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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-16498
ADDINGTON RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 61-1125039
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 North Big Run Road
Ashland, Kentucky 41102
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
including area code: (606) 928-3433
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - par value of $1.00 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 27, 1995.
Common stock, par value of $1.00 per share -- $82,543,800.
The number of shares of the registrant's common stock outstanding as of
March 27, 1995 - 15,906,251 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
Item 1. Business.
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Addington Resources, Inc. and its subsidiaries (the "Company") are
primarily engaged in the surface mining and marketing of bituminous coal and the
development and operation of integrated solid waste disposal systems. For
certain financial information concerning the Company's mining and environmental
industry segments, see Note 23 to the Consolidated Financial Statements.
Addington Resources, Inc. was incorporated on September 29, 1986, under the laws
of Delaware.
Disposition of Certain Coal Assets in the First Quarter of 1994.
---------------------------------------------------------------
Pursuant to the Stock Purchase Agreement dated September 24, 1993 (the
"Agreement") between Addington Holding Company, Inc., a wholly owned subsidiary
of the Company, and Pittston Acquisition Company, an indirect wholly owned
subsidiary of The Pittston Company ("Pittston"), the Company sold to Pittston
(the "Pittston Transaction") all of the Company's stock in five of its indirect
wholly owned coal subsidiaries, Addington, Inc., Appalachian Mining, Inc.,
Appalachian Land Company, Vandalia Resources, Inc. and Kanawha Development
Corporation (collectively the "Subsidiaries"). The Pittston Transaction was
consummated on January 14, 1994 (the "Closing Date").
In the Pittston Transaction, the Company transferred to Pittston all its
then existing long-term coal sales contracts with electric utilities except for
one contract requiring the delivery of approximately 630,000 tons during 1994.
The Company also transferred to Pittston all of its coal reserves owned or
leased in Ohio, Virginia and West Virginia and, of its Kentucky coal reserves,
only those reserves located in the Breathitt County Area of Kentucky. In
addition, the Company transferred all of its tipples and barge loading
facilities and all of its assets (including property, plant and equipment) used
in connection with mining the specific coal reserves transferred. The
Subsidiaries transferred certain property, plant and equipment to the Company
before the Closing Date.
Pursuant to the terms of the Agreement, the Company sold to Pittston all of
the Company's common stock in the Subsidiaries for $157,000,000 in cash. The
Agreement also contemplated that certain property, plant and equipment and
mineral reserves would be transferred from the Subsidiaries to the Company
before the Closing Date. In addition, the Agreement contemplated that the
Subsidiaries would distribute to the Company, before the Closing Date, their
excess working capital. The Agreement also required that within 60 days after
the Closing Date, the Company would deliver to Pittston a statement of working
capital for the Subsidiaries showing the Subsidiaries' Combined Net Working
Capital, as defined in the Agreement, as of the close of business
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on the Closing Date. If the Combined Net Working Capital exceeded zero, Pittston
would pay the Company an appropriate adjustment. If the Combined Net Working
Capital were less than zero, the Company would pay Pittston an appropriate
adjustment.
In January 1994, the Company recorded a pre-tax gain of approximately
$118,000 in connection with the Pittston Transaction. Included in the
calculation of this gain, the Company established certain reclamation reserves
due to the phase-down of production from those mines retained by the Company,
established other contingency reserves due to the de-emphasis of its mining
operations, and estimated the effect of various other contractual arrangements
with Pittston. During the third quarter of 1994, the Company reduced the gain
recorded on this transaction by $6,275,000. The reduction in the gain
previously recorded is a result of the Company settling a dispute with Pittston
concerning the Combined Net Working Capital and adjusting certain other
contingency reserves specifically set up in connection with this transaction.
In January 1995, Pittston notified the Company of certain claims for
indemnification in accordance with the terms of the Agreement. The Company is
currently negotiating with Pittston concerning these matters, but at this time
does not believe that the claims will result in a material adverse impact on the
Company's financial position.
In connection with the Pittston Transaction, the Company transferred to
Pittston certain properties in Fayette County, West Virginia. The Company and
Pittston entered into a royalty agreement (the "Royalty Agreement") pursuant to
which Pittston will pay to the Company a royalty of $1.00 per ton of coal mined
from these properties. The term of the Royalty Agreement will be from the
Closing Date until the date Pittston has paid $3.75 million in royalties. The
Royalty Agreement provides for a minimum royalty of $100,000 per month, with a
maximum royalty in any one-year period of $1.5 million. The Company also
entered into a long-term coal sales contract to supply approximately 4,920,000
tons of coal to a Pittston subsidiary. See "Business-Major Coal Sales
Contracts." The Agreement also provides that the Company will pay Pittston a
royalty of $0.50 per ton of coal produced by two highwall mining machines for
three and one-half years.
To facilitate a smooth transition of operations of the Subsidiaries
following the Closing, the Company entered into an agreement with Pittston to
assist Pittston with regard to employee related matters involving the
Subsidiaries and to promote the interests of Pittston and the Subsidiaries in
the financial community. The Company further agreed that neither the Company
nor its affiliates would (a) compete with Pittston on any coal sales contract of
the Subsidiaries acquired pursuant to the Agreement by contacting any customer
of any acquired coal sales contract regarding any renewal, extension or price
reopener of the contract for a period ending upon the final termination of any
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acquired coal sales contract, (b) lease, purchase, contract, license or
otherwise acquire an interest in the Robinson Forest area of Kentucky for so
long as Pittston or the Subsidiaries have an interest in such area, (c) disclose
information about the Subsidiaries to third parties for a period of two years,
or (d) participate in any activities regarding rail access to any property of
the Subsidiaries for a period of two years.
Addington Resources, Inc. has guaranteed the prompt payment and performance
by each of its subsidiaries of all obligations under the Agreement and certain
related contracts; provided, however, that the guarantor's liability will not
exceed $157,000,000 in the aggregate. Pittston Minerals Group, Inc., a direct
wholly owned subsidiary of Pittston, has guaranteed the prompt payment and
performance by each of its subsidiaries of all obligations under the Agreement
and certain related contracts; provided, however, that the guarantor's liability
will not exceed $157,000,000 in the aggregate.
For more information on the Pittston Transaction, see the Company's Current
Report on Form 8-K dated January 14, 1994, and the proxy statement dated
December 22, 1993, as filed with the Securities and Exchange Commission. See
also Note 2 to the Consolidated Financial Statements.
Integrated Solid Waste Disposal Operations
------------------------------------------
The Company's integrated solid waste disposal operations described below
are conducted through Addington Environmental, Inc. and its affiliates
(collectively, the "Environmental Subsidiaries").
Landfill Operations. To increase utilization of the Company's experience
in moving materials and reclaiming land, the Company entered the sanitary
landfill business. As of March 15, 1995, the Company was operating ten landfills
in Kentucky, North Carolina, Georgia, and Florida through the Environmental
Subsidiaries described below.
OHIO COUNTY LANDFILL. Ohio County Balefill, Inc. operates a lined landfill
in Ohio County, Kentucky, approximately 35 miles south of Owensboro. The
landfill is owned by Ohio County and is operated by the Company pursuant to a
40-year agreement. The landfill was permitted and constructed by the Company
adjacent to the county landfill, which the Company closed in 1992.
EPPERSON LANDFILL. Epperson Waste Disposal, Inc. owns and operates a lined
landfill in Grant County, Kentucky, located midway between Lexington, Kentucky
and Cincinnati, Ohio. The landfill was permitted and constructed by the Company
adjacent to a facility which was acquired in February 1991 and which the Company
closed in 1992. The lined facility commenced operations in July 1992.
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GREEN VALLEY LANDFILL. Green Valley Environmental Corp. owns and operates a
lined landfill located in Greenup County, near Ashland, Kentucky. The landfill,
which commenced operations in November 1992, was developed by the Company on a
virgin parcel of property which it owns.
TRI-K LANDFILL. Tri-K Landfill, Inc. owns and operates a landfill in
Lincoln County, Kentucky, which it acquired in June 1992. The landfill is
located approximately 50 miles south of Lexington. In March 1995, the Company
received a permit to construct a lined facility adjacent to the landfill which
it currently operates. The Company is constructing the first phase of the new
landfill, which is scheduled to open on July 1, 1995.
DOZIT LANDFILL. Dozit Co., Inc. owns and operates a lined landfill in
Union County, Kentucky, approximately 60 miles south of Evansville, Indiana.
The Company commenced operations at the site in October 1994. The facility was
permitted and constructed adjacent to an existing landfill which the Company
purchased in November 1993, and which was closed by the previous owner.
EAST CAROLINA LANDFILL. East Carolina Environmental, Inc. owns and
operates a lined landfill in Bertie County, North Carolina, approximately 60
miles north of Greenville, North Carolina. The landfill was developed by the
Company on a virgin parcel of property which it owns. The landfill commenced
operation in October 1993.
UWHARRIE LANDFILL. In July 1992, Uwharrie Environmental, Inc. commenced
operating a landfill in Montgomery County, North Carolina approximately 60 miles
east of Charlotte. The facility is owned by Montgomery County and operated by
the Company pursuant to a 20-year agreement. In August 1994, the Company
received a permit to construct a new lined facility adjacent to the County
landfill which it is currently operating. The Company intends to construct the
new facility in 1995.
BROADHURST LANDFILL. Broadhurst Environmental, Inc. operates a lined
landfill in Wayne County, Georgia approximately 40 miles west of Brunswick,
Georgia. The landfill is owned by the Wayne County Solid Waste Management
Authority and was developed by the Company on a virgin parcel of property owned
by the Authority. The Company leases the property from the Authority on a long-
term basis and ownership of the property will revert to the Company at the
termination of the lease. The facility commenced operations in December 1994.
MID-STATE LANDFILL. Mid-State Environmental, Inc. owns and operates a
construction and demolition landfill in Bibb County, Georgia, just outside
Macon. The Company acquired the landfill in May 1994.
The existing landfill operation near Macon is permitted to accept
construction and demolition wastes and certain industrial
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wastes. A new permit allowing the landfill to accept municipal solid waste was
issued in June 1994 and has been appealed. The Company will begin construction
of a new lined area for disposal of municipal solid waste as soon as the permit
is nonappealable. The new area will be constructed to meet current federal and
state landfill standards. Once the nonappealable permit is obtained, an
additional payment of approximately $3.6 million will be made to the seller.
BRIDGEWAY ACRES SANITARY LANDFILL. In January 1995, Pinellas
Environmental, Inc. commenced operation of a landfill owned by Pinellas County,
Florida. The landfill is located both in the City limits of St. Petersburg and
in Pinellas Park, Pinellas County. The landfill is operated by the Company
pursuant to a 5-year agreement with two 2-year extensions at the option of the
County and contractor.
Anticipated capital expenditures for the Company's existing landfill
facilities for 1995 are projected to be $13,500,000, (including the additional
payment of approximately $3.6 million associated with a nonappealable permit for
the Mid-State Landfill discussed above), although the amounts expended may
differ substantially from this amount. The Company is constantly pursuing
additional landfill facilities through acquisitions, privatization of
municipally owned facilities, as well as start-up facilities. In addition to
planned expenditures for existing facilities, the Company anticipates
opportunities for such additional facilities during 1995 in the approximate
amount of $12,500,000, but there can be no assurance that such opportunities
will be available to the Company nor that the amounts actually expended will not
differ substantially from this amount.
The Company believes that the revenues and profitability of its landfills
are greater during the second and third quarters due to higher volumes generated
during those periods.
Other Solid Waste Operations. The Company also owns and operates a
collection company which operates in Kentucky with approximately 60,000
residential, commercial, and industrial customers, supported by 68 service and
support vehicles. The collection company also operates in Florida and Georgia
with approximately 3,200 residential, commercial and industrial customers,
supported by 13 service and support vehicles. The Company also owns or operates
8 transfer stations.
Commercial and industrial collection services are generally performed under
one to three-year service agreements, and fees are determined by such
considerations as market factors, collection frequency, type of equipment
furnished, the type and volume or weight of the waste collected, the distance to
the disposal facility and cost of disposal.
The Company's residential solid waste collection services are performed
under contracts with municipalities giving the Company
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exclusive rights to service all or a portion of the homes in their respective
jurisdictions. Such contracts or franchises usually range in duration from one
to five years. The fees received by the Company are based primarily on market
factors, frequency and type of service, the distance to the disposal facility
and cost of disposal. Residential collection fees are paid by the residential
customers receiving the service.
Coal Mining Operations
----------------------
The Company has historically sold coal primarily to electric utilities
under long-term sales contracts. The Company also makes sales on the spot
market. The Company's coal is suitable for use as steam coal by utilities for
power generation and as industrial coal for heating and other purposes.
Following the consummation of the Pittston Transaction, the Company's mining and
marketing of coal has continued, although at a significantly reduced level of
operations.
Set forth below is information concerning the Company's coal sales for the
years 1990 through 1994.
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Spot Contract Average
Market Sales Sales (1) Total Sales Net Price
Year (in tons) (in tons) (in tons) per Ton
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<S> <C> <C> <C> <C>
1990 579,000 7,586,000 8,165,000 $32.51
1991 372,000 7,848,000 8,220,000 32.83
1992 865,000 7,950,000 8,815,000 30.04
1993 842,000 10,340,000 11,182,000 29.48
1994 925,000 2,958,000 3,883,000 26.29
</TABLE>
_______________
(1) Contract sales are sales under contracts with a term of more than one year.
See "Business-Major Coal Sales Contracts."
During 1994, approximately 11% of the Company's total revenues were coal
sales under a long-term contract with Cincinnati Gas & Electric Company
("CG&E"), 23% were attributable to coal sales under a long-term contract with
American Eagle Coal Company ("American Eagle"), and 13% were attributable to
spot coal sales to TVA. The loss of certain contracts with these customers
before their respective normal expiration dates would have a material adverse
effect on the Company's business and results of operations.
The Company believes its coal operations encompass relatively low mining
costs, which are primarily the result of the cost, efficiency and productivity
of its equipment, non-union labor force and mining methods as well as an ability
to supply coal on a timely basis in the quality and quantity required by its
customers. To the extent practicable, the Company has located mine sites near
suitable loading and transportation facilities in order to minimize
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transportation costs. In addition, the Company has been able to acquire reserves
at prices which the Company believes to be favorable.
In its eastern Kentucky operations, the Company's mining methods are
primarily mountaintop removal/1/ and contour mining./2/ On the West Virginia
properties the Company previously owned, the Company's mining method was
primarily mountaintop removal, but the Company also engaged an independent
contractor to deep mine some of its West Virginia coal reserves. The Company has
previously engaged in limited auger mining/3/ but does not expect to use this
method to any significant extent in its operations. The Company seeks to use
mountaintop removal mining projects where possible because mountaintop removal
(i) results in higher tonnage recovered per acre, thereby reducing the permit-
bonding requirements because fewer acres must be reclaimed and (ii) facilitates
the permitting of large projects, allowing for mining activities over a longer
period of time at each location than would be available under other mining
methods. Although the Company has permits for underground mining, it currently
is not mining coal by this method.
The Company continues to develop and construct highwall mining machines.
Highwall mining machines mine coal by boring into the face of a coal seam
using a continuous miner. The coal is then transported back to the mine opening
via conveyor belts on a series of cars connected to the continuous miner. The
miner is remote controlled by employees working at the mine opening. The Company
anticipates using the highwall mining machines after surface mining is no longer
feasible because of the volume of material overlying the coal seam in relation
to the amount of coal in the seam. The Company expects that highwall mining
machines will enable it to
----------------
/1/Mountaintop removal mining is a surface mining method in which all
material above the coal seam is removed before removal of the coal, leaving a
level plateau in place of the hilltop after mining. A more complete recovery of
the coal is accomplished through this method; however, its feasibility depends
on the amount of overlying material in relation to the coal to be removed.
/2/Contour mining is a surface mining method conducted on coal seams where
mountaintop removal is not feasible because the coal seam is too low on a hill
to mine economically. Mining proceeds laterally around a hillside, at
essentially the same elevation, assuming the seam is fairly flat. This is a
common surface mining method in the steeper slopes of the Appalachian bituminous
coalfields.
/3/Auger mining is conducted by boring into the face of a coal seam and
pulling the coal out with a screw-like drill. Auger mining is frequently
conducted after contour mining is no longer feasible because of the volume of
material overlying the coal seam in relation to the amount of coal in the seam.
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mine coal more efficiently because the machines are significantly less capital
intensive and labor dependent than alternative mining methods. The Company
currently has five operating machines which it uses in both its contract mining
operations and company mining operations. If the Company is able to
successfully develop its contract mining operations using highwall mining
machines, it anticipates that highwall mining machines will contribute
significantly to its coal extraction operations and that the Company will
continue to engage in contract mining operations for third parties using the
machines. See also "Contract Mining Operations" and "Mining Technologies
Licensing Agreement" below.
Before commencing mining on a property, the Company is required to prepare
and have approved by state regulatory authorities a reclamation plan for
restoring the mined property to a productive use upon completion of mining.
Thereafter, as a part of its mining of the property, the Company reclaims and
restores the mined areas by grading, shaping and preparing the soil for seeding.
Upon completion of mining, a property is then usually seeded with grasses for
use as pasture or trees for use as timberland as specified in the approved
reclamation plan. The Company believes that it is in compliance in all material
respects with applicable regulations relating to reclamation.
Major Coal Sales Contracts
--------------------------
As of December 31, 1994, the Company had three major customers for most of
its coal sales. On that date it had three sales contracts with a remaining term
of approximately one year or more, including one contract with each of CG&E,
American Eagle, and Kentucky Utilities Co. ("Kentucky Utilities"). As of
December 31, 1993, the Company had eleven sales contracts with a remaining term
of approximately one year or more, all of which contracts except one were
transferred in the Pittston Transaction. During 1994, the Company also supplied
coal to Indiana-Kentucky Electric Corporation pursuant to its contract to
provide 70,000 tons of coal per month through September 1994. In August 1994,
the Company acquired a coal contract with Kentucky Utilities to ship
approximately 578,000 tons over 1.5 years at a minimum sales price of $32.30 per
ton.
CG&E Coal Sales Contract. Pursuant to a coal sales agreement, the Company
will supply CG&E 5,400,000 tons of coal over six years beginning January 1,
1994. The monthly tonnages to be delivered will be between 63,750 tons and
86,250 tons, with annual tonnages between 765,000 tons and 1,035,000 tons.
CG&E, at its option, may extend the term of the agreement up to three separate
consecutive option periods for the supply of 1,800,000 tons in each two-year
option period; such coal to be delivered during the option periods shall be of a
higher quality and sold at an increased base price per ton.
CG&E will pay the Company a base price of $27.33 per ton of coal purchased
through the initial term of the contract. In addition to adjustment for changes
in certain production costs, the
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price per ton of coal is also subject to adjustment, either positively or
negatively, for deviations in average caloric value, and downward adjustment for
any deviations from sulfur and ash content specifications set forth in the
contract.
American Eagle Coal Sales Contract. Pursuant to a coal sales agreement
(the "Coal Sales Agreement") entered into in connection with the Pittston
Transaction, the Company will sell to the Pittston subsidiary, American Eagle
Coal Company ("American Eagle"), 1,440,000 tons of coal per year for three years
beginning December 1, 1993, and then 100,000 tons per month thereafter until
American Eagle has purchased a total of 4,920,000 tons of coal. During the
initial 3-year period, the coal will be shipped at the rate of 120,000 tons per
month. The monthly tonnages can be decreased or increased by 5% in any month at
American Eagle's option, although the total tonnage to be delivered under the
contract will not be affected by such variations.
American Eagle will pay the Company a base price of $26.00 per ton of coal
purchased through December 31, 1995. The price per ton of coal delivered during
each calendar year thereafter will be the base price of $26.00 per ton, plus the
most conservative escalation, as determined by the percentage of sales price,
that would be applied to purchases of coal pursuant to the terms of any of the
coal supply contracts containing indexed escalation formulas which were held by
the Subsidiaries at the Closing Date. The price per ton of coal throughout the
term of the contract is also subject to adjustment, either positively or
negatively, for any deviations from ash content and average caloric value
specifications set forth in the contract.
TVA Contract. Pursuant to Contract T-1, as amended on May 11, 1989, TVA
agreed to purchase approximately 13,500 tons of coal per week over a three year
period to be delivered to TVA's Allen plant near Memphis, Tennessee or its
Cumberland plant near Cumberland City, Tennessee. By amendment dated October
30, 1991, the term of Contract T-1 was extended through the delivery of the
approximately 2,575,000 tons of coal remaining to be shipped, with an expiration
date of April 23, 1995.
On January 6, 1992, the Company agreed to allow Marion Mining Corporation
("Marion") to perform as an independent contractor to deep mine the Company's
reserves in southern Illinois to supply such coal to TVA under Contract T-1, for
which the Company would receive a royalty fee of $3.00 per ton from Marion. The
Company also granted Marion an option to purchase Southern Illinois Mining
Company, Inc. ("SIMC"), the Company's subsidiary which was the supplier under
Contract T-1 and controlled the Company's coal reserves in southern Illinois.
The Company also agreed to hold 1,400,000 tons under Contract T-4 for
availability under Contract T-1, assuming TVA's consent to this arrangement.
During April 1992, the Company sold all of the outstanding stock of SIMC to
Marion for $1 million in cash and an approximately
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$10.4 million promissory note (the "SIMC Note") bearing interest at six percent.
The SIMC Note was secured by: (i) a pledge of the capital stock of SIMC; (ii) a
Mortgage, Security Agreement, Assignment of Rents and Profits, and Fixture
Financing Statements, which encumbers coal reserves and related real estate
located in Williamson County, Illinois; and (iii) a Security Agreement covering
certain of the SIMC assets, excluding accounts receivable arising out of the
sale of coal to TVA under Contract T-1. At the time of the sale, the assets of
SIMC consisted primarily of Contract T-1, a deep mine, certain coal reserves and
a coal operation facility. The Company guaranteed SIMC's performance of Contract
T-1.
On September 15, 1992, the Company filed suit against Marion and SIMC in
Boyd County Circuit Court, Boyd County, Kentucky for, among other claims, breach
of contract and misrepresentations. The Company claimed that SIMC had ceased
its mining operations and was not shipping coal under Contract T-1. On
September 21, 1992, the Company obtained a temporary restraining order requiring
Marion and SIMC to protect and preserve the assets of SIMC for the Company's
benefit. By letter dated November 4, 1992, TVA gave SIMC a deadline of February
2, 1993, to resume delivery of coal under Contract T-1 or the contract would be
terminated. By letter dated January 29, 1993, TVA informed SIMC of its intent
to terminate SIMC's right to make further deliveries effective at the close of
business on February 2, 1993. On February 1, 1993, both Marion and SIMC filed
bankruptcy.
On November 5, 1993, the Company filed a foreclosure action in state court
in Illinois (the "Illinois Foreclosure Action") to foreclose the security
interest in the real property and personal property of SIMC. SIMC subsequently
filed an adversary proceeding against the Company in United States Bankruptcy
Court for the Eastern District of Kentucky on January 19, 1994. The Complaint
alleged, among other things, that the sale of the stock of SIMC to Marion and
the pledge of all assets of SIMC to the Company to secure the loan of $10.4
million to SIMC and Marion was a preferential transfer and fraudulent
conveyance under the Bankruptcy Code and applicable state law, and that such
transfer should be declared void and all assets of SIMC returned to SIMC. The
Complaint also sought the return of $1,000,000 paid by Marion to the Company as
partial consideration for its purchase of the SIMC stock, the return of $378,200
in royalties paid to the Company subsequent to the sale and $500,000 in punitive
damages. The Company filed an answer in which it denied the substantive
allegations of the Complaint and asserted various affirmative defenses to the
claims.
As part of the settlement of all issues between the Company and SIMCO, the
Company agreed to pay SIMCO the sum of $527,500 and SIMCO agreed to dismiss the
adversary proceeding, to convey its interest in all of the assets that had been
subject to the security interest of the Company and to pay a royalty of $.25 per
ton from coal produced under Contract T-1, if any. The United States Bankruptcy
Court entered an Order dated November 14, 1994 approving
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the settlement and the sale of the property. The property was conveyed to the
Company on December 13, 1994, and the adversary proceeding was dismissed. As it
is uncertain whether the Company will realize any net value from the property,
the Company recorded such property at a net book value of zero.
The Company established a $5,767,000 reserve against the SIMC Note at
December 31, 1993. This reserve was based on management's estimate of the
ultimate realizable value of the assets that would be recovered from the
bankruptcy. During the third quarter of 1994, the Company established an
additional $6,800,000 reserve following the Company's determination that the net
value of the assets that could be recovered from bankruptcy would be
substantially less than previously expected. Therefore, the Company fully
reserved for the SIMC Note and for certain other costs that would be incurred in
connection with bringing the bankruptcy proceeding to a conclusion. See Note 3
to the Consolidated Financial Statements.
On August 11, 1992, the Company filed an action for declaration of rights
against the Ohio River Company ("ORCO") and SIMC in the U.S. District Court for
the Eastern District of Kentucky at Ashland. The action arose from a dispute
between the Company and ORCO concerning a transportation agreement for barge
transportation of coal being delivered to TVA pursuant to Contract T-1. In
connection with Marion's acquisition of SIMC, the Company assigned its rights
and obligations under the transportation agreement to SIMC. SIMC's performance
was guaranteed by the Company and SIMC apparently defaulted. The Company asked
the court to declare the rights of the parties in regard to the transportation
agreement. ORCO asserted counterclaims against both SIMC and the Company in the
action. These counterclaims sought unspecified damages for lost future profits
and damages from the Company for damages allegedly suffered by ORCO to date.
The Company estimates that SIMC may have been indebted to ORCO in the amount of
approximately $450,000 under the assigned transportation agreement, the
performance of which the Company guaranteed as noted above. ORCO and the
Company settled the dispute with a payment by the Company of $600,000 to ORCO in
the first quarter of 1994.
General. The Company believes that, generally speaking, utilities enter
long-term agreements in order to assure themselves of a supply of coal at a
predetermined price, thereby obtaining some protection from market price
fluctuation and establishing a dependable supply source. Typical contracts
between the Company and its customers give the customer various options to
increase or decrease quantities of coal to be delivered under the contract
within stated limitations, to advance or delay the delivery schedules to a
specified extent, and to modify or cancel contracts under certain circumstances.
Presumably, the Company's customers would exercise these options when it is
advantageous for them to do so, and the Company accepts the corresponding risk
that it may have to deliver coal to its customers at prices which are not then
advantageous to the Company. The benefits of these arrangements to the
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customer and the risks to the Company are somewhat mitigated by provisions,
described below, that call for adjustments in the purchase price of coal based
in most cases upon industry-wide or macro-economic factors (although changes in
these may not reflect actual changes in the Company's costs), and in some cases
upon specific costs incurred by the Company.
