control of a Party. A strike or other labor dispute
shall be deemed to be beyond the control of the Party whose performance is
interrupted or prevented by such strike or labor dispute, and the settlement of
such strike or labor dispute
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shall be at the sole discretion of such Party. Economic hardship experienced by
a Party in carrying out its obligations hereunder shall not constitute Force
Majeure. Subject to the foregoing, a Party claiming excuse by reason of a Force
Majeure event shall exercise commercially reasonable good faith efforts to
remedy or overcome such event as soon as practicable under all the
circumstances. The suspension of performance shall be of no greater scope or
duration than is reasonably attributable to such Force Majeure.
12.4 Substitute Coal Obligation of Seller. In the event Force Majeure
causes a failure or inability of Seller to supply coal from the Ivel Loading
Facility pursuant to Orders sent to Seller by ICL hereunder, Seller will, at
ICL's option, and to the extent of "available capacity" as hereinafter defined,
supply substitute coal at the Current Coal Price as adjusted for any additional
amounts required to compensate Seller for the added cost incurred in supplying
coal from the alternate location in question (including, without limitation, the
cost of loading, preparation, transportation, mining or increase in work force)
from any of Seller's mines in Eastern Kentucky, West Virginia and Alabama;
provided, however, that if for a continuous period of 6 months or more prior to
the event of Force Majeure, Seller was supplying coal hereunder at the
applicable Current Coal Price from a location other than the Ivel Loading
Facility (hereinafter called an "Actual Pre-existing Source"), whether from
another mine of Seller or by purchase from another supplier, then Seller shall
continue to
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supply substitute coal hereunder in the same quantities at the Current Coal
Price from such Actual Pre-existing Source. In the case of Actual Pre-Existing
Sources which are coal suppliers other than Seller, Seller's obligation to
supply substitute coal shall be limited to the remaining term of any existing
purchase order from such coal supplier, and shall include reasonable efforts to
renew such purchase orders. In the case of coal supplied from Seller's other
mines, "available capacity" means coal that can be produced without a
significant increase in Seller's mining costs, a significant change in Seller's
work force or schedule, or adversely affecting the overall mine plan, which coal
is in excess of the total quantity scheduled to be produced for all of Seller's
customers under binding contracts or purchase orders. At ICL's request, Seller
will use its best efforts to assist ICL in procuring suitable substitute coal on
the best terms available.
ARTICLE XIII
DISPOSAL OF PELLETIZED ASH
13.1. Election of Seller. Seller shall have the right to elect to
Pelletize the Ash Residue as provided for in this Article XIII, subject to the
approval by ICL of the Pelletizing process to be used, such approval not to be
unreasonably withheld. Not later than 12 months after the Financing Closing
Date, Seller shall notify ICL in writing whether or not it elects to exercise
such right to Pelletize the Ash Residue. As a part of such notice or prior
thereto, Seller shall furnish detailed information concerning
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the proposed Pelletizing process, Permits required, proposals for utilization of
ICL property, capital improvements required and how such improvements will be
financed and other relevant information required for ICL to determine whether it
will consent. If Seller elects to Pelletize the Ash Residue, the provisions of
this Article XIII shall be applicable and the provisions of Article X shall
become inapplicable. If no such notice is given by Seller by the date specified,
the provisions of Article X shall remain applicable and the provisions of this
Article XIII shall become effective only by agreement of the Parties.
13.2 Ash Pelletizing Facility. If ICL approves Seller's proposed method of
Pelletizing the Ash Residue, ICL and Seller may enter into a mutually agreed
upon lease whereby ICL leases to Seller a suitable tract of land at the Site for
the construction and operation of an ash Pelletizing facility ("Pelletizing
Facility"). Seller's right to subcontract with a third party for the
construction and operation of the Pelletizing Facility is governed by Section
13.17. The Pelletizing Facility shall be completely operational by the
Preliminary Operations Date, and shall comply with all Applicable Laws and all
reasonable regulations of ICL relating to the Site.
13.3. Pelletizing, Transportation, and Disposal Obligation. ICL shall give
Seller at least 12 months notice of the date on which ICL expects Seller to
commence Pelletizing of Ash Residue. Such notice shall provide Seller with an
estimate of the quantities of fly ash and bottom ash to be produced on a weekly
basis between
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such date and the Commercial Operations Date. ICL shall also give Seller prompt
notice of any change in such date and any change in tonnage. Upon commencement
of Seller's obligations to accept Ash Residue produced at the Facility, ICL
shall provide and deliver 100% of such fly ash and bottom ash to a location to
be described in Seller's plan for the Pelletizing Facility ("Acceptance Point")
for delivery to the Pelletizing Facility. Seller shall cause such fly ash and
bottom ash to be Pelletized, loaded into rail cars used to deliver coal to the
Site, transported to the Ash Disposal Site and disposed of at the Ash Disposal
Site.
13.4. Quantity and Removal Schedules.
(a) Quantity. ICL estimates that the quantity of fly ash to be
delivered to the Acceptance Point for Pelletizing shall be approximately
144,000 Tons per Operating Year, and that the quantity of bottom ash to be
delivered to the Acceptance Point for Pelletizing shall be approximately
16,000 Tons per Operating Year.
(b) ICL will provide estimates of the quantities of fly ash and
bottom ash to be removed by Seller at the same time and for the same
periods as provided for coal requirements pursuant to Section 4.2. ICL
will provide Seller with a definitive estimate of the quantity of fly ash
and bottom ash to be removed during any month at the same time an Order
for coal is submitted pursuant to Section 4.3.
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13.5 Quality of Ash Residue.
(a) ICL agrees that the specifications and handling characteristics
of the fly ash and bottom ash will be in compliance with Exhibit 13.5
attached hereto.
(b) ICL shall reimburse Seller for all reasonable additional costs
incurred by Seller in Pelletizing or disposing of fly ash or bottom ash
which is the result of noncompliance with Exhibit 13.5 except to the
extent such deviation in specifications is the result of the quality of
the coal delivered by Seller hereunder.
(c) ICL represents and warrants that (i) the fly ash and bottom ash
as delivered to Seller will consist only of the reaction products
resulting from the burning of Seller's coal or substitute coal of
comparable quality in the Facility, including byproducts of the sulfur
removal process, and (ii) such fly ash and bottom ash will be free of any
foreign or extraneous materials, except for the addition of lime, ammonia
and waste water from the combustion process.
13.6 Ash Disposal Site. Seller agrees to dispose of all Pelletized Ash
Residue at landfills which are authorized by Permits to receive such Ash Residue
outside the state of Florida unless ICL permits disposal within the state of
Florida, and Seller agrees to dedicate sufficient landfill capacity to dispose
of ICL's Ash Residue during the Term hereof. Seller's initial Ash Disposal Site
is located near Ivel, Kentucky, and is further described on Exhibit 13.6. Seller
will provide regular reports to ICL on the status of all Permits, and will
provide ICL with access to
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applications for Permits, correspondence relating thereto, and of draft Permits
and copies of final Permits relating to the Ash Disposal Site. ICL agrees that
all such documents shall be subject to the provisions of Section 21.10. Seller
represents and warrants that it will obtain all necessary Permits for the
disposal of Ash Residue at the initial or any subsequent Ash Disposal Site
utilized or as may be required for any other method of such disposal utilized by
Seller. Seller further represents and warrants that it will comply with all
Applicable Laws relating to receiving, removal, transporting, and disposing of
Ash Residue.
13.7. Pelletizing, Storage and Weighing.
(a) Pelletizing Activities. The activities of Seller or Seller's
subcontractor at the Site shall not interfere with the operations of ICL
at the Facility or any other operations at the Site. ICL shall use
reasonable efforts to coordinate the unloading of coal with the loading of
Pelletized Ash Residue.
(b) Storage of Unpelletized Ash. ICL will construct a storage silo
for fly ash with a minimum capacity of 4,000 Tons, with a discharge rate
of 250 Tons per hour. ICL will construct a storage building for bottom ash
with a storage capacity of a minimum 130 Tons. ICL will provide all
equipment required for delivery of the fly ash and bottom ash to the
Acceptance Point for the Pelletizing Facility.
(c) Weighing. Using certified scales, ICL will determine the weight
of the Ash Residue as delivered to the
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Acceptance Point, and will deliver a statement of such weight to Seller
within 24 hours after such delivery. Such scales will be certified,
maintained, and operated in accordance with the Association of American
Railroads' Scale Handbook. Such weights will be used to calculate the Ash
Residue Disposal Fee provided for in Section 13.9. If ICL's scales are
inoperable for any reason, ICL shall be responsible for the cost of
weighing Ash Residue utilizing other certified scales.
(d) [Not used]
(e) [Not used]
(f) It is agreed that Seller shall be responsible for any demurrage
payable to CSX as a result of empty OTH Cars remaining at the Site at the
request of Seller for the purpose of loading Pelletized Ash Residue.
(g) The Transportation Agreement provides for the transportation of
Pelletized Ash Residue from the Site to the Ash Disposal Site.
13.8 Seller's Right To Utilize Alternative Ash Residue Disposal Methods.
It is the intent of the Parties to provide Seller with the option to dispose of
the Ash Residue utilizing methods different from those provided for in this
Article XIII. Such alternative methods shall be subject to ICL's prior written
consent, not to be unreasonably withheld. It shall not be unreasonable to
withhold consent if after considering all relevant factors, ICL reasonably
determines that it would be materially adversely affected by such alternative
plan. Such alternative
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methods of disposal shall include without limitation the sale of the Ash Residue
for commercial use. Seller shall provide ICL with a detailed plan for any such
proposed alternative disposal method for the Ash Residue and shall provide such
additional information related to such plan as ICL shall reasonably request.
Seller agrees that it will endeavor but not be obligated to find ways to recycle
and market Ash Residue as contemplated by this Section.
13.9. Ash Residue Disposal Fee. ICL agrees to pay Seller Base Ash Residue
Disposal Fee of $32.93 as of January 1, 1992 per Ton of fly ash and bottom ash
weighed as it is delivered to the Acceptance Point of the Pelletizing Facility.
The Base Ash Residue Disposal Fee includes: (i) all costs of delivery of Ash
Residue from the Acceptance Point to the Pelletizing Facility; (ii) all costs of
Pelletizing; (iii) the Ash Waste Rate payable to CSX for transporting the
Pelletized Ash Residue to the Disposal Site as provided in Appendix A to the
Transportation Agreement; and (iv) disposal costs at the Disposal Site. The Base
Ash Residue Disposal Fee shall be adjusted as of the Quarterly Adjustment Dates
in the same manner as the Transportation Price is adjusted pursuant to Section
7.5 hereof, and as adjusted shall be known as the Current Ash Residue Disposal
Fee. ICL agrees to pay Seller the Administrative Charge on the adjusted Ash
Waste Rate payable to CSX for transportation of the Ash Residue.
13.10. Permits For Ash Residue Disposal Site.
(a) Obtaining of Permits. ICL and Seller will cooperate in
developing the data necessary for Seller to obtain the Permits or modified
Permits required in connection with the Pelletizing, transportation, and
disposal of Ash Residue. ICL
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and Seller agree to cooperate in the Permit application process to ensure
that the Permits for the Ash Residue Disposal Sites will allow for the
disposal of Ash Residue having the chemical composition set forth in
Exhibit 13.5. If the Ash Residue is not in compliance with Seller's
Permits, Seller shall immediately notify ICL and the Parties shall meet to
determine the cause of such non-compliance. If such non-compliance is the
result of coal supplied by Seller, Seller shall continue to be required to
dispose of such Ash Residue and shall bear any additional costs and fines
resulting from such disposal. If the Ash Residue is not in compliance with
Seller's Permits due to constituents added by ICL, Seller and ICL shall
cooperate in determining and implementing a cure to such non-compliance
and ICL shall bear any additional costs and fines resulting from such
non-compliance including interim disposal costs in excess of Seller's
normal disposal costs.
(b) Testing by Seller. Seller shall test the performance and impact
of the Ash Residue Disposal Sites periodically to the extent such testing
is required by Applicable Laws. Testing shall include ground water
monitoring and water leaching tests as required by law.
(c) Testing by ICL. ICL shall test the Ash Residue at the Facility
every three months. Testing shall include the EPA toxicity test and the
TCLP leaching test. ICL shall provide Seller with results of such tests as
soon as available. Seller shall have the right at its own expense to
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test the Ash Residue more frequently if necessary in its discretion or in
order to ensure compliance with the Seller's Permits and Applicable Laws.
Seller recognizes that the chemical composition of the fly ash will be
determined by the characteristics of the ash in the coal delivered
hereunder, except for the addition of lime, ammonia and waste water.
13.11. Ash Residue From Replacement Coal. Subject to the limitations of
Seller's Permits and Applicable Laws, Seller shall have a continuing obligation
to accept, Pelletize, transport and dispose of Ash Residue produced from the
burning of replacement coal purchased by ICL pursuant to Section 3.4. If such
replacement coal is purchased for the reason specified in Section 3.4(a), ICL
shall be responsible for the transportation of such Ash Residue to the Ash
Disposal Site, and ICL shall pay Seller the Current Ash Residue Disposal Fee
less the adjusted Ash Waste Rate payable to CSX. If such replacement coal is
purchased for the reasons specified in Section 3.4(b), (c) or (d), Seller shall
be paid the Current Ash Residue Disposal Fee specified in Section 13.9. ICL
shall pay Seller the Administrative Charge on Ash Waste Rates paid by Seller.
Seller shall have the right to make such arrangements as it deems appropriate
for the transportation and disposal of such Pelletized Ash Residue. The
provisions of this Section 13.11 shall not be construed to limit other rights
and remedies of the Parties hereto including the right to terminate this
Agreement under applicable legal principles by reason of the events specified in
Section 3.4(a).
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13.12. Damages for Failure of Seller to Pelletize, Transport and Dispose
of Ash Residue. If Seller shall fail to take delivery of at the Acceptance
Point, Pelletize, transport, and dispose of any Ash Residue as required under
this Agreement (unless such failure shall be excused by Force Majeure) and if
such failure is not remedied within 120 hours of written notice given by ICL to
Seller, ICL shall have the right to purchase replacement Ash Residue removal,
transportation, and disposal services from alternative sources to the extent and
for the duration reasonably necessary to enable ICL to replace the services not
provided by Seller. Upon notice by ICL, Seller shall use its best efforts to
assist ICL in finding and acquiring such services from alternative sources. In
the event that ICL purchases replacement Ash Residue removal, transportation, or
disposal services pursuant to this Section 13.12 which is not excused by Force
Majeure, Seller shall reimburse ICL for (i) any fines or penalties that ICL
incurs under any Applicable Laws as a result of such failure by Seller, and (ii)
the excess, if any, of the reasonable net costs incurred by ICL for the purchase
of such replacement services over the costs that otherwise would have been
incurred for the removal, transportation, or disposal of Ash Residue under the
terms of this Agreement. Seller shall have the right to audit and verify such
costs of replacement services purchased by ICL.
13.13. Title and Risk of Loss. Title to and risk of loss with respect to
the Ash Residue to be removed, transported, and disposed of hereunder shall pass
from ICL to Seller upon delivery
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of such Ash Residue at the Acceptance Point of the Pelletizing Facility.
13.14. Hazardous Ash Residue. Except as provided in this Section 13.14,
Seller shall not be required at any time to accept, Pelletize, transport or
dispose of any Ash Residue hereunder which is reclassified as a hazardous waste
under Applicable Laws. If Ash Residue is reclassified as a hazardous waste,
Seller shall submit to ICL a proposal as soon as possible containing the terms
under which Seller will arrange for the Pelletizing, transportation and disposal
of such hazardous Ash Residue, which proposal may include an increase in the Ash
Residue Disposal Fee provided for in Section 13.9 based on additional costs
reasonably incurred as a result of Pelletizing, transporting, and disposing of
such hazardous Ash Residue. If ICL accepts Seller's proposal, an amendment to
this Agreement shall be executed embodying the terms of such proposal. If ICL
rejects Seller's proposal, either Party may terminate this Article XIII relating
to disposal of Ash Residue without further liability to the other Party.
13.15. Noncomplying Ash Residue other than Hazardous Ash Residue. Except
as provided in this Section 13.5, Seller shall not be required at any time to
accept, Pelletize, transport and dispose of any Ash Residue which is
reclassified by Applicable Laws to a category similar to that of a hazardous
waste if such reclassification causes such Ash Residue to violate existing
Permits of Seller or if such reclassification otherwise prevents Seller from
carrying out its Ash Residue disposal obligations
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hereunder. If Ash Residue is reclassified to such category and cannot be
disposed of under Seller's existing permits, Seller shall submit to ICL a
proposal as soon as possible containing terms under which Seller would modify
its Permits to allow Seller to accept, Pelletize, transport and dispose of such
reclassified Ash Residue, which proposal may include an increase in the Ash
Residue Disposal Fee based on Seller's additional costs reasonably incurred as a
result of Pelletizing, transporting and disposing of such reclassified Ash
Residue. If ICL accepts Seller's proposal, an amendment to this Agreement shall
be executed embodying the terms of such proposal. If ICL rejects Seller's
proposal, the dispute shall be subject to Dispute Resolution under Article XX.
13.16. Governmental Impositions. In the event Seller's costs of
Pelletizing, transporting, handling or disposing of the Ash Residue are
increased after the date of this Agreement due to (1) the enactment or adoption
of new federal, state or local laws or regulations; (2) the amendment of
existing federal, state or local laws or regulations; or (3) judicial or
administrative decisions affecting the interpretation and enforcement of
existing laws or regulations, the Current Ash Residue Disposal Fee shall be
increased by an amount necessary to reimburse Seller for such cost increases.
Seller shall submit to ICL substantiating documentation to show the cause and
amount of such cost increases. Seller shall notify ICL of any such cost
increases. Such cost increases shall be billed to ICL as a part of Seller's
regular monthly billings
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pursuant to Section 9.1. ICL will have full audit rights to verify Seller's
claim under this provision.
13.17 Seller's Right To Subcontract The Pelletizing Facility. If Seller
exercises the right to Pelletize Ash Residue pursuant to Section 13.1, Seller
expects to enter into a subcontract with a third party for the purpose of
constructing and operating the Pelletizing Facility. Any such subcontract with a
third party shall be subject to ICL's prior written approval, such approval not
to be withheld unless ICL reasonably determines that, considering all relevant
factors it is or would be materially adversely affected by such subcontract. In
the event Seller desires to enter into any such arrangement, Seller shall (i)
inform ICL of the identity of the party to provide such services, (ii) provide
to ICL copies of all proposed agreements between Seller and such third party
(except that Seller shall not be required to disclose the financial terms, or
terms subject to confidentiality obligations of such agreements) and (iii)
provide ICL with such other information about such third party as ICL may
reasonably request. ICL's approval of such subcontract shall not constitute
ICL's release of Seller from any of its obligations hereunder or approval of the
quality of such third party's performance.
13.18. ICL's Option to Acquire the Pelletizing Facility. In the event this
Agreement terminates for any reason, ICL shall have the following options:
(a) If the Pelletizing Facility is owned by Seller, ICL shall have
the option to acquire ownership of the Pelletizing
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Facility upon payment to Seller of a mutually agreed upon price. Upon such
payment by ICL, the lease described in Section 13.2, if in effect, shall
be terminated.
(b) If the Pelletizing Facility is operated by a third party under
contract with Seller, ICL shall have the option to require Seller to
assign such contract for operations to ICL or its designee. Seller hereby
agrees that it will cause any such contract to be assignable to ICL.
(c) The options set forth in this Section 13.18 shall be exercised
by the giving of written notice by ICL to Seller within 30 days following
termination of this Agreement.
ARTICLE XIV
DEFAULT AND REMEDIES
14.1 Events of Default. An event of default ("Default") under this
Agreement shall be deemed to exist upon the occurrence of any one or more of the
following events:
(a) Failure by either Party to make payment of any amount due the
other Party under this Agreement, which failure continues for a period of
30 days (the "Cure Period") after written notice of such nonpayment
(unless payment of such amount is contested or otherwise disputed in good
faith in accordance with the provisions of this Agreement);
(b) Seller's unexcused failure to cause the delivery of quantities
of coal set forth by ICL on Orders submitted pursuant to Section 4.3 such
that there exists during any
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consecutive 12 month period an aggregate unexcused deficiency of 100,000
Tons.
(c) Seller's unexcused failure to accept and remove from the Site an
aggregate unexcused quantity of 10,000 Tons of Ash Residue during any
consecutive 12 month period.
(d) The failure of Seller to provide Adequate Assurances within
thirty (30) days as specified in Section 6.3, Section 6.4, or Section
6.5(a), and such failure continues for the Cure Period.
(e) The continuing failure of either Party to perform any other
material covenant, agreement or undertaking provided for in this
Agreement, and such failure continues for the Cure Period after a notice
has been given by the Party asserting that the other Party is in Default
(such notice shall state that it is a "Notice of Default" hereunder)
unless such Default could not have been corrected within such 30 day
period and the Party in Default can demonstrate that steps have been taken
to cure the Default within a reasonable period of time (which shall not
exceed 90 days) and the Party in Default proceeds with all due diligence
to cure the Default within a reasonable period of time (the "Extended Cure
Period").
(f) An assignment of this Agreement which is not permitted or
consented to pursuant to Article XVIII.
14.2 Remedies for Default. Upon the occurrence and during the continuance
of a Default under Section 14.1, the Party not in
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Default shall be entitled to any of the following remedies in addition to any
other remedies otherwise provided by law:
(a) To effect a termination of this Agreement (a "cancellation"
within the meaning of Section 2-106(4) of the UCC) by written notice to
the Party in Default upon the expiration of any applicable Cure Period, or
Extended Cure Period if applicable.
(b) Upon a showing that its remedy at law is inadequate, to obtain
an order compelling specific performance of this Agreement and injunctive
relief restraining any actual or threatened breach of any material
obligation of the other Party under this Agreement, subject to the
requirements of Applicable Law relating to such remedy.
(c) In the case of a Default of ICL in the payment of amounts due to
Seller hereunder, Seller shall have the following remedies in addition to
those otherwise specified in Section 9.2 or in this Section 14.2: (i) to
recover interest as specified in Section 9.2 hereof; and (ii) to recover
damages incurred by Seller as a result of such Default as specified in the
UCC.
14.3 Other Defaults and Remedies.
In the case of the event described in Section 3.4, Seller shall be liable
for damages specified in the UCC to the extent applicable. Seller shall be
afforded a reasonable opportunity to provide substitute coal to mitigate its
costs of cover and any other applicable damages, subject to the reasonable
determination
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of ICL that the quality of such substitute coal is suitable for burning at the
Facility.
14.4 Disclaimer of Certain Damages. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
ARISING OUT OF THE PERFORMANCE OF OR DEFAULT ARISING UNDER THIS AGREEMENT
WHETHER BASED UPON CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY),
WARRANTY OR ANY OTHER LEGAL THEORY.
14.5 Limitation of Liability. Seller accepts the limitation on liability
of the "FPL Entities" to Seller as set forth in Section 18.3 of the FPL Power
Purchase Agreement.
14.6 Waiver of Default. Either Party may waive a Default by the other
Party, provided that no such waiver shall be binding unless reduced to writing,
and any such waiver shall be deemed to extend only to the particular Default
waived and shall not limit or otherwise affect any rights that either Party may
have with respect to any prior or subsequent Default.
14.7 Cumulative Remedies. Except as otherwise expressly provided herein,
none of the remedies provided in this Agreement is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to herein
or otherwise available to either Party at law or in equity. Remedies for
deficiencies in the quality of coal shall be limited to those set forth in
Article VI.
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ARTICLE XV
REPRESENTATIONS, WARRANTIES AND COVENANTS
15.1 Seller's Representations and Warranties. In addition to the
representations and warranties contained in Sections 3.2 and 6.1, Seller
represents and warrants as follows:
(a) That Seller is a corporation organized, validly existing and in
good standing under the laws of the State of Delaware with full power and
authority to enter into this Agreement.
(b) That the persons executing and delivering this Agreement on
Seller's behalf are acting pursuant to proper authorization, and this
Agreement is the valid and binding obligation of Seller and is enforceable
in accordance with its terms.
(c) That Seller will apply for and use its best efforts to obtain on
a timely basis all Permits necessary to perform its obligations under this
Agreement, and that Seller will use its best efforts to comply with all
Applicable Laws relating to performance under this Agreement. Seller
expects that the Permits will be issued on a timely basis.
(d) The Ash Disposal Site described in Article X (or Article XIII,
if applicable) has sufficient capacity to receive all of the Ash Residue
produced by the Facility during the Term hereof.
15.2 Representations and Warranties of ICL. ICL warrants and represents as
follows:
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(a) That ICL will apply for and use its best efforts to obtain on a
timely basis all Permits necessary to construct and operate the Facility,
and that ICL will use its best efforts to comply with all Applicable Laws
relating to the Facility. ICL expects that such Permits will be issued on
a timely basis.
(b) That ICL is a Limited Partnership organized, validly existing
and in good standing under the laws of Delaware with full power and
authority to enter into this Agreement, and that its General Partners are
Palm Power Corporation, with 49% of the partnership interests, an indirect
wholly-owned subsidiary of Bechtel Group, Inc., Toyan Enterprises, Inc.,
with 49% of the partnership interests, an indirect wholly-owned subsidiary
of Pacific Gas & Electric Company; and PG&E Generating Company, a
subsidiary of Pacific Gas & Electric Company; with 2% of the partnership
interests; that all such corporate partners are validly existing, are in
good standing under their law of incorporation. It is understood that ICL
may admit additional partners, subject to the restrictions in Article
XVIII, and will promptly notify Seller of the identity of such partners
and the percentage of ownership of each.
(c) That the person executing and delivering this Agreement on ICL's
behalf is acting pursuant to proper authorization and that this Agreement
is the valid and binding
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obligation of ICL and is enforceable in accordance with its terms.
15.3 Exclusions of Warranties. SELLER HEREBY DISCLAIMS AND ICL HEREBY
WAIVES ANY AND ALL IMPLIED WARRANTIES RESPECTING THE QUALITY OF COAL DELIVERED
HEREUNDER, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15.4 Special Covenants of Seller. In addition to all other covenants of
Seller made herein, Seller hereby covenants and agrees as follows:
(a) Seller will provide the following to the Financing Parties at
the Financing Closing Date: (i) A certificate that all representations and
warranties of Seller hereunder are true and correct in all material
respects and are in full force and effect as of such date of closing, and
that Seller has not received a Notice of Default from ICL hereunder; and
(ii) the consent or agreement and any amendment or addition to this
Agreement described in Section 18.3(b).
15.5 Covenants of Good Faith. Each Party hereby covenants that all actions
in carrying out the provisions of this Agreement will in each instance be taken
in good faith and in a spirit of commercial reasonableness.
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ARTICLE XVI
INDEMNIFICATION
16.1 Seller Indemnity. Seller agrees to defend, indemnify and hold
harmless ICL, from and against any and all liabilities (including third party
liabilities), lawsuits, claims, damages, losses, fines, penalties and
assessments by any public agency, costs and expenses (including costs and
expenses of defense, settlement and reasonable attorneys' fees), which are
incurred by ICL (i) as a result of Seller's material violation of any Applicable
Laws relating to Seller's performance under this Agreement; (ii) as a result of
Seller's fault or negligence to the extent that it renders Seller liable to ICL
under law for such liabilities, or (iii) as a result of any breach by Seller of
any warranties, representations or covenants hereunder, except to the extent
that any such damages, losses or expenses are the result of the fault,
negligence or failure to comply with this Agreement by ICL.
16.2 ICL Indemnity. ICL agrees to defend, indemnify and hold harmless
Seller from and against any and all liabilities (including third party
liabilities), lawsuits, claims, damages, losses, property damage, fines,
penalties and assessments by any public agency, costs and expenses (including
costs and expenses of defense, settlement and reasonable attorneys' fees), which
are incurred by Seller (i) as a result of ICL's material violation of any
Applicable Laws relating to ICL's performance under this Agreement; (ii) as a
result of ICL's fault or negligence to the
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extent that it renders ICL liable to Seller under law for such liabilities; or
(iii) as a result of any breach by ICL of any warranties, representations or
covenants hereunder, except to the extent that any such damages, losses or
expenses are the result of the fault, negligence or failure to comply with this
Agreement by Seller.
16.3 Effect of Indemnification. The indemnification provided for in this
Article XVI shall not provide an alternative remedy for any failure to deliver
coal hereunder or for any deficiencies in the quality of coal delivered
hereunder or for any liabilities, damage or losses which are expressly addressed
in any other Article or Section of this Agreement; the remedies expressly
provided for in such other Article or Section of this Agreement shall, to the
extent applicable, govern the rights and obligations of the Parties instead of
the remedies provided for in this Article XVI.
16.4 Notice and Legal Defense. Promptly upon receipt by a party entitled
to indemnification under this Article XVI (the "Indemnified Party") of any claim
as to which such indemnification may be applicable ("Claim"), the Indemnified
Party shall notify the other party (the "Indemnifying Party") of such fact in
writing with the details of such Claim. The Indemnifying Party shall assume the
defense thereof with counsel of its choice, subject to the reasonable approval
of the Indemnified Party. If the parties against whom the Claim is asserted
include both the Indemnified Party and the Indemnifying Party, and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses
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available to it which are different from, additional to or inconsistent with,
those available to the Indemnifying Party, the Indemnified Party shall have the
right to select separate counsel to participate in the defense of such Claim on
behalf of such Indemnified Party, at the Indemnifying Party's expense to the
extent the Claim in question is properly to be indemnified by the Indemnifying
Party. The Indemnified Party shall retain authority, in the reasonable exercise
of its discretion, to (i) review communications with and submission of any
documents to any court or governmental authority having jurisdiction over the
Claim; and (ii) approve any settlement of the Claim.
16.5 Failure to Defend Claim. Should the Indemnified Party be entitled to
indemnification under this Article XVI as a result of a Claim by a third party,
and should the Indemnifying Party fail to assume the defense of such Claim,
having received notice as required by Section 16.4, the Indemnified Party may at
the expense of the Indemnifying Party contest (or, with the prior written
consent of such Indemnifying Party, not to be unreasonably withheld, settle)
such Claim; provided, that no such contest need be made, and settlement or full
payment of any such Claim may be made without consent of the Indemnifying Party
(with such Indemnifying Party remaining obligated to indemnify the Indemnified
Party under this Article XVI) if, in the written opinion of the Indemnified
Party's counsel, such Claim is meritorious.
16.6 Joint Cause. If any Claims for indemnity arising out of Section 16.1
or Section 16.2 are caused by joint and concurring
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acts or omissions of Seller and ICL, the liability of Seller and ICL therefor
shall be apportioned according to their respective degrees of fault.
16.7 Survival. The provisions of this Article XVI shall survive the
termination, cancellation or expiration of this Agreement, subject to applicable
statutes of limitation.
ARTICLE XVII
NOTICES
17.1 Notices. Any notice required or permitted under this Agreement shall
be in writing, shall be deemed to have been duly given on the date of receipt,
and shall be either served personally on the party to whom notice is to be
given, delivered by any recognized courier service, sent by telecopy or fax, or
mailed to the party to whom notice is to be given, by first class registered or
certified mail, return receipt requested, postage prepaid. Notices shall be
addressed to the addressee at the address stated opposite its name below, or at
the most recent address specified by written notice given to the other party in
the manner provided in this Section 17.1:
If to ICL:
Indiantown Cogeneration, L.P.
c/o U.S. Generating Company
7475 Wisconsin Avenue
Bethesda, MD 20814
Attention: Chief Executive Officer
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If to Seller:
Costain Coal Inc.
249 East Main Street-Suite 200
Lexington, Kentucky 40507
Attn: President-Eastern Division
A copy of any notice required by this Agreement to be given to ICL shall at the
same time and in the same manner also be provided by Seller to any Financing
Party whose name and address ICL has given to Seller under the provisions of
this Section 17.1.
ARTICLE XVIII
ASSIGNMENT
18.1 General.
(a) Except as provided in this Article XVIII, the rights and
obligations of the Parties, including any rights to monies or payments,
may not be assigned or delegated by either Party except upon the express
written consent of the other Party.
(b) If an assignment is made in accordance with this Article XVIII,
this Agreement and the respective rights and obligations of the Parties
shall be binding upon and inure to the benefit of the respective
successors and assigns of the Parties.
18.2 Seller's Right to Assign.
(a) Seller shall have the right, without the consent of ICL, to
assign payments due from ICL under this Agreement to any third party upon
written notice given to ICL, provided that such assignment shall not be
deemed to include any of
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Seller's obligations hereunder and shall not confer any rights against ICL
under this Agreement on such assignee.
(b) Seller shall have the right, without the consent of ICL, to
assign any or all of its rights and delegate any of its obligations
hereunder to a parent, subsidiary or affiliated company or a successor of
substantially all of the assets of Seller by way of merger, consolidation
or sale of assets, provided that Seller shall not be released from its
obligations hereunder without the consent of ICL.
(c) Seller shall have the right, but only with the consent of ICL,
which shall not be unreasonably withheld, to assign all of its rights and
interests and delegate all of its obligations under this Agreement to a
third party not referred to in Section 18.2(b).
18.3 ICL's Right to Assign.
(a) Assignment Other Than to Financing Parties. ICL shall have the
right to assign all of its rights and interests
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and delegate all of its obligations under this Agreement to any entity
that assumes ownership or operational control of the Facility, provided
that any such assignment shall be subject to the consent of Seller which
consent shall be granted provided that the proposed assignee: (i) is, or
shall become by virtue of the assignment, the owner, operator or lessee of
the Facility, (ii) agrees in writing to be bound by and to assume the
terms and conditions of this Agreement and any and all obligations of
Buyer to Seller arising or accruing hereunder from and after the date of
such assignment, (iii) has, in the reasonable judgment of Seller, the
financial substance to perform ICL's obligations under this Agreement,
(iv) has, in the reasonable judgment of Seller, the operational skill and
ability to perform ICL's obligations under this Agreement, (v) has agreed
in writing that it will not, (either directly or indirectly through swaps,
brokerage, or other means) (A) permit coal owned by or obtained from
itself or an affiliate to be used in the Facility during the Term hereof,
or (B) during the Term hereof, itself provide, or utilize the services of
an affiliate to provide, the Ash Residue disposal services to be provided
by Seller hereunder. For this purpose, "affiliate" shall mean any person
or entity that (1) directly or indirectly controls, is controlled by, or
is under common control with the entity to which this Agreement is
assigned, or (2) any person or entity, including without limitation a
joint venture, in which any person or
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entity referred to in the foregoing clause (1) owns an equity interest or
10% or more. If the interest of ICL in this Agreement shall be assumed,
sold or transferred as hereinbefore provided, ICL shall be released and
discharged from only those obligations to Seller arising or accruing
hereunder from and after the date of such assumption, and ICL shall not be
released and discharged from and shall remain liable for any and all
obligations to Seller arising or accruing hereunder prior to such
assumption, unless such obligations are expressly assumed by the assignee.
Upon and after the assignment and assumption described in this Section
18.3(a), Seller shall continue this Agreement with the assuming party as
if such person had thereafter been named as ICL under this Agreement.
Partnership interests in ICL may be transferred (directly or indirectly
through transfer of ownership or control of partners of ICL) provided
reasonable assurance shall have been given to Seller that the transferee
will not engage in activities described in sub-clauses (A) and (B) of
clause (v) of this paragraph 18.3(a).
(b) Assignment to Financing Parties. The Parties acknowledge that
ICL intends to finance the construction of the Facility by non-recourse
"project financing," and that the Financing Parties will require such
financing to be secured by a first lien upon the Facility and other assets
of ICL, including a collateral assignment of this Agreement and all rights
and obligations of ICL hereunder. Accordingly, this
76
<PAGE>
Agreement may be assigned as collateral by ICL to any Financing Parties
and their successors and assigns upon reasonable advance written notice to
Seller and without further consent of Seller; provided that ICL shall
provide Seller with copies of the agreements making such assignments upon
their execution. In order to facilitate the obtaining of such financing,
Seller hereby confirms its agreement that in the event of any Default on
the part of ICL of any provision of this Agreement or the occurrence of
any other event which Seller may claim as grounds for canceling this
Agreement, Seller (having received prior written notice of the name and
address of the Financing Parties) will give written notice thereof to such
Financing Parties. The Cure Period specified in Section 14.1(a) as
applicable to the Financing Parties shall be sixty (60) days. Seller
agrees to execute a Consent and Agreement or similar document with respect
to a collateral assignment of this Agreement pursuant to a request of the
Financing Parties on terms reasonably acceptable to Seller, and shall
provide such information relating to its ability to meet its obligations
under this Agreement as the Financing Parties may reasonably request.
(c) Default Under Financing Documents. If ICL commits an event of
default under the Financing Documents which results in a foreclosure and
lease or sale of the Facility under rights granted to the Financing
Parties, the interest of ICL in the Facility and this Agreement may be
assigned to a
77
<PAGE>
successor owner and operator (hereinafter called "Assignee"), with the consent
of Seller which consent shall be granted provided that (i) the proposed Assignee
agrees in writing to be bound by and to assume the terms and conditions of this
Agreement, has agreed in writing that it will not (either directly or indirectly
through swaps, brokerage, or other means) (A) permit coal owned by or obtained
from itself or an affiliate to be used in the Facility during the Term hereof,
or (B) during the Term hereof, itself provide, or utilize the services of an
affiliate to provide, the Ash Residue disposal services to be provided by Seller
hereunder. For this purpose, "affiliate" has the meaning set forth above in
Section 18.3 (a). Upon and after the assignment and assumption described in this
Section 18.3(c), Seller shall continue this Agreement with the new operator as
if such person had thereafter been named as ICL under this Agreement.
18.4 Curing of Prior Defaults. In the case of any assignment under this
Article XVIII, any consent required and granted shall be subject to the
condition that the party consenting thereto shall be provided with reasonable
assurances satisfactory to such party that
78
<PAGE>
any existing Defaults or unperformed obligations will be cured or performed by
either the assignor or the assignee.
ARTICLE XIX
INSURANCE
19.1 Seller Coverages. Seller shall obtain and maintain, or cause to be
obtained and maintained as a minimum during the term of this Agreement the
following insurance in form and with insurance companies acceptable to ICL, and
with ICL named as an additional insured, and with such deductibles and
retentions as may be reasonable and customary under Seller's usual practices:
(a) Comprehensive General Liability Insurance with bodily injury and
property damage combined single limits of at least $5,000,000 per
occurrence. Such insurance shall include, but shall not necessarily be
limited to, specific coverage for contractual liability encompassing the
indemnification provisions in Section 16.1 hereof, broad form property
damage liability, personal injury liability, explosion and collapse hazard
coverage, products/completed operations liability, and, where applicable,
watercraft protection and indemnity liability; and
(b) Comprehensive Automobile Liability Insurance with bodily injury
and property damage combined single limits of at least $5,000,000, per
occurrence, covering vehicles owned, hired or non-owned.
79
<PAGE>
(c) The amounts of insurance required in this Section 19.1 may be
satisfied by Seller purchasing primary coverage in the amounts specified
or by buying one or more excess Umbrella type policies, together with
lower limit primary underlying coverage. The failure to comply with the
insurance provisions of this Agreement shall not limit or relieve Seller
from indemnifying and holding harmless ICL as provided by any provision of
this Agreement.
19.2 Certificates. Seller shall provide ICL with certificates of insurance
pertaining to any insurance policies purchased to satisfy Seller's obligations
under this Article XIX.
19.3 Required ICL Insurance Coverages. ICL shall obtain and maintain the
insurance coverages specified in Section 16.0 of the FPL Power Purchase
Agreement. A copy of such Section 16.0 is attached as Exhibit 19.3.
ARTICLE XX
DISPUTE RESOLUTION
20.1 Negotiations to Resolve Disputes. If any dispute or claim arises
between the Parties to this Agreement, the Parties shall endeavor in good faith
to resolve such dispute or claim by negotiations.
20.2 Arbitration. Any dispute or claim arising out of or related to this
Agreement or any alleged Default arising hereunder which is not resolved by
negotiations, shall be settled by
80
<PAGE>
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA Rules").
20.3 Appointment of Arbitrators. The Party initiating an arbitration
proceeding shall file a written notice thereof in accordance with the Commercial
Arbitration Rules of the AAA, which notice shall contain the name, address and
telephone number of its designated arbitrator. The respondent shall file its
answering statement within the time and in the manner specified in the AAA
Rules, and shall include with such answering statement the name, address and
telephone number of its designated arbitrator. The two arbitrators thus
appointed shall appoint a third neutral arbitrator within 30 days after the
designation of the second party-appointed arbitrator. If a neutral arbitrator is
not appointed within such 30-day period by the two party-appointed arbitrators,
the AAA Rules governing appointment of a neutral arbitrator from a panel shall
be applicable, and a neutral arbitrator shall be appointed pursuant to such AAA
Rules.
20.4 Conclusion of Arbitration Proceedings. The Parties shall proceed with
the arbitration expeditiously and shall direct the arbitration panel to take all
steps reasonably necessary to conclude all proceedings thereunder, including any
hearing, in order that a decision may be rendered within 120 days from the
filing of the demand for arbitration by the initiating Party. The award of the
arbitration panel will be final and binding on both Parties and may be enforced
in any court having jurisdiction over the Party against which enforcement is
sought. Each Party shall
81
<PAGE>
bear its own expenses, including but not limited to counsel fees and the
expenses of its designated arbitrator, except that all expenses of the
arbitration shall be apportioned in the award of the arbitration panel based
upon the respective merit of the claims of the Parties. The provisions of this
Article XX shall survive any termination or expiration of this Agreement.
ARTICLE XXI
MISCELLANEOUS PROVISIONS
21.1 Rounding. For purposes of all calculations pursuant to this
Agreement, (i) amounts per Ton shall be rounded to the nearest one-tenth of one
cent, (ii) amounts per million Btus shall be rounded to the nearest
one-hundredth of one cent, (iii) all other amounts shall be rounded to the
nearest third place after the decimal, and (iv) if the fourth place after the
decimal point is 5 or greater, the third place shall be rounded up.
21.2 Consequences of Termination. In the event of a termination of this
Agreement pursuant to Section 2.5, Section 2.6 or Section 6.5(b), neither Party
shall have any further obligation but no such termination shall excuse the
payment of any amount due and owing by one Party to the other hereunder, nor
shall such termination affect the survival provisions of Section 16.7 and
Section 20.4.
82
<PAGE>
21.3 Amendments; Waiver. This Agreement may not be amended, supplemented,
or modified except by an instrument in writing signed by both of the Parties
hereto. Any failure by either Party to enforce any provisions hereof shall not
constitute a waiver by that Party of its right subsequently to enforce the same
or any other provision hereof.
21.4 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
21.5 Governing Law. This Agreement shall in all respects be governed and
construed in accordance with the laws of the State of Kentucky including all
matters of construction, validity and performance.
21.6 Independent Contractor; No Partnership. Seller shall be an
independent contractor with respect to the sale of the coal, disposal of Ash
Residue, and to the performance of its obligations hereunder. Nothing in this
Agreement or the arrangement for which it is written shall constitute or create
a joint venture, partnership, agency or any other similar arrangement between
the Parties, and neither Party is authorized to act as agent for the other
Party.
83
<PAGE>
21.7 Captions. Exhibits and the Table of Contents. Titles or captions of
Sections contained in this Agreement are inserted only as a matter of
convenience and for reference, and in no way define, limit, extend, describe or
otherwise affect the scope or meaning of this Agreement or the intent of any
provision hereof. All Exhibits attached hereto shall be considered a part hereof
as though fully set forth herein.
21.8 Entire Agreement. This Agreement contains the entire Agreement
between the Parties with respect to the subject matter hereof. All previous
agreements, representations, warranties, promises and conditions of sale are
superseded by this Agreement.
21.9 Counterparts. The Parties may execute this Agreement in two or more
counterparts, which shall, in the aggregate, be signed by both the Parties; and
each counterpart shall be deemed an original instrument as against any Party who
has signed it.
21.10 Confidentiality. Each Party shall retain in confidence the contents
of this Agreement and any information obtained as a result of negotiation and
performance of this Agreement which either Party identifies to the other as
being proprietary or confidential in nature, except that ICL may disclose such
information to any proposed Financing Parties, equity investors, or operators of
the Facility (if other than ICL) and to consultants employed by any of such
persons, and to FPL as required by the Power Purchase Agreement. Further, such
information may be
84
<PAGE>
disclosed when requested by a court or government agency, or to the extent
required by state regulatory agencies, the Federal Energy Regulatory Commission,
the Securities and Exchange Commission and the U.S. Environmental Protection
Agency.
21.11 Attorney Fees. The Parties agree that if one Party brings an action
against the other with respect to this Agreement, including the resolution of
disputes pursuant to arbitration under Article XX, the successful Party will be
indemnified by the unsuccessful Party for all reasonable legal fees and other
related expenses. Neither Party will be deemed successful in any action until
(i) a final order has been entered by the arbitrators, court or government
agency having jurisdiction over such action and (ii) all appeals have been
exhausted or rights to appeal have elapsed.
21.12 Further Assurances. The Parties shall execute and deliver such
additional documents and shall cause such additional action to be taken as may
be reasonably necessary to carry out the purposes and intent of this Agreement.
85
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the duly authorized
representatives of the Parties, pursuant to the authority vested in them by the
lawful action of their Boards of Directors, as of the date and year first above
written.
ICL: SELLER:
- ---- -------
INDIANTOWN COGENERATION, L.P. COSTAIN COAL INC.
/s/ P. Chrisman Iribe By: /s/ Thomas H. Parker
- ---------------------------------- ----------------------------------
By: P. Chrisman Iribe Thomas H. Parker
Senior Vice President President
Attest: Attest:
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------------------- ----------------------------------
ASSISTANT GENERAL COUNSEL Asst. Secretary
- ---------------------------------- ----------------------------------
Title Title
86
<PAGE>
DESCRIPTION OF THE FACILITY
EXHIBIT 1.5
The Facility shall consist of all new major equipment, including one
pulverized coal-fired boiler, and one steam turbine-generator. Two auxiliary
noncoal-fired boilers will be built. When operating the coal-fired boiler shall
be capable of generating 2.5 million pounds per hour of steam and 330 MW of
electricity for sale to FPL. The Facility shall be designed, as generally
described below, to provide an uninterrupted supply of steam to Caulkins
Indiantown Citrus Company of up to 175,000 pounds per hour.
The Facility shall include the following systems:
Coal unloading and storage. Sufficient permanent storage shall be
maintained to accommodate interruptions in coal deliveries of up to 30
days. Coal shakers will be provided to facilitate removal of the coal at
the site.
Fuel deliveries to the boilers. The fuel system shall be designed to
minimize interruptions to boiler operations in the event of breakdowns of
conveyors, pulverizers, or other equipment.
Boiler. The boiler shall be designed to operate on pulverized coal, with
natural gas, propane, or fuel oil as a backup fuel.
Flue gas treatment. Particulate removal shall be achieved via baghouses.
Sulfur dioxide reduction shall be achieved via dry-scrubbers (lime spray
towers). Provision shall be made to repair flue gas dryer atomizers
without shutdown of the entire boiler train.
Ash removal and disposal. Bottom ash and fly ash will be collected and
disposed of offsite in an environmentally acceptable way. Provision shall
be made to prevent dust emissions.
One steam turbine-generator. Normally, steam shall be delivered to
Caulkins via an automatic extraction valve from an intermediate stage of
the turbine. Provision shall be made to operate an auxiliary boiler and
supply steam to Caulkins without interruption during a turbine-generator
outage.
<PAGE>
Exhibit 2.4(d)
AMENDMENT NO. 2
TO
AGREEMENT FOR THE PURCHASE OF FIRM CAPACITY
AND ENERGY BETWEEN
INDIANTOWN COGENERATION, L. P. AND FLORIDA POWER & LIGHT COMPANY
THIS AMENDMENT NO. 2, effective July 15, 1992, hereby amends the Agreement For
The Purchase of Firm Capacity and Energy between INDIANTOWN COGENERATION, L.P.,
("ICL"), and FLORIDA POWER & LIGHT COMPANY ("FPL"), effective March 31, 1990, as
amended by AMENDMENT NO. 1 thereto dated December 5, 1990 (such Agreement as
amended hereinafter, the "Agreement").
WITNESSETH:
WHEREAS, the Parties desire to amend the Unit Energy Cost Calculation, Appendix
I to the Agreement, in order to clarify the methodology used to develop the
escalation index and to make other revisions related thereto; and
WHEREAS, the Parties desire to amend certain provisions of Section 10.1 of the
Agreement regarding the period of time certain books and records should be
maintained by ICL and its suppliers; and
WHEREAS, the Parties desire to provide ICL with the option to provide a letter
of credit to satisfy the reserve fund requirements of Section 21.2 of the
Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements of the Parties hereinafter set forth, the Parties agree as follows:
1.0 Appendix I, UNIT ENERGY COST CALCULATION, to the Agreement is hereby
deleted in its entirety and replaced with Appendix I attached hereto.
2.0 Section 3.5.2 of the Agreement is deleted in its entirety and replaced
with the new Section 3.5.2 contained in item (A) of Exhibit A attached
hereto.
3.0 The second sentence of Section 10.1 of the Agreement is hereby deleted in
its entirety and replaced with a new sentence contained in item (B) of
Exhibit A attached hereto.
4.0 Section 21.2 of the Agreement is hereby amended to add as an additional
sentence, following the sixth sentence of such section, a new sentence
contained in item (C) of Exhibit A attached hereto.
<PAGE>
5.0 All other terms and conditions of the Agreement shall remain unchanged.
6.0 The parties acknowledge and agree that this Amendment No. 2 is contingent
upon final approval of the Florida Public Service Commission and that in
the event such approval is not obtained the above referenced Agreement
shall remain in effect and unchanged without reference to this Amendment
No. 2.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 2 to be
executed by their respective duly authorized officers.
FLORIDA POWER & LIGHT COMPANY INDIANTOWN COGENERATION, L. P.
By: /s/ R. L. Taylor 7-27-92 By: /s/ P. Chrisman Iribe 7-23-92
------------------------------ ----------------------------------
R. L. Taylor Date P. Chrisman Iribe Date
Vice President, Power Delivery Senior Vice President
<PAGE>
APPENDIX I
UNIT ENERGY COST CALCULATION
I.1 Prior to the Commercial Operation Date, ICL and FPL shall agree on the
relative weighting of anticipated costs for F.O.B. mine coal and the
remaining cost components (i.e., coal transportation, lime supply and ash
disposal) of the Unit Energy Cost, based on ICL's contracts for such
items. Such relative weighting shall be included in the calculation in
Section I.3 to determine the Unit Energy Cost for the first Agreement
Year. Such Unit Energy Cost shall be retroactively adjusted as provided in
Section I.2 subsequent to the end of the first Agreement Year.
I.2 At the end of each Agreement Year, based on the information provided by
ICL pursuant to Section 8.4, BASIS FOR PAYMENT BY FPL, ICL shall provide
FPL with the actual relative weighting of ICL's F.O.B. coal price and the
remaining cost components of its Actual Energy Cost described in Appendix
D, ICL's ACTUAL ENERGY COST. Such items shall be used to adjust the
Adjusted Energy Cost for the Agreement Year immediately preceding such
adjustment. It shall also be used as the estimated Unit Energy Cost for
the subsequent Agreement Year.
I.3 For the period January 1, 1990 until the effects of the 1992 Shamrock and
Ashland contract reopeners have been reflected in the weighted average St.
Johns River Power Park (SJRPP) domestic Appalachian coal contract price
for one full quarter ("Phase-1"), the Unit Energy Cost shall be
$23.20/MWh, effective January 1, 1990, indexed quarterly, as shown on I.5.
The index shall be composed of two parts, (a) the F.O.B. mine coal
component, as set forth in (i) and (b) the remaining cost components, as
set forth in (ii).
(i) The F.O.B. mine coal component referenced in Section I.1,
multiplied by the percent change in the F.O.B. mine spot
price, from the first quarter of 1990 through the end of
Phase-1 (based on the "Effective Purchase Price" ($/ton) as
shown on FPSC form 423-2(a) or its equivalent, including
quality adjustments, divided by the Btu content as shown on
FPSC Form No. 423-2 and converted to units of $/million Btu,
extended to three decimal places) for low/medium sulfur (0.60%
to 2.00%), medium/high Btu (11,000 Btu/lb to 13,500 Btu/lb)
coal, provided such coal comprises at least 20% of the total
coal delivered to SJRPP during the quarter. If the total is
less than 20% for a given quarter, the total will be
supplemented with additional
Page I1
<PAGE>
quantities of domestic Appalachian spot coal from bid(s) shown
on the quarterly "Evaluation Of Spot Coal Bids," which would
be the next bid(s) which would have been accepted by FPL, if
such purchases were actually made, and which meet the sulfur
and Btu criteria set forth herein, up to the amount that would
be needed to account for 20% of domestic Appalachian spot coal
delivered at SJRPP for the quarter. The corresponding pricing
from such additional quantities of coal together with the
price of coal delivered to SJRPP will be used to develop the
F.O.B. mine price for the quarter (see Example 1).
(ii) The remaining cost components referenced in Section I.1 will
be multiplied by the percentage change in the transportation
index for carrier equipment contained in the then current rail
transportation contract for the SJRPP. As of the effective
date of this Agreement, the rail transportation index for the
SJRPP is composed of the following weighted average index:
50% Rail Cost Adjustment Factor (RCAF) unadjusted for
productivity, ICC, "Railroad Cost Recovery Procedures,"
prescribed by the ICC in Ex Parte No. 290 (Sub. No. 2)
and published in the Title 49 of the Code of Federal
Regulations, Part 1102, Section 1102.1, or as the same
may hereafter be amended.
12.5% Producer Price Index (PPI) all commodities, Producer
Prices and Price Index Data, Monthly Report, U.S.
Department of Labor, Bureau of Labor Statistics, U.S.
Government Printing Office.
12.5% Gross National Product - Implicit Price Deflator, United
States Government Printing Office, Economic Indicators,
prepared for the Joint Economic Committee by the Council
of Economic Advisors.
12.5% Personal Consumption - Implicit Price Deflator, United
States Government Printing Office, Economic Indicators,
prepared for the Joint Economic Committee by the Council
of Economic Advisors.
12.5% Producer Price Index - Industrial
Page I2
<PAGE>
Commodities Less Fuel and Power Expenditures, Producer
Prices and Price Index Data, Monthly Report, U.S.
Department of Labor, Bureau of Labor Statistics, U.S.
Government Printing Office.
I.4 Following Phase-I, and for the remaining term of this Agreement
("Phase-2"), the then current Unit Energy Cost shall be indexed quarterly,
as shown on I.5. The index shall be composed of (i) the F.O.B. mine coal
component referenced in Section I.1, or I.2, as appropriate, multiplied by
the weighted average percent change from the last quarter of Phase-1
through the quarter for which the Unit Energy Cost is being calculated in
(a) SJRPP's Appalachian coal contract(s)' (at least one year in duration)
F.O.B. mine price (based on the "Effective Purchase Price" ($/ton) as
shown on FPSC form 423-2(a), including quality adjustments, divided by the
Btu content as shown on FPSC Form No. 423-2 and converted to units of
$/million Btu, extended to three decimal places), for low/medium sulfur,
medium/high Btu coal and (b) SJRPP's domestic Appalachian spot
contract(s)' (less than one year in duration) F.O.B. mine price (based on
the "Effective Purchase Price" ($/ton) as shown on FPSC form 423-2(a),
including quality adjustments, divided by the Btu content as shown on FPSC
Form No. 423-2 and converted to units of $/million Btu, extended to three
decimal places), for low/medium sulfur, medium/high Btu coal plus (ii) the
remaining cost components proportion referenced in Section I.1 or I.2, as
appropriate, multiplied by the percent change in the transportation index
for carrier equipment contained in the then current rail transportation
contract for the SJRPP.
I.5 The following is a sample Unit Energy Cost calculation for first quarter
1996 using the criteria in this Appendix I:
<TABLE>
<S> <C>
Assumptions (Phase-1):
----------------------
Unit Energy Cost $23.20/MWh (1Q-90)
% Coal (F.O.B. Mine) 50%
% Other 50%
Shamrock/Ashland reopeners resolved
during (4Q-92)
First full quarter reflecting the
Shamrock/Ashland reopeners (1Q-93)
End of Phase-1/beginning of Phase-2 (4/1/93)
Calculation:
------------
Average spot price for coal (F.O.B. Mine)
</TABLE>
Page I3
<PAGE>
<TABLE>
<S> <C>
$1.050/Million Btu (1Q-90)
$1.100/Million Btu (1Q-93)
Remaining Cost Components Index
100 (1Q-90)
120 (1Q-93)
Unit Energy Cost (1Q-93)
Coal:
(23.20/2) x (1.100/1.050) = $12.15/MWh
Remaining Components:
(23.20/2) x (120/100) = $13.92/MWh
Total = $26.07/MWh
Assumptions (Phase-2):
----------------------
Unit Energy Cost $26. 07/MWh (1Q-93)
Calculation:
------------
Average cost of all Appalachian coal (F.O.B. Mine)
$1.200/Million Btu (1Q-93)
$1.300/Million Btu (1Q-96)
Remaining Cost Components Index
120 (1Q-93)
140 (1Q-96)
Unit Energy Cost (1Q-96)
Coal:
(12.15) x (1.300/1.200) = $13.16/MWh
Remaining Components:
(13.92) x (140/120) = $16.24/MWh
Total = $29.40/MWh
</TABLE>
Page I4
<PAGE>
I.6 In the event of a long term interruption (more than one full quarter) in
or permanent cancellation of the delivery of coal to SJRPP, as described
in Section I.4 herein, the Parties shall, within one year of such
interruption or cancellation, agree upon a comparable replacement index.
Until such "replacement index" becomes effective, the Unit Energy Cost
will continue to be calculated as described in this Appendix I, but with
the following assumptions and adjustments:
(a) The quantities of coal assumed to be taken from each of the then
current long term domestic contract(s) will be the same as they were
during the quarter prior to the interruption.
(b) The F.O.B. coal price will be escalated according to the indices in
the SJRPP long term domestic Appalachian coal contracts which had
been in effect until the interruption in deliveries.
(c) The remaining components will continue to escalate according to
Section I.3(ii).
Page I5
<PAGE>
Example 1
---------
The following example illustrates how the F.O.B. mine coal price would be
adjusted if the total domestic spot purchases for the quarter are less than 20%
of the total coal delivered to SJRPP for the same quarter.
<TABLE>
<S> <C>
1. Total coal delivered to SJRPP
(4th quarter 1991) 154,021 Tons
-------
2. Total domestic Appalachian spot coal
delivered to SJRPP (4th quarter 1991) 17,199 Tons
-------
3. Spot as a percent of total 11.17 %
-------
4. Effective F.O.B. mine price
of domestic Appalachian spot coal
delivered to SJRPP $ 0.898 /million Btu
-------
5. Additional domestic Appalachian spot
purchases necessary to account for 20%
of coal delivered to SJRPP
(4th quarter 1991)
[(0.20) 154,021-17,199] = 13,605 Tons
-------
6. Next domestic Appalachian spot coal
bid from "Evaluation Of Spot Coal
Bids," (4th quarter 1991) 160,000 Tons (1)
$ 0.845 /million Btu
-------
7. Adjusted Effective F.O.B. mine
price of domestic Appalachian
spot coal
(0.898) 17,199 + (0.845) 13,605
[--------------------------------] = $ 0.875 /million Btu
(17,199 + 13,605) -------
</TABLE>
Notes: (1) If the quantity of such coal available from the next spot bid,
which would have been accepted by FPL if such purchase were
actually made and which met the sulfur and Btu criteria set
forth herein, is not enough to satisfy the 20% requirement,
additional bid(s) for such coal, in the order in which they
appear on the "Evaluation Of Spot Coal Bids," would also be
factored into the evaluation until the 20% requirement is
satisfied.
Page I6
<PAGE>
Exhibit A
---------
(A) Section 3.5.2 of the Agreement shall read as follows:
3.5.2 On or before the Commercial Operation Date, ICL fails to
execute a long-term fuel contract (or contracts) between ICL
and its fuel supplier(s), which (i) has a term of at least
fifteen years, (ii) provides for at least 50% of its
requirements and (iii) includes market price reopener
provisions (however, if the indexing provisions for the F.O.B.
mine coal component in Appendix I of this Agreement are
incorporated into the fuel contract(s) without modification,
this item (iii) will be deemed to be satisfied);
(B) The second sentence of Section 10.1 of the Agreement shall read as
follows:
For the purpose of evaluating or verifying such actual or claimed
costs incurred or units expended, FPL and its authorized
representatives shall, from the effective date of the Agreement with
respect to each Agreement Year, have access to said Records until
seven years after the close of such Agreement Year.
(C) A new sentence to be added to Section 21.2 of the Agreement shall read as
follows:
In lieu of cash deposits, ICL may obtain unconditional and
irrevocable direct pay letter(s) of credit issued by banks
acceptable to FPL, in form and substance acceptable to FPL, in
amounts equal to the cash contributions set forth above.
<PAGE>
SOURCE OF COAL
EXHIBIT 3.1
-----------
Name: Transcontinental Coal Processing, Inc., a
wholly-owned subsidiary of Costain Coal Inc.
Loading Facility: Ivel, Floyd County, Kentucky (CSXT Mine No. 4091).
Property is held by long-term leases which expire
December 31, 2010 with four-five year extensions
at the option of Seller.
Primary Origin of Coal: Coal delivered to the Coal Loading Facility shall
originate from the dedicated reserves as stated in
Exhibit 3.2 or other acquired reserves.
<TABLE>
<S> <C> <C>
Raw Coal Facility: Phase I Phase II
------- --------
Completion Date July 1989 As Required by Seller
Coal Loading Rate - 1,000 3,000
(Tons Per Hour):
Unit Train Track 7,000 10, 000
Capacity (Tons):
Coal Preparation A Daniels 750-ton-per-hour (raw feed), heavy media
Plant: preparation plant completed in 1981 is on the
property. This plant may be used to meet the
quality specifications required hereunder.