Certain of the Company's sales contracts with utilities have included price
adjustment provisions, subject to certain limitations, for changes in certain
production costs, as measured by specified indices or actual costs, which
generally include wage rates, costs of supplies, employee benefits, general and
administrative costs, taxes, environmental and safety legislation and royalties
to lessors. Generally, the contracts have provided that the customers have a
right to terminate their purchase obligations if applicable environmental
standards would prohibit the burning of the coal to be purchased. In addition,
the contracts have provided for suspension of deliveries upon the occurrence of
certain force majeure events (i.e., events outside the control of the parties)
as defined in the agreements. Moreover, certain of the contracts have required
that the coal to be delivered be mined and shipped from only approved sites,
which approval has been secured with respect to areas mined to date. In
addition, if the coal supplied is not timely delivered or fails to meet the
contract's specifications, the customer may suspend its acceptance of deliveries
until the Company furnishes reasonable assurances that the deficiency will be
corrected. If corrections are not made within a specified period, the customer
may terminate its contract. Moreover, certain of the contracts have permitted
the customers to demand that coal with a lower sulfur content be shipped under
the contract. The Company has been able to meet its contractual obligations
under its coal sales contracts in all material respects.
Contract Mining Operations
--------------------------
The Company continues to contract mine for third parties, using both
conventional surface mining methods and its highwall mining machines. During
1994, the Company engaged in various contract mining operations located in
Australia and the states of Kentucky, West Virginia, and Pennsylvania.
Generally, the Company's contract mining agreements provide that the
Company will operate as an independent contractor, mining coal from the third-
party's controlled reserves using the Company's equipment. The Company uses its
own and third-party employees from time to time. The third party pays the
Company an established price per ton of coal mined. The contracts require that
the coal to be delivered be mined from only approved sites. In addition,
certain of the contracts provide that the coal supplied must satisfy certain
quality and quantity contract specifications. Under certain of the agreements,
the Company must provide minimum tonnages and is responsible for the reclamation
of the land on which such services were performed.
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The Company has experienced difficulty in placing its highwall mining
machines into longer-term, profitable contract mining operations. The Company
has currently committed five highwall mining machines to its contract mining
operations. In February 1995, the Company suspended construction of additional
highwall mining machines. The Company is currently evaluating the construction
of additional machines, or refurbishment of existing machines, in light of its
contract mining opportunities.
Mining Technology Licensing Agreement
-------------------------------------
In June 1992, the Company entered into a 14-year exclusive licensing
agreement that permits Joy Technologies, Inc. ("Joy Technologies") to
manufacture and market a highwall mining system that the Company developed and
currently uses in its own mining operations. In accordance with the terms of
the agreement, Joy Technologies plans to market the system to mining companies
on the basis of a cost per ton of material mined by the system. If Joy
successfully markets the system, the Company will receive approximately $130,000
in origination fees for each of the first eight machines leased during the first
30 months of the agreement and approximately $255,000 in origination fees for
each machine leased thereafter, and a royalty based on tons of material mined by
these other mining companies. The agreement provides that Joy will charge a
lessee a minimum royalty per ton of material mined of $3.77, subject to
adjustment for inflation from the date of the agreement and increases in safety-
related expenses. The Company will receive 30% of the minimum royalty of $3.77
(as adjusted for inflation) and generally 50% of any part of such royalty
payments in excess of $3.77 (as adjusted for inflation) and increases in safety-
related expenses. During 1994 and 1993, Joy manufactured and leased one and two
highwall mining systems, respectively, to third-party coal companies. The
Company has indicated to Joy that Joy has not met the Company's anticipated
results for leases under the June 1992 agreement. Except for certain
preexisting obligations by the Company to sell up to five machines to third
parties, the Company will not manufacture highwall mining machines for transfer
to third parties in the future. In addition, the Company is permitted to
manufacture up to 16 highwall mining machines for its own use or for its use for
contract mining purposes on properties owned or controlled by third parties
(provided that no more than ten such machines may be in use at any one time for
such contract mining purposes).
Other Operations.
----------------
Metal Mining Operations. Through its subsidiary Addwest Minerals, Inc.,
the Company is currently engaged in the development of gold mining and
processing operations at Gold Road Mine in Mohave County, Arizona.
Following discovery in 1902, the Gold Road vein was extensively developed
and mined by previous mining operations. During 1994, following the receipt
from the Arizona Department of
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Environmental Quality of air quality and aquifer permits, the Company
constructed a surface and underground mine facility. Through December 31, 1994,
the Company spent approximately $15.2 million on reserve development and
exploration of the Gold Road project and the development of its refining
operations.
Mining of gold began in mid-December 1994. The Company had expected that
the project would be producing gold on a commercial basis and would have
completed its development stage by the end of the first quarter of 1995. During
the project's start-up phase, the Company has experienced lower than anticipated
ore grade from its mining operations. The Company has also experienced certain
equipment problems and difficulty in hiring experienced underground miners. The
lower-than-expected ore grades and start-up problems have resulted in higher
than expected costs of production.
During the first quarter of 1995, the Company has reviewed its gold
operations and made certain adjustments to its mining plan to increase the ore
grades. Although the Company expects the project will be profitable, there are
no assurances that the ore grade will increase and that production will reach
profitable levels. Following the revisions to the mining plan, the Company
expects that the project will complete its development start-up stage by the end
of the second quarter of 1995.
The economic feasibility of the Company's gold mining operations is
significantly affected by the market price of gold. The market price of gold
can fluctuate widely and is affected by numerous factors beyond the Company's
control, including industrial and jewelry demand, the strength of the dollar and
of other currencies, interest rates, expectations with respect to the inflation
rate, global or regional political or economic events, and production costs in
major gold-producing regions of the world. If the Company's costs of production
exceed the market price of gold, the Company could determine that it is not
economically feasible to engage in commercial production at its operations. The
Company has purchased certain derivative financial instruments in connection
with its gold operations. See Note 22 to the Consolidated Financial
Statements.
The Company is also considering the development of other industrial metal
mining projects, including a nepheline syenite project at Wind Mountain in Otero
County, New Mexico and gold and copper mining in the Golden Zone in the
Matanuska-Susitua Borough of South Central Alaska about 140 miles north of
Anchorage. Nepheline syenite, because of its durability, low melting point and
fluxing capability, is suitable for a large number of applications, including
roofing materials and sand blast media. The mineability and economics of these
projects have yet to be determined. As of December 31, 1994, the Company has
invested approximately $2.5 million in these other industrial metal mining
ventures.
Citrus Operations. In 1990, the Company purchased a Belizian corporation
owning approximately 4,616 acres of citrus farm property
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in Belize for $1,250,000. The Company had planned to continue the citrus
operations on the Belizian property through its subsidiaries, Belize River Fruit
Co. and Barton Creek Farm Limited. As of December 31, 1994, the Company has
invested $13.4 million in its citrus operations. During 1994, the Company
determined to place the citrus operations for sale and is currently evaluating
their market value. The Company does not expect to recognize a loss on the sale.
Limestone Mining Operations. To increase utilization of the Company's
experience in moving materials and reclaiming land, the Company explored the
opportunities to expand into the mining of limestone in western Kentucky through
its subsidiary, New River Lime, Inc. Limestone is used in the production of
flue gas desulfurization systems for electric utilities. Following the
Company's evaluation of these opportunities, the Company determined that it
would no longer pursue the development of its limestone assets and wrote off the
Company's $3.4 million investment during 1994.
Construction Projects. In the latter half of 1987 the Company began
bidding on several highway construction contracts in Kentucky. During July
1991, the Company sold the wholly owned subsidiary through which it conducted
its highway construction operations. In connection with the sale, Larry
Addington and the Company agreed not to compete with the following operations of
the purchaser until July 19, 1996, subject to certain geographical limitations:
highway construction, grading, excavating and earth-moving (other than in
connection with coal mining and sanitary waste disposal), asphalt production or
the laying of asphalt, or limestone quarry operations. Except with respect to
the limestone quarry operations, the covenant not to compete generally applies
to operations in central and eastern Kentucky. The covenant not to compete with
respect to limestone quarry operations applies to Buchanan County, Virginia,
Mingo and Logan Counties, West Virginia and five counties in far eastern
Kentucky.
Sulfur Mining Operations. The Company has determined to terminate its
efforts to mine sulfur in west Texas. During 1993, the Company wrote off its
investment of approximately $9,384,000 in connection with this termination.
Expansion Policy
----------------
The Company continuously evaluates the acquisition of additional coal sales
contracts, contract mining opportunities, and coal and gold reserves, and may
consider acquiring other coal related companies. The Company is constantly
pursuing additional landfill facilities through acquisitions, privatization of
municipally owned facilities, as well as start-up facilities. There are no
assurances that should such opportunities arise, the Company will be successful
in making an acquisition or of profitably operating the acquisition.
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Administrative Offices and Equipment
------------------------------------
The Company maintains administrative offices in Ashland, Lexington and
Owensboro, Kentucky. The Company also maintains small operations offices in
Colorado and Belize. In addition, the Company currently leases much of the
equipment used in its mining operations, such as bulldozers, scrapers, graders,
loaders, drills, continuous miners and trucks. In the opinion of management,
the Company's offices and equipment are adequate and suitable for its current
operations.
Employees
---------
At March 15, 1995, the Company employed approximately 848 people. None of
the Company's employees are represented by a labor union, and management
believes that its relations with its employees are good. The Company has been
subject to limited union organizing efforts in the past, but such efforts were
not successful. The Company cannot predict whether there will be any such
activities in the future. Unionization could adversely affect the Company's
costs.
Competition
-----------
The coal industry is highly competitive, and the Company competes
(principally in price and quality of coal) with many other coal producers, many
of whom are substantially larger and have greater financial resources than the
Company. Most long-term supply agreements and even spot market orders are the
result of competitive bidding. In recent years, moreover, the coal industry has
been characterized by stable or declining prices and minimal growth, which has
increased competitive pressures in the industry, and prices for coal sold on the
spot market by the Company have generally declined. The Company believes it can
compete effectively in the coal industry for many reasons, including its
efficient labor force, the location and price of its coal reserves and its
mining methods.
A continued demand for the Company's coal will depend on market and other
factors beyond the Company's control, including the overall demand for coal of
the types and qualities produced by the Company, the Company's ability to
maintain control of sufficient reserves of the type and quality required by the
market, the availability and price of, and regulations regarding, competing coal
and alternative fuels, such as oil, natural gas or nuclear power and the cost of
transporting the Company's coal. In this regard, production of electricity
through additional nuclear power facilities by a customer of the Company may
reduce such customer's demand for the Company's coal.
Solid waste management is a very competitive business which requires
substantial investment in labor and capital resources. The sources of
competition vary by locality and by the type of services provided, and originate
from national, regional and local
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companies. Several national waste management companies are much larger and have
far greater resources than the Company. The Company also competes with
municipalities and industrial facilities which provide their own waste hauling
and disposal services. Disposal operations compete primarily on the basis of
proximity to collection and hauling operations and on the basis of price. The
Company anticipates that competition in the disposal business will increasingly
include an emphasis on safeguards with respect to the environment, and intends
to continue its policy of constructing and operating landfills with high levels
of environmental protection and monitoring. Incineration and other waste
reduction processes are also sources of competition. However, the Company
believes that its contained landfill operations can complement certain of these
processes, in that landfills serve as receptacles for incinerating trash and
nonprocessable material.
Government Regulation of Coal Operations
----------------------------------------
Mining-Related Permits. Various permits must be obtained before mining
operations are commenced. The Company believes it has obtained all permits
necessary to conduct its present mining operations. The Company believes that,
upon filing of the required information with the appropriate regulatory
agencies, it will not encounter substantial difficulty obtaining or renewing
necessary permits in the future.
Regulations Affecting Coal Mining Operations-Environmental, Health and
Safety Matters. Coal mining is subject to regulation by various federal, state
and local authorities with respect to its effect upon the environment. Areas
regulated include air and water quality control, limitations on land use, solid
waste disposal, noise levels, aesthetic considerations and other matters. The
federal Surface Mining Control and Reclamation Act of 1977 (the "Reclamation
Act") was enacted to regulate the surface mining of coal and the surface effects
of underground mining. The Reclamation Act, among other things, requires that
mined property be restored to its original condition in accordance with
specified standards and an approved reclamation plan. Kentucky has enacted
legislation regulating surface and deep mining that establish reclamation and
environmental standards for coal mining operations which correspond to those
found in the Reclamation Act. Kentucky is charged with enforcing these state
laws and with enforcing, subject to federal oversight, the provisions of the
Reclamation Act in Kentucky.
Federal and state legislation controlling air pollution indirectly affects
the demand for certain kinds of coal by limiting the amount of sulfur dioxide
(believed to be the cause of "acid rain") which may be emitted as a result of
fuel combustion, thereby creating a greater demand for low sulfur coal. In
addition, mining operations are directly affected by regulation of emissions at
the mine sites. The federal Clean Air Act was amended in 1990 with a goal of
reducing the adverse effects of acid deposition through reductions in annual
emissions of sulfur dioxide by 10,000,000 tons
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<PAGE>
from 1980 emission levels and reductions in annual emissions of nitrogen oxides
by 2,000,000 tons from 1980 emission levels. The amendments establish a system
in which the U.S. Environmental Protection Agency issues allowances to fossil
fuel-fired utilities. The allowances will limit sulfur dioxide emissions from
utilities to 8,900,000 tons annually by 2000. The amendments also establish
civil penalties for excess emissions from utilities. The Company is unable to
predict what effect passage of the legislation will have on its operating
results. Certain of the Company's contracts in the past have provided
cancellation rights to the purchaser if any governmental standards or
regulations are enacted which prohibit the purchase of coal under such contracts
or make the purchase of coal under such contracts commercially unfeasible.
The Federal Water Pollution Control Act (the "Clean Water Act") affects
coal mining operations by: imposing effluent discharge restrictions on
pollutants discharged into waters; imposing regular monitoring and reporting
requirements; requiring the issuance and renewal of permits for the discharge of
pollutants into waters; and imposing performance standards as a requirement for
the issuance of permits. In addition, Kentucky has enacted state legislation
regulating the water pollution effects of coal mining operations. Kentucky is
charged with enforcing these state laws and with enforcing, subject to federal
oversight, the Clean Water Act in Kentucky.
The Federal Mine Safety and Health Act of 1977 imposes strict health and
safety standards on all mining operations. Regulations are comprehensive and
affect numerous aspects of mining operations, including the proper training of
mine personnel, mining procedures, blasting, the equipment used in mining
operations and other matters. The Black Lung Benefits Reform Act of 1977
requires each coal mine operator to secure payment of federal and state black
lung benefits to its employees through insurance, bonds or contributions to a
state controlled fund. The act also establishes a trust fund for payment of
benefits and medical expenses to employees for whom benefits have not been
obtained by their employer. This trust fund is financed by a tax on coal.
Kentucky also regulates mining safety issues on a state level.
Under certain circumstances, substantial fines and penalties, including
revocation of mining permits, may be imposed under the laws described above.
Monetary and, in severe circumstances, criminal sanctions may be imposed for
failure to comply with these laws. Regulations also provide that a mining
permit can be refused or revoked if an officer, director or a shareholder with a
10% or greater interest in the entity is affiliated with another entity which
has outstanding permit violations. Although the Company has been cited for
isolated violations, the Company and its subsidiaries have never had a permit
suspended or revoked because of any violation by the Company, its subsidiaries
or any affiliates of the Company.
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<PAGE>
Compliance with Regulatory Requirements. The Company endeavors to conduct
its mining operations in compliance with all applicable federal, state and local
laws and regulations. However, because of the extensive and comprehensive
regulatory requirements, minor, inadvertent violations during mining operations
are not unusual, and although the Company has no intention to commit and seeks
to prevent the incurrence of any infractions, the Company might have violations
in the future. The Company believes its compliance record compares favorably
with that of other coal mining companies.
The Company believes that its continued compliance with regulatory
standards will not substantially affect its ability to compete with similarly
situated coal mining companies. The cost of compliance, however, does increase
the cost of mining coal and to this extent makes coal less competitive with
alternative fuels. While the Company is not aware of any pending or proposed
legislation or regulatory action, except as discussed above with respect to acid
rain, the possibility exists that new legislation may be enacted or new
regulations adopted which will have the effect of increasing the cost of mining
coal.
Government Regulation of Environmental Operations
-------------------------------------------------
General Regulatory Process. The Company and the waste services industry in
general are subject to extensive, expansive and evolving regulation by federal,
state and local authorities. In particular, the regulatory process requires
firms in the industry to retain and obtain numerous governmental permits to
conduct various aspects of their operations, any of which may be subject to
revocation, modification or denial. The continually shifting policies and
attitudes of the regulatory agencies relating to the industry may impact the
Company's ability to obtain applicable permits from governmental authorities on
a timely basis and to retain such permits. The Company is not in a position to
assess the extent of any such impact, but it could be significant.
State and local governments have also from time to time proposed or adopted
other types of laws, regulations or initiatives with respect to the
environmental services industry. Included among these are laws, regulations and
initiatives to ban or restrict the interstate or inter-county shipment of
wastes, impose higher taxes on out-of-state waste shipments than in-state
shipments, require solid waste to be delivered to a particular facility, and
regulate disposal facilities as public utilities.
The Company makes a continuing effort to anticipate regulatory, political
and legal developments that might affect operations, but cannot predict the
extent to which any legislation or regulation that may be enacted or enforced in
the future may affect its operations.
Permits issued by state regulatory agencies are required before a landfill
may be constructed and operated. Permits need to
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<PAGE>
be renewed periodically and may be subject to revocation, modification, denial
or non-renewal for various reasons, including failure of the Company to satisfy
regulatory concerns. In the solid waste collection phase, regulation takes such
forms as licensing of collection vehicles, truck safety requirements, vehicular
weight limitations and, in certain localities, limitations on rates, area and
time and frequency of collection. In the solid waste disposal phase, regulation
covers various matters, including gas emission, liquid runoff and rodent, pest,
litter and traffic control. Zoning and land use requirements and limitations are
encountered in the solid waste collection and disposal phases of the Company's
business. In addition, the Company's operations may be subject to water
pollution laws and regulations; air and noise pollution laws and regulations;
and safety standards under the Occupational Safety and Health Act ("OSHA").
Governmental authorities have the power to enforce compliance with these various
laws and regulations and violators are subject to injunctions, fines and
revocation of permits. Private individuals may also have the right to sue to
enforce compliance.
Regulatory or technological developments relating to the environment may
require the Company (as well as others in the solid waste management business)
to modify, supplement or replace equipment and facilities at costs which may be
substantial.
Although the Company intends to conduct its operations in compliance with
applicable laws and regulations, the Company believes that heightened political
and citizen sensitivity causes companies in the solid waste management industry
to be faced, in the normal course of operating their businesses, with the
possibility of expending funds for fines, penalties and environmental
compliance. The Company believes its compliance record compares favorably with
that of other solid waste companies.
Permitting and Construction Process. The Company is required to obtain
construction and operating permits when it designs and constructs new landfills.
When appropriate, the Company intends to pursue obtaining permits for expansion
and/or modification of its existing landfills or landfills which may be acquired
in the future. Permit expansions and modifications generally take the form of
vertical expansions of existing disposal capacity, lateral expansions of
permitted disposal acreage, or modifications of operating restrictions to allow
increased disposal volume or additional waste streams.
Although the permitting process varies from state to state, the following
summary sets forth the typical steps in the permitting process.
In most instances, some form of local zoning or planning approval, commonly
referred to as siting approval, is required to permit a site and may be required
to expand or modify a landfill. Particularly in urban areas, this process often
requires complying
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with city or county zoning regulations through a separate application process to
a zoning or planning board. An applicant generally files various reports and
drawings which describe the project and public hearings are held. Frequently,
community opposition will be present and many local zoning or planning
authorities may consider community opposition in deciding whether to grant
siting approval. Following hearings, a decision is made. Generally, both the
applicant and any opposition have the right to appeal such decision. Although
not always required, the local approval process is usually completed before
applying for a state permit.
Upon receipt of local approval, an applicant must then submit detailed
construction and operating plans for state approval. Most states require an
applicant to evidence that a new, modified or expanded facility will meet or
exceed state regulations regarding disposal facility siting and design
specifications. States generally consider the technical merits of an
application, particularly such matters as geology, hydrogeology, ecology,
archaeology, soil characteristics, surface drainage, the presence of, or
location relative to, airports, wetlands and local water supply systems and the
adequacy of local road systems.
Engineering consultants design the project to meet state regulations and
standards. This design is reviewed by state officials, comments are issued and,
possibly after negotiations between the applicant and the state officials,
revisions are made by the applicant. Once the design is approved, public notice
is given and frequently a hearing held. Both the applicant and any opposition
generally have the right to appeal the decision.
Resource Conservation and Recovery Act ("RCRA"). RCRA regulates the
generation, treatment, storage, handling, transportation and disposal of
hazardous and solid waste and requires states to develop programs to insure the
safe disposal of solid waste in sanitary landfills. RCRA divides solid waste
into two groups, hazardous and nonhazardous. Wastes are generally classified as
hazardous wastes if they: (i) either (a) are specifically included on a list of
hazardous wastes or (b) exhibit certain characteristics; and (ii) are not
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous. Among the wastes that are specifically designated as nonhazardous
waste are household waste and various types of special waste. These wastes,
which will be accepted at the Company's landfills, may contain incidental
hazardous substances.
On October 9, 1991, the EPA promulgated new regulations pursuant to
Subtitle D of RCRA. These new regulations include location standards, facility
design standards, operating criteria, closure and post-closure requirements,
financial assurance standards and groundwater monitoring requirements as well as
corrective action standards, all of which have not previously been uniformly
applied at landfills within the fifty states. In
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addition, the new regulations require landfills constructed or expanded after
October 9, 1993, to have one or more liners (typically high-density polyethylene
liners) to keep leachate out of groundwater and have extensive systems to
collect leachate for handling and treatment. In addition, by October 9, 1996,
groundwater wells must also be installed at virtually all landfills to monitor
groundwater quality and the leachate collection system operation. The
regulations also require (where threshold test levels are met) that methane gas
generated at landfills be controlled in a manner that will protect human health
and the environment. Because some states have already adopted regulations at
least as stringent as the new federal regulations, the new Subtitle D
regulations will cause greater changes in the landfill regulation of certain
states than of others.
The Federal Water Pollution Control Act ("Clean Water Act"). The Clean
Water Act established rules regulating the discharge of pollutants from a
variety of sources, including solid waste disposal sites, into waters of the
United States. For any discharge, the Clean Water Act would require the Company
to apply for and obtain a discharge permit, conduct sampling and monitoring and,
under certain circumstances, reduce the quantity of pollutants in those
discharges. Also, virtually all landfills are required to comply with the new
federal storm water regulations, which are designed to prevent possibly
contaminated storm water from flowing into surface waters.
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). CERCLA addresses problems created by the release of any hazardous
substance into the environment. CERCLA's primary mechanism for remedying such
problems is to impose strict joint and several liability for cleanup of
facilities among all past owners and operators of the site at the time of
disposal and current owners and operators of the site as well as the generators
and the transporters who arranged for disposal and transportation of hazardous
substances. The costs of CERCLA cleanup can be very substantial. Liability
under CERCLA does not depend upon the existence or disposal of "hazardous waste"
but can also be founded upon the existence of even very small amounts of the
more than 1,000 "hazardous substances" listed by the EPA.
The Clean Air Act ("Clean Air Act"). The Clean Air Act provides for
federal, state and local regulation of the emission of air pollutants and is
applicable to landfills. The EPA has proposed new source performance standards
regulating overall air emissions from solid waste landfills. The EPA may also
issue regulations controlling the emissions of particular air pollutants from
solid waste landfills. Moreover, landfills located in areas with air pollution
problems may be subject to even more extensive air pollution controls.
State and Local Regulations. All states have laws and regulations
governing the generation, handling, transfer, transportation and disposal of
solid waste, water and air pollution
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<PAGE>
and the design, operation, maintenance, closure and post-closure maintenance of
landfills.
Most states have already tightened, or are in the process of tightening,
the regulatory requirements on the permitting of new and expanded solid waste
facilities and on the continued operation of existing facilities. As Subtitle D
takes effect, state regulations are expected to become both more stringent and
more uniform nationwide. The increased stringency of state regulations may be
expected to benefit the Company, as older landfills are forced to close.
However, the increasing state and local scrutiny of landfills also makes it more
difficult for the Company to comply with the continually evolving and expensive
regulations applicable to the disposal of solid waste.
Environmental Liability Insurance. The Company has obtained and currently
maintains environmental impairment liability insurance coverage in the amount of
$5,000,000 each occurrence, $10,000,000 aggregate, for certain environmental
risks arising from the operation of landfill facilities. The environmental
impairment liability insurance coverage is specific in qualification and premium
cost to each landfill facility through pre-issuance inspections. If an
environmental impairment exceeds the loss coverage, the Company's financial
condition could be adversely affected. Currently, it is management's opinion
that the premium charge for its coverage from commercial insurance underwriters
is reasonable and appropriate. Assuming the Company's environmental operations
expand, certain economies of scale may be available to the Company to pursue
alternative risk management policies or programs apart from the general
commercial insurance underwriters.
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Item 2. Properties.
----------
Coal Resources
--------------
The Company currently operates four active mines, all of which are in the
Pike County Area (located in Pike County, Kentucky). The Job 17A mine, which
began production in September 1993, produced an average of 55,000 tons of coal
per month during 1994. The Ivy Creek mine, which began production in 1986,
produced an average of 50,000 tons of coal per month in 1994. The Crooked Fork
Mine, which began production in July 1994, is expected to produce approximately
100,000 tons per month. The Flag Knob Mine, which began production in November
1994, is expected to produce approximately 60,000 tons per month. Each of these
four mines has a production capability of up to approximately 100,000 tons of
coal per month and produces high quality low-sulfur coal. In addition, the Job
17 mine, which began production in 1986, produced an average of 43,000 tons of
coal per month during 1994 until its closure in November 1994. The Ivy-H mine,
which began production in June 1993, produced an average of 23,000 tons of coal
per month during 1994 until its closure in June 1994.
As of December 31, 1994, the Company owned in fee approximately 23,280
acres and controlled, primarily through short-term leases and contract mining
agreements, an additional 33,140 acres of reserves in eastern Kentucky. In
western Kentucky, the Company leased as of December 31, 1994, approximately
4,000 acres of reserves, and owned in fee approximately 354 acres.
Approximately 51% of the Company's Kentucky coal reserves are low-sulfur
compliance reserves.
During 1994, the Company also acquired approximately 100,000 acres of land
and associated mineral reserves in Tennessee for approximately $2,000,000,
including the assumption of certain obligations. The exploration of coal
reserves has been limited on these tracts. The Company estimates that
approximately 8,500,000 tons of coal reserves would be classified as "Measured"
in the tables below. The Company intends to evaluate the reserves during 1995
and expects that substantial reserves will ultimately be classified as
"Measured."
The table below sets forth (in thousands of tons) estimated minimum surface
minable coal reserves, recoverable and marketable, as of December 31, 1994.
Since the completion of the reserve studies upon which the estimates are based,
some leases have expired, and the Company has acquired control of additional
properties. Mining has also occurred in most of the areas, and the information
has been adjusted to reflect estimated production in each area since the dates
of the respective studies. The Company believes that despite its mining
activity and the expiration of some leases in the areas covered by reserve
studies, the estimates of aggregate minimum surface minable remain accurate in
all material respects.