</TABLE>
<PAGE>
DESCRIPTION OF DEDICATED COAL RESERVES
EXHIBIT 3.2
-------------
See Amend. #1
<TABLE>
<CAPTION>
Recoverable Coal
Lease Seam (1,000) Tons
----- ---- ----------------
<S> <C> <C>
Leslie Cont. Miner Elkhorn #2 2,800
Weddington ESI MILLER CK Elkhorn #2 6,000
Beury ESI Elkhorn #3 12,000
Elk Horn #831 Fireclay 4,500
MILLER CK/LONGFORK
Elk Horn #842 SPURLOCK Peach Orchard and
All Seams Above 1,000
Elk Horn #54 Wolverine Peach Orchard and
All Seams Above 5,000 4.7
------
Total 31,300
</TABLE>
<PAGE>
Exhibit 5.1
Site Plan
<PAGE>
COSTAIN
EXHIBIT 6.1
<TABLE>
<CAPTION>
Monthly Rejection
Weighted Limit Per
Characteristic Average Shipment
-------------- ------- --------
("As Received") ("As Received")
<S> <C> <C>
Btus per lb. (minimum) 12,500 12,000
Moisture (%) (maximum) 8 9
Ash (%) (maximum) 9 12
SO(2) (lbs. per million Btus) (maximum) 1.6 2.0
Volatile Matter (%) (minimum) 31 --
Fixed Carbon (%) (minimum) 51 --
Ash Fusion (ID-reducing)
(degrees F) (minimum) 2,400 --
Grindability (HGI) (minimum) 40 --
Fines (minus 1/4 inch) (%) (maximum) 50 --
Top size (Greater than 2 inches) (%)
(maximum) 10 --
</TABLE>
<PAGE>
EXHIBIT 6.5(b)
HANDLING AND OPERATING SPECIFICATIONS
<TABLE>
<CAPTION>
Monthly Range
--------------------
Minimum Maximum
------- -------
<S> <C> <C>
TRACE ELEMENTS (Coal Basis)
(In Parts Per Million)
Lead 3.00 10.00
Mercury 0.04 0.25
Arsenic 2.00 27.00
Beryllium 0.90 3.50
Fluoride 40.00 87.50
</TABLE>
<PAGE>
Exhibit 7.2(a)
Determination of Spot Price F.O.B. Mine
Assumptions
1. Actual total quarterly coal purchases (TQP) for the St. Johns Station are
900,000 tons.
2. Actual spot qualifying coal purchases (AQP) for the last calendar quarter
of Phase 1 are 90,000 tons at a cost per million btu, as adjusted for
quality, of $0.840.
3. The following are the most recent spot bids for deliveries to the St.
Johns Station in the last full calendar quarter of Phase 1 for qualifying
coal:
<TABLE>
<CAPTION>
Quantity *Cost per
Supplier Offered MMBTU
-------- ------- -----
<S> <C> <C>
'A' 20,000 $0.801
'B' 90,000 $0.821
'C' 30,000 $0.831
=== ====== ======
</TABLE>
* On a fully evaluated basis
Calculation of 20% minimum:
Minimum = TQP x 20%
Minimum = 900,000 x 20%
Minimum = 180,000 tons
AQP is less than minimum so bids must be utilized.
Alternative calculation of Spot F.O.B. mine price:
<TABLE>
<CAPTION>
Cost per
Quantity MMBTU
-------- ------
<S> <C> <C>
AQP 90,000 $0.840
Supplier 'A' 20,000 $0.801
Supplier 'B' 70,000 $0.821
------- ------
Total/Average 180,000 $0.828
======= ======
</TABLE>
Note: In order to reach 20% minimum none of Supplier 'C's quantity was needed
and only a part of Supplier 'B's quantity was used.
<PAGE>
Conclusions:
Since 20% minimum was not met from actual purchases, sufficient bid
quantities were averaged with actual purchases to determine the weighted average
Spot F.O.B. mine price of $0.828 to be used pursuant to Section 7.4.
All amounts used above are merely for the purpose of Illustration.
<PAGE>
Exhibit 7.2(b)
Example of Base Mine Price Determination
Assumptions:
1. Ashland Contract price is renegotiated and this renegotiated price is
reflected in the weighted average F.O.B. mine price paid for qualifying
coal purchases for the St. Johns Station effective October 1, 1992, which
makes the fourth quarter of 1992 the last quarter of Phase 1.
2. The Spot Prices of Qualifying Coal purchased for the St. Johns Station for
the fourth calendar quarter of 1992 (on a weighted average F.O.B. mine
basis in cost per million btus) is $0.821.
Formula:
BMP = [(SP2/SP1) x BP]
Where:
BMP = Base Mine Price
SP2 = Spot Price F.O.B. mine on a weighted average cost per
million btu basis for Qualifying Coal purchased for the St.
Johns Station during the last full calendar quarter of Phase 1.
SP1 = $0.833 (as set forth in Section 7.2).
BP = $26.000 (as set forth in Section 7.2).
Determination of the Base Mine Price Effective October 1, 1992:
BMP as of 10/1/92 = [(SP2/SP1) x BP]
BMP as of 10/1/92 = [($0.821/$0.833) x $26.000]
BMP as of 10/1/92 = [0.986 x $26.000]
BMP as of 10/1/92 = $25.636
Note: All amounts and time frames listed as assumption are used merely for the
purpose of illustration. The actual amounts and time frames may differ
significantly.
<PAGE>
Exhibit 7.4
Calculation of Current Mine Price
Assumptions:
1. Because the Base Mine Price must be determined prior to the calculation of
the Current Mine Price those assumptions set forth on Exhibit 7.2(b) are
also applicable to this example.
2. The Spot Prices and Term Coal Contracts prices of Qualifying Coal
purchased for the St. Johns Station for the following calendar quarters
(on a weighted average F.O.B. mine basis in cost per million btus) are:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Fourth Quarter 1992 $0.895
First Quarter 1993 $0.886
Second Quarter 1993 $0.891
Third Quarter 1993 $0.901
</TABLE>
Formula:
CMP = [(CP/BP) x BMP]
Where:
CMP = Current Mine Price
CP = Spot Price and Term Coal Contracts weighted average price
F.O.B. mine on a cost per million btu basis for Qualifying
Coal purchased for the St. Johns Station during the calendar
quarter containing the current Quarterly Adjustment Date.
BP = Spot Price and Term Coal Contracts weighted average price
F.O.B. mine on a cost per million btu basis for Qualifying
Coal purchased for the St. Johns Station for which the Base
Mine Price is effective.
BMP = Base Mine Price of $25.636 as determined in Exhibit 7.2(b),
for example purposes only.
Calculation for the Quarterly Adjustment Date of January 1, 1993:
CMP as of 1/1/93 = [(CP for 1st quarter 1993/BP far the 4th
quarter 1992) x BMP]
CMP as of 1/1/93 = [($0.886/$0.895) x $25.636]
CMP as of 1/1/93 = [0.990 x $25.636]
CMP as of 1/1/93 = $25.380
Calculations for the Quarterly Adjustment Date of April 1, 1993:
CMP as of 4/1/93 = [(CP for 2nd quarter 1993/BP for the 4th
quarter 1992) x BMP]
CMP as of 4/1/93 [($O.891/$0.895) x $25.636]
CMP as of 4/1/93 = [0.996 x $25.636]
CMP as of 4/1/92 = $25.533
<PAGE>
Calculations for the Quarterly Adjustment Date of July 1, 1993:
CMP as of 7/1/93 = [(CP for 3rd quarter 1993/BP for the 4th
quarter 1992) x BMP]
CMP as of 7/1/93 = [($0.901/$0.895) x $25.636]
CMP as of 7/1/93 = [1.007 x $25.636]
CMP as of 7/1/93 = $25.815
<PAGE>
Exhibit 10.4
ASH RESIDUE CHEMICAL COMPOSITION
AND HANDLING CHARACTERISTICS
<TABLE>
<CAPTION>
CHEMICAL MAXIMUM POUNDS PER HOUR
<S> <C>
CaSO4 8028.0
CaSO3 14048.0
Ca(OH)2 9419.0
(NH4)SO4 416.9
Carbon 2303.0
SiO2 21317.0
A12O3 11286.5
Fe2O3 2146.3
TiO2 619.1
CaO 1044.0
MgO 763.9
NaO2 174.0
K2O 730.8
P2O5 87.0
S 24.3
SiP2O3 201.5
Mn 201.5
Lead 49.23
Mercury 0.11
Arsenic 17.21
Chronium 18.47
Beryllium 1.01
Fluoride 30.90
Calcium 81.125
Magnesium 27.1
Sodium 510.5
Potassium 11.2
Iron 0.2
Chloride 988.5
Sulfate 191.5
Nitrate 0.2
Phosphate 0.2
Silica 4.3
NH3 10.6
Total 74752.9
</TABLE>
HANDLING CHARACTERISTICS
Fly ash will be free flowing from the fly ash silo into PD Cars and from
PD Cars at time of unloading and will contain a maximum moisture content of no
more than three percent (3%). Bottom ash will be free flowing from the bottom
ash storage shed into OTH Cars and from OTH Cars at time of unloading.
<PAGE>
Exhibit 10.5
DESCRIPTION OF DRY ASH RESIDUE
DISPOSAL SITES AND SERVICES
Dry Ash Disposal Site: ________________________________________________________
(Name of Mine or Area)
Rail Unloading Point: Ivel, Floyd County, Kentucky (CSXT Mine No. 4091)
Transportation: Fly ash will be loaded into P.D. Cars at the Facility.
Bottom ash will be loaded into open top hopper cars at
the Facility. PD Cars and open top hopper cars
containing Ash Residue shall be delivered to the rail
unloading point by the same rail carrier which delivers
coal to the Facility.
Disposal Procedure: Ash Residue will be unloaded by Seller at the Rail
Unloading Point. The Ash Residue will be disposed of in
a residual landfill meeting all the requirements under
applicable solid waste disposal laws and regulations.
Ground water at the disposal site will be analyzed
through a network of monitoring wells positioned within
analytical parameters as required by applicable law.
Testing Procedures: All testing will be in accordance with applicable
performance standards pertaining to a residual landfill
under 401 KAR 30:030. The site will be inspected to
ensure compliance with environmental performance
standards in 401 KAR 30:030.
Alternate Disposal Subject to Section 10.7 hereof, Seller reserves the
Sites: right to dispose of Ash Residue at facilities other than
the Disposal Site described above.
<PAGE>
EXHIBIT 11.3
SAMPLING & ANALYSIS PROCEDURE
Present plans are to install a three-stage automatic sampling system at
Transcontinental. After installation is completed and proper calibrations and
adjustments are made, a bias test will be performed on the unit. The system will
be checked before and during the loading of all coals using a standard
inspection checklist to insure proper operation of the unit. The Costain
laboratory will also perform routine monthly inspections. This system crushes
the material to eight mesh. Save samples will be transported to Costain's
laboratory in the original save containers.
Once the sample reaches the laboratory facility, it will be reduced to a
workable size by hand riffling using a Holmes Model 50 XL enclosed splitter box.
A 2,000-gram, 8-mesh split will be saved for a 60-day period. A 1,000-gram,
8-mesh split will be used for testing purposes.
Costain's laboratory is capable of performing moisture, ash, Btu, sulphur, and
sizing analysis. The air-dried moistures are run in a dispatch oven using 1,000
grams of 8-mesh material. Oven temperature is 85(degrees) for at least an 8-hour
period. This coal is then reduced to a 60-mesh sample using a Holmes Model 501
pulverizer. After riffling with a Holmes 15 FXL, approximately 50 to 60 grams of
the 60-mesh material will be used for analytical purposes.
A mechanical convection oven is used to determine the residual moistures.
Samples are run for one hour at 106(degrees)C.
Lindberg ash furnaces and controllers are used for ash analysis. Testing time is
four hours.
Parr 1261 isoperibol calorimeter is used in Btu determination. This is a
closed-water system. Benzoic acid tests are performed weekly and monthly for
calibration purposes; a known value is also run daily.
Leco SC-132 sulphur analyzer is used for sulphur determinations and is checked
daily using NBS standards.
All Costain sampling and laboratory functions are performed under the guidelines
of ASTM.
If the Costain laboratory cannot provide analysis on specific elements, or for
whatever reason the sampling or analysis functions cannot be performed, Costain
has access to several qualified independent laboratories meeting all ASTM
industry standards.
<PAGE>
Exhibit 13.5
ASH RESIDUE CHEMICAL COMPOSITION
AND HANDLING CHARACTERISTICS
<TABLE>
<CAPTION>
CHEMICAL MAXIMUM POUNDS PER HOUR
<S> <C>
CaSO4 8028.0
CaSO3 14048.0
Ca(OH)2 9419.0
(NH4)SO4 416.9
Carbon 2303.0
SiO2 21317.0
A12O3 11286.5
Fe2O3 2146.3
TiO2 619.1
CaO 1044.0
MgO 763.9
NaO2 174.0
K2O 730.8
P2O5 87.0
S 24.3
SiP2O3 201.5
Mn 201.5
Lead 49.23
Mercury 0.11
Arsenic 17.21
Chronium 18.47
Beryllium 1.01
Fluoride 30.90
Calcium 81.125
Magnesium 27.1
Sodium 510.5
Potassium 11.2
Iron 0.2
Chloride 988.5
Sulfate 191.5
Nitrate 0.2
Phosphate 0.2
Silica 4.3
NH3 10.6
Total 74752.9
</TABLE>
HANDLING CHARACTERISTICS
Fly ash will be free flowing as delivered to the Acceptance Point of the
Pelletizing Facility and will contain a maximum moisture content of no more than
three percent (3%). Bottom ash will be free flowing as delivered to the
Acceptance Point of the Pelletizing Facility.
<PAGE>
Exhibit 13.6
DESCRIPTION OF PELLETIZED ASH RESIDUE
DISPOSAL SITES AND SERVICES
Pelletized Ash ___________________________________________
Disposal Site: (Name of Mine or Area)
Rail Unloading Ivel, Floyd County, Kentucky (CSXT Mine No. 4091)
Point:
Transportation: Pelletized Ash Residue will be loaded into open top
hopper cars at the Facility, and shall be delivered to
the rail unloading point by the same rail carrier which
delivers coal to the Facility.
Disposal Procedure: Pelletized Ash Residue will be unloaded by Seller at the
Rail Unloading Point. The Pelletized Ash Residue will be
disposed of in a residual landfill meeting all the
requirements under applicable solid waste disposal laws
and regulations. Ground water at the disposal site will
be analyzed through a network of monitoring wells
positioned within analytical parameters as required by
applicable law.
Testing Procedures: All testing will be in accordance with applicable
performance standards pertaining to a residual landfill
under 401 KAR 30:030. The site will be inspected to
ensure compliance with environmental performance
standards in 401 KAR 30:030.
Alternate Disposal Subject to Section 13.8 hereof, Seller reserves the
Sites: right to dispose of Ash Residue at facilities other than
the Disposal Site described above, subject to ICL's
consent.
<PAGE>
Exhibit 19.3
16.0 INSURANCE
16.1 ICL shall procure or cause to be procured a policy of liability
insurance issued by an insurer satisfactory to FPL on a standard
"insurance Services Office" commercial general liability form. Said
policy shall cover liabilities which might arise under, or in the
performance or nonperformance of, this Agreement. An FPL certificate
of insurance in accordance with Section 16.4 shall be delivered to
FPL at least fifteen calendar days prior to the start of any
interconnection work. At a minimum, said policy shall contain (i) an
endorsement providing coverage, including, but not limited to,
products liability/completed operations coverage for a period of
three years, and (ii) a broad form contractual liability endorsement
for FPL Entities. Effective at least fifteen calendar days prior to
the synchronization of the Facility with FPL's system, the policy
shall be amended to include coverage for interruption or curtailment
of power supply in accordance with industry standards.
16.2 The policy in Section 16.1 shall have a minimum limit of Twenty
Million Dollars ($20,000,000) per occurrence, and in the annual
Facility-specific aggregate combined single limit, for bodily injury
(including death) or property damage; provided, however, in the
event that such insurance becomes totally unavailable or procurement
<PAGE>
becomes commercially impracticable, such unavailability shall not
constitute an Event of Default under this Agreement, but FPL and ICL
shall enter into negotiations to develop substitute protection for
FPL Entitles which FPL, in its reasonable judgment, deems adequate.
Any premium assessment or deductible shall be for the account of ICL
and not FPL Entities.
16.3 In the event that the policy is on a "claims made" basis, the
retroactive date of the policy shall be the effective date of this
Agreement or such other date as to protect the interests of FPL
Entitles. Furthermore, if the policy is on a "claims made" basis,
ICL's duty to provide such coverage shall survive the termination of
this Agreement until the expiration of the maximum statutory period
of limitations in the State of Florida for actions based on contract
or in tort; if coverage is on an "occurrence" basis, such insurance
shall be maintained by ICL during the entire period of
interconnection and performance by the Parties under this Agreement.
The policy shall not be canceled or materially altered without at
least thirty calendar days written notice to FPL. Coverage must be
reasonably acceptable to FPL.
16.4 ICL shall provide to FPL evidence of such liability insurance
coverage on FPL Form 1364-23, without modification except that ICL
may delete the sentence "It is agreed that a copy of these policies
will be delivered to Florida Power & Light Company prior to
<PAGE>
interconnection"; an example of such form is attached hereto as
Appendix C, INSURANCE. A copy of the policy(ies) shall be made
available for inspection by FPL at ICL's offices upon reasonable
request.
16.5 FPL Entities shall be designated as an Additional Named Insured for
all policies, and the policy shall be endorsed to be primary to any
insurance which may be maintained by, or on behalf of, FPL Entities.
<PAGE>
E.S. "Ned" Givens U.S. Generating Company
Vice President, Engineering & Construction
December 18, 1995
Mr. Eugene C. Holdaway
Costain Coal, Inc.
249 East Main Street, Suite 200
Lexington, KY 40507
Re: Amendment No. 2 - Fuel Supply and Waste Disposal Agreement
between Cedar Bay Generating Company and Costain Coal, Inc.
Dear Gene:
Enclosed are two (2) executed copies of Amendment No. 2 to the Fuel Supply and
Waste Disposal Agreement between Cedar Bay Generating Company (CBGC) and Costain
Coal, Inc. Please note that this Amendment is subject to Section 4 of the
Agreement which requires CBGC receiving approval from the financing parties.
Sincerely,
/s/ Ned
Edward S. Givens
ESG:cmb
Encls. (2)
cc: J. P. Kearney
<PAGE>
AMENDMENT NO. 2
This AMENDMENT NO. 2 (the "Amendment"), dated as of December 19, 1995, is
entered into between CEDAR BAY GENERATING COMPANY, LIMITED PARTNERSHIP, formerly
known as AES CB Limited Partnership ("Buyer") and COSTAIN COAL INC. ("Seller").
WHEREAS, Cedar Bay Cogeneration, Inc., formerly known as AES Cedar Bay,
Inc. (the "General Partner"), and Seller have entered into a Fuel Supply and
Waste Disposal Agreement (the "Agreement"), dated as of April 21, 1989, as
subsequently assigned by the General Partner to Buyer pursuant to an Assignment
and Assumption Agreement, dated as of April 29, 1991, between Buyer and the
General Partner; and
WHEREAS, Buyer and Seller entered into Amendment No. 1 to the Agreement
dated as of March 31, 1993; and
WHEREAS, Buyer and Seller agreed by letter dated June 9, 1995 how to
implement the provision of the second sentence of Section 5.11(a) of the
Agreement; and
WHEREAS, the parties wish to amend the Agreement again as set out herein
in order to ratify and confirm certain actions of the parties with respect to
the disposal of Waste from the Facility;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth below, the parties agree as follows:
SECTION 1. AMENDMENTS
1.1 The definition of Waste set forth in Section 1.1 of the Agreement is
hereby deleted and the following substituted therefore:
"Waste" means any solid fly ash and bottom ash waste, whether or not
pelletized, generated or produced by combustion of coal and Bark
with limestone at the Facility plus inert materials (i.e., sand or
other material having no active chemical or toxic properties) added
by the Buyer as necessary. Blow down water and boiler cleaning
sludge produced during boiler cleaning operations or otherwise are
specifically excluded from the definition of Waste. Waste may also
mean any short fiber reject ash produced by the addition of short
fiber rejects generated by the adjoining Stone Container Corporation
facility to the combustion of coal and Bark, provided that Seller is
able to obtain all Permits for the disposal of short fiber reject
ash at Seller's Waste Disposal Site.
<PAGE>
-2-
1.2 The definition of Waste Disposal Site set forth in Section 1.1 of the
Agreement is hereby deleted and the following substituted therefore:
"Waste Disposal Site" means the physical location described in Annex
C attached hereto (including the Non-Pelletized Waste Facility)
generally described in Annex C attached hereto at which Seller shall
dispose of the Waste from the Facility in accordance with Article V
hereof.
1.3 The term "Non-Pelletized Waste Facility" is hereby added to Section
1.1 of the Agreement.
"Non-Pelletized Waste Facility" shall mean those facilities Seller
is required to construct at Seller's Waste Disposal Site in order to
take and process non-pelletized Waste in accordance with this
Agreement.
1.4 The first, second and third sentences of Section 5.1 of the Agreement
are hereby deleted and the following substituted therefore:
Buyer shall gather and load Waste at the Waste Acceptance
Point into trucks or railroad cars as designated by Seller. Seller
shall at its sole cost and risk, design, permit, construct, own and
operate the Non-Pelletized Waste Facility. Seller shall take (unless
Buyer exercises its option as provided in Section 5.11(a) hereof)
one-hundred percent (100%) of the pelletized and non-pelletized
Waste at the Waste Acceptance Point and transport such Waste and
dispose of such Waste at the Waste Disposal Site; provided, however,
that Seller's obligation to take such non-pelletized Waste shall not
commence until the earlier of operation of the Non-Pelletized Waste
Facility or May 1, 1996. Notwithstanding anything to the contrary in
this Agreement, if the Non-Pelletized Waste Facility is not
operating on or before May 1, 1996, Seller shall remain obligated to
take one-hundred percent (100%) of the non-pelletized Waste at the
Waste Acceptance Point and transport such waste and lawfully dispose
of such non-pelletized Waste at an alternative location, at Seller's
own cost and risk, provided that Buyer shall remain obligated to
make all payments due pursuant to Section 6.2 of this Agreement.
1.5 The third sentence of Section 5.3(c) is deleted in its entirety.
1.6 The second sentence of Section 5.6(a) is deleted in its entirety and
the following two sentences substituted therefore:
<PAGE>
-3-
Buyer and Seller agree to cooperate in the Permit application
process to ensure that Permits for the Waste Disposal Site will
allow for the disposal of expected components of the Waste,
including by-products of the sulfur removal process, ash from the
Bark and ash from short fiber rejects generated by the adjoining
Stone Container Corporation facility. Seller represents and warrants
that it has all required Permits for disposal of the Waste, except
for ash from short fiber rejects generated by the adjoining Stone
Container Corporation facility.
1.7 The following sentence is added following the second sentence of
Section 5.11(a):
The implementation provisions with respect to the proviso of the
second sentence of Section 5.11(a) set forth in the June 9, 1995
letter between the parties captioned "Implementation of Section
5.11(a) of the Fuel Supply and Waste Disposal Agreement" are hereby
ratified, confirmed and made a part of the Agreement; provided,
however, that such implementation provisions shall apply to both
pelletized and non-pelletized Waste.
1.8 The following two sentences are added at the end of Section 5.11(a):
The Parties expressly acknowledge and agree that the ninety (90) day
notice provision does not apply to the current arrangements between
Buyer and Anker Coal Corporation with respect to the disposal by
Anker of non-pelletized Waste. Notwithstanding anything to the
contrary in this Agreement, in the event that the Non-Pelletized
Waste Facility is not operating after April 15, 1996, no fee shall
be due to Seller under this Section 5.11(a).
1.9 Section 5.11(b) of the Agreement is deleted in full.
1.10 Section 6.2 of the Agreement is hereby deleted and the following
substituted therefore:
Section 6.2. Waste Services Price. The price to be paid by
Buyer to Seller per Ton of Waste taken, transported and disposed of
by Seller pursuant to this Agreement (the "Waste Services Price") as
of the calendar quarter beginning with the first day of July, 1995
and ending with the last day of September, 1995 shall be $21.23.
Thereafter the Waste Services Price shall be calculated as of each
Quarterly Adjustment Date, beginning as of the first day of October,
1995, and shall equal:
WSP' x [1+(0.75 x PPI)]
<PAGE>
-4-
Where:
WSP' = the Waste Services Price for the immediately preceding
calendar quarter; and
PPI has the meaning set forth in Section 6.1(b) hereof; and
PROVIDED, HOWEVER, (i) that for each Ton of Waste taken, transported
and disposed of by Seller in excess of 150,000 Tons in any calendar
year, beginning with January 1, 1996 through December 31, 1996, the
Waste Services Price otherwise determined under this Section 6.2
shall be reduced by ten and one half percent (10 1/2%); and (ii) for
each Ton of non-pelletized Waste taken, transported and disposed of
by Seller prior to April 15, 1995, Buyer shall pay an additional
$4.00 per Ton.
Changes in Applicable Laws shall result in the adjustment of the
Waste Services Price as set forth in Section 6.6 hereof.
1.11 Section 7.2 of the Agreement is hereby amended to read as follows:
Section 7.2. Payment. Buyer shall pay to Seller fifty percent
(50%) of the payment due on the basis of the invoice provided by
Seller pursuant to Section 7.1 hereof within twenty (20) days after
receipt thereof by Buyer. Buyer shall pay to Seller the remaining
fifty percent (50%) of the payment due by the end of the calendar
month within which the invoice referenced in the previous sentence
was provided by Seller pursuant to Section 7.1 hereof.
1.12 The paragraph captioned "Transportation" in Annex C, Section 1 is
hereby amended to delete the first word "Pelletized".
1.13 The paragraph captioned "Disposal Procedure" in Annex C, Section 1 is
hereby amended to delete the second word "solid".
SECTION 2. PAYMENT TO SELLER
On or before December 31, 1995, Buyer shall make a one-time payment to
Seller of Two Million Five Hundred Thousand Dollars ($2.5 million) in
consideration of this Amendment and as full satisfaction for any claims Seller
may have against Buyer under the Agreement up to and including the date hereof.
Seller hereby fully releases Buyer from any and all such claims. Buyer and
Seller expressly acknowledge and agree that the existence of such payment shall
not be admissible in any proceeding arising out of this Agreement for any
purpose whatsoever.
<PAGE>
-5-
SECTION 3. REPRESENTATIONS AND WARRANTIES
Each party represents and warrants to the other that it is not in default
in the performance of any of its obligations under the Agreement. Each party
hereby warrants that each of its representations set forth in Section 12.1 of
the Agreement is true and complete on the date hereof as if made on and as of
the date hereof and as if the reference in said Section 12.1 to "this Agreement"
included a reference also to this Amendment and to Amendment No. 1. In addition,
Buyer warrants that its representation under Section 12.1(a) is true and
complete as of the date hereof as if the reference in said Section 12.1(a) to
"corporation" referred instead to "limited partnership" and the reference to
"incorporation" to "formation."
SECTION 4. CONDITION PRECEDENT
Neither party shall have any obligation to the other hereunder until such
time as Buyer obtains approval from the Financing Parties for its execution of
this Amendment No. 2.
SECTION 5. MISCELLANEOUS
Except as herein provided, the Agreement shall remain unchanged and in
full force and effect. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
amendatory instrument and any of the parties may execute this Agreement by
signing any such counterpart. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA.
<PAGE>
-6-
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first above written.
CEDAR BAY GENERATING COMPANY,
LIMITED PARTNERSHIP
By: /s/ M. Richard Smith
--------------------------
Name: M. Richard Smith
Title: VICE PRESIDENT
COSTAIN COAL INC.
By: /s/ Eugene C. Holdaway
--------------------------
Name: Eugene C. Holdaway
Title: Senior Vice President
<PAGE>
Cedar Bay Generating Company
Limited Partnership
August 2, 1995
Costain Coal, Inc.
249 East Main Street, Suite 400
Lexington, Kentucky 40507
Attention:Executive Vice President
Re: Fly Ash and Bottom Ash Sales Agreement
Dear Sirs:
Pursuant to Section 5.11(a) of the Fuel Supply and Waste Disposal Services
Agreement between Cedar Bay Generating Company, L.P. ("Cedar Bay") and Costain
Coal, Inc. ("Costain"), dated April 21, 1989, as amended (the "Agreement"),
Cedar Bay hereby notifies Costain that Cedar Bay intends to enter into a Fly Ash
and Bottom Ash Sales Agreement with N-Viro International Corporation for the
sale of up to 1,000 tons per week of fly ash and/or bottom ash produced at the
Cedar Bay Generating Project. This letter also confirms my conversation with
Gene Holdaway, Vice President Sales and Marketing of Costain, on August 2, 1995,
in which Mr. Holdaway agreed that Costain would waive the requirement for ninety
days prior written notice set forth in Section 5.11(a) of the Agreement in
connection with the Fly Ash and Bottom Ash Sales Agreement being entered into
with N-Viro International Corporation. Please countersign and return to the
undersigned a copy of this letter to confirm Costain's waiver of the ninety day
notice requirement.
Very truly yours,
/s/ J. Franklin Stallwood
J. Franklin Stallwood
Project Manager
JFS/vs
cc: Mr. Eugene C. Holdaway
WAIVER CONFIRMED: cc. J. Hoehne
E. Davis
COSTAIN COAL, INC. G. Miller
By: /s/ Eugene C. Holdaway
----------------------
Name: Eugene C. Holdaway
Title: Vice President--
Sales & Marketing
<PAGE>
P. Chrisman Iribe U.S. Generating Company
Executive Vice President
June 9, 1995
Eugene C. Holdaway
Vice President, Sales and Marketing
Costain Coal, Inc.
249 East Main Street, Suite 400
Lexington, Kentucky 40507
Re: Implementation of Section 5.11(a) of Fuel Supply and Waste Disposal
Agreement
Dear Mr. Holdaway:
This letter sets forth our understanding of how Cedar Bay Generating Company
("Cedar Bay") and Costain Coal Inc. ("Costain") will implement the proviso of
the second sentence of Section 5.11(a) of the Fuel Supply and Waste Disposal
Service Agreement, as amended, between Cedar Bay and Costain dated April 21,
1989. Such sentence, including the proviso, states:
Buyer agrees that it shall (except only to the extent of a case
described in Section 5.7 hereof) pay to Seller a fee of ten dollars
($10) for each Ton of Waste that is delivered to any third-party
waste disposer rather than to Seller pursuant to this [sic] Section
5.10(a); provided that such fee shall be payable only on the first
150,000 Tons of Waste so delivered in any calendar year less any
Tons delivered to Seller during such year.
In any calendar year, for each month that Cedar Bay ships any Waste to any
third-party waste disposer, and provided that as of the first day of that month
Cedar Bay has shipped 150,000 Tons or less of Waste to Costain, the fee to be
paid under Section 5.11(a) shall be computed as follows:
Fee = (BF) X (12,500 - TDC)
Where:
BF = The base fee of $10 as adjusted in accordance with the
fourth sentence of Section 5.11(a);
12,500 = 150,000 Tons of Waste divided equally by twelve
months; and
<PAGE>
Eugene C. Holdaway
June 9, 1995
Page 2
TDC = Total tons of pelletized Waste shipped to Costain
during such month.
In the event the Fee is a negative number, no Fee shall be due from Cedar Bay to
Costain or from Costain to Cedar Bay. If, as of the end of the calendar year,
the total number of Tons of Waste Cedar Bay ships to Costain is 150,000 Tons or
less, a true-up will be conducted during the following January to ensure that
for the previous calendar year, Cedar Bay has paid Costain the full fee due
under Section 5.11(a) up to the 150,000 Tons of Waste maximum and that Costain
has provided Cedar Bay with credit for all pelletized Tons of Waste delivered to
Costain. In any calendar year, if at the end of a particular month during such
year the total number of Tons of Waste delivered to Costain and paid for by
Cedar Bay for that year exceeds 150,000 Tons of Waste, the true-up shall be
conducted during the following month and no further Fee shall be made to Costain
under Section 5.11(a) for that calendar year.
Please indicate your agreement with this implementation of the portion of
Section 5.11(a) referenced above by signing where indicated. Please keep one
executed original for your files and return one executed copy to my attention.
Sincerely,
CEDAR BAY GENERATING COMPANY, L.P.
/s/ P. Chrisman Iribe
P. Chrisman Iribe
Vice President
Acknowledged and Agreed:
COSTAIN COAL INC.
By: /s/Eugene C. Holdaway
---------------------------------
Name: Eugene C. Holdaway
---------------------------------
Title: Vice President-Sales & Marketing
---------------------------------
<PAGE>
EXECUTION COPY
AMENDMENT NO. 1
This AMENDMENT NO. 1 (the "Amendment"), dated as of March 31, 1993, is
entered into between CEDAR BAY GENERATING COMPANY, LIMITED PARTNERSHIP, formerly
known as AES CB Limited Partnership ("Buyer") and Costain Coal Inc. ("Seller").
WHEREAS, Cedar Bay Cogeneration, Inc., formerly known as AES Cedar Bay,
Inc. (the "General Partner"), and Seller have entered into a Fuel Supply and
Waste Disposal Agreement (the "Agreement"), dated as of April 21,1989, as
subsequently assigned by the General Partner to Buyer pursuant to an Assignment
and Assumption Agreement, dated as of April 29, 1991, between Buyer and the
General Partner; and
WHEREAS, the parties hereto wish to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS
1.1. Section 1.1 of the Agreement is hereby amended by deleting the
definitions "Subordinated Lender" and "Subordinated Loan Agreement" in their
entirety and by adding the following definitions:
"'Capital Recovery Payment' has the meaning set forth in Article XIX
hereof."
"'GAAP' shall mean generally accepted accounting principles as in
effect from time to time."
"'Master Agreement' means the Amended and Restated Master Agreement,
dated as of March 31,1993 among Cedar Bay Generating Company,
Limited Partnership, formerly known as AES CB Limited Partnership,
Banque Paribas, New York Branch, as issuing bank, agent and
collateral agent, and the financial institutions party thereto."
1.2. Section 2.1(b) of the Agreement is hereby deleted in its entirety.
1.3. Section 4.3(c) of the Agreement is hereby amended by (i) deleting
the phrase, "reimburses Buyer for capital costs incurred by Buyer"
and inserting in its place the phrase, "pays Buyer a fee for
providing use of improvements" and (ii) deleting the phrase "Carrier
Reimbursement Amount" and inserting in its place the word "fee".
1.4. Section 6.7 of the Agreement is hereby deleted in its entirety.
<PAGE>
2
1.5. A new Section 9.3 is hereby added to the Agreement and shall read as
follows:
"Section 9.3 Financial Statements. Within (i) 90 days after each fiscal
year of the Buyer, and (ii) within 30 days after each fiscal quarter of
each fiscal year of the Buyer, Buyer shall deliver to Seller statements of
income, retained earnings, and cashflow for such year and such quarter,
respectively, and the balance sheets in relation thereto. Each annual
financial statement shall be accompanied by an opinion thereon of an
independent certified public accountant of recognized national standing,
which opinion shall state that said financial statements fairly present
the financial condition and results of operations of Buyer as at the end
of, and for, such fiscal year in accordance with GAAP. Each quarterly
financial statement shall be accompanied by a certificate of a senior
financial officer of Buyer, which certificate shall state that such
statements fairly present the financial condition and results of
operations of Buyer in accordance with GAAP as at the end of, and for,
such period. Any such information received by Seller pursuant to this
Section 9.3 shall be subject to the confidentiality provisions contained
in Section 17.5 hereof"
1.6 Section 10.2 of the Agreement is hereby amended by adding a sentence
following the last sentence thereof, to read as follows:
"In addition to, and without limiting the effect of, the remedies provided
in this Agreement, upon either (i) termination of this Agreement by Seller
pursuant to Section 10.2 hereof following a default of Buyer, (ii)
termination of this Agreement by Buyer (other than as a result of (A) the
occurrence and continuance of an Event of Default by Seller or (B) the
occurrence and continuance of an event of Force Majeure pursuant to
Section 8.3 hereof) or (iii) the occurrence of any event described in
clause (e) or (f) of Section 6 of the Master Agreement (each of (i), (ii)
and (iii), an "Early Payment Event"), a termination fee shall be
immediately due and payable by Buyer to Seller. Such termination fee shall
equal the sum of all unpaid Capital Recovery Payments. Upon the
termination of this Agreement other than as the result of an Early Payment
Event, Buyer shall owe Seller, in addition to and without limiting the
effect of, the remedies provided in this Agreement, a termination fee.
Such termination fee shall equal the sum of all unpaid Capital Recovery
Payments and shall be payable, at Buyer's option, either (A) in full upon
termination, or (B) in accordance with the schedule for Capital Recovery
Payments specified in Article XIX hereof."
1.7. Section 10.4 of the Agreement is hereby amended by adding in the
last sentence thereof the words "or in respect of any Capital
Recovery Payment" after the word "services".
<PAGE>
3
1.8. A new Article XVIII is hereby added to the Agreement and shall read
as follows:
"ARTICLE XVIII
INCENTIVE ADJUSTMENT
Incentive Adjustment. As an incentive to Buyer to maximize its purchases
of Coal supply and ash waste disposal services under the Agreement, Seller
agrees to provide Buyer with a price incentive (the "Incentive
Adjustment") effective January 1, 1994, and to be applied quarterly in
accordance with Table 1.
<TABLE>
<CAPTION>
================================================================================
TABLE 1: ANNUAL INCENTIVE PRICE ADJUSTMENT-DOLLARS PER TON
PAYMENT SHIPPED ("Adjustment Rate")
================================================================================
Year Greater Than 750,000 Less Than
Tons/Year 750,000 Tons/Year
- --------------------------------------------------------------------------------
<S> <C> <C>
1994* 1.00 0.85
1995 1.00 0.85
1996 1.00 0.85
1997 1.00 0.85
1998 1.00 0.85
================================================================================
</TABLE>
At the end of each calendar quarter, Seller shall determine the actual
amount of Coal deliveries for such quarter and the Adjustment Rate
applicable to such level of Coal deliveries under Table 1 (determined on
the basis of such actual amount of deliveries as adjusted to reflect the
rate of delivery during a full calendar year), such Adjustment Rate to be
applied to the entire amount of Coal deliveries for such calendar quarter.
This calculation shall be included in the next monthly invoice to be
submitted by Seller to Buyer in accordance with Section 7.1, and the
resultant Incentive Adjustment shall be applied as a credit toward the
payment due for the Coal deliveries for the last month of the quarter
covered by the invoice. If the Incentive Adjustment for the quarter
exceeds the amount due Seller for Coal delivered during the last month of
the quarter, then the credit shall be applied to reduce the amount due
Seller to zero. Any remaining credit shall be carried over to the next and
subsequent monthly billings until the credit due is reduced to zero. The
calculations for the fourth quarter of each full calendar year shall
include an adjustment to reflect the actual level of Coal deliveries for
such year, and the Adjustment Rate shall be applied to the entire amount
of Coal deliveries for such year.
- ----------
* In the event commercial operation occurs subsequent to January 1, 1994,
the Adjustment Rate for the calendar quarter in which commercial operation
occurs and for such year shall be based on the amount of Coal actually
shipped during the applicable period, as adjusted to reflect the rate of
delivery during a full calendar quarter or calendar year, as applicable."
<PAGE>
4
1.9. A new Article XIX is hereby added to the Agreement and shall read as
follows:
"ARTICLE XIX
CAPITAL RECOVERY PAYMENT
In addition to each obligation of Buyer to make payment to Seller
hereunder (including, without limitation, any such obligation under
Section 4.3(c)), Buyer hereby agrees to pay Seller, as compensation for
the capital expenditures and investment commitments made by Seller to
fulfill its obligations in accordance with this Agreement, a fee equal to
the sum of the Capital Recovery Payments defined below, payable in annual
installments (each such installment payment, a "Capital Recovery Payment")
during the years 2001 through 2008, calculated in accordance with the
following formula:
X(Y) = P
-------
900,000
Where P = Capital Recovery Payment
X = Annual Payment Factor specified for the
given contract year in Table 1
Y = The average annual amount of Coal actually
delivered during the first seven calendar
years of the Agreement beginning with the
first year of commercial operation
<TABLE>
<CAPTION>
================================================================================
TABLE 1:
================================================================================
Annual Payment Factor
Year ($1,000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
2001 900
2002 900
2003 945
2004 990
2005 1035
2006 1080
2007 1080
2008 1080
================================================================================
</TABLE>
Payment shall be made by Buyer on a quarterly basis with the first payment
due at the end of the first calendar quarter of 2001. The quarterly
payment due Seller shall be one fourth of the annual Capital Recovery
Payment and shall be invoiced separately by Seller within 15
<PAGE>
5
days of the end of the preceding quarter. Buyer shall pay the amount
specified in such invoice within 30 days of receipt of the invoice."
SECTION 2. REPRESENTATIONS AND WARRANTIES
Each party hereto represents and warrants to the other that it is not in
default in the performance of any of its obligations under the Agreement. Each
party hereto hereby warrants that each of its representations set forth in
Section 12.1 of the Agreement is true and complete on the date hereof as if made
on and as of the date hereof and as if the reference in said Section 12.1 to
"this Agreement" included a reference also to this Amendment. In addition, Buyer
warrants that its representation under Section 12.1(a) is true and complete as
of the date hereof as if the reference in said Section 12.1(a) to "corporation"
referred instead to "limited partnership" and the reference to "incorporation"
to "formation."
SECTION 3. AMENDMENTS TO DISBURSEMENT AGREEMENT
(a) Buyer agrees that until the Capital Recovery Payments are paid in full
to the Seller and Fuel Costs, as defined under the Master Agreement, are no
longer payable, it will not without the prior written consent of the Seller
amend or modify the priority of payment of Fuel Costs or Capital Recovery
Payments as set forth in Sections 2 and 5 of the Disbursement Agreement, as
defined under the Master Agreement, or the definition of those terms.
(b) Except as set forth above, the Seller shall not have any other rights
under or in respect of the Disbursement Agreement.
SECTION 4. MISCELLANEOUS
Except as herein provided, the Agreement shall remain unchanged and in
full force and effect. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
amendatory instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
CEDAR BAY GENERATING COMPANY,
LIMITED PARTNERSHIP
By: /s/ Illegible
Name: Illegible
Title: Vice President
COSTAIN COAL INC.
By: /s/ M.E. Donohue
Name: M.E. Donohue
Title: Chief Financial Officer-
Eastern Division
ACKNOWLEDGED AND AGREED
in respect of Section 3
above:
BANQUE PARIBAS, NEW YORK
BRANCH, as Agent and
Collateral Agent
By: /s/ Dan Cozine
---------------
Name: Dan Cozine
Title: AVP
FUEL SUPPLY AND
WASTE DISPOSAL SERVICES
AGREEMENT
between
AES CEDAR BAY, INC.,
Buyer
and
COSTAIN COAL INC.,
Seller
--------------------------------
Dated as of April 21, 1989
--------------------------------
Cogeneration Facility
Jacksonville, Florida
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - DEFINITIONS
Section 1.1. Definitions ........................................ 2
ARTICLE II - TERM
Section 2.1. Term ............................................... 7
Section 2.2. No Reopeners ....................................... 8
ARTICLE III - SALE OF COAL
Section 3.1. Sale and Purchase .................................. 8
Section 3.2. Quantity ........................................... 9
Section 3.3. Quality ............................................ 10
Section 3.4. Adjustments to Specifications ...................... 12
Section 3.5. Sources and Reserves ............................... 13
ARTICLE IV - DELIVERY OF COAL
Section 4.1. Delivery ........................................... 15
Section 4.2. Delivery Schedules ................................. 15
Section 4.3. Demurrage Charges .................................. 17
Section 4.4. Measurement of Quality ............................. 17
Section 4.5. Measurement of Quantity ............................ 20
Section 4.6. Shipping Reports ................................... 21
Section 4.7. Notice of Deliveries ............................... 21
Section 4.8. Noncomplying Deliveries ............................ 21
Section 4.9. Title and Risk of Loss ............................. 24
Section 4.10. Stockpile Obligations .............................. 25
ARTICLE V - DISPOSAL OF WASTE
Section 5.1. Acceptance, Transportation and
Disposal Obligation ................................ 25
Section 5.2. Quantity ........................................... 26
Section 5.3. Method of Waste Removal ............................ 26
Section 5.4. Removal Schedules .................................. 28
Section 5.5. Notices ............................................ 29
Section 5.6. Compliance with Permits ............................ 29
Section 5.7. Damages for Failure to Take,
Transport or Dispose of Waste ...................... 30
Section 5.8. Title and Risk of Loss ............................. 31
Section 5.9. Hazardous Waste .................................... 31
Section 5.10. Noncomplying Waste Other Than
Hazardous Waste .................................... 31
Section 5.11. Arrangements Other Than With
Seller ............................................. 32
ARTICLE VI - PURCHASE PRICE FOR COAL AND
WASTE DISPOSAL SERVICES
Section 6.1. Coal Price ......................................... 33
Section 6.2. Waste Services Price ............................... 36
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.3. Use of Indexes ..................................... 36
Section 6.4. As-Delivered Price ................................. 36
Section 6.5. Governmental Impositions ........................... 36
Section 6.6. Changes in Applicable Laws ......................... 37
Section 6.7. Additional Fee ..................................... 38
ARTICLE VII - PAYMENT AND RECORDS
Section 7.1. Billing ............................................ 39
Section 7.2. Payment ............................................ 40
Section 7.3. Non-confidential Records ........................... 40
Section 7.4. Audit of Records ................................... 41
ARTICLE VIII - FORCE MAJEURE
Section 8.1. Definition ......................................... 42
Section 8.2. Effect of Force Majeure ............................ 42
Section 8.3. Termination Due to Force Majeure ................... 44
ARTICLE IX - ACCESS AND ASSURANCES
Section 9.1. Access ............................................. 45
Section 9.2. Assurances ......................................... 45
ARTICLE X - EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default .................................. 45
Section 10.2. Remedies for Breach ................................ 47
Section 10.3. Waiver of Breach ................................... 48
Section 10.4. Rights and Obligations
of the Parties ..................................... 48
Section 10.5. Cumulative Remedies ................................ 48
ARTICLE XI - INSURANCE
Section 11.1. Insurance .......................................... 49
Section 11.2. Policies and Endorsements .......................... 49
Section 11.3. Waiver of Subrogation .............................. 50
Section 11.4. Non-limitation of Liability ........................ 50
ARTICLE XII - REPRESENTATIONS, WARRANTIES
AND COVENANTS
Section 12.1. General Representations,
Warranties and Covenants ........................... 50
Section 12.2. Compliance with Laws ............................... 51
Section 12.3. Mutual Assistance .................................. 53
ARTICLE XIII - ARBITRATION
Section 13.1. Arbitration ........................................ 53
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XIV - INDEMNIFICATION
Section 14.1. Indemnification of Seller .......................... 54
Section 14.2. Indemnification of Buyer ........................... 55
Section 14.3. Notice and Legal Defense ........................... 56
Section 14.4. Failure to Defend Action ........................... 56
Section 14.5. Indemnification Amount ............................. 57
Section 14.6. Survival ........................................... 57
ARTICLE XV - NOTICE AND SERVICE
Section 15.1. Notice ............................................. 57
Section 15.2. Service ............................................ 57
ARTICLE XVI - SUCCESSORS AND ASSIGNS
Section 16.1. Assignment by Buyer and Seller ..................... 59
Section 16.2. Binding Effect ..................................... 62
ARTICLE XVII - MISCELLANEOUS
Section 17.1. Independent Contractor ............................. 62
Section 17.2. Agents of Seller; Subcontractors ................... 62
Section 17.3. Waste Contractor ................................... 63
Section 17.4. Certain Notices .................................... 64
Section 17.5. Confidentiality .................................... 64
Section 17.6. Amendments ......................................... 64
Section 17.7. Choice of Law ...................................... 64
Section 17.8. Severability and Renegotiation ..................... 64
Section 17.9. Other Agreements ................................... 65
Section 17.10. Captions ........................................... 65
Section 17.11. Counterparts ....................................... 65
Section 17.12. Further Assurances ................................. 65
Section 17.13. No Third Party Rights .............................. 65
Section 17.14. Survival of Provisions ............................. 65
</TABLE>
iii
<PAGE>
ANNEXES
ANNEX A - FACILITY SITE
ANNEX B - DESCRIPTION OF LOADING FACILITY AND DEDICATED COAL RESERVES
ANNEX C - DESCRIPTION OF WASTE DISPOSAL SERVICES AND SITES
ANNEX D - CALCULATION OF INDEXES FOR COAL PRICE AND WASTE SERVICES PRICE
ANNEX E - SAMPLE CALCULATION OF MONTHLY COAL PAYMENT
ANNEX F - COMPONENTS OF PERIODIC ANALYSIS
ANNEX G - EXAMPLE OF STOCKPILE DEFICIENCY CALCULATION
iv
<PAGE>
FUEL SUPPLY AND
WASTE DISPOSAL SERVICES
AGREEMENT
AGREEMENT dated as of April 21, 1989, between AES CEDAR BAY, INC., a
Delaware corporation ("Buyer"), and COSTAIN COAL INC., a Delaware corporation
("Seller").
W I T N E S S E T H :
WHEREAS, Buyer desires to construct and operate a nominal 225
megawatt (net) coal-fired cogeneration facility at Jacksonville, Florida for the
production and sale of steam and electricity;
WHEREAS, Buyer has entered into an agreement with Florida Power &
Light Company for the purchase and sale of electricity produced by said
cogeneration facility;
WHEREAS, Seller desires to sell and deliver coal to Buyer for use in
the production of steam and electricity at the cogeneration facility and to
take, transport and dispose of certain waste produced by said cogeneration
facility; and
WHEREAS, Buyer desires to purchase and accept such coal from Seller,
and to have Seller take, transport and dispose of such waste produced by said
cogeneration facility, all upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements and covenants
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the following meanings:
"AAA" means the American Arbitration Association.
"Adjustment Date" has the meaning set forth in Section 6.1 hereof.
"Agreement" means this agreement, including all appendices and all
amendments thereto that may be made from time to time.
"Applicable Laws" means valid laws, treaties, rules, regulations,
ordinances, orders, codes, judgments, decrees, injunctions, Permits or
decisions having the force of law of any federal, state or local
government, authority, agency, court or other governmental body, including
official interpretations thereof which are binding on the Parties as a
matter of law, having jurisdiction over the matter in question, as in
effect from time to time.
"As Received" means the condition of the Coal supplied hereunder at
the Coal sampling point as designated in Section 4.4(b) hereof.
"ASTM" means the American Society for Testing Materials.
"Average Specifications" means the specifications for Coal set forth
in Section 3.3(b) hereof.
"Bark" means tree bark supplied by Seminole Kraft Corporation to
Buyer which is a by-product from paper-making operations of Seminole Kraft
Corporation's paper mill adjoining the Facility Site.
"Btu" means a British thermal unit.
"Business Day" means Monday through Friday excluding federal
holidays.
"Buyer" means AES Cedar Bay, Inc., a Delaware corporation, and its
successors and permitted assigns, as buyer hereunder.
2
<PAGE>
"Carrier" means the railroad transporting and delivering the Coal,
as designated by Seller.
"Carrier Car" means a bottom-dump, open-top hopper rail car owned by
the Carrier.
"Coal" means coal supplied or to be supplied by Seller pursuant to
this Agreement, but excluding any reclaimed Fines or materials from
tailing ponds or gob piles.
"Coal Delivery Point" means the physical point at which Coal is to
be delivered to Buyer at the Facility Site in accordance with Section 4.1
hereof.
"Coal Price" means the price for Coal as calculated pursuant to
Sections 6.1 and 3.4(c) hereof, as such may be adjusted from time to time
hereunder.
"Coal Reserves" has the meaning set forth in Section 3.5(b) hereof.
"Commercial Operation Date" means the date which Buyer designates in
writing as the initial date of commercial operation of the Facility as
specified in the Power Purchase Agreement, which date, for purposes of
this Agreement, is expected to be not later than March 31, 1993, but which
shall be designated to be a date not later than the earlier of (a) January
1, 1995 or (b) 90 days after the date on which coal shipments (other than
start-up coal shipments) begin.
"Construction Contract" means the construction contract to be
entered into between Buyer and the entity or entities chosen by Buyer and
providing for the design, engineering, construction and testing of the
Facility, including all appendices and amendments thereto that may be made
from time to time.
"Electricity Purchaser" means Florida Power & Light Company, a
Florida corporation.
"Event of Default" has the meaning set forth in Section 10.1 hereof.
"Facility" means those components comprising a 225 megawatt (net)
coal-fired cogeneration plant to be located in Jacksonville, Florida, and
related facilities located on the Facility Site, including without
limitation the appropriate transmission line, storage silos and any and
all appliances, parts, instruments,
3
<PAGE>
appurtenances, accessories and other property that may be incorporated or
installed in or attached to or otherwise become a part of such plant, the
coal and limestone unloading and waste loading apparatus, and all
associated materials, transport systems and associated equipment to be
located at or near the Facility Site, and related facilities, including
without limitation any and all appliances, parts, instruments,
appurtenances, accessories and other property that may be incorporated or
installed in or attached to or otherwise become a part of such apparatus
and equipment.
"Facility Site" means the approximately thirty (30) contiguous acres
of real property in Jacksonville, Florida, as shown in Annex A attached
hereto, upon which certain parts of the Facility will be located.
"Financial Closing Date" means the date of the first closing of the
initial construction financing of the Facility.
"Financing Documents" means any and all loan agreements, notes,
indentures, security agreements, subordination agreements, mortgages,
partnership agreements, subscription agreements, participation agreements
and other documents relating to the construction, interim and long-term
financing (both debt and equity) of the Facility and any refinancing of
the Facility (including a leveraged lease), including any and all
modifications, extensions, renewals and replacements of any such financing
or refinancing.
"Financing Parties" means (i) any and all lenders providing the
construction, interim or long-term financing (including a leveraged lease
or any other refinancing thereof) for the Facility, and any trustee or
agent acting on their behalf, and (ii) any and all equity investors
including partners of Buyer (but excluding Buyer) providing financing or
refinancing for the Facility, and any trustee or agent acting on their
behalf.
"Fines" means Coal of a size which passes through a 28 Tyler mesh
opening.
"Force Majeure" has the meaning set forth in Section 8.1 hereof.
"Hazardous Waste" means a substance which is classified as a
hazardous waste under RCRA or similar Applicable Laws.
4
<PAGE>
"Indemnified Party" has the meaning set forth in Section 14.3
hereof.
"Individual Specifications" means the specifications for the Coal
set forth in Section 3.3(a) hereof.
"Initial Delivery Date" means the first day upon which Seller is
scheduled to deliver Coal to Buyer pursuant to this Agreement.
"Laboratory" has the meaning set forth in Section 4.4(a) hereof.
"Letter Agreement" has the meaning set forth in Section 2.1 hereof.
"Loading Facility" has the meaning set forth in Section 3.5(a)
hereof.
"month", "day" and "year" mean the calendar month, day and year,
respectively.
"Party" means either Seller or Buyer, as the case may be, and
"Parties" means Seller and Buyer.
"Periodic Analysis" has the meaning set forth in Section 4.4(e)
hereof.
"Permit" means any valid waiver, exemption, variance, franchise,
permit, authorization, license or similar order of or from any national,
federal, state or local government, authority, agency, court or other
body, whether in the United States or outside of the United States, having
jurisdiction over the matter in question, as in effect from time to time.
"Power Purchase Agreement" means the power purchase agreement for
the sale of electricity generated by the Facility dated as of May 6, 1988
between Buyer and the Electricity Purchaser, including all appendices and
all amendments thereto that may be made from time to time.
"Price Ceiling" has the meaning set forth in Section 6.1(c) hereof.
"Price Floor" has the meaning set forth in Section 6.1(c) hereof.
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<PAGE>
"Prime Rate" means the interest rate (sometimes referred to as "Base
Rate") for large commercial loans to creditworthy entities published by
the Agent Bank (as defined in the Financing Documents) or its successor
bank, as such rate may be in effect from time to time.
"RCRA" means the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss.ss. 6901-6991(i), and all amendments thereto that may be made
from time to time.
"Quarterly Adjustment Date" has the meaning set forth in Section
6.1(b) hereof.
"Seller" means Costain Coal Inc., a Delaware corporation, and its
successors and permitted assigns, as seller hereunder.
"Seller Car" means a bottom-dump, open-top hopper rail car owned or
leased by the Seller.
"Shareholder's Letter Agreement" has the meaning set forth in
Section 2.1 hereof.
"Source Sample" has the meaning set forth in Section 4.4(b) hereof.
"Specifications" means any or all of the Individual Specifications,
Average Specifications, and Periodic Specifications, as appropriate.
"Subordinated Lender" means Seller or its designee approved by
Buyer.
"Subordinated Loan Agreement" has the meaning set forth in Section
2.1 hereof.
"Superfund" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601-9675, and
all additional amendments thereto that may be made from time to time.
"Ton" means a short ton of 2,000 pounds (avoirdupois).
"Unit Train" means the train transporting and delivering Coal
hereunder, which train shall contain no more than ninety (90) rail cars,
each such car rated to a maximum capacity of approximately one-hundred
(100) Tons.
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<PAGE>
"Waste" means solid fly ash and bottom ash waste generated or
produced by combustion of coal and Bark with limestone at the Facility
plus inert materials (i.e., sand or other material having no active
chemical or toxic properties) added by Buyer as necessary. Blow down water
and boiler cleaning sludge produced during boiler cleaning operations or
otherwise are specifically excluded from the definition of Waste.
"Waste Acceptance Point" means the physical point at which Seller
shall take the Waste in trucks or rail cars from the Facility Site in
accordance with Article V hereof.
"Waste Disposal Site" means the physical location described in Annex
C attached hereto at which Seller shall dispose of the Waste from the
Facility in accordance with Article V hereof.
"Waste Services Price" means the price for Waste taking,
transportation and disposal services as calculated pursuant to Sections
6.2 and 6.6 hereof, as such may be adjusted from time to time hereunder.
ARTICLE II
TERM
Section 2.1. Term.
(a) Duration. This Agreement shall be effective upon execution
hereof and, unless earlier terminated in accordance with the terms hereof or
applicable law, shall continue for a period of twenty (20) years after the
Commercial Operation Date.
(b) Subordinated Debt. Within thirty (30) days after the date
hereof, Buyer and the Subordinated Lender will enter into a Letter Agreement
pursuant to which the Subordinated Lender will enter into a subordinated loan
agreement (the "Subordinated Loan Agreement") on the Financial Closing Date upon
satisfaction of specified conditions precedent. The Subordinated Loan Agreement
shall constitute one of the Financing Documents, contain terms and conditions
(other than terms relating to fees, premiums, interest rates, timing of
drawdowns and other pricing matters) substantially the same as those in the
other subordinated loan agreements included in the Financing Documents, and
shall commit the Subordinated Lender to lend
7
<PAGE>
to Buyer up to $15,000,000. If the Parties have not entered into the Letter
Agreement by the above-specified date, then either Party may thereafter
terminate this Agreement upon ten (10) days written notice to the other. In the
event the Subordinated Lender breaches the aforementioned Letter Agreement by
not entering into the Subordinated Loan Agreement in accordance with the terms
of the Letter Agreement, Buyer may, in addition to its other rights and
remedies, terminate this Agreement without any further obligations to Seller
under this Agreement, such termination to be effected by written notice to
Seller given within thirty (30) days after the occurrence of such breach.
(c) Shareholder's Letter Agreement. Within twenty (20) days after
the date hereof, Buyer and Seller will enter into a Shareholder's Letter
Agreement (the "Shareholder's Letter Agreement") in form and substance
satisfactory to the Parties. If the Parties have not entered into the
Shareholder's Letter Agreement by the above-specified date, then either Party
may thereafter terminate this Agreement upon ten (10) days written notice to the
other.
(d) Early Termination. In the event the Financial Closing Date does
not occur by July 1, 1991, then Seller shall have the right to terminate this
Agreement upon thirty (30) days written notice to Buyer. In the event the
Financial Closing Date does not occur by January 1, 1995 and this Agreement has
not been terminated prior to such date, then this Agreement shall terminate as
of such date without any requirement for notice hereunder.
Section 2.2. No Price Reopeners. During the term of this Agreement,
there shall be no price adjustments, except as specifically set forth in
Sections 3.4(c), 4.3, 5.9, 5.10, 5.11, 6.1, 6.2, 6.5, 6.6 and 6.7 hereof.
ARTICLE III
SALE AND PURCHASE OF COAL
Section 3.1. Sale and Purchase. Seller agrees to sell and deliver to
Buyer, and Buyer agrees to purchase and accept, Coal in the quantities, of the
qualities, and upon the other terms and conditions set forth in this Agreement.
Seller shall perform its obligations under this Agreement in a good and
workmanlike manner and in accordance with the generally accepted standard of
care in the coal supply
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<PAGE>
industry. Buyer shall perform its obligations under this Agreement in a good and
workmanlike manner and in accordance with the generally accepted standard of
care in the power supply industry.
Section 3.2. Quantity.
(a) Requirements. During the term of this Agreement, Seller shall
sell and deliver to Buyer and Buyer shall purchase from and pay Seller for
(subject to Section 3.2(b) hereof), one-hundred percent (1O0%) of Buyer's coal
requirements for the Facility in each year, which currently are estimated to
equal approximately 80,000 Tons of coal from the Financial Closing Date until
the Commercial Operation Date and approximately 925,000 Tons of coal per year
from the Commercial Operation Date through the remaining term of this Agreement.