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<PAGE>
Reserve studies are estimates based on an evaluation of available data, and
actual reserves may vary substantially from the estimates. Estimated minimum
surface minable reserves are comprised of coal that is considered to be
merchantable and economically recoverable by using surface mining practices and
techniques prevalent in the coal industry at the time of the reserve study.
While the Company has historically used surface mining in almost all of its
operations, deep mining may be considered where it would be more profitable than
surface mining in the Company's judgment. The Company believes that it can
recover a greater proportion of the coal reserves in certain areas through
surface mining than is shown in the table below. The Company believes its
current reserves exceed its current contractual requirements even if limited to
recovery only by current surface mining recovery methods. In this regard, the
reserves shown in the table below include a variety of qualities of coal. Where
appropriate, the Company has blended coal of different qualities to meet
contract specifications.
A substantial part of the reserves currently available to the Company are
represented by leases which expire after a stated number of years. Most of the
leases give the Company renewal options, which are usually subject to the
condition that mining has commenced on or near the leased property. Most of the
leases require various payments in order to maintain the lease if mining has not
begun on the property. The Company believes that it has conducted mining
activities and made payments to obtain renewal rights with regard to lease
properties covering reserves which, when added to reserves owned in fee by the
Company, are sufficient to satisfy its current requirements under long-term
contracts. However, the availability of reserves on other leased property at
the present time does not assure the Company that the reserves will be available
at a time that the Company may wish to mine such reserves. Moreover, the
availability of reserves on leased property is often subject to uncertainties
relating to such matters as the title of the lessor to the coal and precise
boundaries. See Item 2. Properties-Controlled Reserves.
- 27 -
<PAGE>
<TABLE>
<CAPTION>
Minimum Surface
Demonstrated Mining
Recoverable Permitted
Reserves(1) Measured(2) Indicated(2) Type(3) Reserves(2)
--------------- ----------- ------------ -------- ------------
(in thousands of tons)
Kentucky Mining
Property(4)
--------------------
<S> <C> <C> <C> <C> <C>
Princess Area 5,732 2,333 3,399 Steam 500
Pike County Area 20,820 10,820 10,000 Steam 13,000
Licking River Area 4,630 1,104 3,526 Steam -0-
South Hill Area 660 660 -0- Steam 660
Hopkins Co. Area 5,795 5,795 -0- Steam 3,500
------ ------ ------ ------
Total 37,637 20,712 16,925 17,660
====== ====== ====== ======
</TABLE>
(1) All minable reserves are categorized as "Demonstrated Recoverable."
Minimum Demonstrated Recoverable Reserves is the sum of Measured and
Indicated Reserves.
(2) "Measured" reserves represent the portion of total reserve estimates which,
in the opinion of the Company, is substantiated by adequate information,
including that derived from exploration, current and previous mining
operations, outcrop data and knowledge of mining conditions. "Indicated"
reserves are computed from information of a more preliminary or limited
extent. The divisions into these two categories are based upon the general
guidelines of the U.S. Geological Survey and judgments related to a
combination of factors. The Company believes that the division is a
reasonably close estimate of the general order of relative tonnages
involved. The figures listed above reflect a 90% recovery factor that has
been applied to in-place surface minable reserves. Recovery factors for
deep-minable reserves are 65% of the in-place tonnage, except for two coal
seams which use 55% of in-place tonnage. "Surface Mining Permitted
Reserves" are reserves which are approved for surface mining by having met
conditions of the local, state and federal regulatory agencies for active
disturbance of the reserves and the extraction of the mineral. Such
approval under the Surface Coal Mining and Reclamation Act of 1977 is a
prerequisite to production and marketing of the coal. This permit process
varies from state to state; however, a 12 to 18 month time period is normal
for the process in states in which the Company holds reserves.
(3) All reserves controlled by the Company are listed as "Steam" because of the
quality characteristics and because current contracts are with electric
utilities.
(4) The Princess Area properties are located in Boyd, Carter and Greenup
Counties, Kentucky. The Pike County Area properties are located in Floyd,
Martin and Pike Counties, Kentucky. The Licking River Area is located in
Elliott and Lawrence Counties, Kentucky. The South Hill Area is located in
Butler County, Kentucky. The Hopkins County Area is located in Hopkins
County, Kentucky.
- 28 -
<PAGE>
The extent to which the Company's coal resources will be mined will depend
upon factors over which it has no control, such as future economic conditions,
the price and demand for coal of the quality and type controlled by the Company,
the price and supply of alternative fuels and future mining practices and
regulation. The ability of the Company to mine in areas covered by the reserve
studies depends upon the ability of the Company to maintain control of the
reserves (other than the properties owned in fee) through extensions or renewals
of the leases or other agreements or the ability of the Company to obtain new
leases or agreements for other reserves.
Controlled Reserves
-------------------
The Company has and plans to continue an active leasing and acquisition
program to augment the reserves it controls, particularly in areas where it is
currently operating. To date, the Company has not experienced any material
difficulty in acquiring leases or the right to mine in areas where it has
operations or in which it plans to commence mining in the future.
Generally, the Company's leases for its coal reserves are for an initial
term, usually of five years. Most of the leases contain an option to renew on
the part of the Company, with exercise of the option usually subject to the
condition that mining shall have commenced on (or, as specified in some leases,
near) the leased property. Most of the leases require the payment of some
amount of advance royalties or delay rentals (payments to keep the lease in
force if mining has not commenced) on a periodic basis during each year if
mining has not begun on the property. After mining commences, the leases
generally require the payment of a royalty based on the tonnage mined and sold.
The Company's average royalty expense for the year ended December 31, 1994 on
reserves was $3.15 per ton.
Notwithstanding the probable loss of some of its mining rights under its
current and future leases due to their expiration, the Company believes that it
can maintain or acquire sufficient reserves to enable it to fulfill all of its
obligations under its sales contracts and, if it so chooses, sell additional
amounts of coal on the spot market.
Some of the Company's reserves are owned in fee or are on land owned in fee
by the Company, and the balance of its reserves are on land leased or otherwise
controlled by the Company. Most of the Company's leases describe the leased
property in general terms, and these descriptions are usually not based on
actual surveys or boundaries which are otherwise precisely identified.
Moreover, because of the short-term nature of its leases and because of the
expense involved, the Company does not have title to the leases reviewed by
attorneys or other qualified title examiners. As to title to properties
acquired by the Company, the Company has relied on the assurances of the parties
from whom the properties were acquired, rather than on current title
examinations. As to
- 29 -
<PAGE>
properties the Company leases, a limited title investigation and, to the extent
possible, a determination of the precise boundaries of a property is made in
most cases only as a part of the process of securing a mining permit shortly
before commencement of mining operations. The Company believes that its
practices in investigating title and determining boundaries to the properties it
owns, leases or otherwise controls are consistent with customary industry
practices in Kentucky and that such practices are adequate to enable it to
acquire the right to mine such properties.
Metal Mining Operations
-----------------------
The Company is currently engaged in the development of gold mining and
processing operations at Gold Road in Mohave County, Arizona. The Company's
property consists of 2,145 acres owned in fee of patented and unpatented mining
claims. The Gold Road mine produced gold from its discovery in 1902 until its
closure in 1942. During 1994, the Company built a mill capable of continuous
processing at an average rate of 500 tons of ore per day.
The vein on which the mine sits has previously produced ore over 60 percent
of its length. Based upon the production history of the Gold Road Mine,
underground samplings, and the continuity of mineralization displayed in
underground workings, the Company estimates that the Gold Road Mine has proven
and probable minable reserves at a $375 per ounce of gold price totaling between
464,668 and 517,937 tons of ore with an average grade of 0.302 to 0.318 ounces
of gold per ton containing between 147,716 and 156,398 ounces of gold. Adjusted
for losses due to mining and processing, a total of 138,277 to 147,264 ounces of
gold are estimated to be recoverable. The previous owners of the Gold Road
property retain rights to an aggregate royalty of 3.5% of the proceeds received
by the Company from the sale of precious metals, ores, or concentrates from the
property.
The term "proven reserves" means reserves for which (i) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes; (ii) grade and/or quality are computed from the result of detailed
sampling; and (iii) the sites for inspection, sampling and measurements are
spaced so closely and the geologic character is sufficiently defined that size,
shape, depth and mineral content of reserves are well established. The term
"probable reserves" means reserves for which quantity and grade are computed
from information similar to that used for proven reserves but the sites for
sampling are further apart or are otherwise less adequately spaced. The degree
of assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation. Reserve studies are estimates
based on an evaluation of available data, and actual reserves may vary
substantially from the estimates.
- 30 -
<PAGE>
Landfill Operations
-------------------
The table below sets forth certain information as of December 31, 1994 with
respect to the Company's nine operating landfills. The Company constructs its
landfills in a series of landfill cells as additional airspace is needed to
accommodate customer demand.
<TABLE>
<CAPTION>
REMAINING WASTE
CAPACITY REMAINING TOTAL FOOTPRINT/2/
LANDFILL (CUBIC YARDS) LIFE/1/ ACRES (ACRES)
-------- ------------- --------- ----- ----------
<S> <C> <C> <C> <C>
Ohio County Landfill 19,779,497 63 years 908 178
Epperson Landfill 11,585,638 70 years 408 100
Green Valley Landfill 3,015,275 12 years 1,665 37
Tri-K Landfill 7,846,427 42 years 318 81
Dozit Landfill 6,240,974 51 years 224 47
East Carolina Landfill 9,583,441 25 years 504 103
Uwharrie Landfill 6,300,640 25 years 696 91
Broadhurst Landfill 9,610,000 43 years 901 80
Mid-State Landfill/3/ 6,583,335 27 years 268 82
</TABLE>
_____________________
/1/ Determined by dividing average daily volume into remaining capacity.
/2/ Maximum acreage permitted for actual waste disposal area.
/3/ Includes information from recently issued solid waste permit which is
currently under appeal.
In January 1995, the Company commenced operation of a landfill owned by
Pinellas County, Florida. The landfill is operated by the Company pursuant to a
5-year agreement with two 2-year extensions at the option of the County and
contractor. The Company believes that the landfill has remaining capacity in
excess of the amount needed during the term of the 5-year agreement.
Item 3. Legal Proceedings.
-----------------
The Company is named as defendant in various actions in the ordinary course
of its business. These actions generally involve such matters as disputes
related to contract performance, property boundaries, mining rights, blasting
damage, personal injuries, and royalty payments, as well as other civil actions.
The Company believes these proceedings are incidental to its business and are
not likely to result in adverse judgments which are material to the results of
operations and financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
- 31 -
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters.
----------------------------------------
The Company's Common Stock trades on the Nasdaq National Market System
(symbol-ADDR). The table below sets forth the high and low sales prices as
reported on Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1993
First Quarter $16 3/4 $12 1/4
Second Quarter 16 3/4 12 1/4
Third Quarter 18 1/4 14
Fourth Quarter 20 15 3/4
1994
First Quarter $19 3/4 $14
Second Quarter 17 3/4 13 1/2
Third Quarter 16 3/4 12 3/4
Fourth Quarter 13 1/2 8
</TABLE>
On March 27, 1995, the closing price of the Company's Common Stock on the
Nasdaq National Market System was $9.50 per share. At March 27, 1995, the
Company's Common Stock was held by approximately 1,500 stockholders of record or
through nominee or street name accounts with brokers.
Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. The Company has not paid any dividends since its initial public
offering and anticipates that, for the foreseeable future, it will follow a
policy of retaining earnings to finance expansion and development of its
business.
The Company currently has certain financing arrangements which contain
certain restrictive covenants which, among others, limit the amount of dividends
that the Company can pay, limit its ability to incur additional indebtedness,
require an as-defined minimum tangible net worth, require a minimum current
ratio, and limit the ability of certain subsidiaries to pay cash dividends to
the Company. See Note 11 to the Consolidated Financial Statements.
- 32 -
<PAGE>
Item 6. Selected Financial Information
------------------------------
The following selected financial information of the Company for each of the
five years in the period ended December 31, 1994 are derived from the
Consolidated Financial Statements of the Company. The selected financial
information should be read in conjunction with the Consolidated Financial
Statements and the notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
Income Statement Data: 1990 1991 1992 1993 1994
--------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Revenues:
Mining $265,582 $271,808 $292,225 $358,957 $113,824
Environmental 298 1,868 7,779 24,929 36,057
Other 3,581 1,579 1,470 261 1,275
-------- -------- -------- -------- --------
Total revenues 269,461 275,255 301,474 384,147 151,156
-------- -------- -------- -------- --------
Costs and expenses:
Cost of operations 205,981 222,726 236,854 313,952 120,133
Provision for asset writedowns - - - 14,506 6,024
Depreciation and amortization 25,658 29,740 25,111 29,939 8,776
Selling, general and
administrative 22,736 23,409 21,274 22,302 13,141
-------- -------- -------- -------- --------
Total costs and expenses 254,375 275,875 283,239 380,699 148,074
-------- -------- -------- -------- --------
Income (loss) from operations 15,086 (620) 18,235 3,448 3,082
-------- -------- -------- -------- --------
Interest and other income
(expense):
Interest expense (16,160) (14,446) (13,483) (16,578) (623)
Interest income 4,943 2,365 791 649 786
Gain on sale of assets 107 1,840 4,285 630 166
Gain (loss) on sale of 15,887 500 10,544 - (6,157)
subsidiaries
Litigation Settlement - - (5,100) (4,050) -
Other, net 136 36 1,052 (5,705) (8,172)
-------- -------- -------- -------- --------
Total interest and other income
(expense) 4,913 (9,705) (1,911) (25,054) (14,000)
-------- -------- -------- -------- --------
Income (loss) before income tax
provision (benefit) and
cumulative effect of a change
in accounting principle 19,999 (10,325) 16,324 (21,606) (10,918)
Income tax provision (benefit) 5,900 (4,139) 5,288 (5,417) (3,784)
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of a change in
accounting principle 14,099 (6,186) 11,036 (16,189) (7,134)
Cumulative effect of a change
in accounting for income
taxes - (3,500) - - -
-------- -------- -------- -------- --------
Net income (loss) $ 14,099 $ (9,686) $ 11,036 $(16,189) $ (7,134)
======== ======== ======== ======== ========
Primary net income (loss) per
share before cumulative
effect of a change in
accounting principle $ .93 $ (.41) $ .72 $ (1.04) $ (.45)
Cumulative effect of a change
in accounting for income
taxes - (.23) - - -
-------- -------- -------- -------- --------
Primary net income (loss)
per share $ .93 $ (.64) $ .72 $ (1.04) $ (.45)
======== ======== ======== ======== ========
Tons of coal sold 8,165 8,220 8,815 11,182 3,883
-------- -------- -------- -------- --------
</TABLE>
- 33 -
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
Balance Sheet Data 1990 1991 1992 1993 1994
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands)
Working capital $ 42,591 $ 10,640 $ 36,575 $ 11,417 $ 81
Total assets 337,408 332,416 339,024 315,658 223,081
Short-term obligations 21,209 30,816 26,371 149,670 11,457
Long-term debt, net of current portion 143,998 135,153 128,232 11,955 41,118
Stockholders' equity 135,274 125,685 136,811 124,933 120,221
</TABLE>
- 34 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Proposal to Purchase Non-environmental Operations.
-------------------------------------------------
On March 1, 1995, the Company received a proposal from Larry Addington,
Robert Addington, and Bruce Addington to purchase the Company's non-
environmental businesses. Subject to certain conditions contained in the
proposal, the Addington brothers proposed to the Company to exchange the shares
of the Company's common stock owned by the Addington brothers (approximately 45%
of the Company's outstanding shares), $5 million cash, and other consideration
for the Company's coal and gold mining operations, its mining equipment
manufacturing and licensing unit, citrus operations and smaller operations. The
Addington brothers have proposed to direct half of the royalties from the
exclusive licensing agreement with respect to highwall mining machines described
herein to the Company. The proposal states that the assets and liabilities of
each of the Company's subsidiaries would generally be retained by each entity
after the transfer. The Company's Board of Directors authorized a special
committee comprised of the Company's two outside directors to evaluate the
proposal and to select and retain an investment banking firm and independent
legal counsel to assist the committee in the evaluation of the proposal.
The proposal states that completion of the transaction is contingent upon
several items, including the receipt of a fairness opinion from an investment
banking firm, financing commitments obtained by the Addington family
shareholders to provide working capital for the businesses they propose to own
and operate and to fulfill other commitments, an Internal Revenue Service
private letter ruling approving the tax-free status of the transaction, the
negotiation and execution of definitive transaction documents, the receipt of
all governmental, regulatory and third-party consents and releases required or
desirable to effect the transaction, and shareholder approval, including by a
majority of the non-Addington family shareholders. No assurances can be given
concerning whether a transaction will be consummated.
General
-------
Adverse weather conditions and particularly precipitation can affect the
Company's ability to conduct its mining and contract mining operations. Since
heavier precipitation generally occurs in the areas in which the Company
conducts its mining and contract mining operations during late fall and early
winter, the Company believes that its revenues and profitability may be
adversely affected during those periods.
- 35 -
<PAGE>
Results of Operations
---------------------
1994 Compared with 1993
-----------------------
Net loss during 1994 was $7,134,000 or $.45 per share, compared to net loss
of $16,189,000 or $1.04 per share for 1993. Net loss during 1994 was affected
by the following:
(1) Certain restructuring charges and other one-item charges included in
operating expenses, as follows:
(a) Approximately $3.4 million to write off the Company's investment
in its limestone project. Following the Company's evaluation of
this opportunity, the Company determined that it will no longer
pursue the development of its limestone assets. As a result, the
entire investment in these assets has been written off.
(b) Approximately $2 million to write off certain coal assets that
will no longer be utilized or recovered in the remaining coal
operations. These asset write-offs include approximately $1.1
million of receivables that have been deemed to be uncollectible
and a $900,000 write down associated with a dock owned by the
Company which is no longer being utilized.
(c) Approximately $670,000 associated with certain environmental
projects. The Company had previously incurred costs associated
with certain environmental projects which will no longer be
pursued. As a result, such costs associated with these projects
have been written off.
(d) Approximately $670,000 in general and administrative expenses
related to certain non-recurring one-time expenses associated
with certain management and legal fees incurred in connection
with the Company's attempts to sell its remaining coal operations
and other one-time corporate charges.
(2) Certain charges included in other expense in the Company's 1994
consolidated statement of operations, as follows:
(a) $6.8 million associated with reserves established for the
remaining balance of a note receivable taken in connection with a
sale of a coal subsidiary in April 1992 and certain other costs
associated with this transaction. During April 1992, the Company
sold all of the outstanding stock of one of its subsidiaries,
Southern Illinois
- 36 -
<PAGE>
Mining Company, Inc. ("SIMC"), to Marion Mining Corp. ("Marion")
for $1 million cash and an approximately $10.4 million promissory
note. Subsequent to this transaction, both SIMC and Marion filed
bankruptcy.
During 1993, the Company established a $5.8 million
reserve against this note receivable. Such valuation was
determined considering the estimated ultimate realizable value of
the assets that would be recovered from bankruptcy. During the
third quarter of 1994, the Company determined that the net value
of the assets to be recovered from bankruptcy would be
substantially less than previously expected. Accordingly, the
Company fully reserved for this note receivable and reserved for
certain other costs to be incurred in connection with bringing
this bankruptcy proceeding to a conclusion.
On November 14, 1994, the U.S. Bankruptcy Court
approved a settlement of this matter. Pursuant to such
settlement, the Company agreed to pay $527,500 to SIMC, and SIMC
agreed, among other things, to convey its interest in all of the
assets which had secured the note receivable to the Company. The
property was conveyed to the Company on December 13, 1994.
However, as it is uncertain whether the Company will realize any
value from this property, the Company has recorded such property
at a net book value of zero. (See Note 3 to the Consolidated
Financial Statements.)
(b) $1.2 million associated with writing off the Company's investment
in a recycling company. The Company had initially invested in a
company that developed certain recycling technology. This
company is presently experiencing substantial financial
difficulties and management believes its carrying value is
permanently impaired. As a result, the Company wrote off its
entire investment in this company during 1994.
(3) Pursuant to the Stock Purchase Agreement dated September 24, 1993,
(the "Agreement"), the Company entered into an agreement to sell the
stock of five of its coal subsidiaries to an indirect wholly-owned
subsidiary of The Pittston Minerals Group, Inc. ("Pittston") for $157
million cash. In accordance with the agreement, before closing,
certain property, plant and equipment (the net book value of which was
approximately $43,000,000 as of December 31, 1993) was transferred to
other subsidiaries of the Company from the subsidiaries to be sold.
In addition, the Company retained all of the net working
- 37 -
<PAGE>
capital (the net book value of which was approximately $30 million as
of December 31, 1993) of the sold subsidiaries as of the date of
closing. In connection with the sale, the Company has provided
certain guarantees to Pittston.
This transaction was completed on January 14, 1994.
Other terms of the transaction include the Company entering into
a coal supply contract with Pittston (the "Pittston Coal Supply
Contract") for the sale of 4,920,000 tons over 3-1/2 years at a base
price of $26 per ton. Additionally, the Company will receive a $1.00
per ton production royalty for coal produced from certain West
Virginia properties being sold to Pittston with a minimum royalty of
$100,00 per month, a maximum aggregate royalty in any one year of $1.5
million, and a maximum aggregate royalty under the agreement of $3.75
million. The Company will also pay Pittston a royalty of $0.50 per
ton of coal produced by two retained highwall mining machines for
3-1/2 years.
With respect to the $157,000,000 sale price and the net working
capital retained by the Company, approximately $2,500,000 was used to
pay the Company's closing costs for the transaction, including a
$1,000,000 payment to a consultant for the Company and $500,000 to the
financial advisors for their services. The Company used approximately
$131,725,000 of the proceeds to provide for the early redemption of
its 12% Senior Secured Notes due July 1, 1995, including the payment
of $4,288,000 as a redemption premium and approximately $2,437,000 in
net interest through March 15, 1994 (the redemption date). In
addition, the Company used certain of the proceeds to retire all
indebtedness outstanding under the Company's revolving line of credit
agreement related to its coal operations. The outstanding balance on
the line of credit as of January 14, 1994, was $23,442,000. The
Company also used approximately $3,800,000 to compensate its employees
for extraordinary efforts expended in connection with the consummation
of the transaction, including approximately $416,500 in connection
with the termination of stock options held by employees who became
employees of Pittston as a result of the transaction.
In January 1994, the Company recorded a pre-tax gain of approximately
$118,000 in connection with this transaction. Included in the
calculation of this gain, the Company established certain reclamation
reserves due to the phase-down of production from those mines retained
by the Company, established other contingency reserves due to the de-
emphasis of its mining operations, and estimated the effect of various
other contractual arrangements with Pittston. During the third
quarter of
- 38 -
<PAGE>
1994, the Company reduced the gain recorded on this transaction by
$6,275,000. The reduction in the gain previously recorded is a result
of the Company settling the working capital adjustment dispute with
Pittston and adjusting certain other contingency reserves specifically
set up in connection with this transaction.
In January 1995, Pittston notified the Company of certain claims for
indemnification in accordance with the terms of the Agreement. The
Company is currently negotiating with Pittston concerning these
matters, but at this time does not believe that the claims will result
in a material adverse impact on the Company's financial position.
After the transaction discussed above, the Company continues to
own and operate four eastern Kentucky mines with estimated annual
production capacity of 3,000,000 tons per year. During 1994, the
Company opened additional mines located near these four retained
mines, and closed two of the retained mines. Future production from
current operating coal mines will be placed on the Pittston Coal
Supply Contract and a new coal supply contract entered into with The
Cincinnati Gas & Electric Company (the "CG&E Coal Supply Contract")
and a new coal supply contract with Kentucky Utilities (the "KU Coal
Supply Contract"). As of December 31, 1994, the CG&E Coal Supply
Contract calls for the sale of up to approximately 10,200,000 tons of
coal over the next eleven years (assuming exercise of option periods)
and the KU Coal Supply Contract calls for the sale of approximately
452,000 tons of coal over the next fifteen months.
During 1993, the four retained mines produced 2,373,000 tons with
an average cost of operations of $25.84 per ton. The average sales
price received by the Company from coal produced by these eastern
Kentucky mines during 1993 was $28.59 per ton.
During 1994, the same four retained mines produced 1,755,000 tons
with an average cost of operations of $23.77 per ton. The average
sales price received by the Company from coal produced by these
eastern Kentucky mines during 1994 was $26.50 per ton.
(4) During 1994, the Company recognized interest expense of approximately
$623,000, compared to $16,578,00 during 1993. This substantial
decline in interest expense is primarily due to the use of the
proceeds from the sale of the five coal subsidiaries to retire the
Company's $125,000,000 principal amount of $12% Senior Secured Notes
and all indebtedness outstanding under the Company's revolving line of
credit related to the coal
- 39 -
<PAGE>
operations that were sold. (See Note 2 to the Consolidated Financial
Statements.)
Net loss during 1993 was $16,189,000, or $1.04 per share, compared to net
income of $11,036,000, or $.72 per share for 1992. Net loss during 1993 was
affected by the following:
(1) Certain restructuring and other one-time charges included in operating
expenses, as follows:
(a) Approximately $9.4 million to write off the Company's investment
in its sulfur project. Following the Company's evaluation of
this opportunity, the Company determined that it will no longer
pursue the development of its sulfur assets. As a result, the
entire investment in these assets was written off.
(b) Approximately $5.1 million to write off certain environmental
projects that the Company determined it would no longer pursue.
(2) During 1993, the Company reserved for certain litigation settlements
which reduced pre-tax income by $4,050,000. (See Note 18 to the
Consolidated Financial Statements.)
(3) During 1993, the Company established a $5,767,000 pre-tax reserve
against the note received arising out of the 1992 sale of one of its
subsidiaries; this write-off is reflected in other income and expense.
(See Note 3b to the Consolidated Financial Statements.)
(4) Adverse wet weather conditions during the first four months of 1993
and the month of December 1993 caused major inefficiencies at the
Company's mining operations and, as a result, a major increase in
production costs.
The Company's mining revenues decreased from $358,957,000 in 1993 to
$113,824,000 in 1994 and income from mining operations decreased from $7,346,000
in 1993 to $1,746,000 in 1994. This decline in mining revenues is primarily due
to a decrease in tons sold from 11,182,000 tons in 1993 to 3,883,000 tons in
1994. The Company also experienced a decrease in average sales price per ton
from $29.48 recognized in 1993 to $26.29 per ton recognized in 1994. These
declines in mining revenue and sales price per ton are primarily attributable to
the sale of five of the Company's coal subsidiaries in January 1994. (See Note
2 to the Consolidated Financial Statements.) Additionally, the Company
recognized revenue of $4,822,000 associated with the sale of a highwall mining
machine sold to Pittston during 1993.