It is understood and acknowledged by the Parties that such estimates are for
informational purposes only, and that the actual quantity of Coal to be supplied
hereunder shall be determined by, among other things, the actual availability
and operating performance of the Facility, the demand for electricity by the
Electricity Purchaser and the quality and other characteristics of the coal used
at the Facility. Buyer and Seller acknowledge that Bark will also be used as
fuel at the Facility, in amounts not exceeding fifteen percent (15%) by heat
content of the total fuel requirements of the Facility. Buyer will use only coal
and Bark (and gas or oil for start-up purposes only) as fuel in the Facility.
Notice of estimates of quantity requirements of Coal (and estimates of Bark use)
shall be given by Buyer to Seller as specified in Section 4.2 hereof.
(b) Failure of Seller to Deliver. If at any time Seller fails for
any reason (including without limitation breach of this Agreement, Force Majeure
or the failure to perform of any third party) to deliver Coal as required under
this Agreement, Buyer shall have the right to obtain coal from any other source
as and to the extent and for the duration reasonably necessary to enable Buyer
to replace the coal not being delivered by Seller, and Buyer shall not be
considered in breach of this Agreement as a result of taking such action. Buyer
shall first provide Seller notice of Buyer's intent to order replacement Coal,
and Seller shall have three (3) days from the date of receipt of such notice to
elect to ship such replacement Coal and to provide Buyer with reasonable
assurance that such Coal will be delivered within three (3) days after the end
of such initial three (3) day period. Absent such election and provision of
assurance from Seller, Buyer may proceed to order replacement Coal.
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<PAGE>
Seller shall use reasonable efforts to assist Buyer in finding and acquiring
such replacement supplies. The amounts of Coal Buyer is required to purchase
from Seller pursuant to Section 3.2(a) hereof shall be reduced by any amounts
Buyer obtains from other sources pursuant to this Section 3.2(b).
(c) Damages for Failure of Seller to Deliver. Except as excused
hereunder, if Seller shall fail to deliver Coal as required under this
Agreement, Buyer shall have the right to obtain coal from any other source as
and to the extent and for the duration reasonably necessary to enable Buyer to
replace the Coal not being delivered by Seller, and Buyer shall not be
considered in breach of this Agreement as a result of taking such action,
provided that Buyer shall give Seller three days' advance notice of any such
alternative arrangements during which period Seller may identify or propose
replacement supplies, which proposal may include shipments delivered by Seller,
and which proposal shall be accompanied by reasonable assurances that the coal
will be delivered within three days after the giving of such proposal and
assurances. In the event that Buyer purchases replacement coal supplies pursuant
to this Section 3.2(c), Seller shall reimburse Buyer for the excess, if any, of
the direct, out-of-pocket costs reasonably incurred by Buyer in connection with
the purchase of replacement coal over the costs that otherwise would have been
incurred for the purchase of Coal under the terms of this Agreement.
Section 3.3. Quality. The Coal delivered by Seller to Buyer
hereunder shall have the following qualities and characteristics:
(a) Individual Specifications. Subject to Sections 4.8(a) and (b)
hereof, the following minimum and maximum specifications (the "Individual
Specifications"), shall apply to each shipment of Coal hereunder with such
compliance to be determined on the basis of the analysis of said delivery
pursuant to Section 4.4 hereof:
<TABLE>
<S> <C>
Total Moisture 10% maximum
Total Ash 14% maximum
Heat Content 11,500 Btu/lb
(ASTM D-2015 or D-3286) minimum
Total Sulfur 1.5% maximum
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Fines 25% maximum
Top Size Maximum of 2% over
4 inches
Na(2)O plus K(2)O in ash 5% maximum
</TABLE>
(b) Average Specifications. The results of the analysis of each
shipment of As-Received Coal obtained pursuant to Section 4.4 hereof
(after the first five (5) such shipments) shall be averaged on a weighted
basis with the results of the analyses of the five immediately preceding
shipments of As-Received Coal, and the average so calculated must satisfy
the following minimum and maximum specifications (the "Average
Specifications"):
<TABLE>
<S> <C>
Total moisture 9% maximum
Ash 12% maximum
Heat Content 12,000 Btu/lb.
(ASTM D-2015 or D-3286) minimum
Total Sulfur 1.2% maximum
Fines 15% maximum
Top Size Maximum of 2% over
4 inches
Na(2)O plus K(2)O in ash 3.4% maximum
Hardgrove grindability index 40 minimum
</TABLE>
(c) All Coal delivered hereunder shall be substantially free of
impurities, including, but not limited to, bone, slate, earth, clay, rock,
metal objects, discrete pieces of pyrite (other than pyrite inherent in
the Coal) or wood. No oil or other material will be added to change the
natural heating value of the Coal. Seller will use reasonable efforts to
load each shipment of Coal in a manner that will reasonably ensure a
uniformity of size.
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<PAGE>
Section 3.4. Adjustments to Specifications.
(a) Adjustments for Test Burn. Within twenty (20) days after a
request from Buyer, Seller shall deliver to a location designated by Buyer Coal
consistent with the Specifications and in sufficient quantities (estimated to be
one-hundred (100) Tons of Coal) such that Buyer can complete, prior to the
actual performance testing of the Facility under the Construction Contract, a
test burn demonstrating the qualities of the Coal. The test burn, if any, shall
be completed within three (3) months after the Financial Closing Date and shall
include the burning of the Coal, the Bark and limestone. Seller shall be
promptly reimbursed for the cost of shipping the Coal to the test location.
Buyer agrees to deliver to Seller within thirty (30) days after such test burn a
sample of the waste resulting therefrom. If Buyer reasonably determines after
such test that changes in the Specifications may be necessary for the efficient
operation of the Facility in accordance with Applicable Laws and Permits, Buyer
shall have the right to request adjustments in the Specifications as necessary
for the Facility to operate in such manner, provided that Buyer shall first make
reasonable investigation into the practicality of making physical adjustments to
the Facility in lieu of or in addition to making such changes in the
Specifications. The response to Buyer's request shall be determined in
accordance with the procedures set forth in Section 3.4(c) hereof.
(b) Adjustments Due to Regulatory Changes. If as a result of any
change in Applicable Laws, Buyer reasonably deems it necessary (given the
then-existing physical plant of the Facility) to burn Coal having specifications
different from the then-current Specifications. Buyer shall first make
reasonable investigation into the practicality of making physical adjustment to
the Facility in lieu of or in addition to making such changes in the
Specifications, and may then request such adjustments in the Specifications from
Seller as necessary to comply with such Applicable Laws. The response to Buyer's
request shall be determined in accordance with the procedures set forth in
Section 3.4(c) hereof.
(c) Procedures for Adjusting Specifications. Within thirty (30) days
after receiving a request from Buyer pursuant to Sections 3.4(a) or (b) hereof
that the Specifications be adjusted, Seller shall notify Buyer of whether Seller
disputes Buyer's determination that such changes in the Specifications are
necessary, and, if so, the reasons for any such dispute (which may include
Seller's reasoned belief that it is more practical for Buyer to make
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<PAGE>
adjustments or additional adjustments to the physical plant of the Facility
rather than to adjust the Specifications). In the event of such a dispute, the
Parties shall each provide the other with all relevant information and documents
in their respective possession, and shall negotiate in good faith for a period
of thirty (30) days in an attempt to resolve such dispute, after which time
either Party may submit the dispute to arbitration pursuant to Article XIII
hereof. For assistance, the arbitration panel may consult an engineering firm
selected by the Parties (or if the Parties are unable to agree on such a firm,
then selected by the arbitration panel). The arbitration panel shall be directed
to render its decision on the dispute within thirty (30) days of its selection.
In the event that Seller does not dispute Buyer's determination that changes in
the Specifications are necessary, or in the event the arbitration panel rules
that changes in the Specifications are necessary, then, if Seller reasonably
determines that it can meet such revised Specifications, the Specifications
shall be revised accordingly, and Seller shall specify an incremental increase
in the Coal Price, which increase in price shall be sufficient to compensate
Seller for the full economic impact of making such change, and shall not be
subject to arbitration. The increased price shall thereafter be the Coal Price
hereunder (and the Ceiling Price and the Floor Price in Section 6.1(c) shall be
adjusted upward accordingly); provided that if Buyer reasonably believes such
adjusted price to be unacceptable, Buyer shall so inform Seller and the Parties
shall for a period of 30 days endeavor in good faith to agree on an adjusted
price. If the Parties then are unable to agree, Buyer shall have the right to
terminate this Agreement upon ten (10) days advance written notice to Seller
given within thirty (30) days after the end of such thirty (30) day period. If
Buyer does not thus exercise such right, the adjusted price proposed by Seller
shall be the Coal Price hereunder.
Section 3.5. Sources and Reserves.
(a) Sources. The Coal sold and purchased hereunder shall be shipped
from Seller's loading facility described in Annex B attached hereto (the
"Loading Facility"), provided that Seller shall have the right, upon prior
written approval of Buyer, not to be withheld unless Buyer reasonably determines
that it is or would be materially adversely affected thereby, to deliver Coal
meeting the Individual and Average Specifications from other sources owned by
Seller, its affiliates or third parties unaffiliated with Seller. Prior to the
initial delivery of Coal from a
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<PAGE>
location other than the Loading Facility, Seller shall provide to Buyer a
Periodic Analysis of such Coal for informational purposes. Deliveries of Coal
hereunder from any source other than the Loading Facility shall comply with and
be subject to all terms and conditions of this Agreement.
(b) Reserves. Seller represents and warrants that Seller now owns,
leases or otherwise has the legal right to mine and sell, and has dedicated or
will dedicate to the performance of this Agreement on or before the Financial
Closing Date, a sufficient number of Tons of recoverable Coal (the "Coal
Reserves") and productive capacity to enable Seller to supply Coal in accordance
with the provisions of this Agreement during the term hereof. Descriptions of
the Coal Reserves are set forth in Annex B hereto and maps depicting said
reserves are attached thereto, which Annex and maps are incorporated herein by
this reference. Seller warrants that the Coal from the Coal Reserves will meet
the Specifications provided for in this Agreement. From time to time, Seller may
substitute coal reserves meeting the quality specifications herein for those
reserves indicated in Annex B, subject to the approval of Buyer, which approval
shall not be unreasonably withheld. Such substituted reserves shall be subject
to the provisions of this Agreement relating to the Coal Reserves. Dedicated
Coal Reserves shall be reduced by five percent (5%) of the total Coal Reserves
each year after the Commercial Operation Date. Nothing in this Section 3.5(b)
shall limit Seller's right to deliver Coal from other sources as specified in
Section 3.5(a) hereof.
(c) Transfer of Reserves. At any time during the term of this
Agreement, Seller shall not sell, lease, contract to sell, mortgage, grant a
security interest in or otherwise transfer, encumber or permit to be sold,
leased or otherwise transferred, any interests in the Coal or in the Coal
Reserves in such quantities as to jeopardize Seller's ability to supply the
required quantities remaining to be provided hereunder from the Coal Reserves or
which may interrupt any scheduled deliveries hereunder. Notwithstanding the
foregoing, this Section 3.5(c) shall not prohibit Seller from granting a
mortgage or other security interest in the Coal Reserves pursuant to any
arm's-length transaction providing secured financing to Seller or an affiliate
of Seller on commercially reasonable terms under which the grantee of such
mortgage or security interest, and transferees of such grantee's interest, are
subject to Buyer's rights to the Coal Reserves under this Agreement (including
this Section 3.5(c)).
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<PAGE>
ARTICLE IV
DELIVERY OF COAL
Section 4.1. Delivery.
(a) Delivery Points. This Agreement is a "destination" contract in
which Seller agrees to deliver Coal F.O.B. the Facility at the Coal Delivery
Point. The Coal Delivery Point shall be located at the Facility Site or at such
other locations at or near the Facility Site as Buyer may designate from time to
time, provided that Buyer shall reimburse Seller for its reasonable costs
incurred due to Buyer's redesignation of the Coal Delivery Point.
(b) Delivery Arrangements. Seller shall provide, or shall enter into
with responsible carriers, such arrangements for transportation as are necessary
to ensure timely delivery of Coal to the Coal Delivery Point in accordance with
the schedules determined pursuant to Section 4.2 hereof. Within sixty (60) days
after the date hereof Seller shall provide Buyer with a plan setting forth the
manner in which Seller intends to transport and deliver Coal in accordance with
this Agreement during the term hereof. Such plan shall be accompanied by
appropriate evidence (excluding agreements subject to confidentiality
obligations) demonstrating that Seller shall be able to provide such necessary
transportation services so as to ensure delivery of Coal as required by this
Agreement. In the event that Seller shall desire to change the manner in which
it transports and delivers Coal, then Seller shall provide Buyer with updated
information and backup documentation as described in this Section 4.1(b)
regarding such revised transportation and delivery plans. Any such revision
shall be subject to Buyer's consent which shall not be withheld unless Buyer
reasonably determines that it is or would be materially adversely affected
thereby. Buyer shall be responsible for the uploading of Coal at the Coal
Delivery Point, including the supply of necessary equipment for such unloading.
Within sixty (60) days after the date hereof, Buyer shall deliver to Seller a
plan setting forth the manner in which Buyer intends to unload Coal at the
Facility Site.
Section 4.2. Delivery Schedules. At least ninety (90) days prior to
the Initial Delivery Date, Buyer shall deliver to Seller an estimate of the
tonnage of Buyer's Coal requirements for the remainder of the calendar year in
which the Initial Delivery Date occurs, and thereafter at least
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<PAGE>
ninety (90) days prior to the beginning of each calendar year, Buyer shall
deliver to Seller an estimate of the tonnage of Buyer's Coal requirements for
such calendar year. By the thirtieth (30th) day preceding the start of each
calendar quarter from the Initial Delivery Date and continuing during the term
of this Agreement, Buyer shall provide Seller with an updated estimate of the
amount of Coal to be delivered to Buyer during such quarter pursuant to this
Agreement. In addition, on or before the fifteenth (15th) day of each month from
the Initial Delivery Date and continuing during the term of this Agreement,
Buyer shall deliver to Seller written notice containing the amount of Coal
required by Buyer during the next succeeding month. Buyer shall use reasonable
efforts to ensure that such amounts are approximately equal from month to
month, and that any such amount is not more than eighty-thousand (80,000) Tons
per month. Upon receipt of such notice, Seller shall arrange delivery of said
quantities of Coal in accordance with Buyer's stated requirements for such
month and shall, on or before the seventh (7th) day preceding such month,
deliver to Buyer a schedule listing the days in such month on which Coal
deliveries are expected to occur and the amounts to be delivered on such days,
the aggregate of which shall equal Buyer's stated requirements, allowing for
deviation upwards or downwards only as necessary to provide for whole Unit
Train shipments. Seller shall have no liability hereunder for failure to
deliver on the specific days listed in such schedule, except to the extent
such failure results in a shortfall in deliveries as specifically provided in
Section 10.1(b) hereof. Upon Buyer's request Seller shall use reasonable
efforts to modify said schedule to the extent necessary to accommodate
changing coal requirements of Buyer. Seller shall promptly notify Buyer in the
event Seller learns of a probable interruption in a scheduled delivery of Coal.
Buyer shall promptly notify Seller in the event Buyer learns of a probable
interruption in the operation of the Facility. Buyer agrees to use reasonable
efforts to accommodate Seller's need to efficiently utilize its private
railroad equipment; provided that Buyer's obligation hereunder shall not
modify Seller's obligation to deliver Buyer's requirements for Coal as set forth
in Section 3.2(a) hereof. In the event Buyer requests delivery in any month of
Coal in amounts in excess of 80,000 Tons, Seller shall use reasonable efforts to
supply such Coal. In the event such additional delivery requires Seller to incur
additional transportation costs, Seller may condition its delivery of such
additional Coal upon the reimbursement by Buyer of such costs.
16
<PAGE>
Section 4.3. Delivery and Detention Charges and Ash Car
Reimbursement.
(a) Side Track Agreement. It is understood by the Parties that Buyer
intends to enter into a sidetrack agreement with Carrier for receipt and
unloading of Coal and loading of pelletized Waste at the Facility Site. Seller
agrees to cooperate with Buyer in Buyer's negotiation with Carrier toward such
agreement. Seller has informed Buyer of Buyer's obligation to pay demurrage
and detention charges to the Carrier as set forth in Carrier Freight
Tariff CSXT 8200, with the exception that Buyer shall be allowed a maximum of
six (6) hours to unload instead of four (4) hours. Buyer shall promptly pay or
otherwise resolve all such charges so as not to cause any interference with
Seller's transportation services.
(b) Private Equipment Utilization. Buyer acknowledges that Seller
may purchase railroad equipment, including Seller Cars. Seller agrees that such
railroad equipment shall be capable of performing the services hereunder and
shall be kept in good working order and repair to meet the Coal supply and Waste
disposal requirements as stated herein. In order to assure Seller efficient
utilization of Seller Cars and to provide a timely supply of Coal to the
Facility, Buyer agrees to pay to Seller demurrage fees for failure to unload
each Unit Train in six (6) hours or less, and to load pelletized Waste as
described in Section 5.3(c). The demurrage fee shall be five dollars ($5.00) per
Seller Car for each full hour or fraction thereof that Buyer detains the Seller
Cars in excess of six (6) hours, payable under such terms and conditions as are
set forth in Freight Tariff CSXT 8200, as applicable, as if Seller were the
railroad under such tariff. The five dollar ($5.00) charge shall increase or
decrease at the same percentage rate change as the detention charge for Carrier
Cars under Freight Tariff CSXT 8200.
(c) Reimbursement for Capital Costs. If the Carrier reimburses Buyer
for capital costs incurred by Buyer or otherwise and Seller is required to
purchase additional rail cars to accommodate Buyer's Waste loading, then Buyer
will pay Seller up to fifty percent (50%) of such Carrier reimbursement amount,
such amount not to exceed seven hundred fifty thousand dollars ($750,000).
Section 4.4. Measurement of Quality.
(a) Laboratory; Standards. Seller's laboratory (the "Laboratory")
shall perform the analyses required under
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<PAGE>
Section 4.4(c) hereof. The Laboratory shall be maintained and operated in
accordance with ASTM standards. Buyer shall have the right to have a
representative present at any and all times to observe sampling and analysis
performed pursuant to this Section 4.4 and operations and maintenance of the
Laboratory. Except as the Parties may otherwise agree, the sampling and the
sample preparation pursuant to Section 4.4(b) hereof shall be performed in
accordance with ASTM Methods D-2234 and D-2013, respectively, and all analyses
performed pursuant to Sections 4.4(c), (d) and (e) hereof shall be performed in
accordance with all applicable ASTM methods.
(b) Sample. Seller shall obtain a representative sample (the "Source
Sample") of each shipment of Coal as it is loaded into rail cars for final
shipment to Buyer. Seller shall divide each Source Sample into two parts and put
each part into a suitable airtight container. One part shall be delivered to the
Laboratory and the other part shall be retained by Seller.
(c) Short Prox Analysis. At Seller's expense, the Laboratory shall
analyze its part of each Source Sample for total moisture, ash, heat content
(ASTM Method D-2015 or D-3286) and sulfur (the "Short Prox Analysis"). Seller
shall deliver the results of the Short Prox Analysis to Buyer in accordance
with Section 4.6 hereof. If Buyer does not take exception to the results of
Seller's analysis within sixty (60) days after receipt thereof, said analysis
shall be deemed conclusive and all appropriate samples and parts, including the
retained sample, may be discarded.
(d) Other Specifications. Buyer shall have the right for the sixty
(60) day time period set forth in Section 4.4(c) hereof, upon written notice to
Seller, to have the second half of the Source Sample tested at Buyer's expense
at an independent laboratory, selected by mutual agreement of the Parties, for
Na(2)O and K(2)O and for the Hardgrove Grindability Index in order to determine
Buyer's compliance with the Specifications set forth in Sections 3.3(a) and (b)
hereof. The results obtained by such independent laboratory shall be binding on
the Parties so long as all such tests are performed in accordance with ASTM
standards and a split of the sample is retained for purposes of independent
testing in accordance with Section 4.4(f)(i) hereof. Seller shall grant Buyer
access to Seller's Loading Facility (and any other sources of the Coal delivered
hereunder) to test for Fines and top size in order to determine Buyer's
compliance with the Specifications set forth in Sections 3.3(a) and (b) hereof.
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<PAGE>
(e) Periodic Analysis. In addition to the tests performed pursuant
to Section 4.4(c) hereof, at least once every three (3) months, Seller, at its
expense, shall perform, or cause to be performed, an ultimate, ash, and trace
element analysis of the Source Sample as set forth in Annex F attached hereto
(the "Periodic Analysis"). Seller shall deliver the results of the Periodic
Analysis to Buyer within three (3) days after receipt thereof by Seller. Buyer
shall have the right at its own expense to have the Periodic Analysis performed
more frequently in its discretion. Either Party may request that analysis of
other factors be included at its expense.
(f) Independent Test. (i) Buyer shall have the right at any time,
upon written notice to Seller, to have the second half of the Source Sample
tested at Buyer's expense at an independent laboratory selected by mutual
agreement of the Parties. In addition, in the event Buyer has elected to have
the second half of the Source Sample tested pursuant to Section 4.4(d) hereof,
Seller shall have the right at any time to have the second half of the Source
Sample tested at Seller's expense at an independent laboratory selected by
mutual agreement of the Parties. In the event the results of such independent-
laboratory analysis are outside ASTM tolerances when compared to the analysis of
the first half, the results of the independent laboratory analysis shall be
deemed conclusive and binding on the Parties, only in respect to those
Specifications outside ASTM tolerances, for all purposes hereunder.
(ii) Notwithstanding the foregoing, Buyer shall have the right at
any time to perform a bias test of Seller's sampling system and such other test
and review as reasonably necessary to confirm that such sampling system is in
accordance with ASTM Standards.
(iii) In the event, on more than three (3) occasions during a twelve
(12) month period, the results of the analysis of the second half of the Source
Sample pursuant to Section 4.4(f)(i) hereof have been outside ASTM tolerances
when compared to the analysis of the first half of the Source Sample, then upon
Buyer's request the Parties shall meet to seek to determine the reasons
therefor. Upon such event, if Buyer is not reasonably satisfied with Seller's
assurances as to the continued reliability and accuracy of the Laboratory, the
Parties shall agree upon an independent laboratory to replace the Laboratory for
all or an appropriate part of the testing under this Section 4.4, provided that
any such independent laboratory must be maintained and operated in
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accordance with ASTM standards, must provide the Parties with access to its
facilities for observation of testing and test methods, and must be able to
fulfill the scheduling and other requirements imposed upon the Laboratory
pursuant to this Agreement.
Section 4.5. Measurement of Quantity.
(a) If Seller provides scales at designated mines which are approved
by Carrier and are used by Carrier in determining freight billings, such scales
shall be utilized to determine the weight of Coal shipments made from such
designated mines to the Facility. The weight so determined shall be used by
Seller in invoicing such Coal.
(b) In the event Seller does not provide scales pursuant to Section
4.5(a) hereof or during such periods when Seller's scales are inoperative, Buyer
shall weigh Coal at the Facility Site using its certified belt scales which
shall be tested and maintained in accordance with the then-current edition of
the American Association of Railroads Scale Handbook.
(c) If requested by either Party, the other Party shall provide
reasonable notice and adequate access so that the requesting Party has a
reasonable opportunity to witness the loading and weighing process and
procedures, as well as any equipment calibrations as performed to the weighing
facilities. Each Party shall provide a copy of all scale calibration and test
results to the other Party. At any reasonable time, Buyer or Seller may request
verification of the calibration of any weighing device used by the other Party
where such weighing device is used to determine the weight of the Coal for
determining the Coal Price hereunder. If as a result of any such verification
the weighing device is found to be in error, then the Party in control of such
weighing device shall pay for the requested verification and shall, at no
expense to the requesting Party, ensure that such weighing device is promptly
repaired and restored to a condition of accuracy. If the weighing device is
found not to be in error, the requesting Party shall pay for the requested
verification. Each Party retains the right to spot weigh any shipment of Coal at
any time using scales of its choice, provided that such weighing shall not
unreasonably interfere with or delay the delivery or unloading of Coal
hereunder.
(d) During any period that (i) either Seller has not provided scales
pursuant to Section 4.5(a) hereof or such
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scales are inoperative, and (ii) any scales of Buyer pursuant to Section 4.5(b)
hereof are also inoperative, the weight of each shipment of Coal shall be
determined by the average of the actual weights of each car in the five (5) most
recently weighed shipments, multiplied by the actual number of unweighed cars in
the unweighed train.
Section 4.6. Shipping Reports. At least eighteen (18) hours prior to
the delivery of each shipment of Coal, Seller shall de1iver to Buyer, by
telecopy or other method specified in Article XV hereof, a shipping report
containing the following information: (a) the estimated quantity of Coal to be
delivered based on the capacity and number of rail cars, (b) the name of the
carrier, (c) the identity of the Loading Facility, or if such Coal did not
originate at the Loading Facility, then the identity of the source of the Coal
delivered, (d) the date the Coal was loaded for delivery to Buyer, (e) a
certificate of Seller stating whether the shipment meets the Individual
Specifications and (f) the results of the Short Prox Analysis. Buyer need not
accept any shipment of Coal prior to the receipt of the shipping report
containing all of the information set forth in this Section 4.6. Notwithstanding
the provisions of Article XV hereof, shipping reports sent by telecopy shall be
deemed served as of the time transmitted. In the event the telecopy machine of
either Party is inoperative, then the information contained in the shipping
report may be communicated by telephone, provided that written confirmation of
such telephonic report shall be provided as soon as reasonably possible
thereafter.
Section 4.7. Notice of Deliveries. At least four (4) hours in
advance of a delivery scheduled on a weekday and eight (8) hours in advance of a
delivery scheduled on a weekend, Seller or its designee (which may be the
Carrier) shall give notice of the time of such delivery by telephone to the
person designated in writing from time to time by Buyer to Seller.
Section 4.8. Noncomplying Deliveries. Seller recognizes that the
failure to deliver Coal in accordance with this Agreement may, among other
things (i) cause Buyer to be unable to operate the Facility without violating
Applicable Laws pertaining to environmental matters, which violation might
subject Buyer to civil and criminal penalties or injunctions preventing
operation of the Facility, (ii) damage the Facility, if the deficiencies in the
delivered Coal are not discovered before the Coal is burned in the Facility, or
(iii) prevent the Facility from operating in an efficient manner. Therefore, the
Parties agree as follows:
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(a) If Seller notifies Buyer, whether in the shipping report
delivered pursuant to Section 4.6 hereof or otherwise, that any
shipment of Coal to be delivered hereunder does not meet the
Individual Specifications for the components tested in the Short
Prox Analysis, then Buyer shall have the right, to be exercised by
Buyer as soon as practicable but in no event later than twenty-four
(24) hours after receipt of notice of failure to meet such
Specifications, to reject such shipment of Coal, and Seller shall
not deliver such shipment to Buyer. Buyer may, at its option, accept
such shipment at a reduced price which shall take into account any
additional demurrage or retention changes incurred by Buyer as may
be agreed upon by Buyer and Seller.
(b) If Buyer accepts delivery of a shipment of Coal hereunder
on the basis of Seller's representations as contained in the
shipping report delivered pursuant to Section 4.6 hereof, and it is
subsequently determined, pursuant to the procedures set forth in
Section 4.4(e) hereof or otherwise, that such shipment does not meet
the Individual Specifications for the components tested in the Short
Prox Analysis, Buyer shall have the right to revoke acceptance of
such delivery. If Buyer has physically segregated such shipment from
other Coal at the Facility Site, then such shipment shall be deemed
not to have been delivered for purposes of this Agreement, and
Seller shall promptly remove such shipment at its own expense and
reimburse Buyer for all reasonable direct, out-of-pocket expenses
incurred by Buyer as a result of the rejection. Seller shall pay
such amounts to Buyer within thirty (30) days of receipt from Buyer
of a notice specifying the amounts for which reimbursement is
sought. If Buyer has not physically segregated such shipment from
other Coal at the Facility Site, then an equitable adjustment in the
price of such Coal shall be made, and Seller shall be liable to
Buyer for any direct, out-of-pocket damages to Buyer to the extent
resulting from the failure to meet the specifications referred to in
this paragraph.
(c) In the event Seller makes any shipment of Coal accepted by
Buyer that causes the weighted rolling-average analysis, as
calculated pursuant to Section 3.3(b) hereof (and, to the extent
actual weights are not yet available, such calculation shall be
based on Seller's estimated weights contained in the shipping report
delivered pursuant to Section 4.6 hereof), to
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<PAGE>
fail to meet the Average Specifications, or in the event Seller
delivers more than three (3) shipments of Coal in a three (3) month
period which fail to meet the Individual Specifications
(notwithstanding Buyer's acceptance of such Shipments pursuant to
Sections 4.8(a) or (b) hereof), Buyer may at its option (i) request
that Seller provide assurances to Buyer in accordance with Section
9.2 hereof that future shipments of Coal will comply with the terms
and conditions of this Agreement, and (ii) direct Seller to suspend
shipments of Coal, which suspension shall be deemed to be
commercially reasonable, until such satisfactory assurances are
received or this Agreement is terminated pursuant to Section 10.2
hereof.
(d) In the event Buyer rejects Coal pursuant to Sections
4.8(a) or (b) hereof or suspends shipments pursuant to Section
4.8(c) hereof and Seller fails to cure such deficiency to Buyer's
reasonable satisfaction, then Buyer shall have the right to obtain
Coal from any other source as to the extent and for the duration
necessary to enable Buyer to replace such rejected coal, and Buyer
shall not be considered in breach of this Agreement as a result of
taking such action. Seller shall use its best efforts to assist
Buyer in finding and acquiring such replacement supplies. Prior to
Buyer acquiring replacement coal pursuant to this Section 4.8(d),
Seller shall have forty-eight (48) hours from receiving notice of
such uncured rejection or suspension to identify and propose
replacement supplies, which proposal may include shipments delivered
by Seller, although Buyer shall not be obligated to accept any such
proposal unless Seller has also provided assurances satisfactory to
Buyer in accordance with Section 4.8(c) hereof. In the event that
Buyer purchases replacement coal pursuant to this Section 4.8(d),
Seller shall reimburse Buyer for the excess, if any, of the direct,
out-of-pocket costs reasonably incurred by Buyer in connection with
the purchase of replacement coal over the costs that otherwise would
have been incurred for the purchase of Coal under the terms of this
Agreement.
(e) In the event Buyer reasonably determines that the Coal
delivered by Seller hereunder shall directly and proximity cause
Buyer to violate its air quality Permits with material adverse
effect to Buyer, then Buyer and Seller shall promptly meet to
determine the cause of the Permit violation and shall cooperate in
implementing any remedy. Buyer shall first make
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<PAGE>
reasonable efforts to cure such situation by seeking amendment of
its Permits or otherwise. To the extent that such violations are
caused by the Coal being delivered by Seller, and if Buyer after
making reasonable efforts has been unable to amend its Permits or
otherwise cure such situation, then Seller shall take economically
reasonable steps to obtain Coal from other sources if necessary to
correct the violation, provided that if the Coal creating the Permit
violation is from a source other than the Loading Facility, and it
is determined that Coal from the Loading Facility would not cause
such Permit violation, Seller shall deliver Coal from the Loading
Facility or, at Seller's option, such other Coal which does not
cause such Permit violations. If it is determined that,
notwithstanding the above-specified efforts, Seller will not be
able to deliver Coal to Buyer which will allow Buyer to comply with
Buyer's air quality Permits, then Buyer may at its option
terminate this Agreement upon ten (10) days notice to Seller.