In addition to decreases in income from mining operations due to the
factors discussed in the preceding paragraph, income from mining operations was
adversely affected by the poor performance of
- 40 -
<PAGE>
the Company's contract mining operations. The Company's contract mining
operations generated a loss from operations during 1994 of $3,131,000. The
Company has experienced difficulty in placing its highwall mining machines into
longer-term, profitable contract mining operations. In addition to severe
weather conditions temporarily idling highwall mining machines in the Company's
contract mining operations, the Company has experienced difficulty with
geological formations at certain of its contract mining sites. During 1994, the
Company experienced a pre-tax loss of approximately $1,722,000 at one contract
mining site, primarily due to poor geological conditions. The Company also
expects to report a loss from its contract mining operations in the first
quarter of 1995 primarily due to poor geological formations with respect to its
contract mining operation at another site, which operation has been suspended.
The Company has recently established new criteria with respect to the evaluation
of contract mining opportunities, but there can be no assurance that these new
criteria will result in successful contract mining operations.
While approximately 76.2 percent of the Company's total coal sales in tons
during 1994 were pursuant to contracts with a term of more than one year, see
Item 1. "Business -- Coal Mining Operations," the Company is also subject to
general conditions in the coal industry, including recent mild temperatures
which cause high coal inventories of electric utilities, generally weak demand,
and low exports. General conditions in the coal industry also affect the
Company's efforts to negotiate new long-term contracts or extensions thereof
with utilities. For example, high inventory levels at utilities and low spot
coal prices decrease the incentive for an electric utility to enter into a long-
term coal sales contract.
Environmental revenues and income from operations for 1993 and 1994,
respectively, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
1993 1994 1993 1994 1993 1994
---------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $17,264 $25,453 $ 7,665 $10,604 $24,929 $36,057
Income from
operations 5,818 8,502 (2,096) (3,058) 3,722 5,444
Tonnage received 753 1,134
</TABLE>
The primary reason for the substantial increases in total environmental
revenues and income from operations is an increase in tons of waste received
from 753,000 tons in 1993 to 1,134,000 tons in 1994. While it is common
industry practice, the Company does not allow a discount on its waste collection
services for waste delivered to Company landfills.
In June 1992, the Company entered into a 14-year exclusive licensing
agreement that permits Joy Technologies, Inc. ("Joy") to manufacture and market
a highwall mining system that the Company developed and currently uses in its
own mining operations. In
- 41 -
<PAGE>
accordance with the terms of the June 1992 agreement, Joy plans to market the
system to mining companies on the basis of a cost per ton of material mined by
the system. If Joy successfully markets the system, the Company will receive
approximately $130,000 in origination fees for each of the first eight machines
leased, during the first thirty months of the agreement, approximately $255,000
in origination fees from each machine leased thereafter, and a royalty based on
tons of material mined by these other mining companies. The agreement provides
that Joy will charge a lessee a minimum royalty per ton of material mined of
$3.77, subject to adjustment for inflation from the date of the agreement and
increases in safety-related changes. The Company will receive 30% of the minimum
royalty of $3.77 (as adjusted for inflation) and generally 50% of any part of
such royalty payments in excess of $3.77 (as adjusted for inflation) and
increases in safety-related expenses. While Joy has not met the Company's
anticipated results for leases under the June 1992 agreement, Joy has indicated
to the Company that it will more aggressively pursue the marketing of these
machines during 1995.
The Company generated other revenue during 1994 of $1,275,000 related to
the highwall mining system licensing agreement with Joy. During 1993, other
revenue of $261,000 was generated from the highwall mining system licensing
agreement.
As a percentage of total revenues, cost of operations decreased from 82%
for 1993 to 80% for 1994. This decrease is primarily a result of improved
operating results at the Company's environmental operations. Depreciation and
amortization decreased from $29,939,000 in 1993 to $8,776,000 in 1994. This 71%
decrease is primarily attributable to a decrease in depreciable coal mining
assets. This decrease in coal mining assets is due to the sale of the five coal
subsidiaries to Pittston on January 14, 1994.
Selling, general and administrative expenses decreased from $22,302,000 in
1993 to $13,141,000 in 1994. This decrease is primarily attributable to a
decline in sales commissions paid based on coal sold under certain coal supply
contracts. This decline is due to the sale of the five coal subsidiaries to
Pittston on January 14, 1994.
Interest expense decreased from $16,578,000 during 1993 to $623,000 during
1994. The decrease is due to the retirement of the Company's Senior Secured
Notes and payoff of the Company's revolving line of credit relating to the coal
operations that were sold. The amount of interest capitalized for 1994 and 1993
was $1,464,000 and $2,111,000, respectively.
Interest income increased from $649,000 during 1993 to $786,000 during
1994. This 21% increase is due to an increase in the average amount of short-
term investments outstanding.
The Company's effective tax rate increased from a 25% benefit in 1993 to a
35% benefit in 1994. This increase in the effective
- 42 -
<PAGE>
rate is primarily a result of several factors, including percentage depletion
and the allowance on utilization of minimum tax credits.
The Company's cash, cash equivalents and short-term investments totaled
$11,943,000 at December 31, 1994, compared to $13,744,000 at December 31, 1993.
See discussion of this decrease under "Liquidity and Capital Resources."
Accounts receivable, net, at December 31, 1994 totaled $18,944,000,
compared to the balance of $8,945,000 at December 31, 1993. As of December 31,
1993, the accounts receivable related to the coal subsidiaries sold to Pittston
were included in net assets held for disposal. The increase since that date
represents accounts receivable generated by 1994 coal sales from the Company's
retained mining operations. (See Note 2 to the Consolidated Financial
Statements.)
Inventories decreased to $6,495,000 at December 31, 1994, compared to
$11,803,000 at December 31, 1993, primarily due to a decrease in tons of coal in
inventory at December 31, 1994.
Prepaid expenses and other at December 31, 1994, totaled $2,776,000,
compared to the balance of $7,718,000 at December 31, 1993. This decrease is
the result of a decrease of approximately $3,300,000 of tax deposits and claims
primarily due to changes in the Company's tax position for 1994. In addition,
prepaid expenses and other at December 31, 1993 included approximately
$1,100,000 related to the sale of coal subsidiaries to Pittston on January 14,
1994.
Property, plant and equipment increased to $182,835,000 at December 31,
1994 compared to $140,758,000 at December 31, 1993. This 30% increase is
primarily due to an increase in landfill and other environmental related
development costs and costs capitalized in association with the development of
the Company's gold mining project in Arizona.
Assets held for sale at December 31, 1994, was $16,605,000. This amount is
comprised of the Company's citrus operations in Belize (approximately
$13,400,000) and a corporate jet (approximately $3,200,000) that the Company
decided to sell in 1994. This corporate jet has been sold for $4,125,000
subsequent to year-end. The Company does not expect to recognize a loss on the
sale of the citrus operations, although there can be no assurances concerning
the ultimate amount realized from these assets.
Restricted cash increased from $2,348,000 at December 31, 1993, to
$4,437,000 at December 31, 1994, primarily due to the addition of two landfills
and the amount required to be escrowed for the future closure and post-closure
costs associated with these landfills.
- 43 -
<PAGE>
Other assets decreased from $11,158,000 at December 31, 1993, to $8,008,000
at December 31, 1994. This decrease is primarily due to the Company writing off
the SIMC note in 1994.
Accounts payable at December 31, 1994, increased to $14,049,000 as compared
to the December 31, 1993, balance of $5,609,000, primarily due to accounts
payable related to the coal subsidiaries sold to Pittston being included in the
net assets held for disposal at December 31, 1993. The increase since that date
represents accounts payable generated by the Company's retained mining
operations. (See Note 2 to the Consolidated Financial Statements.)
The Company's new line of credit balance at December 31, 1994, totaled
$4,200,000, compared to the December 31, 1993, balance of $23,442,000 drawn on
the Company's previous line of credit related to its coal operations. This
decrease is primarily due to the payoff of the Company's previous line of credit
during the first quarter of 1994 with the proceeds generated from the sale of
certain coal subsidiaries.
The Company's current portion of long-term debt outstanding decreased from
$126,228,000 at December 31, 1993, to $7,257,000 at December 31, 1994, primarily
due to proceeds from the sale of the five coal subsidiaries being utilized to
reduce certain long-term debt. (See Note 2 to the Consolidated Financial
Statements.)
Accrued expenses and other liabilities remained relatively unchanged from
$13,392,000 at December 31, 1994, as compared to the $13,714,000 balance at
December 31, 1993.
The Company's long-term debt outstanding increased from $11,955,000 at
December 31, 1993 to $41,118,000 at December 31, 1994. This increase is
primarily due to the $11,000,000 borrowed against the Company's line of credit
related to its environmental operations during 1994, the issuance of $7,400,000
in tax exempt revenue bonds to finance the construction of a landfill in Wayne
County, Georgia and $9,330,000 in a gold loan related to the Company's Arizona
gold mining project. (See Note 11 to the Consolidated Financial Statements.)
The Company's other long-term liabilities increased from $2,705,000 at
December 31, 1993, to $18,921,000 at December 31, 1994. This increase is
primarily due to the normal increase in landfill closure and post-closure costs
accrued, as well as an increase in the long-term accrual for reclamation on the
Company's retained coal mining properties recorded in connection with the
Company's disposal described in Note 2 to the Consolidated Financial Statements.
- 44 -
<PAGE>
1993 Compared with 1992
-----------------------
Net loss during 1993 was $16,189,000, or $1.04 per share, compared to net
income of $11,036,000, or $.72 per share for 1992. Net loss during 1993 was
affected by the following:
(1) Certain restructuring and other one-time charges including in
operating expenses, as follows:
(a) Approximately $9.4 million to write off the Company's
investment in its sulfur project. Following the Company's
evaluation of this opportunity, the Company determined that it
will no longer pursue the development of its sulfur assets. As a
result, the entire investment in these assets was written off.
(b) Approximately $5.1 million to write off certain environmental
projects that the Company determined it would no longer pursue.
(2) During 1993, the Company reserved for certain litigation
settlements which reduced pre-tax income by $4,050,000. (See Note 18
to the Consolidated Financial Statements.)
(3) During 1993, the Company established a $5,767,000 pre-tax reserve
against the note receivable arising out of the 1992 sale of one of its
subsidiaries; this write-off is reflected in other income and expense.
(See Note 3b to the Consolidated Financial Statements.)
(4) Adverse wet weather conditions during the first four months of
1993 and the month of December 1993 caused major inefficiencies at the
Company's mining operations and, as a result, a major increase in
production costs.
Net income during 1992 was affected by the following:
(1) The Company recognized a $10,544,000 pre-tax gain on the sale of
certain coal subsidiaries. (See Note 3a to the Consolidated Financial
Statements.)
(2) During 1992, the Company recognized $4,285,000 in pre-tax gains on
the sale of assets. The majority of this gain was recognized from the
sale of certain West Virginia coal reserves.
(3) During 1992, the Company reached a litigation settlement which
reduced pre-tax income by $5,100,000. (See Note 18 to the
Consolidated Financial Statements.)
(4) During 1992, the Company recognized an approximately $5,000,000
pre-tax gain on the sale of highwall mining machines.
- 45 -
<PAGE>
The Company's mining revenues increased from $292,225,000 in 1992 to
$358,957,000 in 1993. Contributing to this 23% increase was revenue of
$4,827,000 recognized on a fourth highwall mining machine sold to Pittston
during 1993. Also contributing was a 27% increase in tons sold from 8,815,000
tons sold during 1992 compared to 11,182,000 tons sold during 1993.
Additionally, included in mining revenues was $4,255,000 realized from the
Company's highwall miner contract mining activities during 1993 compared to
$1,480,000 realized from the Company's highwall miner contract mining activities
during 1992. This increase in tons sold is primarily a result of the acquisition
described in Note 20a to the Consolidated Financial Statements.
Environmental revenue and income from operations for 1992 and 1993,
respectively, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
1992 1993 1992 1993 1992 1993
--------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $4,689 $17,264 $3,090 $ 7,665 $7,779 $24,929
Income from
operations 1,984 5,818 (364) (2,096) 1,620 3,722
Tonnage received 196 753
</TABLE>
The primary reasons for the substantial increases in total environmental
revenues and income from operations is the receipt of operating permits for
certain contained landfills during 1992 and the commencement of operations at
these landfills. The Company received approximately 753,000 tons of waste at
Company-owned landfills during 1993 compared to 196,000 tons of waste received
during 1992. While it is common industry practice, the Company does not allow a
discount on its waste collection services for waste delivered to Company
landfills.
Included in the Company's other revenues and income from operations in 1993
was $261,000 in origination fees received from Joy under the 14-year exclusive
licensing agreement. These fees relate to the two highwall miners leased by Joy
to third parties during 1993. During 1993, Joy paid no per ton royalty fees
related to these two machines.
As a percentage of total revenues, cost of operations increased from 79%
for 1992 to 82% for 1993. This increase is primarily a result of higher costs
being incurred at the Company's mining operations due to adverse weather
conditions during the first part of the year.
Depreciation and amortization increased from $25,111,000 in 1992 to
$29,939,000 in 1993. This 19% increase is primarily attributable to an increase
in depreciation and amortization of landfill property and equipment.
- 46 -
<PAGE>
Selling, general and administrative expenses during 1993 totaled
$22,302,000 and remained relatively unchanged compared to $21,274,000 for 1992.
Interest expense increased from $13,483,000 during 1992 to $16,578,000
during 1993. The 23% increase is primarily due to the decline in the amount of
interest capitalized in 1993. The amount of interest capitalized for 1993 was
$2,111,000 compared to interest capitalized of $4,806,000 for 1992. The
capitalized interest is related primarily to the Company's environmental
operations. The decrease in capitalized interest occurred because the Company
ceases to capitalize interest after a landfill becomes operational.
Interest income decreased from $791,000 during 1992 compared to $649,000
during 1993. This 18% decrease is due to a decrease in the average amount of
short-term investments outstanding coupled with a decrease in the interest rate
yields on short-term investments.
Gain on the sale of assets decreased from $4,285,000 for 1992 to $630,000
for 1993. This decrease is primarily due to a $4,626,000 pre-tax gain
recognized from the sale of certain West Virginia coal reserves and land in 1992
which were not included in the Company's current mining plans.
The Company's effective tax rate decreased from a 32% provision in 1992 to
a 25% benefit in 1993. This decrease in the effective tax rate is primarily a
result of several factors, including percentage depletion, state income taxes
and the allowance on utilization of minimum tax credits.
Liquidity and Capital Resources
-------------------------------
The working capital needs of the Company have been met primarily through a
combination of funds provided by banks and other institutions, proceeds from the
sale of certain coal subsidiaries to Pittston, a sale-leaseback arrangement with
respect to one of its highwall mining machines, and cash generated through
operations.
The overall net decrease in cash and cash equivalents was $10,275,000 and
$19,211,000 for the years ended December 31, 1994 and 1993, respectively. Such
net decreases reflect net cash used in operating, investing and financing
activities.
Net cash provided by (used in) operating activities was $(1,634,000) and
$22,756,000 for the years ended December 31, 1994 and 1993, respectively. This
fluctuation between years is primarily a result of payments for reclamation
activities for retained properties and retained obligations related to the sale
of certain coal subsidiaries to Pittston and the reestablishment of working
capital in the retained coal operations. In addition, the fluctuation reflects
other changes in working capital items whereby
- 47 -
<PAGE>
increases in net working capital would cause a decline in net cash provided by
operating activities. Such other changes consist of an $11,466,000 increase in
accounts receivable and a $10,900,000 decrease in accrued expenses, net of a
$8,291,000 increase in accounts payable. During 1993, such other changes
consisted of an $11,899,000 increase in accounts receivable, a $6,358,000
increase in inventories and a $4,510,000 decrease in deferred income tax
liabilities, net of $10,706,000 increase in accrued expenses and other current
liabilities.
Net cash provided by (used in) investing activities was $105,266,000 and
$(47,399,000) for 1994 and 1993, respectively. The 1994 amount primarily
consists of net proceeds of $181,641,000 from the sale of coal subsidiaries, net
of property, plant and equipment purchases of $63,158,000 and investment
purchases of $8,474,000. The 1993 amount primarily consists of property, plant
and equipment purchases.
Net cash (used in) provided by financing activities was $(113,907,000) and
$5,432,000 for 1994 and 1993 respectively. The 1994 amount primarily represents
the retirement of the Company's senior secured notes. The 1993 amount primarily
represents proceeds of $4,311,000 from the issuance of common stock and net
borrowings of $1,648,000 on long-term debt and the revolving line of credit.
Net working capital as of December 31, 1994 was approximately $81,000,
compared to approximately $11,417,000 as of December 31, 1993. This decrease is
primarily due to the net proceeds from the retirement of the assets held for
disposal and senior secured notes being used to finance the Company's landfill
and gold mine development projects during 1994. In addition, included in net
working capital as of December 31, 1994 is net current liabilities of
approximately $6,777,000 related to the gold mine development project, which had
not commenced operations as of December 31, 1994.
As of December 31, 1994, the Company had approximately $19,588,000
available under financing arrangements, including $10,800,000 remaining under
its coal line of credit and $8,788,000 remaining under its environmental line of
credit. Also, in February 1995, the Company amended its environmental line of
credit to allow additional borrowings of $10 million. (See Note 11 to the
Consolidated Financial Statements.)
During 1994, the company entered into a sale-leaseback transaction whereby
the Company sold a highwall mining machine for approximately $5,633,000 and
leased it back from the purchaser. The Company has successfully financed the
construction of two additional highwall mining machines in previous years
through sale-leaseback arrangements. The Company expects that it will continue
to be able to use this method to finance the construction of future highwall
mining machines.
- 48 -
<PAGE>
Assets held for sale at December 31, 1994, was $16,605,000. This amount is
comprised of approximately $13,400,000 related to the Company's citrus
operations and approximately $3,200,000 invested in a corporate jet. The
corporate jet has been sold for $4,125,000 subsequent to year-end.
Approximately $3,200,000 of the proceeds from this sale were used to reduce
outstanding debt on the aircraft. The sale of the citrus operations may also
generate cash for the Company.
During 1994, the Company acquired a landfill near Macon, Georgia. The
existing landfill operation is permitted to accept construction and demolition
waste and certain industrial wastes. A new permit allowing the landfill to
accept municipal solid waste was issued in June 1994 and has been appealed.
Once the permit is nonappealable, an additional payment of approximately $3.6
million will be made to the seller.
The Company has various operating leases for mining and other equipment.
The Company also leases certain coal reserves which require minimum annual
royalties to be paid regardless of the amount of coal mined. Approximate
noncancellable minimum payments in 1995 under the operating leases total
$8,308,000, and minimum royalties related to leases total $1,395,000.
The Company has experienced lower-than-expected ore grades and other start-
up problems at its gold mine project. During 1994, the Company's gold mining
subsidiary entered into a loan agreement guaranteed by the Company pursuant to
which $9,330,000 was borrowed to finance the development of the project. The
loan matures in October 1996 and is repayable in varying quarterly installments
of principal and interest which may be made in cash or gold, beginning with 16%
of the principal amount due on July 31, 1995, and approximately 31% of the
principal amount due on October 31, 1995. See Note 11 to the Consolidated
Financial Statements. Although the Company at this time expects the project
will be profitable, if the company were unable to successfully operate its gold
mining project and also could not renegotiate its gold loan agreement if
necessary, a default under this agreement and potential defaults triggered
thereby under other financing arrangements would cause a significant deficiency
in the Company's liquidity.
There are certain environmental contingencies related to the Company's coal
operations and integrated solid waste disposal system operations, primarily land
reclamation obligations and landfill closure obligations, respectively. Under
current federal and state surface mining laws, the Company is required to
reclaim land where surface mining operations are conducted. Accruals for the
estimated cost of restoring the land are provided as mining takes place, based
upon engineering estimates of costs. The Company also estimates and records its
costs associated with closure and post-closure monitoring and maintenance for
operating landfills based upon relevant government regulations. Accruals for
these closure and post-closure costs are provided as permitted airspace of the
landfill is consumed. The Company revises its
- 49 -
<PAGE>
estimates on a periodic basis. As of December 31, 1994, the Company had accrued
expenses for reclamation and closure costs of approximately $14,316,000. Because
of the long-term nature of these obligations, there is a possibility that such
obligations, when ultimately paid, may differ substantially from the recorded
accrued expense, thus affecting the Company's liquidity. Considering the
existing accruals with respect to the Company's landfills at December 31, 1994,
approximately $58 million of additional accruals are to be provided over the
remaining lives of these facilities. Such additional accruals to be provided
have been estimated on current costs and existing regulatory requirements, and
assume that the landfills will be filled to capacity. Due to uncertainties and
significant judgments used in determining the amounts of additional accruals to
be provided, the actual amounts to be expended may differ substantially.
In 1990, the Company implemented a self-insurance program to cover most of
its employees for workers' compensation, including black lung benefits. Black
lung expense is being provided, based upon a recent actuarial study, over the
estimated remaining working lives of the miners using accounting methods similar
to that of a defined benefit pension plan. Benefits provided are subject to
federal and state law and, thus, are not under the control of the Company. As
of December 31, 1994, the Company had a reserve for workers' compensation,
including black lung benefits, of approximately $4,187,000. Because of the
long-term nature of these obligations, there is a possibility that workers'
compensation (including black lung) obligations , when ultimately settled and
paid, may differ substantially from the recorded balance and thus affect the
Company's liquidity.
The Company believes that its present financial condition, considering the
funds available under the existing financing agreements, the proceeds received
from the sale of certain coal subsidiaries (see Note 2 to the Consolidated
Financial Statements) and other assets, internal financial resources, and
assuming the Company's continuing ability to finance the construction of
highwall mining machines using a sale-leaseback arrangement, provides adequate
capital reserves and liquidity.
Inflation has not had a significant effect on the Company's business
primarily because the United States economy has been experiencing a period of
relatively low inflation.
The Company's capital needs, earnings and cash flow are somewhat dependent
on events beyond the Company's control, such as weather patterns, the state of
the economy, and changes in existing governmental and environmental regulations.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See accompanying Table of Contents to Consolidated Financial Statements and
Schedules.
- 50 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
- 51 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The following information is furnished as of March 15, 1995, with respect
to the executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Larry Addington 59 Chairman of the Board and
Chief Executive Officer
Kirby J. Taylor 49 President
Robert Addington 55 Vice President - Operations and
Engineering, Director
Bruce Addington 41 Vice President - Operations, Director
R. Douglas Striebel 37 Vice President, Treasurer and Chief
Financial Officer
Jack C. Fisher 66 Director
Carl R. Whitehouse 72 Director
</TABLE>
All directors hold office until the next annual meeting of stockholders and
until their successors are elected and qualified. Officers serve at the
discretion of the Board of Directors. All officers spend substantially full
time working for the Company or its subsidiaries.
Larry Addington, Robert Addington and Bruce Addington have been directors
since the organization of the Company. Jack C. Fisher and Carl R. Whitehouse
were elected to the Board of Directors on October 21, 1987. Larry Addington,
Robert Addington and Bruce Addington are brothers.
In connection with the March 1, 1995, proposal by Messrs. Addington to
purchase the non-environmental subsidiaries of the Company, the Company is
currently considering adding one or more persons to the Board of Directors and
the special committee established to evaluate the proposal.
Messrs. Addington have substantial experience in the operation of coal
mining ventures. Their first mining company, Addington Brothers Mining Company,
began mining coal in eastern Kentucky in 1972 and was sold to Ashland Oil, Inc.
in 1976. In 1978, Larry Addington formed Pyramid Mining, Inc. ("Pyramid"),
which mined coal in western Kentucky and was sold to First Mississippi
Corporation, a diversified energy company in 1981.
- 52 -
<PAGE>
Larry Addington has served as Chief Executive Officer of the Company since
its organization and was the founder of each of the corporate entities acquired
by the Company pursuant to the Company's 1987 reorganization. Mr. Addington
served as President of the Company from its organization until June 30, 1994.
Kirby J. Taylor has served as President of the Company since July 1, 1994.
From March 1993 through June 1994, Mr. Taylor served as vice president and chief
financial officer of Outboard Marine Corporation, an international marketer of
marine engines, boats, accessories and services. For 22 years before joining
Outboard Marine Corporation, Mr. Taylor served various Tenneco companies,
including service as vice president-finance from 1990 to March 1993 at Tenneco
Automotive Company and service as a vice president and chief financial officer
of Tenneco Minerals Company from 1984 to 1990.
Robert Addington has been Vice President of Operations and Engineering of
the Company since its organization. He served in a similar capacity for each of
the corporate entities acquired by the Company pursuant to the Company's 1987
reorganization.
Bruce Addington has functioned as Vice President of Operations of the
Company since its organization.
R. Douglas Striebel has served as Vice President and Chief Financial
Officer of the Company since 1988. From 1984 until joining the Company, Mr.
Striebel was an Audit Manager with Arthur Andersen & Co.
Jack C. Fisher served as Mayor of Owensboro, Kentucky from 1984 to 1987.
He is currently retired. Before 1984, he served as Manager of Mail Processing
with the U.S. Postal Service in Owensboro. Mr. Fisher is a member of the
Company's Audit Committee.
Carl R. Whitehouse has served as the President and Chief Executive Officer
of the newly organized South Central Bank of Daviess County since October 1994.
Mr. Whitehouse had previously retired in December 1988 as the Chairman of the
Board of Citizens State Bank in Owensboro, Kentucky, where he had also served as
President and Chief Executive Officer. Mr. Whitehouse is a member of the
Company's Audit Committee.
Compliance with Section 16(a) of The Exchange Act
-------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's common stock, to file reports (including a year-end report) of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of all reports filed.
Based solely on a review of the forms furnished to the Company, or written
representations from certain reporting persons,
- 53 -
<PAGE>
the Company believes that all persons who were subject to Section 16(a) in 1993
complied with the filing requirements.
Limitation on Liability of Directors
------------------------------------
Pursuant to the Company's Certificate of Incorporation, no director shall
be personally liable to the Company or its stockholders for monetary damages for
breach of his fiduciary duty as a director, except for a breach of the
director's duty of loyalty, for acts and omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, for
transactions from which a director derived an improper personal benefit or for
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law. This provision offers
persons who serve on the Board of Directors of the Company protection against
awards of monetary damages for negligence in the performance of their duties.
It does not affect the availability of equitable remedies such as an injunction
or rescission based upon a director's breach of the duty of care.
In addition, the Company has entered into Indemnity Agreements with its
executive officers and directors which establish contractual rights for the
executive officers and directors to be indemnified by the Company to the fullest
extent permitted by law. See Item 13. Certain Relationships and Related
Transactions.
- 54 -
<PAGE>
Item 11. Executive Compensation.