(f) In the event of any failure to meet specifications as
specified in 3.4(a) or (b) for Na(2)O plus K(2)0 in ash or Hardgrove
Grindability Index, there shall be no consequences or adjustment
required unless such deviation causes material adverse effects to
Buyer. In such event, Seller shall use reasonable efforts to provide
Coal meeting such specifications. In the event Seller is unable
despite reasonable efforts to provide such Coal the Parties shall
endeavor to find a mutually agreeable equitable resolution to the
problem. If they are unable to do so during a period of thirty (30)
days, then Buyer shall have the right to terminate this Agreement
upon ten (10) days advance written notice to Seller given at the end
of such thirty (30) day period. There shall be no other remedy or
liability solely for Seller's failure to meet the specifications for
Na(2)O and K(2)0 in ash or the Hardgrove Grindability Index.
(g) The remedies provided to Buyer by this Section 4.8 shall
be in addition to and shall not be in lieu of any and all other
remedies available to Buyer under this Agreement or at law or in
equity.
Section 4.9. Title and Risk of Loss. Seller warrants that title to
all Coal tendered to Buyer hereunder will be good and merchantable and its
transfer lawful, and that such Coal will be free and clear of any lien, claim,
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demand, security interest or other encumbrance. Title to and risk of loss with
respect to the Coal purchased and sold hereunder shall pass from Seller to Buyer
upon unloading of the Coal by Buyer at the Coal Delivery Point.
Section 4.10. Stockpile Obligations. Buyer will order Coal from
Seller in amounts so that, if such amounts are delivered, Buyer will maintain a
coal stockpile of not less than 55,000 Tons. For purposes of calculating any
damages pursuant to Section 4.8(d) or otherwise for nondelivery or any breach by
Seller, the number of Tons involved in any failure or deficiency in delivery of
Coal by Seller, shall be reduced by the amount which is equal to the difference
between:
(a) the number of Tons that Seller failed to deliver on any day on
which such failure or deficiency occurred, minus
(b) the number of Tons by which Buyer's stockpile at the
beginning of such day was less than 55,000 (excluding the
number of Tons of such deficiency which are due to Seller's
previous failure to deliver Coal as ordered by Buyer pursuant
to Section 4.2 hereof and which has not been previously cured
by Buyer or Seller).
An example of the foregoing stockpile deficiency calculation is set forth in
Annex G attached hereto.
ARTICLE V
DISPOSAL OF WASTE
Section 5.1. Taking, Transportation and Disposal Obligation. Buyer
shall pelletize the Waste, and gather and load such pelletized Waste at the
Waste Acceptance Point into trucks or railroad cars as designated by Seller.
Seller shall take (unless Buyer exercises its option as provided in Section 5.11
hereof) up to one-hundred percent (100%) of the Waste at the Waste Acceptance
Point and transport such Waste to and dispose of such Waste at the Waste
Disposal Sites. Such services shall be performed in a safe manner and in
accordance with the generally accepted standard of care in the waste removal,
transportation and disposal industry. Buyer shall likewise perform its
obligations hereunder in a safe manner and in accordance with the generally
accepted
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standard of care in the power generation industry. The Waste Acceptance Point
shall be located at the Facility Site or at such other location at or near the
Facility Site as Buyer may designate from time to time, subject to Seller's
approval, not to be unreasonably withheld, and provided that Buyer shall
reimburse Seller for its reasonable costs incurred due to Buyer's redesignation
of the Waste Acceptance Point. The Waste delivered by Buyer will be
substantially dry and free flowing.
Section 5.2. Quantity.
(a) Quantity. Seller shall take, transport and dispose of
one-hundred percent (100%) of the Waste made available at the Waste Acceptance
Point by Buyer (subject to Section 5.2(b) hereof). It is currently estimated
that the amount of Waste to be taken by Seller will equal approximately 15,000
Tons from the Financial Closing Date until the Commercial Operation Date and
approximately 150,000 Tons per year from the Commercial Operation Date through
the remaining term of this Agreement. It is understood and acknowledged by the
Parties that such estimates are for informational purposes only, and that the
actual quantities of Waste will be determined by, among other things, the actual
availability and operating performance of the Facility, the demand for
electricity by the Electricity Purchaser and the quality and other
characteristics of the coal and limestone used at the Facility.
(b) Failure of Seller to Take Waste. If at any time Seller fails for
any reason (including without limitation breach of this Agreement, Force Majeure
or the failure to perform of any third party) to take, transport and dispose of
Waste as required under this Agreement, Buyer shall have the right to obtain
(without regard to Section 5.11(a) hereof) Waste removal, transport and disposal
services from any other source as and to the extent and for the duration
reasonably necessary to enable Buyer to replace the services not provided by
Seller, and Buyer shall not be considered in breach of this Agreement as a
result of taking such action.
Section 5.3. Method of Waste Removal.
(a) Taking and Transportation Arrangements. Within ninety (90) days
after the date hereof, Seller shall provide Buyer with a plan setting forth in
detail the manner in which Seller proposes to take, transport and dispose of the
Waste in accordance with this Agreement. In addition,
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Seller shall provide Buyer with documentation supporting such plan as it becomes
available, including the following: (i) documentation with regard to
availability, size and permitting status of the Waste Disposal Sites, (ii)
evidence demonstrating that Seller shall be able to take and dispose of the
Waste in accordance with the provisions of this Agreement, and (iii) copies of
any contracts entered into with any third parties (with the exception of those
subject to reasonable confidentiality obligations) for, and all Permits and
Permit applications required under Applicable Laws with regard to, the
acceptance, transportation or disposal of Waste. Seller's plan for waste
disposal shall be subject to Buyer's approval which shall not be unreasonably
withheld. In the event that Seller shall desire to amend such plan prior to the
Initial Delivery Date, then Seller shall provide Buyer with updated information
and backup documentation as described in this Section 5.3(a) regarding such
revised acceptance, transportation or disposal plans. Any such revision shall be
subject to Buyer's consent which shall not be unreasonably withheld. Upon
request by Seller, Buyer will provide Seller with updated reports on the
construction and start-up schedule for the Facility.
(b) Alternative Waste Disposal Methods. It is the intent of the
Parties to provide Seller with the option to dispose of the Waste in methods
different from those designated by Seller pursuant to the waste disposal plan
provided pursuant to Section 5.3(a) hereof, subject to Buyer's prior written
consent, not to be withheld unless, considering all relevant factors (including
the indemnifications set forth herein) Buyer reasonably determines that it is or
would be materially adversely affected by such alternative plan. Such
alternative methods of disposal shall include without limitation the sale of the
Waste for commercial use. Seller shall provide Buyer with a detailed plan for
any such proposed alternative disposal method for the Waste and shall provide
such additional information related to such plan as Buyer shall reasonably
request. Buyer's consent to any alternative Waste disposal arrangements entered
into by Seller shall not be construed as an acknowledgement by Buyer that such
arrangements are sufficient for Seller to meet its obligations to Buyer under
this Agreement.
(c) Removal Procedures. All activities of Seller or Seller's agent
on the Facility Site shall not interfere with the operations of Buyer at the
Facility or any other
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operation at the Facility Site. Buyer shall use reasonable efforts to coordinate
the unloading of Coal with the loading of Waste, if necessary. Buyer agrees that
it shall maintain the capacity to stockpile at least six-thousand (6,000) Tons
of pelletized cured, ready-to-ship Waste at the Facility (excluding any capacity
of rail cars left at the Facility Site by Seller pursuant to this Section
5.3(c)). Using certified belt scales, Buyer will determine the weight of the
Waste to be taken from the Facility Site, and will deliver a statement of such
weight to Seller within five (5) days after loading of Waste. Such weights will
be used to calculate the Waste Services Price pursuant to Section 6.2 hereof.
If Seller elects to take Waste by train, not every train delivering Coal will
necessarily include rail cars for Waste transportation. Seller will designate
which trains include rail cars for transportation of Waste. The weight of any
rail cars when loaded with Waste shall not exceed 263,000 pounds or such other
weight that the Carrier permits. Upon the arrival of such designated train at
the Facility Site, a sufficient number of rail cars to contain the next
scheduled shipment of Waste, given the weight limits set forth in the preceding
sentence, shall be uncoupled from the train and shall remain at the Facility
Site for loading by Buyer. The next train designated for Waste transportation
arriving at the Facility Site shall likewise leave a sufficient number of rail
cars for transportation of Waste at the Facility Site for loading by Buyer and
shall take the rail cars loaded with Waste by Buyer during the interim period.
Section 5.4. Removal Schedules. By the thirtieth (30th) day
preceding the start of each calendar quarter from the Initial Delivery Date and
continuing during the term of this Agreement, Buyer shall provide Seller with an
estimate of the amount of Waste to be taken and disposed of during such quarter
pursuant to this Agreement. In addition, on or before the fifteenth (15th) day
of each month from the Initial Delivery Date and continuing during the term of
this Agreement, Buyer shall deliver to Seller written notice containing a final
and best estimate of the amount of Waste to be taken from the Facility during
the next succeeding month. Upon receipt of such notice, Seller shall arrange for
the taking of said quantities of Waste in accordance with Buyer's stated
requirements for such month and shall, on or before the seventh (7th) day
preceding such month, deliver to Buyer a schedule of days for such month on
which Seller expects to take Waste, and the amounts of Waste to be taken on such
days, the aggregate of which shall equal Buyer's stated requirements. Seller
shall have no liability hereunder for failure to take Waste on the specific days
listed in such schedule, except to the extent such failure
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results in any deficiency of takings as specifically provided in Section 10.1(b)
hereof. In addition, Seller shall use its best efforts to accommodate changing
Waste acceptance and disposal requirements of Buyer as Buyer may make known to
Seller subsequent to such monthly notices. Each Party shall promptly notify the
other Party in the event it learns of a probable interruption in a scheduled
taking of Waste. Buyer agrees to use reasonable efforts to accommodate Seller's
need to efficiently utilize its private railroad equipment; provided that
Buyer's obligation hereunder shall not modify Seller's obligation to take,
transport and dispose of Buyer's required quantities of Waste as set forth in
Section 5.2(a) hereof.
Section 5.5. Notices. As soon as practicable but no less than
twenty-four(24) hours preceding any taking of Waste from the Facility, Seller
shall notify by telephone the plant manager or such other person designated in
writing by Buyer of each such taking. Seller shall (whenever it has or can
reasonably obtain the necessary information, which it will use its best efforts
to obtain) confirm the disposal of each shipment of Waste hereunder by written
notice to such person promptly following the disposal of such Waste at the Waste
Disposal Sites, and such notice shall include the bill of lading number, the
carrier, the date of disposal, the disposal site and any other information
necessary to enable Buyer to comply with Applicable Laws.
Section 5.6. Compliance with Permits.
(a) Permit for Waste Disposal Site. Buyer and Seller will cooperate
in developing the data necessary for Seller to obtain the Permits required in
connection with the removal, transportation and disposal of Waste. Buyer and
Seller agree to cooperate in the Permit application process to ensure that the
Permits for the Waste Disposal Sites will allow for the disposal of expected
components of the Waste including by-products of the sulfur removal process and
ash from the Bark. In the event the Waste is not in compliance with Seller's
Permits and such non-compliance is not the result of the quality of Coal
delivered hereunder, Seller shall not be required to take, transport or dispose
of such Waste. If as a result of foregoing, it is determined that future
shipments of Waste are likely not to comply with Seller's Permits, Buyer and
Seller will immediately undertake to obtain new Permits and to locate an
alternative disposal site as may be required under the circumstances.
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(b) Testing by Seller. Seller shall test the performance and impact
of the Waste Disposal Sites periodically to the extent such testing is required
by Applicable Laws. Testing shall include ground water monitoring, and water
leaching tests as required by law. Seller shall provide Buyer with Seller's
testing schedule and upon written request by Buyer, Seller shall provide Buyer
with results of such tests as soon as available.
(c) Testing by Buyer. Buyer shall test the Waste and the actual
pelletized Waste at the Facility every three (3) months. Testing shall include
the EPA toxicity test and the TCLP leaching test. Buyer shall provide Seller
with Buyer's testing schedule and upon written request by Seller, Buyer shall
provide Seller with results of such tests as soon as available. Seller shall
have the right at its own expense to test the Waste more frequently if
necessary in its discretion or in order to ensure compliance with the Seller's
Permits or Applicable Laws.
Section 5.7. Damages for Failure to Take, Transport and Dispose of
Waste. Except as excused pursuant to this Agreement, if Seller shall fail to
take delivery of, transport or dispose of any Waste as required under this
Agreement, Seller shall have five (5) Business Days from the date of such
failure to cure such breach. If Seller fails to cure such breach, then Buyer
shall have the right to purchase replacement Waste taking, transportation or
disposal services from alternative sources to the extent and for the duration
reasonably necessary to enable Buyer to replace the services not provided by
Seller provided that Buyer shall first give Seller written notice of its intent
to use any such alternative arrangements, and Seller shall then have three (3)
days after receipt of such notice to propose replacement Waste Services,
including services provided by Seller. At Buyer's request Seller shall use
reasonable efforts to assist Buyer in finding and acquiring replacement
services. In the event that Buyer purchases replacement Waste taking,
transportation or disposal service pursuant to this Section 5.7, Seller shall
reimburse Buyer for (i) any fines or penalties that Buyer incurs under any
Applicable Laws as a proximate result of such breach by Seller, and (ii) the
excess, if any, of the reasonable net costs incurred by Buyer for the purchase
of such replacement services over the costs that otherwise would have been
incurred for the taking, transportation or disposal of Waste under the terms of
this Agreement. Seller shall have the right to audit and verify such costs.
Seller shall pay such amounts to Buyer within thirty (30) days of receipt from
Buyer of a notice specifying
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amounts for which reimbursement is sought. The remedies provided to Buyer by
this Section 5.7 shall be in addition to and shall not be in lieu of any and all
other remedies available to Buyer under this Agreement or at law or in equity.
Section 5.8. Title and Risk of Loss. Title to and risk of loss with
respect to the Waste to be taken, transported and disposed of hereunder shall
pass from Buyer to Seller upon taking of such Waste from the Facility Site by
Seller.
Section 5.9 Hazardous Waste. It is agreed by the Parties that Seller
shall not be required at any time to take, transport or dispose of any Waste
hereunder which is Hazardous Waste. In the event any Waste to be taken,
transported and disposed of hereunder is redefined to be Hazardous Waste, and
Seller wishes to take, transport and dispose of such hazardous waste, Seller
shall promptly submit to Buyer a proposal containing the terms under which
Seller will take, transport and dispose of such hazardous waste, which proposal
may include an increase in the Waste Services Price based on Seller's additional
costs reasonably incurred as a result of taking, transporting and disposing of
such hazardous waste. Seller's proposal shall be accepted by Buyer unless Buyer
shall have reasonable grounds for refusing to accept such proposal. In the event
that either Seller does not wish to take, transport or dispose of such hazardous
waste or Buyer does not accept Seller's proposal, then Buyer or Seller shall
have the right upon ten (10) days notice to the other to cancel the waste
services provided by Seller pursuant to this Article V.
Section 5.10. Noncomplying Waste other than Hazardous Waste. It is
agreed by the Parties that Seller shall not be required at any time to take,
transport or dispose of any Waste hereunder which, as a result of a change in
Applicable Laws, is (because of a reclassification of the Waste to a category
similar to that of Hazardous Waste, or otherwise) prohibited from being disposed
of at the Waste Disposal Site and by means of any such alternative methods of
waste disposal as are then being used by Seller pursuant to Section 5.3(b)
hereof. If such circumstances shall occur, Seller shall promptly notify Buyer
thereof and submit to Buyer a proposal to provide alternate Waste disposal
services at an adjusted Waste Services Price therefor, increased by the amount
of all additional cost that Seller would reasonably incur in providing such
alternate waste disposal services, and thereupon such proposal and price shall
be in
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effect hereunder and Seller shall continue to provide the Waste services
hereunder for the affected Waste and such adjusted price shall become the new
Waste Services Price. Buyer shall have the right to review at the time of such
initial adjustment Seller's data with respect to such additional costs.
Notwithstanding the foregoing, for a period of sixty (60) days after such
initial notification from Seller as set forth above, Buyer may terminate the
Waste Services hereunder upon ten (10) days notice to Seller, subject to payment
under Section 5.11(b).
Section 5.11. Arrangements Other Than With Seller.
(a) Notwithstanding the requirements specified in Section 5.1
hereof, Buyer shall have the option from time to time, upon ninety (90) days
written notice to Seller, to contract with third-party waste disposers or
purchasers for up to one-hundred percent (100%) of Buyer's Waste disposal
requirements for the Facility. Buyer agrees that it shall (except only to the
extent of a case described in Section 5.7 hereof) pay to Seller a fee of ten
dollars ($10) for each Ton of Waste that is delivered to any third-party waste
disposer rather than to Seller pursuant to this Section 5.10(a); provided that
such fee shall be payable only on the first 150,000 Tons of Waste so delivered
in any calendar year less any Tons delivered to Seller during such year. Such
fee is for the purpose of compensating Seller for its costs, including capital
expenditures and operating costs (including standby costs), incurred in
fulfillment of its Waste disposal obligations under this Agreement but is agreed
to be payable in such amount with no further investigation or revision based on
cost. Such fee shall be adjusted in accordance with the formula set forth in
Section 6.2 hereof (as if such fee were WSP' thereunder and equals ten dollars
($10) as of the first Quarterly Adjustment Date) and shall be payable in
accordance with Section 7.1 hereof. At any time during the term of this
Agreement, if Buyer's agreement with any third-party disposers or purchasers
terminates, Buyer shall notify Seller at least ninety (90) days (or such lesser
time as may be acceptable to Seller) prior to such termination and Seller shall
resume or increase, as appropriate, Waste taking, transportation and disposal
services in amounts sufficient to cover the amount of Buyer's Waste taking,
transportation and disposal requirements previously provided by such third-party
disposers or purchasers.
(b) At any time during the term of this Agreement, Buyer shall have
the right to cancel the waste services provided by Seller pursuant to this
Article V by giving Seller ninety (90) days prior written notice of such
cancellation and by paying to Seller on the specified cancellation date the
amount stipulated below:
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<TABLE>
<S> <C>
$500,000 If cancellation occurs before
the Financial Closing Date (with
such payment to be made within
two months after the Financial
Closing Date);
$2,000,000 If cancellation occurs after the
Financial Closing Date and
before the date which is two
months after the Financial
Closing Date; or
$10,000,000 If cancellation occurs after the date
which is two months after the
Financial Closing Date during the
remaining term of this Agreement.
</TABLE>
The amount specified above will be reduced by forty percent (40%) of the total
of all payments made by Buyer pursuant to Section 6.2 hereof for delivery of
Waste in excess of 100,000 Tons during any year prior to such cancellation, but
shall not be reduced (i) if the average annual amount of Waste delivered by
Buyer to Seller since the Commercial Operation Date was less than 100,000 Tons
per year or (ii) to less than $4,000,000. Upon such cancellation, Seller and
Buyer shall have no further obligations to each other with respect to waste
disposal hereunder, except for those obligations specifically designated as
surviving the termination or expiration of this Agreement.
ARTICLE VI
PURCHASE PRICE FOR COAL
AND WASTE DISPOSAL SERVICES
Section 6.1. Coal Price. The price to be paid by Buyer to Seller per
million Btu's of Coal delivered pursuant to this Agreement (the "Coal Price") is
based upon an initial price of one dollar and sixty-nine and three-tenths cents
($1.693), which is equal to ninety-nine percent (99%) of the Coal Cost; as
defined below, for November 1988. The Coal Price is divided into two components
for escalation purposes: Component A, which initially equals ninety-nine and
three-tenths cents ($0.993) and Component B, which initially equals seventy
cents ($0.70). The Coal Price shall be recalculated as of the first day of each
calendar month
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during the term of this Agreement (the "Adjustment Date"), beginning as of the
first day of the month during which the Initial Delivery Date occurs. The Coal
Price shall be the sum of Component A and Component B, each calculated pursuant
to Sections 6.1(a) and (b) hereof, respectively, subject to the limitations in
Section 6.1(c) hereof.
(a) Component A. As of each Adjustment Date, Component A shall
equal:
A' x (1 + CC)
Where:
A' = Component A for the immediately preceding month; except that for the
first Adjustment Date, A' shall equal ninety-nine and three-tenths cents
($0.993); and
CC = The monthly percentage change, calculated in accordance with Annex D
attached hereto, in the as-burned cost of coal at the St. Johns River
Power Park (the "Coal Cost"), as such cost is reported monthly to the
Florida Public Service Commission on Schedule A-5.
(b) Component B. As of the first day of each of January, April, July
And October (the "Quarterly Adjustment Date"), beginning as of the Quarterly
Adjustment Date immediately preceding the Initial Delivery Date, Component B
shall equal:
B' x (1 + GNP + PCE + PPI)
---------------
3
Where:
B' = Component B for the immediately preceding calendar quarter; except that
for the first Quarterly Adjustment Date, B' shall equal seventy cents
($0.70);
GNP = The quarterly percentage change, calculated in accordance with Annex D
attached hereto, in the Implicit Price Deflator for Gross National
Product, Gross National Product (the "GNP Index"), as published by the
Bureau of Economic Analysis, United States Department of Commerce;
PCE = The quarterly percentage change, calculated in accordance with Annex D
attached hereto, in the Implicit Price Deflator for Gross National
Product,
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Personal Consumption Expenditure (the "PCE Index"), as published by the
Bureau of Economic Analysis, United States Department of Commerce; and
PPI = The quarterly percentage change, calculated in accordance with Annex D
attached hereto, in the Producer Price Index for All Commodities (the "PPI
Index"), as published by the Bureau of Labor Statistics, United States
Department of Labor.
(c) Ceiling and Floor. As of any Adjustment Date, the "Price
Ceiling" shall equal one-hundred-one percent (101%) of the Coal Cost for the
third month preceding such Adjustment Date, and the "Price Floor" shall equal
ninety-seven percent (97%) of the Coal Cost for the third month preceding such
Adjustment Date. In the event, as of any Adjustment Date, the sum of Component A
and Component B (i) exceeds the Price Ceiling, then the Coal Price shall be
equal to the Price Ceiling until the next Adjustment Date or (ii) is less than
the Price Floor, then the Coal Price shall be equal to the Price Floor until the
next Adjustment Date.
(d) Sample Calculation. A sample calculation of the monthly Coal
Price payment is set forth in Annex E attached hereto.
Section 6.2. Waste Services Price. The price to be paid by Buyer to
Seller per Ton of Waste taken, transported and disposed of by Seller pursuant to
this Agreement (the "Waste Services Price") shall be calculated as of each
Quarterly Adjustment Date, beginning as of the Quarterly Adjustment Date
immediately preceding the Initial Delivery Date. The Waste Services Price shall
equal:
WSP' x [1 + (0.75 x PPI)]
Where:
WSP'= the Waste Services Price for the immediately preceding calendar
quarter, except that for the first Quarterly Adjustment Date, WSP' shall
equal twenty-four dollars ($24.00); and
PPI has the meaning set forth in Section 6.1(b) hereof.
Changes in Applicable Laws shall result in the adjustment of the Waste Services
Price as set forth in Section 6.6 hereof.
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<PAGE>
Section 6.3. Use of Indexes.
(a) In the event that, due to supervening events, any of the indexes
used herein is discontinued, changed, or otherwise rendered ineffective for
computing price adjustments hereunder, Buyer and Seller shall meet promptly to
consider and agree upon a substitute index or method for calculating price that
shall be as nearly as practicably equivalent to the index which was
discontinued, changed or rendered ineffective.
(b) If any of the indexes used herein are not available on the
respective applicable adjustment dates, the then-current Coal Price or Waste
Services Price, as affected, shall remain effective until all indexes are
available. Any adjustments which are then applicable shall be applied
retroactively to the date when such adjustment would have been made. Any amounts
due as a result of such retroactive adjustment shall be paid by Buyer or Seller
to the other as appropriate. The values for the GNP Index, the PCE Index and the
PPI Index shall be those first officially published, and shall not be subject to
revision for purposes of this Agreement despite any later revision by the
publishing agency.
Section 6.4. As-Delivered Price. The Coal Price is an
"as-delivered" price for the supply of Coal delivered to the Coal Delivery
Point, and the Waste Services Price is intended to be the full price for the
taking, transportation and disposal of Waste which is made available by Buyer at
the Waste Acceptance Point. Except as specifically set forth in this Agreement,
all direct and indirect costs for such supply of Coal and taking, transportation
and disposal of Waste (including without limitation all delivery costs, carrier
fees, handling costs and mining costs) which are incurred by Seller in
performing its duties hereunder shall be borne exclusively by Seller.
Section 6.5. Governmental Impositions. In the event any Federal,
state or local governmental authority having jurisdiction or regulatory or other
authority over the Waste Disposal Sites, the transportation of Waste or other
Waste services provided hereunder enacts a new, or increases or decreases any
existing fee, tax, or other similar imposition on the taking, transportation or
disposal of Waste, whether retroactive or prospective in application, then
Seller shall so notify Buyer. Fifty percent (50%) of the dollar amount, payable
as a result of any such increase shall be reimbursed by Buyer to Seller, and
fifty percent (50%) of the dollar amount payable as a result of any such
36
<PAGE>
decrease shall be reimbursed by Seller to Buyer from the date such increase or
decrease is incurred. The amount of such reimbursements shall not affect the
Waste Services Price determined pursuant to Section 6.2 hereof, but shall be
separately stated on monthly invoices rendered under Section 7.1 hereof.
Section 6.6. Changes in Applicable Laws.
(a) After the date hereof, in the event changes in Applicable Laws
occur concerning the standards, methods and procedures required for or in the
connection with the taking, transportation or disposal of Waste, and in
complying therewith Seller is required to incur an increase in costs or is able
to decrease its costs, the Waste Services Price shall be adjusted to reflect
Seller's increased or decreased costs, provided that if the result is an
increase in costs (i) Seller shall make reasonable efforts to reduce the impact
on costs of such changes in Applicable Laws and (ii) if all or any portion of
such increase is the result of costs passed on to Seller from any of Seller's
subcontractors, Seller's share passed on to Buyer hereunder shall be no more
than Seller's fair share of such costs in proportion to other parties using such
subcontractor's services. The adjustment to be made to the Waste Services Price
shall be for an amount equal to fifty percent (50%) of Seller's increased or
decreased costs.
(b) Upon the occurrence of a change in Applicable Laws described in
Section 6.6(a) hereof, Seller shall notify Buyer and shall provide to Buyer,
within a reasonable time thereafter, Seller's determination of the amount of the
adjustment, together with supporting documentation. Seller's determination shall
allocate the amount of any increase in costs between those which are one-time
capital expenditures and those resulting from changes in operations. Within
fifteen (15) days of receipt of Seller's determination, Buyer shall notify
Seller whether it accepts or disputes the amount of such adjustment. If Buyer
disputes the amount of such adjustment, then Buyer may submit the disputed issue
to arbitration pursuant to Article XIII hereof. Pending establishment of the
amount of such adjustment, each Party shall continue to perform its obligations
under this Agreement.
(c) When the amount of the adjustment has been established, a new
Waste Services Price shall be determined as follows: (i) any amount of the
adjustment due to changes in operations shall be added or subtracted, as
appropriate,
37
<PAGE>
to the Waste Services Price as of the date Seller first incurred the increased
or decreased costs, and the Waste Services Price for the months following such
date shall be recalculated using the adjusted figures, and (ii) any amount of
the adjustment due to capital expenditures by Seller shall not result in any
change to the Waste Services Price, but instead Seller shall be reimbursed by
Buyer within thirty (30) days after Seller has notified Buyer that Seller has
made such capital expenditures, unless the Parties agree to an alternative
method of payment, provided that in the event Seller borrows funds in order to
finance such capital expenditure, Buyer shall reimburse Seller as and to the
extent Seller makes financing payments (including interest) on such borrowed
funds. Refunds or additional payments due to retroactive adjustments as set
forth above shall be paid with interest thereon at the Prime Rate, accruing
since the date the payment originally would have been made.
(d) Notwithstanding the foregoing, if such change in Applicable Laws
causes the Waste to be reclassified as Hazardous Waste, and if Buyer accepts
Seller's proposal for disposal of Hazardous Waste pursuant to Section 5.9
hereof, then Buyer shall pay all additional costs as provided in Section 5.9,
with such costs added to the Waste Services Price in accordance with Section
6.6(c) hereof.
Section 6.7. Additional Fee. If Buyer receives funds under the
Subordinated Loan Agreement, then Buyer shall pay, in addition to the Coal Price
calculated pursuant to Sections 6.1 and 6.2 hereof, an additional fee for each
delivery of Coal hereunder, calculated as follows:
OL
---------
Fee ($) = AT x $.06 x 1,000,000
Where: "AT" = the actual tonnage of Coal delivered; and
"OL" = the daily weighted average outstanding amount of principal
and any unpaid and past due interest and fee during the month
of delivery;
provided that if at the end of any calendar quarter Buyer has not taken
delivery of at least 250,000 Tons of Coal during such calendar quarter and any
amount of the loan was outstanding during such quarter, Buyer shall pay to
Seller an additional flat fee, calculated as follows:
OL
---------
Fee ($) = (250,000 - AT) x $.06164 x 1,000,000
38
<PAGE>
Where: "AT" = the total actual tonnage of Coal delivered during the
calendar quarter; and
"OL" = the daily weighted average outstanding amount of principal
and any unpaid and past due interest and fee during the
calendar quarter.
The fee paid by Buyer under this Section 6.7 shall be in payment to Seller for
the service of providing the loan pursuant to the Subordinated Loan Agreement
and shall not be deemed to be payment for Coal supplied hereunder. Such fee
shall be payable from time to time on each payment date for interest set forth
in the Subordinated Loan Agreement in an amount (in each case) equal to all
then-accrued and unpaid fee; and its payment by Buyer shall be subject to the
subordination provisions contained in the Subordinated Loan Agreement and, if
otherwise-due payments of principal and interest are entitled to be reduced
under the Subordinated Loan Agreement, such fee shall be paid on a proportionate
basis with payments under the Subordinated Loan Agreement. This Section 6.7
shall survive the termination or expiration of this Agreement (and shall be
unaffected by any breach or claimed breach or other nonperformance of this
Agreement by either Party) until all outstanding loan amounts, interest and fees
under the Subordinated Loan Agreement and under this Section 6.7 have been
repaid to Seller. It is expressly agreed that, except as stated with regard to
the additional fee payable under this Section 6.7, this Agreement and the
Subordinated Loan Agreement are separate and independent in all respects and
that no amounts due, payable or claimed under either such agreement may be
withheld or offset on account of amounts due, payable or claimed under the other
such agreement.
ARTICLE VII
PAYMENT AND RECORDS
Section 7.1. Billing. By the fifteenth (15th) day of each month
following the Initial Delivery Date, Seller shall deliver to Buyer an invoice
showing the payment due for the Coal delivered and the Waste taking,
transportation and disposal services rendered by Seller in the previous month
(specifying the goods delivered and the services provided in said month in
accordance with the shipping reports delivered pursuant to Section 4.6 hereof
and the notices delivered pursuant to Section 5.5 hereof) and including the
payments due, if any, under Sections 5.11(a) and 6.6 hereof. Such
39
<PAGE>
invoice shall also include the calculations of the Coal Price and the Waste
Services Price. If Buyer disputes any portion of any invoice submitted by Seller
for payment, Buyer shall pay the undisputed portion of such invoice in
accordance with Section 7.2 hereof and the Parties shall use all reasonable
efforts to resolve the dispute as quickly as possible. In the event the Parties
are unable to resolve a dispute, such dispute shall be submitted to arbitration
in accordance with Article XIII hereof. Any amount determined to be due by one
Party to the other as a result of such dispute resolution shall be paid, with
interest at the Prime Rate accruing since the date such sums were originally
due.
Section 7.2. Payment. Buyer shall pay to Seller the payment due on
the basis of the invoice provided by Seller pursuant to Section 7.1 hereof
within twenty (20) days after receipt thereof by Buyer.
Section 7.3. Non-confidential Records. Each Party shall keep and
maintain complete and accurate records and all other data required by each of
them for the purposes of compliance with and proper administration of this
Agreement and compliance with Applicable Laws. In addition, Seller shall keep
and maintain complete and accurate records with respect to Waste taking,
transportation and disposal services, including the amounts of Waste taken,
transported and disposed of, whether by Seller or by third-party Waste
Contractors pursuant to Section 17.3 hereof, and the location of such disposal.
Seller shall make such records available to Buyer or its designees or
representatives upon request, and shall provide Buyer with access to such
personnel, all as may be reasonably requested by Buyer to determine whether all
services were provided in compliance with Applicable Laws and the terms of this
Agreement. Further, if Seller permits the disposal of any other waste or other
material in proximity to the Waste in Waste Disposal Sites owned or controlled
by Seller, Seller shall keep and maintain complete and accurate records with
respect to the location, amount, type and origin of such waste and shall make
such records available to Buyer or its designees or representatives in the event
that any claim is pending or threatened, provided that Buyer, its designees or
representatives reviewing such records shall abide by any confidentiality
obligation of Seller to third parties. To the extent such sites are not owned or
controlled by Seller, Seller shall use reasonable efforts to obtain, maintain
and make available to Buyer records as set forth in the preceding sentence. All
such records shall be maintained by Seller for five (5) years after the date of
such records. Seller shall not thereafter destroy or dispose
40
<PAGE>
of any such records without first giving Buyer a reasonable opportunity to take
and keep such records. Either Party will have the right from time to time, upon
notice to the other, to examine, and make and retain copies of, the records and
data of the other relating to this Agreement (except for those records relating
to the financial arrangements between Seller and its suppliers and
subcontractors which are not needed to verify the calculation of any costs which
are to be borne by or shared with Buyer pursuant to the terms of this Agreement)
at any time during the period such records are required to be maintained under
this Section 7.3 during normal business hours.
Section 7.4. Audit of Records. Upon written request of either Party,
the other Party shall make available at its office at any reasonable time or
times the records described in Section 7.3 hereof for inspection or audit to the
extent such records are necessary for the purpose of verifying the calculations
of any costs which are to be borne by or shared by the requesting Party pursuant
to the terms of this Agreement, including, but not limited to, the costs
specified in Sections 5.9, 6.5 and 6.6 hereof. All prices, except to the extent
they are based on any adjustment pursuant to Sections 5.9, 6.5 and 6.6 hereof,
shall be final and subject to no change or claim after fifteen (15) months
following the date of the invoice stating such prices. Any such audit or claim
with respect to any adjustment pursuant to Sections 5.9, 6.5 and 6.6 hereof
shall be made and completed within thirty-six (36) months following the date of
the invoice covering such costs. All audits hereunder shall be at the requesting
Party's expense. Any amounts determined to be due as a result of such audit
shall be paid within thirty (30) days of the notice of the results of such
audit, unless the Party owing such amount disputes the results of the audit, in
which case either Party may submit such dispute to arbitration in accordance
with Article XIII hereof, the results of which shall be final and binding on the
Parties. Amounts ultimately determined to be due shall be paid with interest at
the Prime Rate accruing since such amounts were originally due. Information so
obtained during any audit hereunder shall be treated as confidential and neither
Party shall disclose such information to any third party without the prior
written permission of the other Party.
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<PAGE>
ARTICLE VIII
FORCE MAJEURE
Section 8.1. Definition. "Force Majeure" means any act or event
which wholly or partially prevents or delays the performance of obligations
arising under this Agreement, if such act or event is not reasonably within the
control of and not caused by the fault or negligence of the nonperforming Party,
including but not limited to (and whether similar or dissimilar to) an act or
event falling within one or more of the following categories: an Act of God, act
of the public enemy, nuclear emergency, fire, explosion, landslide, lightning,
flood, major equipment failure, insurrection, civil disturbance, war, labor
disputes, changes in Applicable Laws restrictions or restraints imposed by law
or by rule, interruption of transportation by reason of the occurrence of an
event which constitutes a force majeure event under the applicable tariff, and
orders or act of military or civil authority. Acts of civil authority, as that
term is herein used, shall include any act or order of any court of competent
jurisdiction and any act or failure or refusal to act of any governmental agency
or officer charged with the enforcement and/or administration of any applicable
law, rule or regulation which wholly or partially prevents or delays the
operation, in whole or in part, of the Facility, equipment or facilities related
thereto, Seller-owned rail cars and equipment, the facilities of a common
carrier, the Loading Facility or the Waste Disposal Site, but which is not a
result of the nonperforming Party's failure to perform its obligations under
this Agreement. Notwithstanding the foregoing, Buyer and Seller acknowledge that
changes in economic market conditions or the failure of this Agreement to be
economically or commercially practicable to Buyer or Seller shall not in and of
themselves constitute an event of Force Majeure for purposes hereof.
Section 8.2. Effect of Force Majeure. If either Party is rendered
wholly or partially unable to perform its obligations under this Agreement
because of a Force Majeure event, that Party shall be excused from whatever
performance is affected by the Force Majeure event to the extent so affected. It
is further agreed that:
(a) The nonperforming Party within five (5) Business Days
after its first becoming aware of its inability to perform due to a
Force Majeure event
42
<PAGE>
provides written notice to the other Party of the particulars of
the occurrence, including an estimation of its expected duration and
probable impact on the performance of its obligations hereunder, and
continues to furnish timely regular reports with respect thereto
during the period of Force Majeure;
(b) The nonperforming Party shall use reasonable efforts to
continue to perform its obligations hereunder, to correct or cure
the event or condition excusing performance and to mitigate or limit
damages to the other Party;
(c) Seller shall use reasonable efforts to ensure that in any
future agreements with third parties, such third parties are not
granted any rights to receive Coal from the Loading Facility during
periods of force majeure under such agreements that are superior to
Buyer's rights to receive coal from the Loading Facility during
periods of Force Majeure hereunder;
(d) Seller shall not be relieved from its obligations to
supply Coal hereunder if and to the extent (i) Seller is not
prevented or delayed by the Force Majeure event from delivering Coal
from the Reserves (or other currently used sources) through the
Loading Facility or (ii) prior to the Force Majeure event Seller had
been supplying Coal from a location other than the Loading Facility
pursuant to Section 3.5(a) hereof and Seller is not prevented or
delayed by the Force Majeure event from continuing to deliver Coal
from such other location and is entitled to do so under any existing
agreement for the supply of such coal;
(e) Seller shall not be relieved from its obligations to take,
transport and dispose of Waste hereunder if and to the extent (i)
Seller is not prevented or delayed by the Force Majeure event from
taking, transporting and disposing of Waste at the Waste Disposal
Site or (ii) prior to the Force Majeure event Seller had been
disposing of Waste in a different manner than at the Waste Disposal
Site pursuant to Section 5.3(b) hereof and Seller is not prevented
or delayed by the Force Majeure event from continuing to take,
transport and dispose of Waste in such other manner and is entitled
to do so under any existing agreement for the disposal of such
Waste;
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<PAGE>
(f) The suspension of performance shall be of no greater scope
and no longer duration than is reasonably necessitated by the Force
Majeure event;
(g) The nonperforming Party shall provide the other Party with
prompt notice of the cessation of the Force Majeure event giving
rise to the excuse from performance and shall promptly resume
performance hereunder;
(h) No obligation of either Party that arose prior to the
occurrence of the Force Majeure event shall be excused as a result
of such occurrence;
(i) The Force Majeure event shall not operate to allow Seller
to dispose of Waste in a manner other than as provided under this
Agreement or to dispose of Hazardous Waste at the Waste Disposal
Site;
(j) A change in Applicable Laws affecting Waste taking,
transportation and disposal services under this Agreement shall not
constitute a Force Majeure event if and to the extent remediable
under the provisions of Sections 6.5 or 6.6 hereof;
(k) Nothing contained in Section 8.2(b) hereof shall require
the settlement of any labor dispute, which shall be entirely within
the discretion of the Party suffering the labor dispute.
Notwithstanding the above, the Parties agree to use reasonable
efforts to continue their respective operations during strikes;
(l) Neither Party shall be excused as a result of a Force
Majeure event from paying money amounts due under this Agreement;
(m) Upon mutual agreement of the Parties, the term of this
Agreement shall be extended for a period equal to the aggregate
periods of Force Majeure or any part thereof.
Section 8.3. Termination due to Force Majeure. In the event either
Party is prevented from performing its obligations under this Agreement due to
an event of Force Majeure for more than twenty-four (24) months, the other Party
shall have the right to terminate this Agreement upon thirty (30) days' prior
written notice during which thirty (30) day period the Force Majeure event shall
not have been cured, after which neither Party shall have any obligation to
44
<PAGE>
the other Party (except for claims in dispute, payments due and owing and
liabilities accrued hereunder prior to such termination).
ARTICLE IX
ACCESS AND ASSURANCES
Section 9.1. Access. Each Party grants to the other (including its
agents) the right to visit such Party's facilities from time to time, including
all sources and loading points for the Coal delivered to Buyer hereunder, upon
reasonable notice and subject to the applicable rules and regulations of the
facilities, to witness and review operations related to this Agreement. The
visiting Party shall be responsible for the actions of those persons
representing the visiting Party on the host Party's site and shall indemnify the
host Party for actions based on injuries to the visiting Party's representatives
or property, except to the extent such injuries were the result of the
negligence or willful misconduct of the host Party or its employees, agents or
representatives.
Section 9.2. Assurances. Without affecting or prejudicing either
Party's right to seek assurances under applicable law, it is expressly agreed
that from time to time Seller shall provide Buyer within ten (10) days of any
request by Buyer with reasonable assurances that Seller is and shall continue
for the term of this Agreement to be able to provide for either or both: (i) the
timely delivery of Coal in compliance with the terms and conditions of this
Agreement or (ii) for the taking, transportation and disposal of the Waste in
compliance with the terms and conditions of this Agreement.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default. An event of default ("Event of
Default") under this Agreement shall be deemed to exist upon the occurrence of
any one or more of the following events:
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(a) Failure by either Party to make payment of any amount due
the other Party under this Agreement, which failure continues for a
period of twenty-two (22) days after notice of such nonpayment
(unless payment of such amount is contested or otherwise disputed in
accordance with Article XIII of this Agreement);
(b) Failure by Seller to perform as follows:
(i) Seller's unexcused failure to deliver Coal required
to be delivered hereunder such that there exists at any time a
Rolling Twelve (12) Month Delivery Deficiency of more than one
hundred thousand (100,000) Tons. For this purpose the term
"Rolling Twelve Month Delivery Deficiency" means the
difference (if any) between: (A) the aggregate number of Tons
of Coal to be delivered during any twelve (12) consecutive
calendar months pursuant to the notices and schedules
described in the third and fifth sentences of Section 4.2,
minus (B) the aggregate number of Tons of Coal that Seller
shall actually have delivered to Buyer during such twelve (12)
month period. In calculating the number of Tons referred to in
clause (A) above, the following shall not be counted: (1)
aggregate number of Tons of Coal that shall not have been
delivered during such twelve (12) month period on account of
fault or negligence of Buyer, (2) the aggregate number of Tons
of Coal that were not delivered at the end of such twelve (12)
month period due to the need to ship in Unit Train increments,
and (3) the aggregate number of Tons of Coal that were
otherwise required to be delivered on the last day of the
twelve (12) month period but were not delivered until the
first day of the following month;
(ii) Seller's unexcused failure to take Waste required
to be taken hereunder such that there exists at any time a
Rolling Twelve (12) Month Taking Deficiency of more than
fifteen thousand (15,000) Tons. For this purpose the term
"Rolling Twelve Month Taking Deficiency" means the difference
(if any) between: (A) the aggregate number of Tons of Waste to
be taken during any twelve (12) consecutive calendar months
pursuant to the notices and schedules described in Section
5.4, minus (B) the aggregate number of Tons of Waste that
Seller shall actually have taken during such
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<PAGE>
twelve (12) month period. In calculating the number of Tons
referred to in clause (A) above, the following shall not be
counted: (1) the aggregate number of Tons of Waste that shall
not have been taken during such twelve (12) month period on
account of fault or negligence of Buyer, and (2) the aggregate
number of Tons of Waste that were otherwise required to be
delivered on the last day of the twelve (12) month period but
were not delivered until the first day of the following month;
(c) Failure by either Party to provide the assurances referred
to in Section 9.2 hereof, where such failure continues for a period of
thirty (30) days after the due date for such assurances pursuant to
Section 9.2;
(d) If Buyer shall, knowingly and without notice to Seller,
deliver to Seller any Hazardous Waste for taking, transport and disposal
as Waste under this Agreement;
(e) Failure by either Party to perform in all material
respects any other material provision of this Agreement, and (i) such
failure continues for a period of thirty (30) days after notice of such
nonperformance or (ii) if the nonperforming Party shall commence within
such thirty (30) days and shall thereafter proceed with all due diligence
to cure such failure, such failure is not cured within such longer period
(not to exceed ninety (90) days) as shall be necessary for such Party to
cure the same with all due diligence; or
(f) Failure by either Party to comply with the terms of any
decision or order which is final and not subject to further judicial
appeal issued pursuant to Article XIII hereof, and (i) such failure shall
continue for thirty (30) days after notice of such noncompliance or (ii)
if the noncomplying Party shall commence within such thirty (30) days and
shall thereafter proceed with all due diligence to cure such failure, such
failure is not cured within such longer period (but in no event more than
ninety (90) days) as shall be reasonably necessary for such Party to cure
the same with all due diligence.
Section 10.2. Remedies for Breach. Upon the occurrence and during
the continuation of any Event of Default hereunder, the Party not in default
shall have the right, at its option, to terminate this Agreement upon ten
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(10) days' prior written notice received by the other Party, and to pursue any
other remedies provided under this Agreement or now or hereafter existing at law
or in equity or otherwise; provided, however, that in the case of an Event of
Default by Buyer hereunder, Seller shall provide the Financing Parties and the
Electricity Purchaser with notice of such Event of Default pursuant to Article
XV hereof, and the Financing Parties and the Electricity Purchaser each shall
have the right (but not the obligation) either (a) within ninety (90) days after
such notice, to cure the Event of Default on behalf of Buyer, or (b) within
one-hundred-twenty (120) days after such notice, to assume, or cause a designee,
new lessee or purchaser of the Facility to assume, all of the rights and
obligations of Buyer under this Agreement pursuant to Section 16.1(d) or (e)
hereof.
Section 10.3. Waiver of Breach. Either Party may waive a breach by
the other Party, provided that no waiver by or on behalf of either Buyer or
Seller of any breach of any of the covenants, provisions, conditions,
restrictions or stipulations contained in this Agreement shall take effect or be
binding on Buyer or Seller unless the waiver is reduced to a formal writing
and executed by an authorized officer of such Party, and any such waiver shall
be deemed to extend only to the particular breach waived and shall not limit or
otherwise affect any rights that Buyer or Seller may have with respect to any
other or future breach.
Section 10.4 Rights and Obligations of the Parties. Notwithstanding
anything in this Article X to the contrary, unless and until this Agreement has
been terminated hereunder, Seller shall not refuse to deliver or tender for
delivery or suspend or delay any delivery or tender of delivery of Coal, or
refuse to perform or suspend or delay any Waste taking, transportation or
disposal services, as required under this Agreement as a result of any breach or
alleged breach by Buyer, nor shall Buyer refuse to take and pay for the Coal
delivered by Seller or refuse to pelletize, deliver and permit Seller to take,
transport or dispose of Waste, subject to Sections 3.2 and 5.2 hereof, as a
result of any breach or alleged breach by Seller. Notwithstanding the foregoing,
Seller may suspend delivery of Coal or the taking of Waste in the event of
non-payment by Buyer for such services where such non-payment extends beyond
the time provided in Section 10.1(a) hereof.
Section 10.5 Cumulative Remedies. None of the remedies provided in
this Agreement is intended to be exclusive, but each shall be cumulative and in
addition to
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any other remedy referred to herein or otherwise available to either party at
law or in equity. The Parties agree that consequential damages shall not be
recoverable for the breach of this Agreement.
ARTICLE XI
INSURANCE
Section 11.1. Insurance. Each Party shall, at its own expense,
secure and maintain as a minimum during the term of this Agreement the following
insurance in form and with insurance companies acceptable to the other Party,
and with such other Party named as an additional insured (other than with
respect to Worker's Compensation Insurance). Such insurance shall be written on
an occurrence basis and shall be effective on or before the Initial Delivery
Date and thereafter maintained during the term of this Agreement. Deductible
amounts shall be the responsibility of the party obtaining and maintaining such
insurance.
<TABLE>
<CAPTION>
Type Minimum Coverage
- ---- ----------------
<S> <C>
Worker's Compensation As required by applicable state
Insurance law (self-insurance permitted
to the extent provided under
applicable state law)
Employer's Liability $5,000,000 per occurrence
Comprehensive General $5,000,000 per occurrence
Liability, including combined single limit
personal injury and
property damage coverage
Comprehensive Automobile $5,000,000 per occurrence
Liability, including combined single limit
personal injury and
property damage
coverage, on all owned,
hired and non-owned
vehicles
</TABLE>
Section 11.2. Policies and Endorsements. Each Party shall furnish
proof of insurance acceptable to the other Party, with sufficient detail
included in the
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documentation such that the other Party can ascertain acceptability of coverage.
Such proof shall be signed by authorized representatives of the insurers. Such
documentation shall provide that the insurance coverage thereunder shall not be
cancelled, materially changed or not renewed until the expiration of at least
twenty (20) days after written notice of such cancellation, material change or
non-renewal has been received by the other Party, the Electricity Purchaser and
the Financing Parties. Proof of new or renewal policies replacing any policies
expiring during the term of this Agreement shall be delivered prior to the
expiration of the expired policies. The policies shall be endorsed to provide
that all such insurance is primary and not excess or contributory with any
insurance Buyer may carry, and that there shall be no recourse against the other
Party or any of its agents, successors or assigns with respect to payment of
premiums.
Section 11.3. Waiver of Subrogation. All policies shall contain
endorsements that the underwriters and insurance companies issuing such policies
shall not have any right of subrogation against the other Party or any of its
respective assignees, parents, subsidiaries, affiliates, insurers and
indemnitees or the officers, directors or employees of any of them.
Section 11.4. Non-limitation of Liability. The insurance coverages
required above are minimum amounts that do not limit each Party's
indemnification obligations set forth in Article XIV hereof or any of such
Party's other obligations or liabilities hereunder.
ARTICLE XII
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 12.1. General Representations, Warranties and Covenants.
Each Party hereby represents and warrants to Buyer as follows:
(a) Such Party is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation and is
qualified to do business and in good standing in all other places where
necessary in light of the transactions contemplated in this Agreement;
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(b) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action;
(c) This Agreement constitutes the legal, valid and binding
obligation of such Party enforceable against such Party in accordance with
its terms except to the extent that its enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of
equity; and
(d) The execution, delivery and performance of this Agreement will
not conflict with, result in the breach of, constitute a default under or
accelerate performance required by any of the terms of the articles of
incorporation or the by-laws of such Party or any Applicable Laws or, to
the best of such Party's knowledge after conducting reasonable due
diligence, any covenant, agreement, understanding, decree or order to
which such Party is a party or by which such Party or any of its
properties or assets is bound or affected, to the extent that such
condition would materially jeopardize the such Party's ability to fulfill
its obligations under this Agreement.
Section 12.2. Compliance with Laws.
(a) Seller represents and warrants to, and covenants with, Buyer
that it has or will acquire all Permits required for performance under this
Agreement including without limitation those to be held in connection with the
Loading Facility and the Waste Disposal Sites, the mining, transportation and
delivery of Coal, and the taking, transportation and disposal of Waste, all as
contemplated by this Agreement. Seller shall hold and maintain such Permits in
full force and effect during the term of this Agreement. Seller shall comply,
and shall be responsible for the compliance of suppliers, subcontractors or
agents, with all material Applicable Laws in performing Seller's obligations
hereunder, except where failure to comply would not be detrimental in any manner
to Buyer or to Buyer's interests in this Agreement. Seller shall promptly notify
Buyer of any actual or threatened loss, revocation or termination, of any such
Permit.
(b) Buyer represents and warrants to, and covenants with, Seller
that it has or will, acquire certain Permits required for performance under this
Agreement
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including those to be held in connection with environmental matters, power
generation, and zoning, all as contemplated by this Agreement. Buyer shall hold
and maintain such Permits in full force and effect during the term of this
Agreement. Buyer shall comply, and shall be responsible for the compliance of
suppliers, subcontractors or agents, with all material Applicable Laws in
performing Buyer's obligations hereunder, except where failure to comply would
not be detrimental in any manner to Seller or to Seller's interests in this
Agreement. Buyer shall promptly notify Seller of any actual or threatened loss,
revocation or termination, of any such Permit.
(c) Seller warrants and covenants that during the term of this
Agreement (i) it will have and maintain all necessary rights (including valid
and enforceable contract rights) to dispose of Waste as contemplated herein at
the Waste Disposal Sites, (ii) it will have and maintain all necessary rights of
access to the Waste Disposal Sites to allow Seller to transport and dispose of
the Waste to the extent, for the duration and in the manner and quantities
contemplated herein, and (iii) it will comply with Material Applicable Laws
relating to zoning and permitted use of the Waste Disposal Sites as sites for
the disposal of Waste.
(d) Buyer warrants and covenants that during the term of this
Agreement (i) it will have and maintain all necessary Facility operating permits
and licenses and environmental permits and (ii) it will comply with Material
Applicable Laws relating to zoning and permitted use of the Waste Disposal Sites
as sites for the disposal of Waste.
(e) Seller represents and warrants that to the best of its knowledge
after appropriate due diligence, no substances that are Hazardous Wastes have
been disposed of at the Waste Disposal Sites.
(f) Seller warrants and covenants that, during the term of this
Agreement and for five (5) years after its expiration or termination for any
reason, it shall not, without the express written permission of Buyer which will
not be unreasonably withheld, transport or permit the transportation to, or
dispose of or release or permit the disposal or release of any substances at the
Waste Disposal Sites other than those allowed under Seller's Permits.
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(g) Seller shall take reasonable steps to ensure that no substances
other than those allowed under Seller's Permits are transported, disposed of or
released at the Waste Disposal Sites, including without limitation the provision
of adequate security for the Waste Disposal Sites.
(h) Buyer shall take reasonable steps to ensure that no substances
other than those allowed under Seller's Permits are delivered to Seller as Waste
hereunder.
(i) Each Party shall take all action required under all material
Applicable Laws in connection with its operations and activities under this
Agreement, including without limitation compliance with any reporting or notice
requirements under Applicable Laws relating to environmental matters.
Section 12.3. Mutual Assistance. Without limiting each Party's
obligations under Section 12.2(a), (b), (c) and (d) hereof each Party shall,
upon the reasonable request of the other Party use reasonable efforts to assist
the other Party in obtaining and maintaining any Permits required under
Applicable Laws to be maintained by the other Party with regard to Coal or Waste
or the acquisition, storage, use, taking, transportation or disposal thereof.
ARTICLE XIII
ARBITRATION
Section 13.1. Arbitration. The Parties shall negotiate in good faith
and attempt to resolve any dispute which may develop under this Agreement;
however, if the Parties are unable to resolve a dispute hereunder, either Party
may serve upon the other a demand that such matter be arbitrated (including a
brief description of said dispute or disputes), in which case the same Shall be
resolved by arbitration conducted in accordance with the rules of the AAA. In
the event of such a dispute, the Parties shall each select a single arbitrator
who shall together appoint a third arbitrator. Unless the Parties otherwise
agree, the arbitration will be held in Atlanta, Georgia. The Parties shall
proceed with the arbitration expeditiously and shall direct the arbitration
panel to take all steps reasonably necessary to conclude all proceedings
thereunder, including
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any hearing, in order that a decision may be rendered within one-hundred-twenty
(120) days from the filing of the demand for arbitration by the initiating
Party. The award of the arbitration panel will be final and binding on both
Parties and may be enforced in any court having jurisdiction over the Party
against which enforcement is sought. Each Party shall bear its own expenses,
including but not limited to counsel fees, except that all expenses of the
arbitration shall be apportioned in the award of the arbitration panel based
upon the respective merit of the claims of the Parties. The provisions of this
Article XIII shall survive any termination or expiration of this Agreement.
ARTICLE XIV
INDEMNIFICATION
Section 14.1. Indemnification of Seller.
(a) Buyer shall indemnify and hold Seller, its parents and
subsidiaries and their successors and assigns and each of their officers and
directors harmless from and against all damages, losses and expenses, including
reasonably incurred counsel fees ("Damages"), suffered on account of claims,
demands, suits, causes of action, proceedings, judgments and liabilities to the
extent that such Damages were proximately caused by any breach by Buyer of its
warranties, representations, covenants, or agreements hereunder, except to the
extent that such Damages are the result of the negligence of, or the failure to
comply with the terms of this Agreement by, Seller, its parents and subsidiaries
and their successors and assigns and any of their officers and directors. It is
understood that the remedies provided for in this Section 14.1(a) shall be in
addition to any and all other rights and remedies available at law, in equity or
otherwise.
(b) Without limiting or duplicating the provisions of Section
14.1(a) hereof, Buyer shall indemnify and hold harmless Seller, its parents and
subsidiaries and their successors and assigns and each of their officers and
directors from and against all Damages, assessed, incurred or sustained by or
against such entity or individual under any statute, governmental regulation or
ordinance or common law theory, including any liability under Superfund, RCRA,
similar state laws or other Applicable Laws, to the extent that such Damages
arise out of environmental protection,
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pollution control or sanitation aspects of (i) the storing, handling and loading
of Waste at the Facility Site by Buyer or its employees, contractors or agents,
or (ii) any breach by Buyer of its warranties, representations, covenants or
agreements hereunder; except that Buyer shall not be obligated to indemnify
Seller hereunder (a) to the extent that such Damages were caused by the
negligence of, violation of law by, or the failure to comply with the terms of
this Agreement by Seller or its successors or assigns, parents or subsidiaries
or any of their employees, contractors (other than Buyer), agents or
representatives; (b) to the extent that such Damages exceed the amount of
damages for which Buyer and Seller are jointly liable, in those instances in
which Buyer and Seller are determined under Applicable Laws to be jointly
liable; or (c) to the extent that such Damages were caused by changes in
Applicable Laws after the time of such storing, handling and loading of the
Waste.
Section 14.2. Indemnification of Buyer.
(a) Seller shall indemnify and hold Buyer, its parents and
subsidiaries and their successors and assigns and each of their officers and
directors harmless from and against all Damages, suffered on account of claims,
demands, suits, causes of action, proceedings, judgments and liabilities to the
extent that such Damages were proximately caused by any breach by Seller of its
warranties, representations, covenants, or agreements hereunder, except to the
extent that such Damages are the result of the negligence of, or the failure to
comply with the terms of this Agreement by, Buyer, its parents and subsidiaries
and their successors and assigns and any of their officers and directors. It is
understood that the remedies provided for in this Section 14.2(a) shall be in
addition to any and all other rights and remedies available at law, in equity or
otherwise.
(b) Without limiting or duplicating the provisions of Section
14.2(a) hereof, Seller shall indemnify and hold harmless Buyer, its parents and
subsidiaries and their successors and assigns and each of their officers and
directors from and against all Damages, assessed, incurred or sustained by or
against such entity or individual under any statute, governmental regulation or
ordinance or common law theory, including any liability under Superfund, RCRA,
similar state laws or other Applicable Laws, to the extent that such Damages
arise out of environmental protection, pollution control or sanitation aspects
of (i) the taking, transportation or disposal of Waste by Seller or its
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employees, contractors or agents, or (ii) any breach by Seller of its
warranties, representations, covenants or agreements hereunder; except that
Seller shall not be obligated to indemnify Buyer hereunder (a) to the extent
that such Damages were caused by the negligence of, violation of law by, or the
failure to comply with the terms of this Agreement by Buyer or its successors or
assigns, parents or subsidiaries or any of their employees, contractors (other
than Seller), agents or representatives; (b) to the extent that such Damages
exceed the amount of damages for which Buyer and Seller are jointly liable, in
those instances in which Buyer and Seller are determined under Applicable Laws
to be jointly liable; or (c) to the extent that such Damages were caused by
changes in Applicable Laws after the time of such taking, transportation and
disposal of the Waste.
Section 14.3. Notice and Legal Defense. Promptly after receipt by a
party entitled to indemnification under this Article XIV (the "Indemnified
Party") of any claim or notice of the commencement of any action, administrative
or legal proceeding, or investigation as to which any indemnity provided for in
Section 14.1 or 14.2 hereof may apply, the Indemnified Party shall notify the
indemnifying Party in writing of such fact. The indemnifying Party shall assume
the defense thereof with counsel designated by such Party and satisfactory to
the Indemnified Party; provided, however, that if the defendants in any such
action include both the Indemnified Party and the indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to, or
inconsistent with, those available to the indemnifying Party, the Indemnified
Party shall have the right to select separate counsel to participate in the
defense of such action on behalf of such Indemnified Party, at the indemnifying
Party's expense. During the pendency of any matter to which may indemnity
provided in Section 14.1 or 14.2 hereof may apply, the Indemnified Party shall
retain authority to monitor, be consulted and be kept fully informed with
respect to the matter.
Section 14.4. Failure to Defend Action. Should the Indemnified Party
be entitled to indemnification under Section 14.1 or 14.2 hereof as a result of
a claim by a third party, and the indemnifying Party fails to assume the defense
of such claim, the Indemnified Party may at the expense of the indemnifying
Party contest (or, with the prior written consent of such indemnifying Party,
settle) such claim, provided that no such contest need be made and settlement or
full payment of any such claim may be made without consent of
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the indemnifying Party (with such indemnifying Party remaining obligated to
indemnify the Indemnified Party under Section 14.1 or 14.2 hereof) if, in the
written opinion of the Indemnified Party's counsel, such claim is meritorious.