----------------------
The following table sets forth the aggregate cash compensation paid by the
Company for 1994, 1993 and 1992 to the five most highly compensated executive
officers of the Company whose salary and bonus compensation exceeded $100,000 in
1994, and who were serving at the end of the year, along with two executive
officers who would have otherwise been included in such table but were not
serving as executive officers at the end of the year.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Principal All Other
Position Year Salary Bonus Compensation Options (#)
------------------ ---- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Larry Addington 1994 $276,000 $ - 0 - $ - 0 - - 0 -
Chairman and Chief Executive Officer 1993 274,134 - 0 - - 0 - - 0 -
and Director 1992 259,615 39,468 - 0 - - 0 -
Kirby J. Taylor(1) 1994 $107,658 $100,000(1) $ - 0 - 40,000
President
Robert Addington 1994 $226,000 $ - 0 - $ - 0 - - 0 -
Vice President - Operations and 1993 224,134 - 0 - - 0 - - 0 -
Engineering, Director 1992 207,692 39,468 - 0 - - 0 -
Bruce Addington 1994 $176,000 $ - 0 - $ - 0 - - 0 -
Vice President - Operations, Director 1993 173,442 - 0 - - 0 - - 0 -
1992 135,000 39,468 - 0 - - 0 -
R. Douglas Striebel 1994 $132,250 $250,000(2) $ - 0 - 25,000
Vice President, Chief Financial Officer 1993 128,403 - 0 - - 0 - - 0 -
1992 122,116 90,468 - 0 - 5,000
William R. Nelson(3) 1994 $149,900 $100,000(2) $217,100(4) - 0 -
Vice President 1993 201,000 - 0 - 995(5) - 0 -
1992 77,123 - 0 - 735(5) - 0 -
Michael J. Quillen(6) 1994 $ 19,519 $250,000(2) $255,000(7) - 0 -
Vice President 1993 201,000 100,000 - 0 - - 0 -
1992 95,406 - 0 - - 0 - 40,000
---------------
</TABLE>
(1) Employment began on June 28, 1994, and Mr. Taylor received an aggregate
$100,000 signing bonus, $50,000 of which was paid in each of 1994 and 1995.
(2) Bonus paid in connection with the disposition of certain assets to a
subsidiary of The Pittston Company on January 14, 1994.
(3) Employment began August 1, 1992 and ended as of September 15, 1994.
(4) $217,100 represents a severance payment to Mr. Nelson.
(5) Represents the premium on term life insurance with a $500,000 death
benefit.
(6) Employment began July 1, 1992; Mr. Quillen resigned effective January
14, 1994.
- 55 -
<PAGE>
(7) Payment to Mr. Quillen made in February 1995 in connection with the
termination of options for 40,000 shares of common stock as a result of the
transaction with The Pittston Company described in note 1 above.
The Company has entered into an employment agreement with Kirby J. Taylor.
Pursuant to the employment agreement, Mr. Taylor will be employed as the
President and Chief Operating Officer of the Company at an annual base salary of
$250,000, subject to annual increases. Mr. Taylor received a signing bonus of
$100,000. The employment agreement provides that Mr. Taylor would initially
receive options for 40,000 shares, and subsequently receive grants of options
for 20,000 shares per year for three years, for an aggregate of 100,000 shares.
The agreement provides that if Mr. Taylor is discharged for any reason other
than cause, as defined, the Company will pay him an amount equal to twice his
base salary unless such termination is because of Mr. Taylor's death or
retirement, or by the Company for gross negligence or willful misconduct. The
employment agreement provides for an annual performance bonus calculated as
follows: if the Company earns after tax profits of $1.00 per share, Mr. Taylor
will receive 40% of his base salary as a performance bonus; if the Company earns
after tax profits of $1.50 or more per share, Mr. Taylor will receive 75% of his
base salary as a performance bonus; for after tax profits per share of $2.00 or
more, Mr. Taylor will receive 100% of his base salary as a performance bonus.
For after tax profits between $1.00, $1.50 and $2.00 per share, Mr. Taylor will
receive a performance bonus of his base salary on a pro rata basis. In
addition, for after tax profits of $1.50 per share, or $2.00 or greater per
share, Mr. Taylor will be granted an annual bonus of options for 20,000 shares
or 40,000 shares, respectively. For after tax profits between $1.50 and $2.00
per share, such bonus stock options will be granted on a pro rata basis. These
stock options will be issued in accordance with the terms of the Company's
Restated Stock Option Plan. The Corporation will provide Mr. Taylor the use of
an automobile, limited country club dues, and a term life insurance policy with
a death benefit of $750,000. The employment agreement also provides the Company
contemplates making a seat on the Board of Directors available to Mr. Taylor
upon the successful completion of one year of employment.
The Company has entered into an employment agreement with R. Douglas
Striebel. Pursuant to the employment agreement, Mr. Striebel will be employed
as Chief Financial Officer of the Company at the rate of $131,250 per annum.
Mr. Striebel may receive a bonus of up to $120,120 each year as a participant in
the Company's management incentive program. In addition, Mr. Striebel may
receive discretionary bonuses. If the Company is acquired by, or merged into,
another entity, and Mr. Striebel's position is eliminated for reasons other than
poor performance, the new management shall be required to grant him severance
pay of no less than $300,000 or employ him for at least three years.
The Company had entered into an employment agreement with William R.
Nelson. Pursuant to the employment agreement, the Company
- 56 -
<PAGE>
employed Mr. Nelson as the President and Chief Executive Officer of its
subsidiary, Addington Environmental, Inc. Mr. Nelson was paid an annual salary
of $200,000. The employment agreement provided a three-year term ending on
July 31, 1995. The employment agreement provided certain benefits if a Change
of Control (as defined) occurred. Pursuant to a release dated September 15,
1994, Mr. Nelson's employment agreement was terminated and he was provided a
payment of $217,100. Mr. Nelson is subject to certain restrictive covenants set
forth in the agreement for a period of three years from the termination.
Compensation of Directors
-------------------------
Directors of the Company who are also officers of the Company receive no
compensation for their services as directors. During 1994, the Company's
standard directors fees for non-management directors were a base salary of
$10,000 per year for services as directors, with an additional $1,000 per Board
meeting actually attended, and $500 for each committee meeting actually attended
which was not held in conjunction with a meeting of the Board of Directors.
Stock Option Plan
-----------------
During 1988, the Company adopted, with stockholder approval, the Restated
Stock Option Plan (the "Option Plan"). The purposes of the Option Plan are to
encourage certain officers, employees, and independent contractors to use their
best efforts for the Company's success and to provide a valuable means of
retaining key personnel as well as attracting new personnel when needed for
future operations and growth.
Pursuant to the Option Plan, the Company has reserved for issuance
1,500,000 shares of Common Stock for which options may be granted by the Option
Committee of the Board of Directors (currently consisting of Messrs. Addington)
to officers, employees and independent contractors of the Company and its
subsidiaries in amounts and upon terms and conditions to be determined from time
to time by the Option Committee. Messrs. Addington are not eligible to receive
options pursuant to the Option Plan. During 1994, no options were exercised by
any of the executive officers named in the Summary Compensation Table above.
- 57 -
<PAGE>
Option Grants in 1994
---------------------
<TABLE>
<CAPTION>
Potential Realiz-
able Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term
-------------------
% of Total
Options Granted
Options to Employees Exercise Expiration
Name Granted (#) in 1994 Price ($/Sh) Date 5% ($) 10% ($)
---- ---------- --------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Larry Addington -0- N/A N/A N/A N/A N/A
Kirby J. Taylor 40,000(1) 12.4% $9.75 10/23/04 $245,269 $621,560
Robert Addington -0- N/A N/A N/A N/A N/A
Bruce Addington -0- N/A N/A N/A N/A N/A
R. Douglas Striebel 25,000(2) 7.7% $9.75 10/23/04 $153,293 $388,475
William R. Nelson -0- N/A N/A N/A N/A N/A
Michael J. Quillen -0- N/A N/A N/A N/A N/A
</TABLE>
____________________
(1) Options become exercisable in one-third increments on October 24, 1995,
October 24, 1996 and October 24, 1997.
(2) Options are exercisable October 24, 1998.
Aggregated 1994
Year-End Option Value
---------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options at Year End (#) Options at Year End ($)(1)
----------------------- ---------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------- -------------
<S> <C> <C>
Larry Addington N/A N/A
Kirby J. Taylor - 0 -/40,000 $0.00/$0.00
Robert Addington N/A N/A
Bruce Addington N/A N/A
R. Douglas Striebel - 0 -/30,000 $0.00/$11,250
William R. Nelson - 0 -/- 0 - $0.00/$0.00
Michael J. Quillen(2) - 0 -/- 0 - $0.00/$0.00
-------------------
</TABLE>
(1) Dollar amounts reflect market value of Common Stock based on December
31, 1994 price per share of $9.75; minus the exercise price.
(2) See Note 7 to the Summary Compensation Table.
- 58 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
Except as otherwise noted in the footnote following the table, the
following table sets forth certain information concerning ownership of the
Common Stock as of March 15, 1995, by each director, each executive officer
named in Item 11 serving at the end of 1994, each person or entity who is known
to the Company to be the beneficial owner of more than 5% of the Common Stock
and all directors and executive officers of the Company as a group. Except as
otherwise noted in the footnote following the table, each beneficial owner
listed below has sole voting and dispositive power with respect to the shares
listed next to his name.
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percentage
of Beneficial Owner Owned of Class
------------------- -------------- ----------
<S> <C> <C>
Morgan Stanley Asset Management 1,187,000(1) 7.5%
Limited
25 Cabot Square
Canary Wharf
London, E14 4QA England
Howard P. Berkowitz
HPB Associates, L.P.
888 Seventh Avenue
New York, New York 10106 1,103,785(2) 6.9%
Larry Addington
1500 North Big Run Road
Ashland, KY 41102 4,113,324 25.9%
Robert Addington
1500 North Big Run Road
Ashland, KY 41102 1,520,000 9.6%
Bruce Addington
1500 North Big Run Road
Ashland, KY 41102 1,578,006 9.9%
Kirby J. Taylor 500(3) *
R. Douglas Striebel - 0 - *
Jack C. Fisher 2,500 *
Carl R. Whitehouse 3,100(4) *
All directors and executive
officers as a group
(7 persons) 7,217,430 45.4%
</TABLE>
_______________
*Represents less than 1% of outstanding shares.
- 59 -
<PAGE>
(1) Morgan Stanley Asset Management Limited is an investment advisory
subsidiary of Morgan Stanley Group Inc., 1251 Avenue of the Americas,
New York, New York 10020. Each of these entities shares voting and
dispositive power with respect to the 1,187,000 shares with holders of
accounts managed on a discretionary basis by Morgan Stanley Asset
Management Limited. In addition to these shares, Morgan Stanley Group
Inc., shares voting and dispositive powers with respect to 700 shares.
Information concerning these entities is according to a Schedule 13G
dated January 30, 1995.
(2) Mr. Berkowitz, as managing partner of HPB Associates, L.P., has sole
voting and dispositive powers with respect to the shares owned by the
partnership. Information on the partnership's beneficial ownership is
according to a Schedule 13D dated January 20, 1992.
(3) Includes 250 shares owned by Mr. Taylor's wife; Mr. Taylor has no
voting or dispositive powers with respect to these 250 shares.
(4) Includes 1,100 shares owned by Mr. Whitehouse's wife; Mr. Whitehouse
has no voting or dispositive powers with respect to these 1,100
shares.
Of the 7,211,330 shares of Common Stock owned by Larry, Robert and Bruce
Addington, Larry Addington has pledged 200,000 shares, Robert Addington has
pledged 1,500,000 shares, and Bruce Addington has pledged 577,003 shares to
various financial institutions or brokers. No one pledgee has received 5% or
more of the shares in pledge.
- 60 -
<PAGE>
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
In situations where there will be an ongoing relationship with related
parties for the purchase of services or products, it is the Company's policy
that a majority of the independent and disinterested directors will be required
to approve continuation or initiation of the relationship and will periodically
review such transactions to assure that they meet the aforementioned standard.
TASK Trucking Company ("TASK") provides trucking services to the Company
and is owned by a brother-in-law of Messrs. Addington. During 1994, the
Company's expense was $7,407,000 for trucking services provided through TASK.
The Company believes that the price charged for such trucking services was not
greater than the prices generally charged by non-affiliated entities in the
area.
Larry Addington owns a 50% interest in an office building in Owensboro,
Kentucky in which the Company leases approximately 7,300 square feet of office
space for an annual rent of $117,350 during 1993 plus utilities. The lease is
for a term of five years, expiring in 1996. The Company believes that the
rental paid is not greater than that charged by non-affiliated entities in the
area for similar facilities and is comparable to the rate charged to other
tenants in the building, none of whom are related to the Company or Messrs.
Addington.
On February 23, 1993, the U.S. District Court for the District of Montana
entered a judgment in a suit by Bill Robinson, Sr. stating that the defendants
Larry Addington, Larry Harrington, Addwest Gold, Inc., Addington Resources,
Inc., Addington Holding Company, and Addwest Mining, Inc. were jointly and
severally liable to Mr. Robinson for compensatory damages in the amount of
$850,000 and that Mr. Robinson was entitled to punitive damages in the amount of
$1,000 from Larry Harrington, $6,000,000 from Larry Addington, and $4,500,000
jointly and severally from defendants Addwest Gold, Inc., Addington Resources,
Inc., Addington Holding Company, and Addwest Mining, Inc. Mr. Robinson had
alleged breach of contract, fraud and bad faith in relation to his employment
with Addwest Gold, Inc. A settlement has been reached in which Mr. Robinson
released all parties from all claims. The Company paid Mr. Robinson $3,450,000
on April 18, 1994. Pursuant to indemnification agreements, including an
agreement with Larry Addington discussed below, the Company paid the full amount
of the settlement. See Note 18 to the Consolidated Financial Statements.
With respect to the claims against Larry Addington, although the jury
specifically rejected a claim by Mr. Robinson that Mr. Addington had committed
fraud upon him, the court found that there was sufficient evidence to sustain
the finding of liability upon the plaintiff's claim for negligent
misrepresentation and the imposition of punitive damages against Larry
Addington. The court stated that there was sufficient evidence to support a
finding that the alleged negligent misrepresentations made by Larry Addington to
the plaintiff were accomplished with actual malicious intent within
- 61 -
<PAGE>
the meaning of the Montana statute relating to the claims for punitive damages.
Upon a determination by the Board of Directors (Larry Addington abstaining)
that Larry Addington did at all times relevant to the litigation act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, the Company indemnified Mr. Addington against
the amount of any final judgment entered against him and any and all expenses
incurred by him in connection with the litigation. Because the interests of all
the defendants were coincident, no marginal expenses were incurred by Mr.
Addington during the trial phase of the litigation. However, Mr. Addington did
engage separate counsel on appeal. This indemnification is pursuant to an
indemnity agreement entered into with Mr. Addington in August 1988, the form of
which was previously approved by the Company's stockholders. The
indemnification is also in accordance to Section 145 of the General Corporation
Law of the State of Delaware and the Company's Certificate of Incorporation and
Bylaws. The Board of Directors, in meetings at which times it received reports
from counsel on the litigation, determined to indemnify Mr. Addington for past
and future expenses as well as the trial court judgment.
Larry Addington had guaranteed the Company's obligations in connection with
the assignment of a coal sales contract subsequently transferred in the Pittston
Transaction.
- 62 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
-----------------------------------------------------------------
(a)(1) List of Financial Statements Filed. See accompanying Index to
Consolidated Financial Statements and Schedules.
(a)(2) List of Financial Statement Schedules Filed. See accompanying
Index to Consolidated Financial Statements and Schedules.
(a)(3) List of Exhibits Filed.
(3)(A)1 Restated Certificate of Incorporation of Registrant.
(B) Bylaws of Registrant.
(10)(A)2 Deed dated June 18, 1985 by and between Martiki Coal Corporation
and ARMM Coal, Inc.
(B)2 Deed of Conveyance dated June 7, 1984 by and between Franklin
Real Estate Company and ARMM Land Co., Inc.
(C)2 Contract Mining Agreement and Related Agreements dated June 10,
1986 among Addington, Inc., CJC Leasing, Inc., N.O.R. Mining,
Inc., Adams Resources & Energy, Inc., and Third National Bank.
(D)3 Form of Lease Agreement among Larry Addington and Larry K.
Harrington and Addwest Mining, Inc.
(E)4 Employment Agreement between R. Douglas Striebel and the
Registrant, as amended. Compensation Agreement required to be
filed.
(F) Employment Agreement effective as of June 2, 1995, between Kirby
J. Taylor and the Registrant. Compensation Agreement required to
be filed.
(G)5 Addington Resources, Inc. Restated Stock Option Plan, as amended.
Compensation Agreement required to be filed.
(H)5 Form of Indemnity Agreement between the Registrant and its
directors and officers. Compensation Agreement required to be
filed.
(I)5 Employment Agreement dated as of July 14, 1992, between Addington
Environmental, Inc. and William R. Nelson. Compensation
Agreement required to be filed.
- 63 -
<PAGE>
(J) Loan Agreement dated as of January 14, 1994, by and among (i) PNC
Bank, Kentucky, Inc., (ii) Mining Technologies, Inc., Addington
Mining, Inc., and Addwest Mining, Inc. (collectively, the
"Borrowers"), and (iii) the Registrant and Addington Holding
Company, Inc. (collectively, the "Guarantors"), as amended,
March 7, 1994, March 25, 1994, October 11, 1994, and January 14,
1995.
(K) Amended and Restated Revolving Credit Agreement dated as of
May 31, 1994, by and among Addington Environmental, Inc. ("AEI"),
Green Valley Environmental Corp., Mid-State Environmental, Inc.,
and certain AEI subsidiaries, and The First National Bank of
Boston, and Continental Bank N.A., as amended June 30, 1994,
October 12, 1994, and February 21, 1995.
(L) Credit Agreement between Addwest Minerals, Inc. and N M
Rothschild & Sons Limited dated as of June 14, 1994.
(M) Coal Sales Agreement dated January 14, 1994, between Addington
Mining, Inc. and American Eagle Coal Company.
(N) Coal Supply Agreement between The Cincinnati Gas & Electric
Company and Addington Mining, Inc. dated as of November 15, 1993,
as amended June 30, 1994.
(11) Statement re computation of per share earnings. See page F-37 of
the audited Consolidated Financial Statements and Schedules filed
as part of this report.
(21) List of subsidiaries of Registrant.
(23) Consent of Arthur Andersen LLP
(27) Financial Data Schedule
(99)(A)2 Coal Purchase and Sales Agreement dated September 1, 1984 by and
between Fossil Fuels, Inc., Delta Energy Corporation and
Consumers Power Company.
(99)(B)2 Amended and Restated Contract for Purchase and Sale of Coal dated
June 27, 1986 by and between Tennessee Valley Authority and
Addington, Inc. [Contract No. 86P-65-T4] (See Exhibit (99)(D)
and Exhibit (99)(G) pertaining to amendments to Contract No.
86P-65-T4).
(99)(C)2 Contract for Purchase and Sale of Coal dated September 12, 1986
by and between Tennessee Valley
- 64 -
<PAGE>
Authority and Addwest Mining, Inc. [Contract No. 86P-16-T1] (See
Exhibit (99)(E) and Exhibit 99(H) pertaining to amendments to
Contract No. 86P-16-T1)
(99)(D)6 Supplemental Agreement to Contract 86P-65-T4 for Purchase and
Sale of Coal dated May 1989, by and between Tennessee Valley
Authority and Addington, Inc.
(99)(E)6 Supplemental Agreement to Contract 86P-16-T1 for Purchase and
Sale of Coal dated February 1, 1989 by and between Tennessee
Valley Authority and Addwest Mining, Inc.
(99)(F)6 Transfer Agreement dated as of April 3, 1989, by and among
Addwest Mining, Inc. and Addington, Inc. and the Tennessee Valley
Authority.
(99)(G)7 Supplemental Agreement dated October 23, 1990, to Contract
86P-16-T4 by and between Addington, Inc. and Tennessee Valley
Authority.
(99)(H)3 Supplemental Agreements to Contract 86P-16-T1 for Purchase and
Sale of Coal dated May 11, 1989 and October 30, 1991 by and
between Tennessee Valley Authority and Addwest Mining, Inc.
(99)(I)8 Letter Proposal dated March 1, 1995 to the Registrant from Larry
Addington, Robert Addington, and Bruce Addington.
____________________
/1/Incorporated by reference to the Registration Statement on Form
S-1 [File No. 33-22164].
/2/Incorporated by reference to the Registration Statement on Form
S-1 [File No. 33-11918].
/3/Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 [File No.
0-16498].
/4/Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989 [File No.
0-16498].
/5/Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 [File No.
0-16498].
/6/Incorporated by reference to the Registration Statement on Form
S-1 [File No. 33-29848].
- 65 -
<PAGE>
/7/Incorporated by reference to the Registrant's Annual Report
Form 10-K for the fiscal year ended December 31, 1990 [File No.
0-16498].
/8/Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 1, 1995 [File No. 0-16498].
(b) Reports on Form 8-K.
-------------------
During the quarter ended December 31, 1994, the Company filed a
Current Report on Form 8-K dated October 19, 1994, concerning Item 5,
Other Events, reporting the Company's financial results for the period
ended September 30, 1994.
(c) Exhibits.
--------
The exhibits listed in response to Item 14(a)(3) are filed as a part
of this report.
(d) Financial Statement Schedules.
-----------------------------
The financial statement schedules listed in response to Item 14(a)(2)
are filed as part of this report.
- 66 -
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO
CONSOLIDATED FINANCIAL STATEMENTS & SCHEDULES
<TABLE>
<CAPTION>
Page(s)
-----------
<S> <C>
Report of Independent Public Accountants F-2, F-38
Consolidated Balance Sheets as of December 31, 1993
and 1994 F-3 to F-4
Consolidated Statements of Operations for the years
ended December 31, 1992, 1993 and 1994 F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1992,
1993 and 1994 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1992, 1993 and 1994 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-36
Exhibit 11 - Calculation of Net Income (Loss) Per Share F-37
Schedule to Consolidated Financial Statements F-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Addington Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Addington
Resources, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1993 and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Addington Resources, Inc. and
subsidiaries as of December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
March 1, 1995
Louisville, Kentucky
F-2
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of December 31,
--------------------
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,744 $ 3,469
Short-term investments - 8,474
Net assets held for disposal 141,866 -
Accounts receivable, net of allowance for doubtful
accounts of $746 and $1,197 for 1993 and 1994,
respectively 8,945 18,944
Inventories 11,803 6,495
Prepaid expenses and other 7,718 2,776
-------- --------
Total current assets 184,076 40,158
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 140,758 182,835
Less - Accumulated depreciation (22,682) (28,962)
-------- --------
118,076 153,873
-------- --------
ASSETS HELD FOR SALE - 16,605
RESTRICTED CASH 2,348 4,437
OTHER 11,158 8,008
-------- --------
Total assets $315,658 $223,081
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
As of December 31,
--------------------
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,609 $ 14,049
Revolving line of credit 23,442 4,200
Current portion of long-term debt 126,228 7,257
Accrued expenses and other 13,714 13,392
Current portion of deferred income taxes 3,666 1,179
-------- --------
Total current liabilities 172,659 40,077
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 11,955 41,118
Other long-term liabilities 2,705 18,921
Deferred income taxes 3,406 2,744
-------- --------
Total non-current liabilities 18,066 62,783
-------- --------
COMMITMENTS AND CONTINGENCIES - See Note
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000 shares
authorized, 15,675,378 shares and 15,852,851 shares
outstanding at December 31, 1993 and 1994,
respectively 15,675 15,853
Paid-in capital 81,545 83,789
Retained earnings 27,713 20,579
-------- --------
Total stockholders' equity 124,933 120,221
-------- --------
Total liabilities and stockholders' equity $315,658 $223,081
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1992 1993 1994
-------- -------- --------
(in thousands,
except per share amounts)
<S> <C> <C> <C>
REVENUES:
Mining $292,225 $358,957 $113,824
Environmental 7,779 24,929 36,057
Other 1,470 261 1,275
-------- -------- --------
301,474 384,147 151,156
-------- -------- --------
COSTS AND EXPENSES:
Cost of operations (including trucking
services and office rent to related
parties of approximately $17,618, $19,296
and $7,517 for 1992, 1993 and 1994,
respectively) 236,854 313,952 120,133
Provision for asset write-downs - 14,506 6,024
Depreciation and amortization 25,111 29,939 8,776
Selling, general and administrative 21,274 22,302 13,141
-------- -------- --------
283,239 380,699 148,074
-------- -------- --------
INCOME FROM OPERATIONS 18,235 3,448 3,082
-------- -------- --------
INTEREST AND OTHER INCOME (EXPENSE):
Interest expense (13,483) (16,578) (623)
Interest income 791 649 786
Gain on sale of assets 4,285 630 166
Gain (loss) on sale of subsidiaries 10,544 - (6,157)
Litigation settlement (5,100) (4,050) -
Other, net 1,052 (5,705) (8,172)
-------- -------- --------
(1,911) (25,054) (14,000)
-------- -------- --------
Income (loss) before income tax provision
(benefit) 16,324 (21,606) (10,918)
-------- -------- --------
INCOME TAX PROVISION (BENEFIT) 5,288 (5,417) (3,784)
-------- -------- --------
Net income (loss) $ 11,036 $(16,189) $ (7,134)
======== ======== ========
NET INCOME (LOSS) PER SHARE $.72 $(1.04) $(.45)
==== ====== =====
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,240 15,563 15,798
====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Shares
------------------ Paid-In Retained
Authorized Issued Amount Capital Earnings Total
---------- ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 30,000 15,232 $15,232 $77,587 $ 32,866 $125,685
Issuance of common stock upon exercise of
stock options - 9 9 81 - 90
Net income - - - - 11,036 11,036
------ ------ ------- ------- -------- --------
Balance, December 31, 1992 30,000 15,241 $15,241 $77,668 $ 43,902 $136,811
Issuance of common stock upon exercise of
stock options - 434 434 3,877 - 4,311
Net loss - - - - (16,189) (16,189)
------ ------ ------- ------- -------- --------
Balance, December 31, 1993 30,000 15,675 $15,675 $81,545 $ 27,713 $124,933
Issuance of common stock upon exercise of
stock options - 29 29 312 - 341
Issuance of common stock upon acquisition
of subsidiary - 149 149 1,932 - 2,081
Net loss - - - - (7,134) (7,134)
------ ------ ------- ------- -------- --------
Balance, December 31, 1994 30,000 15,853 $15,853 $83,789 $ 20,579 $120,221
====== ====== ======= ======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 1)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,036 $(16,189) $ (7,134)
-------- -------- --------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization,
including amortization of financing
costs 26,052 30,558 8,933
Gain on sale of assets (4,285) (630) (166)
Asset writedowns - 19,111 10,495
(Gain) loss on sale of subsidiaries (10,544) - 6,157
Change in assets and liabilities, net of
effects from acquisitions and disposals--
(Increase) decrease in--
Cash held for disposal - (103) -
Accounts receivable 745 (11,899) (11,466)
Inventories (6,584) (6,358) 379
Prepaid expenses and other (1,393) (5,271) 4,053
Other assets (2,635) 560 (2,656)
Increase (decrease) in--
Accounts payable 1,090 5,406 8,291
Accrued expenses and other liabilities 593 12,081 (15,371)
Deferred income taxes 3,072 (4,510) (3,149)
-------- -------- --------
Total adjustments 6,111 38,945 5,500
-------- -------- --------
Net cash provided by (used in)
operating activities 17,147 22,756 (1,634)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of
disposition costs 11,831 3,846 1,120
Proceeds from sale of subsidiaries, net of
disposition costs 39,354 - 181,641
(Increase) decrease in--
Other assets 137 - (4,000)
Short-term investments 15,000 - (8,474)
Additions to property, plant and equipment (38,889) (51,245) (63,158)
Acquisition of environmental companies,
net of cash acquired (1,158) - (1,863)
-------- -------- --------
Net cash provided by (used in)
investing activities $ 26,275 $(47,399) $105,266
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 1)
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1992 1993 1994
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 2,896 $ 10,388 $ 27,620
Issuance of common stock 90 4,311 341
Retirement of senior secured notes,
including redemption premium - - (129,287)
Repayments of long-term debt (17,228) (7,147) (3,743)
Financing costs incurred (15) (527) (517)
Borrowings (repayments) on revolving
line of credit 1,485 (1,593) (8,321)
-------- -------- ---------
Net cash provided by (used in) financing
activities (12,772) 5,432 (113,907)
-------- -------- ---------
Net increase (decrease) in cash and cash
equivalents 30,650 (19,211) (10,275)
CASH AND CASH EQUIVALENTS, beginning of year 2,305 32,955 13,744
-------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 32,955 $ 13,744 $ 3,469
======== ======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
a. Financial Statement Presentation and Organization-
-------------------------------------------------
The accompanying consolidated financial statements as of December 31,
1992, 1993 and 1994 include the accounts of Addington Resources, Inc.