Section 14.5. Indemnification Amount. In the event that a Party is
obligated to indemnify and hold an Indemnified Party harmless under Section 14.1
or 14.2 hereof, the amount owing to the Indemnified Party will be the amount of
such party's actual out-of-pocket loss net of any insurance or other recovery.
Section 14.6. Survival. The provisions of this Article XIV shall
survive the termination or expiration of this Agreement.
ARTICLE XV
NOTICE AND SERVICE
Section 15.1. Notice. All notices, including communications and
statements which are required or permitted under the terms of this Agreement,
shall be in writing, except as otherwise provided.
Section 15.2. Service.
(a) Service of a notice may be accomplished by personal service,
telecopy, overnight mail service or registered or certified mail. In addition,
service of notices other than pursuant to Article X hereof may be accomplished
by means other than the foregoing, provided that such notices shall be deemed
served when actually received unless on any day other than a Business Day or
after 5:00 p.m. local time of the recipient, in which case service shall instead
be deemed to occur on the following Business Day.
(b) Subject to the final two sentences of Section 4.6 hereof, if a
notice is served by telecopy, it shall be deemed served as of the time
transmitted, unless after 5:00 p.m. local time of the recipient, in which case
service shall be deemed to occur on the following Business Day. If a notice is
served by overnight mail service, it shall be deemed served on the next Business
Day, except as otherwise demonstrated by a bonafide delivery notice. If a notice
is sent by registered or certified mail, it shall be deemed
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served within three (3) Business Days after being placed in the custody of the
U.S. mail service, except as otherwise demonstrated by a signed receipt.
(c) Where notices are required to be sent under this Agreement to
Buyer, Seller, the Financing Parties or to the Electricity Purchaser, such
notices shall be addressed as follows:
(i) Buyer:
AES Cedar Bay, Inc.
1925 North Lynn Street
Suite 1200
Arlington, Virginia 22209
Attention: President
with a copy to
AES Cedar Bay, Inc.
9469 Eastport Road
Jacksonville, Florida 32218
Attention: Plant Manager
(ii) Seller:
Costain Coal Inc.
1301 W. Long Lake Road
Troy, Michigan 48098
Attention: Executive Vice President
(iii) Financing Parties:
As provided by Buyer within fifteen (15)
days after the Financial Closing Date
(iv) The Electricity Purchaser:
Florida Power & Light Company
P.O. Box 029100
Miami, Florida 33102
Attention: Cogeneration and Small
Power Production
From time to time Buyer, Seller, the Financing Parties or the Electricity
Purchaser may designate a new address for purposes of notice by written notice
to the others duly given as provided herein.
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ARTICLE XVI
SUCCESSORS AND ASSIGNS
Section 16.1. Assignment by Buyer and Seller.
(a) Except as provided in this Article XVI, the rights and
obligations of the Parties, including any rights to monies or payments, may not
be assigned or delegated by either Party except upon the express written consent
of the other Party, which consent shall not be unreasonably withheld.
(b) Seller shall have the right, without the consent of Buyer, (i)
to assign its payments under this Agreement to any third party, provided that
such assignment shall not be deemed to include any of Seller's obligations
hereunder and shall not confer any rights against Buyer under this Agreement to
such assignee, or (ii) to assign any or all of its rights and delegate any of
its obligations hereunder to Costain Holdings Inc., a Delaware corporation
("CHI"), or any business entity directly or indirectly owned or controlled by
CHI provided that Seller shall not be released from its obligations hereunder
without the consent of Buyer, which consent shall not be unreasonably withheld.
Seller shall have the right, but only with the consent of Buyer, which consent
may be withheld in Buyer's sole reasonable discretion, to assign all of its
rights and interests and delegate all of its obligations under this Agreement to
a third party not referred to in the first sentence of this Section 16.1(b).
(c) Buyer shall have the right to assign all of its rights and
interests and delegate all of its obligations under this Agreement to any entity
that assumes ownership or operational control of the Facility, such assignment
to be subject to the consent of Seller which shall not be unreasonably withheld.
Reasonable conditions for the grant of such consent shall include that such
proposed assignee: (i) shall be the owner, operator or lessee of the Facility,
(ii) agrees in writing to be bound by and to assume the terms and conditions of
this Agreement and any and all obligations to Seller arising or accruing
hereunder (including without limitation those theretofore accrued but
unperformed or unsatisfied (excluding from the latter, however, the obligation
to perform, but not liability for damages for the nonperformance of, acts that
can no longer be performed with the exercise of due diligence)), (iii) is
generally recognized as having the financial substance to perform
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Buyer's obligations under this Agreement and (iv) has the operational skill and
ability to perform Buyer's obligations under this Agreement. If the interest of
Buyer in this Agreement shall be assumed, sold or transferred as hereinbefore
provided, Buyer shall be released and discharged from only those obligations to
Seller arising or accruing hereunder from and after the date of such assumption,
and, unless the Parties agree otherwise, Buyer shall not be released and
discharged from and shall remain liable for any and all obligations to Seller
arising or accruing hereunder prior to such assumption or which expressly
survive the termination or expiration of this Agreement. Upon and after the
assignment and assumption described in this Section 6.2(c), Seller shall
continue this Agreement with the assuming party as if such person had thereafter
been named as Buyer under this Agreement.
(d) Buyer shall have the right, without the consent of Seller, to
assign any or all of its rights and interests under this Agreement to the
Financing Parties as security for its obligations under the Financing Documents
and to the Electricity Purchaser as security for its obligations under the Power
Purchase Agreement; provided that Buyer shall provide Seller with notice thereof
and copies of the agreements making such assignments within twenty (20) days
thereafter. Seller acknowledges that the Financing Documents may provide that
upon an event of default by Buyer under the Financing Documents, the Financing
Parties may under certain circumstances assume the interests, rights and
obligations of Buyer thereafter arising under this Agreement. If any of the
Financing Parties or the Electricity Purchaser assumes this Agreement as
provided hereinabove, it shall not be personally liable for the performance of
such obligations hereunder except to the extent of all of its right, title and
interest in and to the Facility and any and all contracts (except the Financing
Documents) related thereto. Notwithstanding any such assumption by the Financing
Parties or the Electricity Purchaser, Buyer shall not be released and discharged
from and shall remain liable for any and all obligations to Seller arising or
accruing hereunder prior to such assumption, or after such assumption for
obligations which expressly survive the termination or expiration of this
Agreement.
(e) Seller acknowledges that the Financing Documents will provide
that upon an event of default by Buyer under the Financing Documents, the
Financing Parties may, in addition to the exercise of their rights as set forth
in Section 16.2(d) hereof, cause Buyer to sell or lease the
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Facility and cause any new lessee or purchaser of the Facility to assume all of
the interests, rights and obligations of Buyer thereafter arising under this
Agreement. Such assignment shall be subject to the consent of Seller which shall
not be unreasonably withheld. Factors which may be considered in determining
whether consent will be given include whether such proposed assignee: (i) shall
be the owner, operator or lessee of the Facility, (ii) agrees in writing to be
bound by and to assume the terms and conditions of this Agreement and any and
all obligations to Seller arising or accruing hereunder (including without
limitation those of Buyer and the Financing Parties and those theretofore
accrued but unperformed or unsatisfied (excluding from the latter, however, the
obligation to perform, but not liability for damage for the nonperformance of,
acts that can no longer be performed with the exercise of due diligence)), (iii)
is generally recognized as having the financial substance to perform Buyer's
obligations under this Agreement (to be viewed generally in light of the
condition of Buyer immediately after the Financial Closing Date), and (iv) has
the operational skill and ability to perform Buyer's obligations under this
Agreement (to be viewed generally in light of the condition of Buyer
immediately after the Financial Closing Date). If the interest of Buyer in this
Agreement shall be assumed, sold or transferred as hereinbefore provided, Buyer
shall be released and discharged from only those obligations to Seller arising
or accruing hereunder from and after the date of such assumption, and, unless
the Parties agree otherwise, Buyer shall not be released and discharged from and
shall remain liable for any and all obligations to Seller arising or accruing
hereunder prior to such assumption or which expressly survive the termination or
expiration of this Agreement. Upon and after the assignment and assumption
described in this Section 6.2(c), Seller shall continue this Agreement with the
assuming party as if such person had thereafter been named as Buyer under this
Agreement.
(f) The provisions of Section 16.1(d) and (e) hereof are for the
benefit of the Financing Parties and the Electricity Purchaser, as well as the
Parties, and shall be enforceable by each. Seller hereby agrees that none of the
Financing Parties or the Electricity Purchaser, or any bondholder or participant
for whom they may act, shall be obligated to perform any obligation or be deemed
to incur any liability or obligation provided herein on the part of Buyer or
shall have any obligation or liability to Seller with respect to this Agreement,
except as provided in this Section 16.1.
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Section 16.2. Binding Effect. The terms and provisions of this
Agreement, the respective rights and obligations hereunder of Buyer and Seller,
and the respective rights of the Financing Parties and the Electricity Purchaser
set forth in Sections 10.2, 16.1 shall be binding upon, and inure to the benefit
of, their respective successors and permitted assigns. Except as expressly
stated in the Shareholder's Letter Agreement dated the date hereof, each Party
acknowledges that the other has entered into this Agreement entirely on its own
behalf, and in no manner on behalf of any direct or indirect shareholder or
affiliate, and the other Party shall have no recourse hereunder against such
direct or indirect shareholder or affiliate (other than successors or permitted
assigns of Buyer or Seller) or any of their successors or assigns for any
reason.
ARTICLE XVII
MISCELLANEOUS
Section 17.1. Independent Contractor. Each Party shall at all times
act as and be deemed to be an independent contractor for all purposes of this
Agreement and neither Party nor its subcontractors nor the employees of either
shall act as or be deemed to be employees, representatives, agents or partners
of the other Party. Neither Party shall have the right to control nor any
actual, potential or other control over the methods or means by which the other
Party or any of its agents, representatives, subcontractors or employees
conducts its independent business operations. Neither Party shall perform any
act or make any representation to any party to the effect that such Party or any
of its agents, representatives, subcontractors or employees is the agent of the
other Party.
Section 17.2. Agents of Seller; Subcontractors.
(a) No designation by either Party of any agent for purposes of
submitting invoices, receiving payments or taking any other action in connection
with the performance or administration of this Agreement shall be effective or
recognized by the other Party until the designating Party has given the other
Party notice of such designation.
(b) Except as set forth in Section 17.3 hereof, Seller may from time
to time enter into arrangements with subcontractors, suppliers or agents for
services to Seller that Seller is obligated hereunder to provide to Buyer.
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(c) Each Party shall require all subcontractors, suppliers and
agents to obtain, maintain and keep in force during the time in which they are
engaged in performing services or other work hereunder insurance coverages as
would normally be required by similar businesses under similar circumstances or
agreements.
(d) Neither Party shall be deemed by virtue of this Agreement to
have any contractual obligation to, or relationship with, any subcontractor,
supplier or agent of the other Party.
(e) Each Party shall be solely responsible for paying each
subcontractor, supplier or agent and any other person or entity to whom any
amount is due from such Party for services, equipment, material or supplies in
connection with this Agreement.
(f) Neither Party shall be excused from performing its obligations
hereunder as a result of any such subcontract or other arrangement or the
nonperformance of any of such Party's subcontractors, suppliers or agents.
Section 17.3. Waste Contractor. Seller shall not enter into any
arrangement for any third party to provide the Waste disposal services to be
provided by Seller hereunder without Buyer's prior written approval, such
approval not to be withheld unless Buyer reasonably determines that, considering
all relevant factors (including without limitation the indemnifications provided
by Seller under this Agreement) it is or would be materially adversely affected
by the use of such third party. In the event Seller desires to enter into any
such arrangement, Seller shall (i) inform Buyer of the identity of the party to
provide such services, (ii) provide to Buyer copies of all proposed agreements
between Seller and such third party (except that Seller shall not be required to
disclose the financial terms, or terms subject to confidentiality obligations of
such agreements) and (iii) provide Buyer with such other information about such
third party as Buyer may reasonably request. For purposes of this Section 17.3,
the railroad providing transportation services to Seller shall not be deemed to
be providing Waste disposal services to Buyer hereunder. The provisions of
Section 17.2 hereof shall apply with equal force and effect to such third party.
Buyer's approval of such third party shall not constitute Buyer's release of
Seller from any of its obligations hereunder or approval of the quality of such
third party's performance.
63
<PAGE>
Section 17.4. Certain Notices. Buyer shall give Seller notice not
later than 18 months prior to Initial Delivery Date. If such notice is not given
and Seller must make shipments in Carrier rail cars, Buyer shall pay to Seller
such marginal transportation costs as are reasonably incurred due to shipping in
Carrier equipment because timely notice was not given.
Section 17.5. Confidentiality. Seller and Buyer shall retain in
confidence the contents of this Agreement and any information obtained as a
result of negotiation and performance of this Agreement, except that Buyer may
disclose such information to the Financing Parties and Seller may disclose such
information to any parties providing financing to Seller. It is understood,
however, that such information may be disclosed when and to the extent requested
by a court or government agency (provided that neither Party shall make such
disclosure without notifying and consulting the other Party before such
disclosure), and that certain cost and physical property information related to
fuel purchases and waste disposal are routinely reported to state regulatory
agencies, the Federal Energy Regulatory Commission and the Environmental
Protection Agency and are used by Buyer's consultants to make economic
forecasts. Financing Parties, parties providing financing to Seller and
consultants will likewise be required to retain such information in confidence.
Section 17.6. Amendments. No amendment or modification of the terms
of this Agreement shall be binding on either Buyer or Seller unless reduced to
writing and signed by the Party against which enforcement is sought.
Section 17.7. Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without giving
effect to any choice of law rules thereof which may direct the application of
the laws of another jurisdiction.
Section 17.8. Severability and Renegotiation. Should any provision
of this Agreement for any reason be declared invalid or unenforceable by final
and unappealable order of any court or regulatory body having jurisdiction
thereover, such decision shall not affect the validity of the remaining
provisions, which remaining provisions shall remain in full force and effect as
if this Agreement had been executed with the invalid or unenforceable provision
thereof eliminated. In the event any such provision of this Agreement is so
declared invalid or unenforceable, the
64
<PAGE>
Parties shall promptly renegotiate in good faith new provisions to eliminate
such invalidity or unenforceability and to restore this Agreement as near as
possible to its original intent and effect. Upon impasse, the Parties will
submit any dispute regarding the substitution of the new provision to
arbitration pursuant to Article XIII hereof.
Section 17.9. Other Agreements. This Agreement supersedes any and
all oral and written agreements and understandings heretofore made relating to
the subject matter hereof, other than the letter agreement between Buyer and
Seller dated as of the date hereof relating to financeabilty, the Letter
Agreement referred to in Section 2.1(b) hereof, and the Shareholder's Letter
Agreement dated as of the date hereof, and constitutes the entire agreement and
understanding of the Parties relating to the subject matter hereof.
Section 17.10. Captions. All indices, titles, subject headings,
section titles and similar items are provided for the purpose of reference and
convenience and are not intended to be inclusive or definitive or to affect the
meaning, content or scope of this Agreement.
Section 17.11. Counterparts. This Agreement may be executed in any
number of counterparts, and each counterpart shall have the same force and
effect as the original instrument.
Section 17.12. Further Assurances. The Parties shall execute and
deliver such additional documents and shall cause such additional action to be
taken as may be reasonably necessary to carry out the purposes and intent of
this Agreement.
Section 17.13. No Third Party Rights. This Agreement and all rights
hereunder are intended for the sole benefit of the Parties hereto and, to the
extent expressly provided, for the benefit of the Financing Parties and the
Electricity Purchaser and shall not imply or create any rights on the part of,
or obligations to, any other entity or individual.
Section 17.14. Survival of Provisions. The termination or expiration
of this Agreement shall not affect
65
<PAGE>
any of the provisions of this Agreement which are expressly or by implication to
continue in force after such termination or expiration.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally
bound, have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the day and year first set forth above.
AES CEDAR BAY, INC.
By: /s/ Jeffrey V. Swain
----------------------------
Name: Jeffrey V. Swain
Title: Vice President
COSTAIN COAL INC.
By: /s/ Anthony L. Spezia
----------------------------
Name: Anthony L. Spezia
Title: Executive Vice
President
66
<PAGE>
Page 1 of 2
ANNEX A
FACILITY SITE
[Graphic Omitted]
67
<PAGE>
Page 2 of 2
[Graphic Omitted]
68
<PAGE>
ANNEX B
DESCRIPTION OF COAL LOADING FACILITY
AND DEDICATED COAL RESERVES
I. Seller's Coal Loading Facility:
Name: Transcontinental Coal Processing, Inc., a wholly owned
subsidiary of Costain Coal Inc.
Location: Ivel, Floyd County, Kentucky (CSXT Mine No. 4091)
Origin of Coal: Coal delivered to the Coal Loading Facility shall
originate from the dedicated reserves or at Seller's
option, other reserves within trucking radius of the
Coal Loading Facility.
Property is held by long-term leases which expire August 1, 2020.
<TABLE>
<CAPTION>
Raw Coal
Facility: Phase I Phase II
------ --------
<S> <C> <C>
Completion Date: July 1989 as required
by Seller
Coal Loading
Rate (Tons per hour): 1,000 3,000
Unit Train
Track Capacity (Tons): 7,000 10,000
Coal A Daniels 750 Ton per hour
Preparation (raw feed), heavy media
Plant: preparation plant completed in
1981 is on the property. This
plant may be used to meet
the quality specifications required
hereunder.
</TABLE>
II. Dedicated Coal Reserves:
<TABLE>
<CAPTION>
Recoverable Coal
Lease Seam Reserves (1,000) Tons
- ----- ---- ---------------------
<S> <C> <C>
Hatcher Hatcher 100
Dinkey 700
Fireclay 3,300
Elkhorn #3 5,400
Elkhorn #2 2,400
------
11,900
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C>
Leslie Elkhorn #3 1,600
Harkins Fireclay 2,000
& Mayo, et al Elkhorn #3 4,000
Elkhorn #2 1,500
Elkhorn #1 3,500
------
11,000
Total Coal Reserves Dedicated: 24,500
======
</TABLE>
A Map of the Coal Reserves is attached.
70
<PAGE>
ANNEX C
DESCRIPTION OF WASTE
DISPOSAL SITES AND SERVICES
1. Seller's Waste Disposal Site
Name: Transcontinental Coal Processing, Inc., a wholly owned
subsidiary of Costain Coal Inc.
Location: Ivel, Floyd County, Kentucky (CSXT Mine No. 4091)
Transportation:
Pelletized Waste will be loaded into open top bottom dump cars
at AES Cedar Bay by Buyer. Loaded Waste will be transported to
Seller's Waste Sites by Seller's designated Carrier.
Disposal Procedure:
The solid Waste will be transported to the Waste disposal site
by trucks from the Seller's unloading facility. The Waste will
be unloaded and disposed of in a residual landfill meeting all
the requirements under applicable solid waste disposal laws
and regulations. Ground water at the disposal site will be
analyzed through a network of monitoring wells positioned
within analytical parameters as required by applicable law.
Testing Procedures:
All testing will be in accordance with applicable performance
standards effecting a residual landfill under 401 KAR 30:030.
The site will be inspected to ensure compliance with
environmental performance standards in 401 KAR 30:030.
Subject to Section 5.3 hereof, Seller reserves the right to dispose of Waste at
facilities other than the facility mentioned above. Seller agrees to notify
Buyer regarding a proposed change in its Waste disposal location.
71
<PAGE>
ANNEX D
CALCULATION OF INDEXES FOR COAL PRICE
AND WASTE SERVICES PRICE
The calculation of CC, GNP, PCE and PPI, as such terms are used in
Sections 6.1 and 6.2 hereof, shall be in accordance with the following formula:
I = I^n - I^O
----------
I^O
Where:
I = CC, GNP, PCE or PPI, as the case may be, expressed as a rate (i.e.,
1%=0.01);
I^n = for CC, the Coal Cost for the third month immediately preceding the
Adjustment Date;
for GNP or PCE, the GNP Index or the PCE Index, respectively, for the
second calendar quarter immediately preceding the Quarterly Adjustment
Date; and
for PPI, the PPI Index for the second month immediately preceding the
Quarterly Adjustment Date; and
I^O = for CC, the Coal Cost for the fourth month immediately preceding the
Adjustment Date, except that for the first Adjustment Date, I^O shall
equal the Coal Cost for November, 1988 which was one-dollar and
seventy-one cents ($1.71);
for GNP or PCE, the GNP Index or the PCE Index, respectively, for the
third calendar quarter immediately preceding the Quarterly Adjustment
Date, except that for the first Quarterly Adjustment Date, I^O shall equal
the GNP Index or the PCE Index for the second quarter of 1988 which index
value was 121.0 for the GNP Index and 123.9 for the PCE Index;
for PPI, the PPI Index for the fifth month immediately preceding the
Quarterly Adjustment Date, except that for the first Quarterly Adjustment
Date, I^O shall equal the PPI Index for September, 1988 which was 108.1.
72
<PAGE>
(i) For the Adjustment Date which is October 1, 1997 (which is also a
Quarterly Adjustment Date):
I^n = for CC, the Coal Cost for July, 1997;
= for GNP or PCE, the GNP Index or the PCE Index,
respectively, for the second quarter of 1997; and
= for PPI, the PPI Index for August, 1997; and
I^0 = for CC, the Coal Cost for June, 1997;
= for GNP or PCE, the GNP Index or the PCE Index, respectively, for the
first quarter of 1997; and
= for PPI, the PPI Index for May, 1997.
(ii) For the Adjustment Date which is May 1, 1997:
I^n = for CC, the Coal Cost for February, 1997; and
I^O = for CC, the Coal Cost for January, 1997.
73
<PAGE>
ANNEX E
SAMPLE CALCULATION OF MONTHLY COAL PAYMENT
For the Adjustment Date which is May 1, 1997 assume:
the Coal Price was $2.127 per million Btu's and Coal was delivered during
the month of May 1997 as follows:
<TABLE>
<CAPTION>
Coal Coal Payment
Quality Price Due for
Shipment Tons Sold (Btu/lb) per Ton Coal Sold
- -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C>
a 7,500.00 12,000 $51.0480 $ 382,860.00
b 7,771.28 11,799 50.1929 390,063.08
c 8,039.28 12,011 51.0948 410,765.40
d 7,127.03 12,497 53.1622 378,888.59
e 7,455.33 11,987 50.9927 380,167.41
f 7,708.01 12,358 52.5709 405,217.02
g 8,100.27 12,416 52.8177 427,837.63
h 7,905.25 12,113 51.5287 407,347.26
i 7,597.53 12,001 51.0523 387,871.38
j 7,879.35 11,854 51.4269 397,331.19
--------- -------------
77,083.33 $3,968,348.96
========= =============
</TABLE>
Note: Calculation does not take into account the impact, if any, of the
Price Ceiling or Price Floor
74
<PAGE>
ANNEX F
COMPONENTS OF PERIODIC ANALYSIS
Ultimate Analysis
Carbon
Hydrogen
Nitrogen
Chlorine
Sulfur
Oxygen
Ash Analysis
SiO2
A12O3
Fe2O3
CaO
MgO
TiO2
K2O
Na2O
SO3
P2O5
Trace elements
Lead content
Beryllium content
Cobalt content
75
<PAGE>
Barium content
Zinc content
Copper content
Fluorines content
Cadmium content
Manganese content
Magnesium content
Molybdenum content
Selenium content
Vanadium content
Chromium content
Arsenic content
Mercury content
Nickel content
Phosphorus content
76
<PAGE>
ANNEX G
EXAMPLE OF STOCKPILE DEFICIENCY CALCULATION
<TABLE>
<CAPTION>
EXAMPLES
-------------------------------------
1 2 3
-------- -------- -------
<S> <C> <C> <C>
Stockpile level 45,000(A) 50,000(A) 60,000
Tonnage of failed
delivery 8,000 8,000 8,000
Tonnage subject to
remedy -- 3,000 8,000
</TABLE>
(A) The difference between 55,000 Tons and the actual stockpile level is
assumed to not be due to unexcused or uncured failures to deliver.
77
<PAGE>
Exhibit 12
<TABLE>
<CAPTION>
Predecessor Company The Company
------------------------------------------------------------- ------------------------------------
Period Period Period Period Six
November 1, January 1, March 15, March 15, Months
Fiscal Year Ended December 31 1996 to 1997 to 1997 to 1997 to Ended
---------------------------------- December 31, March 14, October 31, April 30, April 30,
1993 1994 1995 1996 1996 1997 1997 1997 1998
(unaudited) (unaudited) (unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss)
before income taxes 5,040 (245,656) 9,274 (41,668) (5,619) (5,938) (3,938) (2,003) 134
Fixed charges 2,387 4,428 4,436 2,801 550 809 6,004 1,020 4,757
Earnings (loss) 7,427 (241,228) 13,710 (38,867) (5,069) (5,129) 2,066 (963) 4,891
Fixed charges --
Interest expense 2,387 4,428 4,436 2,801 550 809 6,004 1,020 4,757
Ratio of earnings
to fixed charges 3.1x N/A 3.1x N/A N/A N/A N/A N/A N/A
Amount of insufficiency N/A 245,649 N/A 41,668 5,619 5,938 3,938 2,003 N/A
</TABLE>
<PAGE>
Exhibit 21
List of Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C>
Lodestar Energy, Inc. Delaware
Eastern Resources, Inc. Kentucky
Industrial Fuels Minerals Company Michigan
</TABLE>
<PAGE>
EXHIBIT 23.2
The Board of Directors
Lodestar Holdings, Inc.:
We consent to the use of our reports included herein and to the references
to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
July 13, 1998
<PAGE>
Exhibit 23.3
Consent of Independent Mining Consultants
July 9, 1998
Mr. Michael E. Donohue, Vice President and CFO
Lodestar Holdings, Inc.
333 West Vine Street
Lexington, Kentucky 40507
Dear Sir:
Marshall Miller & Associates, a mining consulting firm based in Bluefield,
Virginia, hereby consents to the incorporation by reference the reserve
statement entitled, "Audit of Demonstrated Reserves Controlled by Lodestar
Energy, Inc. - March 1998" and all references to our firm included in or made
part of Lodestar Holdings Inc's Registration Statement on Form S-4.
Sincerely,
Marshall Miller & Associates
/s/ J. Scott Nelson
----------------------------
J. Scott Nelson, C.P.G.
Vice President
<PAGE>
Exhibit 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF l939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
|_| CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
-------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
---------------------------------- ----------------------------------
(State of incorporation if (I.R.S. Employer
not a national bank Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
John R. Towers, Executive Vice President and General Counsel,
225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253
-------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware LODESTAR HOLDINGS, INC. 13-3903875
Delaware LODESTAR ENERGY, INC. 95-2623858
Kentucky EASTERN RESOURCES, INC. 61-1140112
Michigan INDUSTRIAL FUELS MINERALS COMPANY 36-3256999
- -------------- ------------------------------------------------- ---------------
(State or other (Exact name of obligor as specified in its charter) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
</TABLE>
Lodestar Holdings, Inc.
30 Rockefeller Plaza, Suite 4225, New York, New York 10112
Lodestar Energy, Inc.
Eastern Resources, Inc.
Industrial Fuels Minerals Company
333 West Vine Street, Suite 1700, Lexington, Kentucky 40507
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
11 1/2% Senior Notes due 2005, Series B
-------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item l. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject:
Department of Banking and Insurance of
The Commonwealth of Massachusetts
100 Cambridge Street
Boston, Massachusetts
Board of Governors of the Federal Reserve System
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee or its parent, State Street
Corporation.
Item l6. List of exhibits. List below all exhibits filed as a part of
this statement of eligibility and qualification.
l. A copy of the Articles of Association of the trustee as now
in effect.
A copy of the Articles of Association of the trustee, as
now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with Registration Statement of Morse
Shoe, Inc. (File No. 22-17940) and is incorporated herein
by reference thereto.
2. A copy of the Certificate of Authority of the trustee to do
Business.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities
<PAGE>
and Exchange Commission as Exhibit 2 to Amendment No. 1
to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with Registration Statement of
Morse Shoe,Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
3. A copy of the Certification of Fiduciary Powers of the
Trustee.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with Registration Statement of Morse
Shoe, Inc. (File No. 22-17940) and is incorporated herein
by reference thereto.
4. A copy of the By-laws of the trustee as now in effect.
A copy of the By-Laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with
Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
5. A consent of the trustee required by Section 32l(b) of the
Act is annexed hereto as Exhibit 5 and made a part hereof.
6. A copy of the latest Consolidated Reports of Condition of
the trustee, published pursuant to law or the requirements
of its supervising or examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 6 and made a part hereof.
<PAGE>
NOTES
Inasmuch as this Form T-l is filed prior to the ascertainment
by the trustee of all facts on which to base its answer to Item 2, the answer to
said Item is based upon incomplete information. Said Item may, however, be
considered correct unless amended by an amendment to this Form T-l.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
l939, the trustee, State Street Bank and Trust Company, a Massachusetts trust
company, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Hartford, and State of Connecticut, on the 14th day of July, 1998.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Robert L. Reynolds
------------------------------
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under an Indenture entered into between
Lodestar Holdings, Inc., Lodestar Energy, Inc., Eastern Resources, Inc. and
Industrial Fuels Minerals Company and State Street Bank and Trust Company,
Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust
Indenture Act of 1939, reports of examinations with respect to the undersigned
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Robert L. Reynolds
---------------------------------
Name: Robert L. Reynolds
Title: Vice President
Dated: July 14, 1998
<PAGE>
EXHIBIT 6
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ............................1,144,309
Interest-bearing balances .....................................................9,914,704
Securities ............................................................................10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ...........................................8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income ...6,433,627
Allowance for loan and lease losses ...........88,820
Allocated transfer risk reserve ....................0
Loans and leases, net of unearned income and allowances .......................6,344,807
Assets held in trading accounts ........................................................1,117,547
Premises and fixed assets ................................................................453,576
Other real estate owned ......................................................................100
Investments in unconsolidated subsidiaries ................................................44,985
Customers' liability to this bank on acceptances outstanding ..............................66,149
Intangible assets ........................................................................263,249
Other assets ...........................................................................1,066,572
Total assets ..........................................................................38,552,020
==================
LIABILITIES
Deposits:
In domestic offices ...........................................................9,266,492
Noninterest-bearing ...............6,824,432
Interest-bearing ..................2,442,060
In foreign offices and Edge subsidiary .......................................14,385,048
Noninterest-bearing ..................75,909
Interest-bearing .................14,309,139
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ...........................................9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities .........................171,783
Trading liabilities ....................................................................1,078,189
Other borrowed money .....................................................................406,583
Subordinated notes and debentures ..............................................................0
Bank's liability on acceptances executed and outstanding ..................................66,149
Other liabilities ........................................................................878,947
Total liabilities .....................................................................36,203,185
EQUITY CAPITAL
Perpetual preferred stock and related surplus ..................................................0
Common stock ..............................................................................29,931
Surplus ..................................................................................450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses) ...........1,857,021
Cumulative foreign currency translation adjustments ......................................(6,256)
Total equity capital ...................................................................2,348,835
Total liabilities and equity capital ..................................................38,552,020
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casnern