(the Company) and its wholly-owned subsidiary, Addington Holding
Company, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain
1992 and 1993 amounts have been reclassified to conform to 1994
presentation with no effect on net income (loss).
b. Revenue Recognition and Company Environment-
-------------------------------------------
The mining and environmental industries expose the Company to a number
of risks including: the possibility of the termination of sales
contracts, fluctuating market conditions, changing governmental
regulations, unfavorable mining conditions, loss of key employees and
the ability of the Company to control adequate recoverable mineral
reserves and obtain the necessary permits for its landfills.
Most of the Company's revenues have been generated under long-term
coal sales contracts with electric utilities or other coal-related
organizations located in the eastern United States. Revenues are
recognized on coal sales in accordance with the sales agreement, which
is usually when the coal is shipped to the customer.
The Company recognizes revenue for its waste collection services as
such services are provided. Services are generally billed in advance
and are recorded as deferred revenues until services are performed.
Revenues for the Company's landfills are recognized as waste is
received.
The Company grants credit to its customers based on their
creditworthiness and generally does not secure collateral for its
receivables.
c. Inventories-
-----------
Inventories are stated at average cost, which approximates first-in,
first-out (FIFO) cost, and does not exceed market.
F-9
<PAGE>
d. Depreciation and Amortization-
-----------------------------
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided using either the straight-line or units
produced or consumed methods. The following estimated useful lives are
used under the straight-line method:
Years
-----
Mining and other equipment and
related facilities 5 to 40
Environmental equipment and
related facilities 5 to 40
Transportation equipment 3 to 10
Barge loading facilities 5 to 25
Furniture and fixtures 3 to 10
Capitalized landfill development costs (included in Property, Plant
and Equipment) are amortized as permitted airspace of the landfill or
the related cell, as applicable, is consumed. Units-of-production
amortization rates applicable to each of the Company's operating
landfills are determined annually. The rates are based on estimates
made by Company engineers, considering the information provided by
aerial surveys which are generally performed annually.
Mineral reserves and mine development costs (included in Property,
Plant and Equipment) are amortized using the units-of-production
method, based on estimated recoverable reserves.
Financing costs (included in Other Assets) are being amortized using
the straight-line method, over the life of the related debt, which
approximates the effective interest rate method.
Intangible assets (included in Other Assets) primarily consist of
customer lists and covenants not to compete. These assets are
amortized over their estimated useful lives, usually no longer than
twenty years and five years, respectively, using the straight-line
method.
e. Advance Royalty Payments (included in Other Assets)-
---------------------------------------------------
The Company is required, under certain royalty lease agreements, to
make minimum royalty payments whether or not mining activity is being
performed on the leased property. These minimum payments are
recoupable once mining begins on the leased property. The Company
capitalizes these minimum royalty payments and amortizes them once
mining activities begin or expenses them when the Company has ceased
mining or has made a decision not to mine on such property.
f. Restricted Cash-
---------------
The Company pays amounts into escrow as required under state
regulations related to closure and post-closure costs of its
landfills.
The Company is also mining reserves whose ownership is currently being
disputed. Royalty payments related to these reserves are being
deposited by the Company into an escrow account and will be paid as
the disputes are settled.
F-10
<PAGE>
g. Net Income (Loss) Per Share-
---------------------------
Net income (loss) per share is based on the weighted average number of
common shares and common equivalent shares outstanding, as applicable,
during the periods.
h. Statements of Cash Flows-
------------------------
For purposes of the statements of cash flows, the Company considers
investments having maturities of three months or less at the time of
purchase to be cash equivalents.
The cash amounts of interest and income taxes paid by the Company in
1992, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest, net of amounts
capitalized of $4,806,000,
$2,111,000 and
$1,464,000 $13,556,000 $16,434,000 $2,156,000
Income taxes 3,274,000 2,281,000 785,000
</TABLE>
For 1993 and 1994, the statements of cash flows exclude the impact of
the reclassifications of net assets held for disposal and assets held
for sale, respectively, as such reclassifications are non-cash in
nature.
During 1992, 1993 and 1994, the Company acquired certain assets,
primarily property, plant and equipment, by assuming liabilities,
primarily notes and other payables, issuing common stock, and making
cash payments. The non-cash portions of approximately $1,131,000,
$14,788,000 and $4,440,000 for the years ended December 31, 1992, 1993
and 1994, respectively, have been excluded from the statements of cash
flows.
During 1994, the Company wrote off certain assets of approximately
$10,275,000 against previously established contingency reserves and
other accruals recorded in connection with the Company's de-emphasis
on its mining operations (see Note 2). Such non-cash activity has been
excluded from the 1994 statement of cash flows.
During 1992, the Company also disposed of certain assets, primarily
property, plant and equipment and mineral reserves, by accepting a
note receivable. The non-cash portion of $10,399,000 has been excluded
from the 1992 statement of cash flows.
i. Coal Mine Reclamation and Landfill Closure Cost-
-----------------------------------------------
The Company estimates its future cost requirements for reclamation of
land where it has conducted surface mining operations, based on its
interpretation of the technical standards of regulations enacted by
the U.S. Office of Surface Mining, as well as state regulations.
Accruals for reclamation consider backfilling and grading, coverage of
F-11
<PAGE>
coal seams, reforestation and other costs associated with returning
the land to its pre-mining capabilities or to alternative post-mining
land uses. The Company provides accruals for these costs as surface
mining operations are performed, based on engineering reviews.
The Company also estimates its future cost requirements for closure
and post-closure monitoring and maintenance for solid waste operating
landfills based on its interpretation of the technical standards of
the U.S. Environmental Protection Agency's Subtitle D regulations and
the proposed air emissions standards under the Clean Air Act as they
are being applied on a state-by-state basis. Closure and post-closure
monitoring and maintenance costs represent the costs related to cash
expenditures yet to be incurred when a landfill facility ceases to
accept waste and closes. Accruals for closure and post-closure
monitoring and maintenance requirements consider final capping of the
site, site inspections, groundwater monitoring, leachate management,
methane gas control and recovery, and operation and maintenance costs
to be incurred during the period after the facility closes. The
Company provides accruals for these costs as the remaining permitted
airspace of such facilities is consumed. Engineering reviews of the
future cost requirements for closure and post-closure monitoring and
maintenance for the Company's operating landfills are performed at
least annually. These engineering reviews are the basis upon which the
Company's estimates of these future costs and the related accrual
rates are revised.
j. Income Taxes-
------------
Deferred income taxes are recorded based upon temporary differences
between the financial statement and tax bases of assets and
liabilities and net operating loss carryforwards and tax credits
available for income tax purposes.
k. Derivatives-
-----------
As discussed in Note 22, in order to hedge future gold mine
production, the Company uses derivative financial instruments
consisting of forward sales contracts and option collars related to
gold bullion.
Contracted prices on these instruments are recognized in sales as
production is delivered to meet the commitment. Gains or losses
related to changes in the value of these instruments are also
recognized at such time.
2. Sale of Certain Coal Subsidiaries
---------------------------------
During September, 1993, the Company entered into an agreement to sell the
stock of five of its coal subsidiaries to Pittston Minerals Group, Inc.
("Pittston") for $157 million cash. Before closing, certain property, plant
and equipment (the net book value of which was approximately $43 million as
of December 31, 1993) was transferred to other subsidiaries of the Company
from the subsidiaries to be sold. In addition, the Company retained all of
the net working capital (the net book value of which was approximately $30
million as of December 31, 1993) of the sold subsidiaries as of the date of
closing. In connection with the sale, the Company has provided certain
guarantees to Pittston.
F-12
<PAGE>
This transaction was completed on January 14, 1994.
The subsidiaries sold to Pittston include: Addington, Inc. and its wholly-
owned subsidiary, Ironton Coal Company; Appalachian Mining, Inc.;
Appalachian Land Company; Vandalia Resources, Inc.; and Kanawha Development
Corporation. The operations of these subsidiaries are located in Ohio, West
Virginia and Kentucky.
Other terms of the transaction include the Company entering into a coal
supply contract with Pittston for the sale of 4,920,000 tons over 3-1/2
years at a base price of $26 per ton. Additionally, the Company will
receive a $1 per ton production royalty for coal produced from certain West
Virginia properties sold to Pittston with a minimum royalty of $100,000 per
month, a maximum aggregate royalty in any one year of $1.5 million, and a
maximum aggregate royalty under the agreement of $3.75 million. The Company
will also pay Pittston a royalty of $0.50 per ton of coal produced by two
retained highwall mining machines for 3-1/2 years.
With respect to the $157,000,000 sale price and the net working capital
retained by the Company, approximately $2,500,000 was used to pay the
Company's closing costs for the transaction, including a $1,000,000 payment
to a consultant for the Company and $500,000 to the financial advisors for
their services. The Company used approximately $131,725,000 of the proceeds
to provide for the early redemption of its 12% Senior Secured Notes due
July 1, 1995, including the payment of $4,288,000 as a redemption premium
and approximately $2,437,000 in net interest through March 15, 1994 (the
redemption date). In addition, the Company used certain of the proceeds to
retire all indebtedness outstanding under the Company's revolving line of
credit agreement related to its coal operations. The oustanding balance on
the line of credit as of January 14, 1994 was $23,442,000. The Company also
used approximately $3,800,000 to compensate its employees for extraordinary
efforts expended in connection with the consummation of the transaction,
including approximately $416,500 in connection with the termination of
stock options held by employees who became employees of Pittston as a
result of the transaction.
As a result of this transaction, the net assets relating to the sales
transaction appear as net assets held for disposal in the accompanying
December 31, 1993 balance sheet. Additionally, since the $125,000,000
Senior Secured Notes were redeemed in connection with the transaction, they
have been classified as a current liability in the accompanying December
31, 1993 balance sheet.
In January, 1994, the Company recorded a pre-tax gain of approximately
$118,000 in connection with this transaction. Included in the calculation
of this gain, the Company established certain reclamation reserves due to
the phase-down of production from those mines retained by the Company,
established other contingency reserves due to the de-emphasis of its mining
operations and estimated the effect of various other contractual
arrangements with Pittston. During the third quarter of 1994, the Company
reduced the gain recorded on this transaction by $6,275,000. The reduction
in the gain previously recorded is a result of the Company settling a
working capital adjustment dispute with Pittston and adjusting certain
other contingency reserves specifically set up in connection with this
transaction.
F-13
<PAGE>
In January, 1995, Pittston notified the Company of certain claims for
indemnification in accordance with the terms of the transaction. The
Company is currently negotiating with Pittston concerning these matters,
but at this time does not believe that the claims will result in a material
adverse impact on the Company's financial position.
After the transaction discussed above, the Company continues to own and
operate four eastern Kentucky mines with estimated annual production
capacity of 3,000,000 tons per year. During 1994, the Company opened
additional mines located near these four retained mines and closed two of
the retained mines. Future production from current operating coal mines
will be placed on the Pittston Coal Contract, a new coal supply contract
entered into with The Cincinnati Gas & Electric Company (the "CG&E Coal
Supply Contract") and a new coal supply contract with Kentucky Utilities
(the "KU Coal Supply Contract" -see Note 20). As of December 31, 1994, the
CG&E Coal Supply Contract calls for the sale of up to approximately
10,200,000 tons of coal over the next eleven years (assuming exercise of
option periods) and the KU Coal Supply Contract calls for the sale of
approximately 452,000 tons of coal over the next fifteen months.
Principally due to the Company's de-emphasis on mining operations, the
Company recorded approximately $14,506,000 of asset write-offs in its 1993
financial statements. These write-offs principally relate to its sulfur
mine development project ($9,384,000) which has been abandoned.
Additionally, the Company wrote off approximately $5,122,000 of assets that
it has abandoned associated with its environmental projects.
3. Sale of Subsidiaries
--------------------
a. Kanawha Land Company, Inc.-
--------------------------
During March, 1992, the Company entered into an agreement with
Pittston Coal Sales Corp. ("Pittston") whereby Pittston acquired all
of the outstanding stock of one of the Company's subsidiaries, Kanawha
Land Company, Inc. ("Kanawha"), for $42.5 million in cash and agreed
to purchase certain mining equipment for $17.2 million in cash. The
Kanawha assets acquired by Pittston primarily include two long-term
coal sales contracts with the Appalachian Power Company and four
highwall mining machines. At the date of disposal, the two contracts
called for a total of approximately 21 million tons of coal to be
delivered over the next 14 years.
In connection with the sale of Kanawha, the Company increased its
reclamation accrual by $5,000,000 for certain West Virginia
operations. This increase in the reclamation accrual is a result of
the sale of these two long-term contracts which were being supplied by
the West Virginia operations that were phased down subsequent to this
sale. This $5,000,000 reclamation provision has been netted against
the gain on sale of coal subsidiary in the accompanying 1992
consolidated statement of operations.
F-14
<PAGE>
b. Southern Illinois Mining Company, Inc.-
--------------------------------------
During April, 1992, the Company sold all of the outstanding stock of
one of its subsidiaries, Southern Illinois Mining Company, Inc.
("SIMC"), to Marion Mining Corporation ("Marion") for $1 million in
cash and an approximately $10.4 million promissory note (the "SIMC
Note") bearing interest at six percent. The SIMC Note was secured by:
(i) a pledge of the capital stock of SIMC; (ii) a Mortgage, a Security
Agreement, Assignment of Rents and Profits, and Fixture Financing
Statements, all of which encumber coal reserves and related real
estate located in Williamson County, Illinois; and (iii) a Security
Agreement covering certain of the SIMC assets, excluding accounts
receivable arising out of the sale of coal to TVA under Contract T-1.
At the time of the sale, the assets of SIMC consisted primarily of
Contract T-1 with the Tennessee Valley Authority, a deep mine, certain
coal reserves and a coal preparation facility. The Company guaranteed
SIMC's performance of Contract T-1.
On September 15, 1992, the Company filed suit against Marion and SIMC
in Boyd County Circuit Court, Boyd County, Kentucky for, among other
claims, breach of contract and misrepresentations. The Company claimed
that SIMC had ceased its mining operations and was not shipping coal
under Contract T-1. On September 21, 1992, the Company obtained a
temporary restraining order requiring Marion and SIMC to protect and
preserve the assets of SIMC for the Company's benefit. On February 1,
1993, both Marion and SIMC filed bankruptcy.
On November 5, 1993, the Company filed a foreclosure action in state
court in Illinois to foreclose the security interest in the real
property and personal property of SIMC. SIMC subsequently filed an
adversary proceeding against the Company in United States Bankruptcy
Court for the Eastern District of Kentucky on January 19, 1994. The
Complaint sought the return of $1,000,000 paid by Marion to the
Company as partial consideration for its purchase of the SIMC stock,
the return of $378,200 in royalties paid to the Company subsequent to
the sale and $500,000 in punitive damages. The Company filed an answer
in which it denied the substantive allegations of the Complaint and
asserted various affirmative defenses to the claims.
During 1993, the Company established a $5.8 million reserve against
the SIMC Note. Such valuation was determined considering the estimated
ultimate realizable value of the assets that would be recovered from
bankruptcy.
During the third quarter of 1994, the Company determined that the net
value of the assets to be recovered from bankruptcy would be
substantially less than previously expected. Accordingly, the Company
fully reserved for this note receivable and reserved for certain other
costs to be incurred in connection with bringing the bankruptcy
proceeding to a conclusion.
On November 14, 1994, the U.S. Bankruptcy Court approved a settlement
of all issues between the Company and SIMC. Pursuant to such
settlement, the Company agreed to pay $527,500 to SIMC, and SIMC
agreed to dismiss the adversary proceeding, to convey its interest in
all of the
F-15
<PAGE>
assets that had been subject to the Mortgage and Security Agreement to the
Company and to pay the Company a royalty of $.25 per ton of coal produced
under Contract T-1, if any. The property was conveyed to the Company on
December 13, 1994.
As it is uncertain whether the Company will realize any value from this
property, the Company has recorded such property at a net book value of
zero.
4. Short-term Investments
----------------------
At December 31, 1994, the Company's short-term investments, which are
deemed to be available-for-sale, consisted of investments in debt
securities. The following disclosures are presented in accordance with the
requirements of SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
<TABLE>
<CAPTION>
As of December 31, 1994
-----------------------
Carrying Fair
Amount Value
---------- -----------
(in thousands)
<S> <C> <C>
Corporate obligations $4,000 $4,000
Municipal obligations 4,474 4,474
------ ------
$8,474 $8,474
====== ======
</TABLE>
As the fair value approximates the cost of these investments, there are no
unrealized holding gains or losses associated with such investments as of
December 31, 1994.
The corporate obligations have a stated maturity date of January 1, 2006.
The municipal obligations have stated maturity dates ranging from August 1,
1995 to December 1, 2015.
For the year ended December 31, 1994, the Company received proceeds from
the sale of municipal obligations of $2,000,000. As the fair value of such
investments approximated their cost (using the specific identification
method), there were no realized gains or losses associated with such
investments. No corporate obligations were sold by the Company during the
year.
5. Inventories
-----------
As of December 31, 1993 and 1994, inventories consisted of:
<TABLE>
<CAPTION>
December 31,
--------------------
<S> <C> <C>
1993 1994
------- -------
(in thousands)
Coal $10,222 $ 4,131
Supplies and parts 1,581 2,364
------- -------
$11,803 $ 6,495
======= =======
</TABLE>
F-16
<PAGE>
6. Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. Expenditures for major
renewals and betterments are capitalized while expenditures for maintenance
and repairs are expensed as incurred.
Property, plant and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
<S> <C> <C>
1993 1994
-------- --------
(in thousands)
Land $ 8,987 $ 9,925
Mining and other equipment and
related facilities 44,429 68,582
Environmental equipment and related facilities 8,376 11,426
Transportation equipment 7,758 4,236
Barge loading facilities 2,960 12
Mine development costs 13,366 8,469
Mineral reserves 1,703 2,168
Environmental development costs 51,991 71,920
Furniture and fixtures 1,188 1,614
Construction in process -- 4,483
-------- --------
$140,758 $182,835
======== ========
</TABLE>
Environmental development costs include the costs to develop landfills,
which consist of expenditures for land and related airspace, permitting
costs and preparation costs. Landfill permitting and preparation costs
represent only direct costs related to these activities, including legal,
engineering, construction of landfill improvements, cell development costs
and the direct costs of Company personnel dedicated for these purposes.
Included in property, plant and equipment as of December 31, 1993 and 1994
are approximately $24,062,000 and $33,103,000, respectively, related to
start-up development projects for which depreciation and amortization have
not yet commenced. The Company reviews the realization of these projects on
a periodic basis.
7. Assets Held for Sale
--------------------
Assets held for sale at December 31, 1994, include the Company's citrus
operations in Belize and a corporate jet. The net book value of such assets
approximated $13,400,000 and $3,200,000, respectively, as of December 31,
1994.
The Company does not expect to recognize a loss on the sale of the citrus
operations. In February, 1995,the Company sold the corporate jet for
$4,125,000.
8. Accrued Expenses and Other
--------------------------
As of December 31, 1993 and 1994, accrued expenses and other consisted of:
F-17
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------
<S> <C> <C>
1993 1994
------- -------
(in thousands)
Payroll and employee benefits $ 2,919 $ 2,551
Workers' compensation costs 2,047 1,205
Production related taxes 1,680 834
Reclamation & closure costs 1,217 2,522
Deferred revenue 547 1,151
Litigation 3,450 1,000
Other 1,854 4,129
------- -------
$13,714 $13,392
======= =======
</TABLE>
9. Other Noncurrent Liabilities
----------------------------
As of December 31, 1993 and 1994, other noncurrent liabilities consisted
of:
December 31,
-----------------
1993 1994
------- -------
(in thousands)
[S] [C] [C]
Workers compensation costs $ 1,399 $ 2,982
Reclamation and closure costs 1,306 11,794
Contingencies and other -- 4,145
------- -------
$ 2,705 $18,921
======= =======
10. Accrued Reclamation and Closure Costs
-------------------------------------
As of December 31, 1994, the Company has seven surface mines (three of
which are inactive). The Company is responsible for reclamation costs at
each of these mines. Estimated reclamation costs are accrued for each mine
as mining activities occur and are to be fully accrued at the time the mine
is in the shutdown phase. The amount of additional accruals to be provided
over the remaining lives of the mines is dependent upon the extent of
future mining activities.
As of December 31, 1994, the Company operates nine solid waste landfills.
The Company is responsible for closure and post-closure monitoring and
maintenance costs at most of these landfills which are currently operating
or are engaged in expansion efforts. Estimated aggregate closure and post-
closure costs are to be fully accrued for these landfills at the time that
such facilities cease to accept waste and are closed. Considering existing
accruals at the end of 1994, approximately $58 million of additional
accruals are to be provided over the remaining lives of these facilities.
Such additional accruals to be provided have been estimated based on
current costs and existing regulatory requirements, and assume that the
landfills will be filled to capacity. Due to uncertainties and significant
judgments used in determining this amount, the actual amount to be expended
may differ substantially.
F-18
<PAGE>
11. Debt
----
As of December 31, 1993 and 1994 the Company's debt consisted of the
following:
a. Revolving Lines of Credit--
-------------------------
The Company's coal subsidiaries had a revolving line of credit
agreement with their bank which provided the coal subsidiaries with
short-term borrowings up to a maximum line of credit of $30,000,000,
bearing interest at the prime interest rate plus 1/2%. The outstanding
balance of this line of credit as of December 31, 1993 was
approximately $23,442,000. The weighted average interest rate for 1992
and 1993 related to this line of credit was approximately 6.7% and
6.3%, respectively. This line of credit was paid off in 1994 in
connection with the transaction described in Note 2.
During 1994, the Company's remaining coal subsidiaries entered into a
new revolving line of credit agreement with their bank. This new line
of credit provides the coal subsidiaries with short-term borrowings,
generally equal to 90% of certain accounts receivable plus 50% of
certain coal inventory, up to a maximum line of credit of $15,000,000,
bearing interest at the prime interest rate. The outstanding balance
of this line of credit as of December 31, 1994 was approximately
$4,200,000, leaving borrowing availability under this line of
approximately $10,800,000. The prime interest rate as of December 31,
1994 was 8.5%. The weighted average interest rate for 1994 was
approximately 8.2%.
During 1993, the Company's environmental subsidiaries entered into a
$20 million revolving line of credit agreement with their bank,
bearing interest at 1.5% over the bank's base rate or 3.5% over the
Eurodollar rate, and secured by virtually all of the assets and common
stock of the environmental subsidiaries. Since no principal payments
were required on this line of credit until its expiration in June
1996, the outstanding balance of $10,000,000 as of December 31, 1993
was classified as long-term debt.
During 1994, the Company's environmental subsidiaries amended their
line of credit agreement. This amended line of credit, which is
secured by virtually all of the assets and common stock of the
environmental subsidiaries, provides maximum borrowings of $40 million
and bears interest at either a rate driven by the bank's base rate or
the Eurodollar rate. As of December 31, 1994, $21,000,000 was
outstanding under this line of credit, of which $6,000,000 was at the
bank's base driven rate (9.25%) and $15,000,000 was at the Eurodollar
driven rate (9.125%) The available balance of the line of credit is
further reduced by approximately $10,212,000 in letters of credit
issued by the environmental subsidiaries, primarily as security for
their solid waste revenue bonds and the closure and post-closure
monitoring and maintenance of their landfills. Accordingly, borrowings
available under this line of credit approximate $8,788,000 as of
December 31, 1994. Since no principal payments are required on this
F-19
<PAGE>
line of credit until its expiration in May 1997, the outstanding
balance as of December 31, 1994 is classified as long-term debt. (In
February 1995, this line of credit was amended to provide the Company
with borrowings of up to a maximum of $50 million.)
In connection with these lines of credit, which have been guaranteed
by Addington Resources, Inc., the Company has agreed to certain
restrictive covenants which, among others, limit the amount of
dividends that the Company can pay, limit its ability to incur
additional indebtedness, and require the Company to maintain certain
as defined financial ratios. The Company believes it is in compliance
with these covenants as of December 31, 1994.
b. Senior Secured Notes--
--------------------
On July 11, 1988, the Company issued $125,000,000 of 12% Senior
Secured Notes (the Notes) that mature on July 1, 1995 and received net
proceeds of $120,625,000, which is net of underwriting discounts of
$4,375,000. The Notes were secured by a first priority mortgage and
security interest in certain real and personal property of the Company
and contained various restrictive covenants. In connection with the
transaction dicussed in Note 2, these notes were called for redemption
on March 15, 1994. Therefore, the entire $125,000,000 balance of these
Senior Secured Notes was classified as a current liability at December
31, 1993.
c. Revenue Bonds
-------------
In June, 1994, the Company's environmental subsidiary, Broadhurst
Environmental, Inc., together with the Wayne County Solid Waste
Management Authority, issued $7,400,000 of tax exempt revenue bonds to
finance the construction and development of a landfill in Wayne
County, Georgia. These bonds mature on July 1, 2014 and bear interest
at a rate that floats on a weekly basis. The interest rate fluctuates
based on the rate of interest that competitive securities would bear
having similar credit and maturity characteristics. The bonds are
subject to a maximum interest rate of 12% per annum. The initial
interest rate of the bonds was 3.45% per annum. The interest rate as
of December 31, 1994 was 5.95% per annum. The bonds are supported by
an irrevocable letter of credit issued by the environmental
subsidiaries' bank (see Note 11b). The fee charged by the bank for the
letter of credit is 1.5% per annum.
d. Gold Loan
---------
During 1994, the Company entered into a loan agreement that allows
borrowings of up to $9,330,000. Pursuant to such agreement, the
Company borrowed 23,900 ounces of gold monetized at $9,178,000 on
August 3, 1994, and approximately 398 ounces of gold monetized at
$152,000 on August 31, 1994. The proceeds were used to finance the
development and operation of a gold mine in Mohave County, Arizona.
The loan matures in October 1996 and is payable in varying quarterly
installments of principal and interest which may be made in cash or
gold. The Company anticipates that the loan will be repaid in gold
F-20
<PAGE>
produced from the mine. During 1994, the interest rate on the loan, based
upon the Libor rate and the gold forward offer rates (GOFO), varied from
2.155% to 2.275% (2.275% at December 31, 1994). The loan is secured by the
property and production related to the mine and the proceeds generated by
the mine. In addition, the loan includes certain restrictive covenants
which, among others, limit the amount of dividends that the Company can pay
and requires it to maintain certain as defined financial ratios. The
Company believes it is in compliance with these covenants as of December
31, 1994.
In connection with this loan and consistent with industry practice, the
Company has entered into a hedging agreement related to the anticipated
gold production.
e. Long-term Debt-
---------------
As of December 31, 1993 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------------
1993 1994
-------- -------
<S> <C> <C>
(in thousands)
Senior Secured Notes, see Note 11b $125,000 $ -
Note payable, revolving line of credit, environmental subsidiaries, see Note 11a 10,000 21,000
Gold loan, see Note 11d - 9,330
Solid waste revenue bonds, see Note 11c - 7,400
Note payable, secured by aircraft, with monthly principal and interest payments
of $25,565, bearing interest at 6%, maturing 2001, see Note 7 - 3,346
Note payable, secured by equipment, with annual principal payments of $1,500,321,
bearing interest at 3.05% above the commercial paper rate as stated in the
Federal Reserve Statistical Release, maturing 1997 - 4,501
Note payable, secured by aircraft, with monthly principal and interest payments of
$33,012, bearing interest at .25% below the prime interest rate 1,171 -
Various other notes payable, certain of which are secured by equipment, bearing
interest from 5% to 12% 2,012 2,798
-------- -------
$138,183 $48,375
Less - current portion 126,228 7,257
-------- -------
$ 11,955 $41,118
======== =======
</TABLE>
Principal payments required for long-term debt after December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---------- --------------
(in thousands)
<S> <C>
1995 $ 7,257
1996 7,815
1997 23,150
1998 322
1999 320
Thereafter 9,511
-------
Total $48,375
=======
</TABLE>
F-21
<PAGE>
12. Commitments and Contingencies
-----------------------------
a. Coal Sales Contracts-
--------------------
As of December 31, 1994, the Company had commitments to deliver
scheduled base quantities of coal annually to three customers under
three coal sales contracts. One contract expires in 1996, one expires
in 1997 and one expires in 2005. The contracts call for the Company to
supply a minimum of 14.2 million tons over the remaining lives of the
contracts at prices which are at or above market. Certain of the
contracts have sales price adjustment provisions, subject to certain
limitations and adjustments, based on changes in specified production
costs.
For additional information concerning coal sales contracts, see Item 1
"Business - Major Coal Sales Contracts" of Form 10-K included herein.
b. Leases-
------
The Company has various operating leases for mining and other
equipment. Lease expense for the years ending December 31, 1992, 1993
and 1994 was approximately $22,125,000, $27,500,000 and $8,921,000,
respectively.
The Company also leases coal reserves under agreements that call for
royalties to be paid as the coal is mined. Total royalty expense for
the years ending December 31, 1992, 1993 and 1994 was approximately
$15,399,000, $21,225,000 and $8,582,000, respectively. Certain
agreements require minimum annual royalties to be paid regardless of
the amount of coal mined during the year. However, such agreements are
generally cancelable at the Company's discretion.
Approximate noncancelable future minimum payments are as follows (in
thousands):
<TABLE>
<CAPTION>
Operating
Year Leases Royalties
---------- --------- ---------
<S> <C> <C>
1995 $8,308 $1,395
1996 6,753 1,395
1997 4,989 675
1998 2,215 605
1999 1,096 465
Thereafter 467 1,575
</TABLE>
Included in the above operating lease information is a lease entered
into by the Company during 1994 pursuant to a sale-leaseback
transaction whereby the Company sold a highwall mining system ("the
Equipment") for approximately $5,633,000 and leased it back from the
purchaser ("the Lessor"). Pursuant to such lease agreement, which
expires in November 1998, the Company may purchase the Equipment from
the Lessor for approximately $1,436,000 at the end of the lease term.
If the Company elects not to purchase the Equipment, the Company must
pay to the Lessor the difference between $1,436,000 and the amount
realized by the Lessor from the sale of the Equipment to a third
party. Such payment by the Company cannot exceed approximately
$563,000, however.
F-22
<PAGE>
c. Contract Mining Agreements-
--------------------------
During 1994, the Company entered into various agreements to provide
contract mining services. Under certain of such agreements, the
Company must provide minimum tonnages and is responsible for the
reclamation of the land on which such services were performed. The
Company believes its commitments under these contracts will be
satisfied during 1995.
d. Legal Matters-
-------------
The Company is named as defendant in various actions in the ordinary
course of its business. These actions generally involve disputes
related to contract performance, property boundaries, mining rights,
blasting damage, personal injuries, and royalty payments, as well as
other civil actions. The Company believes these proceedings are
incidental to its business and are not likely to result in materially
adverse judgments.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the
consolidated financial position of the Company.
e. Environmental Service Contracts-
-------------------------------
The Company has commitments (primarily with municipalities) to operate
landfills and provide waste hauling services under various contracts
for terms of up to 40 years. Revenues for such contracts are generally
at stated rates but may be adjusted periodically for inflation.
f. Environmental Proceedings-
-------------------------
The Company is involved in various environmental matters and
proceedings, including permit application proceedings, in connection
with the establishment, operation and expansion activities of certain
landfill facilities, as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a material adverse effect upon the consolidated
financial position of the Company.
g. Licensing Agreement-
-------------------
In June, 1992, the Company entered into a 14-year licensing agreement
that permits Joy Technologies, Inc., a world-wide manufacturer of
mining equipment, to manufacture and market a highwall mining system
that the Company developed and currently uses in its own mining
operations. Under the terms of the agreement, Joy Technologies plans
F-23
<PAGE>
to market the system to mining companies on the basis of a cost per ton of
material mined by the system. The Company and Joy Technologies will share
revenues from origination fees and from usage fees based on tons of
material mined by these other mining companies. Revenues from this
agreement were approximately $1,470,000, $261,000 and $1,275,000 during
1992, 1993 and 1994, respectively.
h. Employment Contracts-
--------------------
The Company has employment contracts with certain members of management
which include bonus payments based on various performance measures and
termination benefits based on the occurrence of certain events.
13. Stock Option and Stock Grant Plans
----------------------------------
The Company has a non-qualified stock option plan pursuant to which
1,500,000 shares of common stock were reserved for issuance and may be
granted to officers, directors, and key employees of the Company and to key
independent contractors of the Company in amounts and upon terms and
conditions to be determined from time to time by the Company. Stock options
generally are exercisable either three years or five years from the date of
issuance. The following stock options have been issued, exercised or
cancelled as of December 31, 1994:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- -------
<S> <C> <C> <C>
Outstanding at beginning of year 754,500 924,300 490,300
Issued 185,000 - 283,000
Cancelled (6,000) - (59,000)
Exercised (9,200) (434,000) (28,800)
------- -------- -------
Outstanding at end of year 924,300 490,300 685,500
======= ======== =======
Exercisable at end of year 708,300 278,000 101,000
Available for future grants at year end 500,000 500,000 276,000
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Price range:
Issued $7.50- 9.63 $ - $ 9.75
Cancelled 9.75 - 7.50- 9.63
Exercised 9.75 9.75-14.75 9.75-14.75
Outstanding at end of year 7.50-14.75 7.50-14.75 7.50-14.75
</TABLE>
In connection with the transaction discussed in Note 2, the Company terminated
all stock options previously granted under its stock option plan to employees
who became employees of Pittston as a result of the transaction.
F-24
<PAGE>
Options for a total of 59,000 shares of the Company's common stock
previously granted to 11 employees were terminated. The Company
compensated each of these employees in the amount of the number of options
held by each employee multiplied by the difference between the per share
option exercise price and $16. The total cost for such terminations was
approximately $416,500.
The Company also has a non-qualified stock grant plan pursuant to which
500,000 shares of common stock were reserved for issuance to employees of
the Company, except that officers, directors and owners of more than 10% of
the Company's common stock are not eligible to receive stock grants. All
stock grants issued to date specify that the recipient of the stock grant
must remain employed by the Company for 5 years from the date of grant in
order to exercise the grant. As of December 31, 1994, the following stock
grants were issued or cancelled:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year 225,650 193,200 173,900
Issued -- -- --
Cancelled (32,450) (19,300) (12,800)
Exercised -- -- --
------- ------- -------
Outstanding at end of year 193,200 173,900 161,100
======= ======= =======
Available for issue at year end 306,800 326,100 338,900
======= ======= =======
</TABLE>
In connection with the transaction discussed in Note 2, the Company has
amended the stock grant plan to provide, among other things, that service
by an employee with Pittston or an affiliate as a result of the transaction
will be counted toward the time of service required under the stock grants.
Approximately 256 employees holding stock grants for a total of 92,400
shares of common stock became employees of Pittston as a result of the
transaction. The Company has included the compensation related to this
matter in its measurement of the loss on the transaction (see Note 2).
14. Income Taxes
------------
SFAS No. 109--"Accounting for Income Taxes" was issued by the Financial
Accounting Standards Board in February, 1992. In conformity with SFAS
No. 109 transition rules, the Company elected to adopt the new income tax
accounting standard effective January 1, 1991. A requirement of SFAS
No. 109 is that deferred income tax liabilities or assets at the end of
each period will be determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Accordingly, income tax
provisions will increase or decrease in the same period in which a change
in tax rates is enacted.
The income tax provision (benefit) for the years ended December 31, 1992,
1993, and 1994 consists of the following:
F-25
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Current:
Federal $3,439 $(1,200) $ 1,304
State 915 847 650
------- ------- -------
4,354 (353) 1,954
------- ------- -------
Deferred:
Federal 790 (4,594) (5,455)
State 144 (470) (283)
------- ------- -------
934 (5,064) (5,738)
------- ------- -------
$5,288 $(5,417) $(3,784)
======= ======= =======
</TABLE>
The following is a reconciliation of the income tax provision (benefit) at the
statutory tax rate of 34% to the Company's effective rate for the years ended
December 31, 1992, 1993, and 1994.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1992 1993 1994
------------------------- ------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal taxes at
statutory rate $ 5,550 34.0% $(7,346) (34.0)% $(3,712) (34.0)%
Statutory depletion in
excess of cost depletion (1,881) (11.5) (2,138) (9.9) (457) (4.2)
Valuation allowance on utilization
of minimum tax credits - - 3,788 17.5 (188) (1.7)
Additional taxes provided 825 5.0 - - - -
Other, net 95 .6 30 .1 331 3.0
State taxes, net of
Federal tax benefit 699 4.3 249 1.2 242 2.2
------ ------ ------- ------ ------- ------
$5,288 32.4% $(5,417) (25.1)% $(3,784) (34.7)%
====== ====== ======= ====== ======= ======
</TABLE>
The provision (benefit) for deferred income taxes resulted from the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Fixed assets $ 935 $ (888) $(7,116)
Deferred overburden 1,185 468 (5,200)
Minimum tax credits (3,503) 3,788 (1,588)
Federal net operating loss
carryforwards 1,978 (5,293) 8,772
Accrued expenses and reserves (230) (2,751) (984)
Other, net 569 (388) 378
------- ------- -------
$ 934 $(5,064) $(5,738)
======= ======= =======
</TABLE>
F-26
<PAGE>
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1993 1994
--------- --------
<S> <C> <C>
Deferred tax assets: (In thousands)
Minimum tax credits $ 8,200 $ 9,600
Federal net operating loss carryovers 8,772 -
Accrued expenses and reserves 4,504 5,488
Other 6,837 416
-------- --------
$ 28,313 $ 15,504
Valuation allowance (3,788) (3,600)
-------- --------
Total deferred tax assets $ 24,525 $ 11,904
-------- --------
Deferred tax liabilities:
Deferred overburden $ (6,592) $ (1,392)
Fixed assets (17,368) (10,252)
Other (7,637) (4,183)
-------- --------
Total deferred tax liabilities $(31,597) $(15,827)
-------- --------
Net deferred tax liability $ (7,072) $ (3,923)
======== ========
</TABLE>
As of December 31, 1994, the Company has no federal net operating loss
carryovers available. As of December 31, 1993, the Company had federal net
operating loss carryovers of approximately $25,800,000 which, if not
utilized, will expire in the years 2007 and 2008.
As of December 31, 1994 and 1993, the Company has alternative minimum tax
credit carryforwards available of approximately $9,600,000 and $8,200,000,
respectively, which have an unlimited carryforward period. A valuation
allowance is provided when it is more likely than not that some portion of
the deferred tax asset will not be realized. In 1994 and 1993, the Company
recorded a valuation allowance of $3,600,000 and $3,788,000, respectively,
against these credits due to uncertainties in realization using the "more
likely than not" valuation method.
15. Major Customers
---------------
Major customers (those in excess of ten percent of total consolidated
revenues) accounted for 27%, 13% and 12% of total revenues for the year
ended December 31, 1992; for 28%, 12% and 11% of total revenues for the
year ended December 31, 1993, and for 23%, 13% and 11% of total revenues
for the year ended December 31, 1994.
16. Workers' Compensation and Black Lung
------------------------------------
The operations of the Company are subject to the Federal Coal Mine Health
and Safety Act of 1969, as amended, and the related state workers'
compensation laws. These laws provide for the payment of benefits to
disabled workers and their dependents, including lifetime benefits for
pneumoconiosis (black lung).
F-27
<PAGE>
The Company has implemented a self-insurance program to cover most of its
employees for workers' compensation, including black lung benefits. Certain
other employees are covered under state-administered workers' compensation
programs.
Black lung expense is being provided, based upon a recent actuarial study,
over the estimated remaining working lives of the miners using accounting
methods similar to that of a defined benefit pension plan. Black lung
expense consists of normal costs for the current period, amortization (over
a ten year period) of the $1,750,000 prior service cost at the date the
Comany became self-insured, plus interest at 8%. Benefits provided are
subject to federal and state laws and, thus, are not under the control of
the Company.
Workers' compensation (including black lung) expense for the years ended
December 31, 1992, 1993 and 1994 was approximately $3,035,000, $3,755,000
and $1,280,000, respectively.
17. Restructuring and Other Charges
-------------------------------
During 1994, the Company recorded certain restructuring charges and other
one-time charges. The charges that are included in the provision for asset
write-downs in operating expenses in the Company's 1994 consolidated
statement of operations are as follows:
(a) Approximately $3.4 million to write off the Company's investment in
its limestone project. Following the Company's evaluation of this
opportunity, the Company determined that it will no longer pursue the
development of its limestone assets. As a result, the entire
investment in these assets has been written off.
(b) Approximately $2 million to write off certain coal assets that will no
longer be utilized or recovered in the remaining coal operations.
These asset write-offs include approximately $1.1 million of
receivables that have been deemed to be uncollectable and a $900,000
write-down associated with a dock owned by the Company which is no
longer being utilized.
(c) Approximately $670,000 associated with certain environmental projects.
The Company had previously incurred costs associated with certain
environmental projects which will no longer be pursued. As a result,
such costs associated with these projects have been written off.
The charges that are included in other expense in the Company's 1994
consolidated statement of operations are as follows:
(a) $6.8 million associated with reserving for the remaining balance of a
note receivable taken in connection with a sale of a coal subsidiary
in April, 1992 and certain other costs associated with this
transaction (See Note 3b).
F-28
<PAGE>
(b) $1.2 million associated with writing off the Company's investment in a
recycling company. The Company had initially invested in a company
that developed certain recycling technology. This company is presently
experiencing substantial financial difficulties and management
believes its carrying value is permanently impaired. As a result, the
Company wrote off its entire investment in this company during 1994.
18. Litigation Settlements
----------------------
a. Addwest Gold-
------------
On November 5, 1992, a U.S. District Court jury returned a verdict
against Addington Resources, Inc. and others for approximately
$850,000 in compensatory damages and $10,501,000 in punitive damages.
Subsequently, the verdict was entered by a judgment of the court. The
suit arose out of an alleged bonus payment due to a former employee of
Addwest Gold in connection with the January, 1990 sale of Addwest Gold
by the Company.
During 1994, the Company reached a settlement with their former
employee whereby all claims were dismissed. As a result of the
settlement, the Company paid the former employee $3,450,000. This
settlement amount is recorded in the December 31, 1993 financial
statements.
b. Ohio River Company-
------------------
On August 11, 1992, the Company filed an action for a declaration of
rights against the Ohio River Company ("ORCO") and SIMC (Note 3) in
the U.S. District Court for the Eastern District of Kentucky at
Ashland. The action arises from a dispute between the Company and ORCO
concerning a transportation agreement for barge transportation of coal
being delivered to TVA pursuant to Contract T-1. In connection with
Marion's acquisition of SIMC, the Company assigned its rights and
obligations under the transportation agreement to SIMC. SIMC's
performance was guaranteed by the Company, and SIMC apparently
defaulted. The Company asked the court to declare the rights of the
parties in regard to the transportation agreement. ORCO asserted
counterclaims against both SIMC and the Company in the action. These
counterclaims sought unspecified damages for lost future profits and
at least $700,000 in damages from the Company for damages allegedly
suffered by ORCO to date.
During 1993, the Company reached a settlement with ORCO whereby both
parties dismissed their claims against each other and agreed to
terminate the Company's obligation under the SIMC transportation
agreement. As a result, the Company agreed to pay ORCO $600,000 which
relates primarily to SIMC's unpaid transportation fees previously
guaranteed by the Company. This settlement amount is recorded in the
December 31, 1993 financial statements.
F-29
<PAGE>
c. Pyramid Mining-
--------------
On October 10, 1990, Pyramid Mining, Inc. and Pyramid Equipment, Inc.
("Pyramid"), subsidiaries of First Mississippi Corporation, filed a
complaint alleging a number of charges against the Company and its
wholly-owned subsidiary, Addwest Mining, Inc. ("Addington Companies"),
among others. Pyramid's complaint sought compensatory and trebled
damages against the Addington Companies in an undetermined amount
believed to be in excess of $8.9 million. The complaint also sought
$20 million in punitive damages and an order for an equitable
accounting and constructive trust to recover, among other things, all
profits made by Addwest Mining, Inc. through the operation of the
Nickle mine and the Jetson mine.
During April, 1992, the Company reached a settlement with Pyramid
whereby both parties dismissed their claims against each other. As a
result of the settlement, the Company paid Pyramid $5,100,000, which
was recorded in the December 31, 1992 financial statements.
d. Consumers Power
---------------
In 1989, the Company became involved in litigation with a customer
(Consumers Power) regarding the sales price of coal shipped under a
coal sales contract and the potential termination of the contract.
Such contract was sold to Pittston in the transaction discussed in
Note 2.
In June, 1994, the Company and Consumers Power settled all claims
between them related to the litigation. In accordance with the
settlement, the Company will pay Pittston, as the Company's successor
in the contract with Consumers Power, $2.78 per ton of coal shipped
under the contract after January 1, 1994. The per ton payment is to be
paid only on the first 720,000 tons of coal shipped, in an amount not
to exceed $2,000,000. Payments are due to Pittston in January of the
year following the shipments of coal. The Company made a payment of
approximately $1,050,000 related to this matter in January, 1995. This
settlement is recorded in the December 31, 1994 financial statements.
19. Related Party Transactions
--------------------------
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of stock-
holders/officers of the Company. The Company recorded various expenses to
related parties consisting of approximately $17,506,000, $19,186,000 and
$7,407,000 for trucking services for the years ended December 31, 1992,
1993 and 1994, respectively, and approximately $112,000, $110,000 and
$110,000 for office rent expense for the years ended December 31, 1992,
1993 and 1994, respectively.
The Company had amounts payable to related parties of approximately
$391,000 and $298,000 as of December 31, 1993 and 1994, respectively.
F-30
<PAGE>
20. Acquisitions
------------
a. NERCO Properties-
----------------
During 1993, in accordance with the terms of an Acquisition Agreement
dated January 29, 1993 between coal subsidiaries of the Company and
NERCO Coal Corp. ("NERCO"), the Company acquired the majority of
NERCO's West Virginia mining operations, primarily consisting of
inventories, property, plant, equipment, coal sales contracts and the
assumption of certain reclamation liabilities, as well as the rights
to approximately 80 million tons of coal reserves.
Unaudited pro forma information for the year ended December 31, 1992
and 1993 has been provided below to reflect the impact on the
Company's historical operations as if the acquisition had occurred on
January 1, 1992. The unaudited pro forma financial information is not
necessarily indicative of the results of operations that would have
occurred had the acquisition occurred during the periods presented or
of the future results of operations.
<TABLE>
<CAPTION>
Pro Forma
(in thousands, except per share data)
Year Ending December 31,
1992 1993
-------- ---------
<S> <C> <C>
Revenue $381,276 $387,977
Income from operations 18,396 3,745
Net income (loss) 11,145 (15,989)
Net income (loss) per share .73 (1.03)
Weighted average shares
outstanding 15,240 15,563
</TABLE>
These operations were sold as part of the transaction discussed in
Note 2.
b. Coal Contract Acquisition-
-------------------------
During August, 1994, the Company acquired a coal contract with
Kentucky Utilities from a third party. The Company paid $1.2 million
for the rights to ship approximately 578,000 tons over 1.5 years at a
minimum sales price of $32.30 per ton.
c. Mid State Environmental, Inc.-
-----------------------------
During 1994, the Company's environmental subsidiary, Mid State
Environmental, Inc., acquired a solid waste landfill and hauling
operation near Macon, Georgia. The purchase price included 148,673
shares of Addington Resources, Inc. stock, cash of approximately
$1,453,000, and future royalties based on revenue generated from the
landfill operation. The Company has also provided to the seller
certain commitments in connection with the aforementioned shares. This
acquisition was accounted for as a purchase.
F-31
<PAGE>
The existing landfill operation near Macon is permitted to accept
construction and demolition wastes and certain industrial wastes. A
new permit allowing the landfill to accept municipal solid waste was
issued shortly after the acquisition and has been appealed. The
Company will begin construction of a new lined area for disposal of
municipal solid waste as soon as the permit is nonappealable. The new
area will be constructed to meet current federal and state landfill
standards.
Once the nonappealable permit is obtained, an additional payment of
approximately $3.6 million will be made to the seller for certain real
property associated with the landfill.
d. Dozit Company, Inc.-
-------------------
During 1994, the Company's environmental subsidiary, Addington
Environmental, Inc., acquired all of the outstanding stock of Dozit
Company, Inc. for approximately $330,000, as well as future royalty
payments based primarily on tons of waste received at the landfill.
This acquisition was accounted for as a purchase.
The landfill is located in Union County, Kentucky. The acquisition
included a newly issued contained landfill construction permit. The
new facility is located adjacent to the existing landfill, was built
to current federal and state landfill standards, and opened in
November, 1994.
e. Tennessee Mining, Inc.-
----------------------
During 1994, the Company's mining subsidiary, Tennessee Mining, Inc.,
acquired approximately 100,000 acres of land and associated mineral
reserves located in eastern Tennessee. The purchase price approximated
$2,000,000, including the assumption of certain obligations.
21. Fair Value of Financial Instruments
-----------------------------------
The following disclosures of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". The Company has
used the following methods and assumptions to estimate the fair value of
each class of financial instrument:
a. Cash and Cash Equivalents-
-------------------------
The fair value approximates the carrying amount due to the short
maturity (three months or less) of the instruments.
b. Short-term Investments-
----------------------
The fair value is based on quoted market prices for the same or
similar financial instruments.
F-32
<PAGE>
c. Restricted Cash--
---------------
The estimated fair value of financial instruments that reprice or
mature in less than three months approximates the carrying amount due
to the short maturities of the instruments. The fair value of
financial instruments with maturities greater than three months are
estimated based on quoted market prices for the same or similar
financial instruments.
d. Long-term Debt--
--------------
The fair value of the Company's debt maturing within one year
approximates the carrying amount due to the short-term maturities
involved.
The fair value of the solid waste revenue bonds approximates the
carrying amount, as the interest rates on the bonds are reset weekly
based on the rate of interest that competitive securities would bear
having similar credit and maturity characteristics.
The fair value of the senior secured notes and other debt is estimated
by discounting future cash flows using an interest rate considered
market for borrowings of similar credit quality and maturity.
The carrying and estimated fair values of the Company's financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------
1993 1994
---------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 13,744 $ 13,744 $ 3,469 $ 3,469
Short-term investments -- -- 8,474 8,474
Restricted cash 2,348 2,348 4,437 4,437
Long-term debt (including
current maturities) (138,182) (142,470) (48,375) (48,072)
</TABLE>
The fair value estimates are made at discrete points in time based on
relevant market information and information about the financial
instruments. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying consolidated balance sheets. In the past, no signficant claims
have been made against these financial instruments. Management believes
that the likelihood of performance under these financial instruments is
minimal and expects no material losses to occur in connection with these
financial instruments.
F-33
<PAGE>
22. Derivative Financial Instruments
--------------------------------
As a result of the hedging agreement described in Note 1k, the Company has
limited involvement with derivative financial instruments. The Company uses
them to manage risk related to the price of gold bullion, which it will
produce at its mine in Mohave County, Arizona, rather than for trading
purposes.
These derivative financial instruments consist of forward sales contracts
and option collars, which have enabled the Company to lock into a
predetermined price range at which it will sell a portion of its gold
bullion production. Under the forward sales contracts, the Company will
sell approximately 38,000 ounces of gold bullion to a counterparty ("the
Counterparty") between January 1995 and December 1996 at prices ranging
from approximately $405 to $408 per ounce. Under the option collars, the
Company can put a total of 20,000 ounces to the Counterparty at a price of
$400 per ounce at certain dates between January 1995 and December 1996.
Alternatively, the Counterparty can call a total of 20,000 ounces from the
Company at such dates at a price of $404 per ounce.
The Company is exposed to market risk in the event that the market price of
gold bullion exceeds the price at which the Company must sell pursuant to
these financial instruments. As the Counterparty is a highly-rated
financial institution, the Company believes that credit risk associated
with these instruments is minimal.
23. Segment Information
-------------------
The Company considers its major business segments to be mining (including
coal, gold, silver, sulfur and limestone) and environmental (including
sanitary landfills and waste collection, recycling and disposal). Included
in the "Other" segment is the Company's technology licensing activities
(Note 12g) as well as citrus operations currently in the development stage.
Information about the Company's operations for each segment is as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended December 31: 1992 1993 1994
--------- -------------- ---------
<S> <C> <C> <C>
Revenues:
Mining $292,225 $ 358,957 $113,824
Environmental 7,779 24,929 36,057
Other 1,470 261 1,275
-------- --------- --------
$301,474 $ 384,147 $151,156
======== ========= ========
Income (loss) from operations:
Mining $ 18,300 $ 7,346 (1) $ 1,746
Environmental 1,620 (1,400)(2) 5,444
Other 1,410 261 1,275
-------- --------- --------
21,330 6,207 8,465
General corporate expenses (3,095) (2,759) (5,383)
-------- --------- --------
$ 18,235 $ 3,448 $ 3,082
======== ========= ========
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Depreciation and amortization:
Mining $ 23,893 $ 26,726 $ 4,036
Environmental 832 2,728 4,133
Other -- -- --
-------- -------- --------
24,725 29,454 8,169
General corporate depreciation and amortization 386 485 607
-------- -------- --------
$ 25,111 $ 29,939 $ 8,776
======== ======== ========
Capital expenditures:
Mining $ 18,291 $ 35,004 $ 33,423
Environmental 18,942 18,271 31,425
Other 1,412 2,595 3,129
-------- -------- --------
$ 38,645 $ 55,870 $ 67,977
======== ======== ========
As of December 31:
Identifiable assets:
Mining $235,430 $225,138 $ 94,883
Environmental 58,938 65,887 99,252
Other 8,983 10,508 13,543
-------- -------- --------
303,351 301,533 207,678
General corporate assets 35,673 14,125 15,403
-------- -------- --------
Total assets $339,024 $315,658 $223,081
======== ======== ========
</TABLE>
(1) Includes asset writedown related to sulfur project ($9,384,000 - See
Note 2).
(2) Includes asset writedown related to certain abandoned assets
($5,122,000 - see Note 2).
Revenues by industry segment are comprised of sales to unaffiliated
customers; there are no intersegment sales.
Identifiable assets by industry segment are those assets that are used in
the Company's operations in each industry. General corporate assets
consist of cash and cash equivalents, short-term investments and deferred
financing costs.
24. Subsequent Event
----------------
On March 1, 1995, the Company received an offer from a group of senior
management (who are also members of the Board of Directors and major
shareholders) to purchase the Company's non-environmental businesses.
Subject to certain conditions contained in the offer, the group offered to
the Company to exchange the shares of the Company's common stock owned by
the group (approximately 45% of the Company's outstanding shares), $5
million
F-35
<PAGE>
cash, and other consideration for the Company's coal and gold mining
operations, its mining equipment manufacturing and licensing unit, citrus
operations and smaller operations. The Company's Board of Directors
authorized a special committee comprised of the Company's two outside
directors to evaluate the offer and to select and retain an investment
banking firm and independent legal counsel to assist the committee in the
evaluation of the offer.
25. Quarterly Financial Data (unaudited - in thousands of dollars except per
------------------------------------------------------------------------
share amounts)
--------------
<TABLE>
<CAPTION>
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter Year
---- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $82,592 $92,098 $101,549 $107,908 $384,147
------- ------- -------- -------- --------
Income (loss) from operations 1,228 3,401 7,631 (8,812)(2) 3,448(2)
------- ------- -------- -------- --------
Net income (loss) $(1,707) $ (8) $ 2,491 $(16,965) $(16,189)
======= ======= ======== ======== ========
Net income (loss) per share(1) $ (.11) $ -- $ .16 $ (1.09) $ (1.04)
======= ======= ======== ======== ========
1994
----
Net revenues $39,599 $35,538 $ 39,714 $ 36,305 $151,156
------- ------- -------- -------- --------
Income (loss) from operations 4,138 2,237 (3,951)(3) 658 3,082(3)
------- ------- -------- -------- --------
Net income (loss) $ 2,869 $ 1,543 $(11,819) $ 273 $ (7,134)
======= ======= ======== ======== ========
Net income (loss) per share(1) $ .18 $ .10 $ (.75) $ .02 $ (.45)
======= ======= ======== ======== ========
</TABLE>
(1) Quarters may not add to annual net income (loss) per share due to
changes in shares outstanding.
(2) Includes asset write downs related to abandoned sulfur project
($9,384,000) and environmental projects ($5,122,000), as described
in Note 2.
(3) Includes the asset write downs and other charges described in Note 17.
F-36
<PAGE>
Exhibit 11
ADDINGTON RESOURCES, INC.
CALCULATION OF NET INCOME (LOSS) PER SHARE
(in thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
<S> <C> <C> <C>
1992 1993 1994
------- -------- -------
Primary net income (loss) $11,036 $(16,189) $(7,134)
======= ======== =======
Average shares of stock outstanding 15,240 15,563 15,798
======= ======== =======
Primary net income (loss) per share $ .72 $ (1.04) $ (.45)
======= ======== =======
</TABLE>
NOTE: The dilutive effect of the Company's common stock equivalents (grants
and shares under option) for the primary net income per share
calculation was insignificant for 1992, 1993 and 1994.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Addington Resources, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Addington Resources, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated March 1,
1995. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the table of contents (page
F-1) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
March 1, 1995
Louisville, Kentucky
F-38
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Description Beginning of Year Costs & Expenses Other Accounts Deductions End of Year
------------------------------------ ----------------- ---------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992-
None $ - $ - $ - $ - $ -
YEAR ENDED DECEMBER 31, 1993-
Reserve for assets in bankruptcy
proceedings (see Note 3 to the
consolidated financial statements) - 5,767 - - 5,767
YEAR ENDED DECEMBER 31, 1994-
Reserve for assets in bankruptcy
proceedings (see Note 3 to the
consolidated financial statements) 5,767 4,632 - (10,399) -
</TABLE>
F-39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ADDINGTON RESOURCES, INC.
Date: March 30, 1995 By /s/ Larry Addington
--------------------
Larry Addington, Chairman of
the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Larry Addington Chairman of the Board
------------------------ of Directors and Chief
Larry Addington Executive Officer March 30, 1995
/s/ R. Douglas Striebel Vice President and Chief March 30, 1995
------------------------ Financial Officer (Chief
R. Douglas Striebel Financial Officer) (Chief
Accounting Officer)
/s/ Robert Addington Director March 30, 1995
------------------------
Robert Addington
Director March __, 1995
------------------------
Bruce Addington
/s/ Carl R. Whitehouse Director March 30, 1995
------------------------
Carl R. Whitehouse
/s/ Jack C. Fisher Director March 30, 1995
------------------------
Jack C. Fisher
<PAGE>
BY-LAWS OF
ADDINGTON RESOURCES, INC.
ARTICLE I
OFFICES
The registered office of the corporation in the State of
Delaware shall be located at The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware. The principal office of the
Corporation is 1500 North Big Run Road, Ashland, Kentucky 41102.
The corporation may have such other offices, either within or
without the State of Delaware, as the business of the corporation
may require from time to time.
ARTICLE II
STOCKHOLDERS MEETINGS AND RECORD DATES
SECTION 1. ANNUAL MEETING. The annual meeting of stock-
holders of the Corporation will be held on the second Tuesday of
July of each year at 10:00 a.m. for the purpose of electing
directors and for the transaction of such other business as may
come before the meeting. If the date set for the annual meeting is
a legal holiday, the annual meeting will be held on the first day
following the second Tuesday in July which is a business day. If
the election of directors shall not be held on the day designated
for any annual meeting, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting
of the stockholders to be held as soon thereafter as may be
convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stock-
holders may be called by the president, by a majority of the
members of the Board of Directors or by the holders of not less
than one-fifth of all the shares entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may
designate any place within or without the State of Delaware as the
place of meeting for any annual meeting or for any special meeting
called by the Board of Directors.
If no designation is made, or if a special meeting be called
by other than the Board of Directors, the place of meeting shall
be the principal office of the corporation, except as otherwise
provided in Section 5 of this article.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the
place, day and hour of the meeting and, in case of a special meet-
ing, the purpose or purposes for which the meeting is called, shall
be delivered not less than ten nor more than sixty days before the
date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or
persons calling the meeting, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail in a sealed
envelope addressed to the stockholder at his address as it appears
on the records of the corporation, with first class postage thereon
prepaid.
SECTION 5. MEETING OF ALL STOCKHOLDERS. If all of the stock-
holders shall meet at any time and place, either within or without
the State of Delaware, and consent to the holding of a meeting,
such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD
DATE. If the stock transfer books are not closed or no record date
is fixed for the determination of stockholders entitled to notice
of or the vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the close of business on
the day next preceding the first date on which notice of the
meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of stock-
holders. When a determination of stockholders entitled to vote at
any meeting of stockholders has been made as provided herein, such
determination shall apply to any adjournment thereof; provided,
however, that the Board of Directors may fix a new record date for
the adjourned meeting.
SECTION 7. VOTING LISTS AND SHARE LEDGER. The secretary
shall prepare a complete list of the stockholders entitled to vote
at any meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares
held by each stockholder, which list, for a period of ten days
prior to any meeting, shall be kept on file at a place within the
city where the meeting is to be held, which place shall be spe-
cified in the notice of the meeting, or at the place where the
meeting is to be held, and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the meeting and shall be
subject to the inspection of any stockholder during the meeting.
The original share ledger or stock transfer book, shall be the only
evidence as to the stockholders entitled to examine such list or
share ledger or stock transfer book, or the stockholders entitled
to vote at any meeting of stockholders or to receive any dividend.
SECTION 8. QUORUM. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, shall con-
stitute a quorum at any meeting of stockholders. The stockholders
present at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 9. PROXIES. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing by the stock-
holder or by his duly authorized attorney-in-fact. Such proxy
shall be filed with the secretary of the corporation before or at
the time of the meeting.
SECTION 10. INFORMAL ACTION BY STOCKHOLDERS. Any action
required or permitted to be taken at any annual or special 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
be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
corporation shall be managed by a Board of Directors.
SECTION 2. NUMBER AND TENURE. The number of directors of the
Corporation shall not be less than three nor more than nine, the
exact number from time to time to be fixed by the Board of
Directors. Each director shall hold office for the term for which
he is elected or until his successor shall have been elected and
qualifies for the office, whichever period is longer.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board
of Directors shall be held without other notice than this bylaw,
immediately after, and at the same place as, the annual meeting of
stockholders. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of Delaware,
for the holding of additional regular meetings without other notice
than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by or at the request of the president or
any two directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place,
either within or without the State of Delaware, as the place for
holding any special meeting of the Board of Directors called by
them.
SECTION 5. NOTICE. Notice of any special meeting shall be
given at least three (3) days prior thereto by written notice
delivered personally, mailed or telegrammed to each director at his
or her business address. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail in a sealed
envelope so addressed, with first class postage thereon prepaid.
If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company.
Any director may waive notice of any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice
or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the Board of Directors
shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, provided that if less than a
majority of the directors are present at said meeting, a majority
of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall serve for
the unexpired term of his predecessor in office.
SECTION 9. COMMITTEES. The Board of Directors may, by reso-
lution passed by a majority of the whole board, designate one or
more committees, each committee to consist of one or more direc-
tors of the Corporation. The Board of Directors may designate one
or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors, shall have and may exer-
cise all of the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation in
accordance with and subject to the General Corporation Law of the
State of Delaware.
SECTION 10. INFORMAL ACTION. Any action required or per-
mitted to be taken at a meeting of the Board of Directors, or any
action which may be taken at a meeting of the Board of Directors or
of a committee, may be taken without a meeting if a consent, in
writing, setting forth the action so taken shall be signed by all
of the directors, or all of the members of the committee, as the
case may be. Such consent shall have the same effect as a
unanimous vote.
ARTICLE IV
OFFICERS
SECTION 1. CLASSES. The officers of the corporation may
include a chief executive officer, a president, one or more
vice presidents, a treasurer, a secretary, and such other
officers, as may be provided by the Board of Directors
and elected in accordance with the provisions of this article.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the Board of Directors at
the first meeting of the Board of Directors held after each annual
meeting of stockholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon
thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his or her successor shall have
been duly elected and shall have qualified or until his or her
death or until he or she shall resign or shall have been removed
from office in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer elected by the Board of
Directors may be removed by the Board of Directors whenever in its
judgment the best interest of the corporation would be served
thereby, but such removal shall be without prejudice to the con-
tract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create
contractual rights.
SECTION 4. CHIEF EXECUTIVE OFFICER. The chief executive
officer shall have general charge and authority over the business
of the Corporation and perform such executive, supervisory, and
management functions and duties as the Board of Directors may from
time-to-time assign.
SECTION 5. PRESIDENT. In the absence of the chief
executive officer or in the event of his inability or refusal to
act, the president shall perform the duties of the chief executive
officer and, when so acting, shall have all the powers of and be
subject to all the restrictions upon the chief executive officer.
The president shall perform such other duties as from time-to-time
may be assigned by the chief executive officer or by the Board of
Directors.
SECTION 6. VICE PRESIDENT. In the absence of the president
or in the event of his inability or refusal to act, a vice presi-
dent shall perform the duties of the president and, when so acting,
shall have all the powers of and be subject to all the restrictions
upon the president. A vice president shall perform such other
duties as from time to time may be assigned by the president or by
the Board of Directors.
SECTION 7. TREASURER. The treasurer shall [a] have charge
and custody of and be responsible for all funds and securities of
the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit
all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance
with the provisions of these bylaws; and, [b] in general, perform
all the duties normally incident to the office of treasurer and
such other duties as from time to time may be normally assigned by
the president or the Board of Directors.
SECTION 8. SECRETARY. The secretary shall [a] keep the
minutes of the stockholders' and of the Board of Directors' meet-
ings in one or more books provided for that purpose; [b] see that
all notices are duly given in accordance with the provisions of
these bylaws or as required by law; [c] be custodian of the cor-
porate records and stock transfer books of the corporation; and,
[d] in general, perform all duties normally incident to the office
of secretary and such other duties as from time to time may be
assigned by the president or by the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS AND AGREEMENTS. The Board of Directors
may authorize any officer or officers, agent or agents, to enter
into any contract or agreement or execute and deliver any
instruments in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
the corporation, and no evidences of indebtedness shall be issued
in its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ORDERS, ETC. All checks, drafts,
or other orders for the payment of money, notes or other evidences
of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents, of the
corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not other-
wise employed shall be deposited from time to time to the credit of
the corporation in such banks, trust companies, or other
depositories as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates repre-
senting shares of the corporation shall be in such form as may be
determined by the Board of Directors. Such certificates shall be
signed by the chairman or vice chairman of the Board of Directors,
or the president or vice president, and by the secretary or
an assistant secretary and may be sealed with the seal of the cor-
poration or a facsimile thereof. All certificates surrendered to
the corporation for transfer shall be cancelled, and no new
certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate, a new
one may be issued therefor upon such terms and indemnity to the
corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the books of the corporation by
the registered holder thereof or by his attorney authorized by
power of attorney duly executed and filed with the secretary of the
corporation, and on surrender for cancellation of the certificate
for such shares. The person in whose name shares stand on the
books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day
of January and end on the 31st day of December of each calendar
year.
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of these bylaws, or under the provisions of the Cer-
tificate of Incorporation, or under the provisions of the cor-
poration laws of the State of Delaware, 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.
ARTICLE IX
AMENDMENT OF BYLAWS
The Board of Directors may alter, amend or rescind these
bylaws, subject to the rights of the stockholders to repeal or
modify such actions.
ARTICLE X
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal, admini-
strative, investigative or otherwise (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director, officer or
employee of the corporation or is or was serving at the request of
the corporation as director, officer or employee of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any
other capacity as a director, officer or employee, shall be indem-
nified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment),
against all expense, liability and loss (including penalties,
fines, judgments, attorneys' fees, amounts paid or to be paid in
settlement and excise taxes or penalties imposed on fiduciaries
with respect to [i] employee benefit plans, [ii] charitable
organizations or [iii] similar matters) reasonably incurred or suf-
fered by such person in connection therewith and such indemni-
fication shall continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of his
or her heirs, executors and administrators; provided, however, that
the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such person (other than pursuant to Section 2 of this
ARTICLE) only if such proceeding (or part thereof) was authorized
by the Board of Directors of the corporation. The right to
indemnification conferred in this Section 1 shall be a contract
right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service
was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan)
in advance of the final disposition of a proceeding shall be made
only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this ARTICLE or
otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim which
the corporation is obligated to pay under this ARTICLE is not paid
in full by the corporation within 60 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
(other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has
been tendered to the corporation) 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 its 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 stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 3. MISCELLANEOUS. The provisions of this ARTICLE
shall cover claims, actions, suits and proceedings, civil or cri-
minal, whether now pending or hereafter commenced, and shall be
retroactive to cover acts or omissions or alleged acts or omissions
which heretofore have taken place. If any part of this ARTICLE
should be found to be invalid or ineffective in any proceeding, the
validity and effect of the remaining provisions shall not be
affected.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The right to indem-
nification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this
ARTICLE shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stock-
holders or disinterested directors or otherwise.
SECTION 5. INSURANCE. The corporation may maintain insur-
ance, at its expense, to protect itself and any director, officer,
employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 6. INDEMNIFICATION OF AGENTS. The corporation may,
to the extent authorized from time to time by the Board of Direc-
tors, grant rights to indemnification, and rights to be paid by the
corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any agent of the corporation
to the fullest extent of the provisions of this ARTICLE with
respect to the indemnification and advancement of expenses of
directors, officers and employees of the corporation.
<PAGE>
EMPLOYMENT AGREEMENT
This is an Employment Agreement (this "Agreement")made
effective as of June 2, 1994, between Addington Resources,
Inc.,(the "Company") and Kirby J. Taylor (the "Employee").
Recitals
A. The Company is a multi-business organization with
interests in the Environmental, Coal, Gold, Citrus and other
businesses. The Company desires to employ the Employee in order
that it may take advantage of the Employee's expertise as a
manager; and the Employee desires to be employed by the Company,
all upon the terms and conditions of this Agreement.
B. The Company considers the establishment and maintenance
of sound and vital senior management to be essential to
protecting and enhancing the best interests of the Company and
its shareholders.
C. The Company desires to employ the Employee and the
Employee desires to be employed by the Company, each upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the
parties to this Agreement, the parties agree as follows:
1. Employment Services. The Company hereby employs the
Employee and the Employee hereby accepts such employment, upon
the terms and conditions of this Agreement.
2. Term. The term of the Employee's employment pursuant to
this Agreement and the obligations of the Company with respect to
such employment (the "Term") shall commence on June 2, 1994 and
continue until terminated by the parties pursuant to the terms
hereof.
3. Duties. During the Term, the Employee shall be the
Company's President and Chief Operating Officer. In those
offices, the Employee shall perform the duties customary for
those positions and such other duties as the Board may from time
to time assign to him. The parties contemplate that the Employee
will serve on the Company's Board of Directors after one year of
employment. The Employee agrees, at the discretion of the
Company's shareholders, to serve on the Board without any
additional compensation.
4. Salary. The Company shall pay the Employee an annual
salary of $225,000 for the calendar year 1994, increasing to
$250,000 annually as of January 1,1995, further increases shall
be negotiated at the end of each calendar year, begining December
31, 1995, for the next succeeding calendar year. Compensation
payments for each year shall be payable in 26 equal biweekly
installments.
5. Bonus Compensation and Stock Options.
5.1. Sign-on Bonus As a sign-on bonus the Employee shall
be paid $100,000 less required deductions; $50,000 receipt of
which is hereby acknowledged; and the other $50,000 at the end of
the first six months of employment.
5.2. Performance Bonus Performance bonus will be
calculated as follows: For after tax company profits of $1.00
per share, Employee will be paid 40% of Employee's base salary.
For after tax profits of $1.50 or more per share, Employee will
be paid 75% of Employee's base salary. For after tax profits of
$2.00 or more per share, Employee will be paid 100% of Employee's
base salary. For after tax profits between $1.00, $1.50 and
$2.00 per share, Employee will be paid on a pro rata basis.
5.3. Stock Options.
(a) Stock Options shall be granted to Employee for
40,000 shares as of the date of employment and 20,000 shares per
year for each of the next succeeding three years for a total of
100,000 shares. The Employee shall earn additional Stock Options
based on performance: For after tax company profits of $1.50 per
share or $2.00 per share (or greater) for any given year, Stock
Options shall be granted to Employee for 20,000 shares or 40,000
shares respectively. For after tax profits between $1.50 and
$2.00 per share, Stock Options will be granted on a pro rata
basis.
(b) The Options shall give the Employee the non-transferable
right to acquire shares in the Company. The number of shares subject to
the Options shall be agreed upon by the Company and Employee in
connection with the establishment of the Company's stock option plan.
The Company will be under no obligation to register the shares to be
issued upon exercise of the Options under the Securities Act of 1933,
as amended, or any state securities laws
(c) The exercise price for each share acquired through
exercise of the Options shall be an amount equal to the fair
market value of such share at the close of business on the date
of the Distribution, based on the value of the stock as
determined by the average of the bid and asked prices of such
shares on the date of the Distribution as supplied by the
National Association of Securities Dealers, Inc. through NASDAQ,
or the last sales price if the stock is included in the NASDAQ
National Market System, or such successor or other quotation
system pursuant to which trading prices of the shares of common
stock are quoted on the date of grant.
(d) The Options shall be issued to the Employee pursuant to
the ARI Restated Stock Option Plan, including without limitation
the term during which such Options may be exercised, unless
otherwise required by law.
(e) The provisions of this paragraph 5.3 will not be
effective until 30 days following the notification of the
director of the Kentucky Division of Securities of this
Agreement.
6. Representations of the Employee. The Employee hereby
makes the following representations and warranties to the Company
as of the date of this Agreement and throughout the Term:
(a) The Employee is subject to no contractual
restrictions which would materially interfere with or prevent the
Employee from performing his services to the Company pursuant to
this Agreement;
(b) Except as disclosed by the Employee to the Company
in writing prior to the execution and delivery of this Agreement,
the Employee is not a party to, nor is he aware of, any pending
or threatened civil or criminal litigation, or governmental or
regulatory investigation or inquiry, which might implicate the
Employee in any wrongdoing, the nature of which, if such events
took place while employed by the Company, would form the basis
for termination for Cause;
(c) Except as disclosed by the Employee to the Company
in writing prior to the execution and delivery of this Agreement,
the Employee has no knowledge of any facts or events which, if
publicly known, would serve as the basis for civil or criminal
litigation or governmental or regulatory investigation or inquiry
of the nature referred to in paragraph 6(b) above;
(d) The Employee has had the opportunity to ask
questions and receive answers concerning the financial condition
and operating results of the Company and to obtain any additional
information (to the extent that such information could be
acquired without unreasonable effort or expense) that the
Employee desired; and
(e) The Employee has the education, qualifications and
experience necessary to satisfactorily perform his duties as set
forth in this Agreement. The Employee shall perform his duties
as set forth in this Agreement to the best of his abilities and
with the diligence and the level of performance which might be
reasonably expected of executive officers in similar positions.
7. Expenses. In accordance with the Company's expense
reimbursement policies and procedures in effect from time to
time, the Employee shall be reimbursed within 30 days for
reasonable out-of-pocket expenses incurred while performing his
services, as long as the Employee provides satisfactory written
documentation of such expenses.
8. Extent of Services; Business Opportunities.
(a) The Employee shall serve the Company faithfully
and to the best of his ability and shall devote his full time,
attention and energies to the business of the Company.
(b) All business opportunities (including development
and acquisition opportunities) developed or located by the
Employee during the term of this Agreement or which the Employee
becomes aware of during the term of this Agreement and which
would be competitive with the Company, shall belong to the
Company. The Employee shall not be entitled to any finder's or
broker's fees in connection with any acquisition opportunities or
in connection with the raising of capital for the Company.
9. Vacation. The Employee shall be entitled to vacation
pursuant to Company policy, to be taken at a time mutually
satisfactory to the Employee and the Company, during which time
his salary shall be paid in full. Unused vacation for any year
during the Term may not be accumulated for use in subsequent
years unless the failure to use such vacation was at the
direction of the Company's Board.
10. Automobile. During the Term, the Company shall provide
the Employee, at the Company's expense, with an automobile,
comparable to automobiles provided to other executive officers of
the Company, for use in connection with the Employee's
performance of his duties under this Agreement, so long as the
Company may recover the cost of that selected make and model over
a three-year period in accordance with Section 168 of the
Internal Revenue Code of 1986, and the regulations thereunder.
11. Insurance. Throughout the Term, subject to the
Employee's insurability, the Company shall maintain with a
reputable issuer a term policy insuring the Employee's life and
guaranteeing the Employee's designated beneficiary or
beneficiaries a benefit payable upon the Employee's death of
$750,000. Throughout the Term, the Company shall provide the
Employee with health insurance coverage for the Employee, his
wife, and children comparable to the coverage provided by the
Company to its other employees. The Company shall bear the full
cost of all such insurance provided.
12. Club Memberships. During the Term, the Company shall
pay all initiation fees, dues and assessments associated with the
Employee's membership in any one country club located in the Boyd
County area in which the Employee becomes a member. The Company
may assign to the Employee, in satisfaction of its obligations
under this paragraph 12, a corporate membership in the country
club of the Employee's selection, if such membership may be
obtained by the Company.
13. Moving Expenses. The Company shall pay up to the sum
of $40,000 for relocation expenses, upon receipt of satisfactory
written documentation associated with the Employee's relocation
to Boyd County, Kentucky.
14. Termination. If the Employee is terminated for any
reason other than cause, the Employee shall be entitled to the
termination benefits provided in paragraph 15 below, unless such
termination is (a)because of the Employee's death or Retirement;
or (b) by the Company for gross negligence or willful misconduct.
15. Compensation Upon Termination. If the Employee is
entitled to receive termination benefits pursuant to paragraph 14
above, the Company shall pay to the Employee on the 30th day
following the Date of Termination as severance compensation in a
lump sum an amount equal to:
(a) any accrued but unpaid balance of the Employee's
(i) salary through the Date of Termination at the rate in effect
at the Date of Termination, (ii) bonus, prorated through the Date
of Termination; (iii) the value of or vested right to all Stock
Options earned to date of termination, plus
(b) an amount equal to the Employee's full salary, at
the rate in effect as of the Date of Termination, for a period of
two years.
Notwithstanding anything stated to the contrary herein,
neither the Employee or the Employer shall be entitled to any
multiple, indirect, consequential or punitive damages for the
breach or violation of this Agreement, and payment of any
termination benefits shall be contingent on the negotiation and
execution of a mutually acceptable release agreement, releasing
each party from all obligations to the other.
16. Definitions. For purposes of this Agreement, the
following words and terms shall have the following meanings:
(a) Cause. Termination by the Company of the
Employee's employment for "Cause" shall mean termination upon
(i)the failure by the Employee substantially to perform his
duties in any material respect on behalf of the Company after
written demand for substantial performance has been delivered to
the Employee by the Board, which demand specifically identifies
the duties in which the Board believes that the Employee has not
substantially performed, (ii) the engaging by the Employee in
gross misconduct materially and demonstrably injurious to the
Company, (iii) the material breach by the Employee of his
fiduciary duty to the Company or its shareholders, (iv) the
material breach of any representation and warranty set forth in
this Agreement, (v)the violation by the Employee of any law, rule
or regulation, if such violation might, in the reasonable opinion
of the Company's Board of Directors, have a material adverse
impact on the Company's business or reputation, or (vi) the
issuance with respect to the Employee of any cease-and-desist
order or similar order or ruling by the Securities and Exchange
Commission or any securities exchange, if the issuance of such
cease-and-desist order or similar order or ruling by the
Securities and Exchange Commission might, in the reasonable
opinion of the Company's Board of Directors, have a material
adverse impact on the Company's business or reputation.
Notwithstanding the foregoing, the Employee shall not be deemed
to have been terminated for Cause until there shall have been
delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with his counsel, to be
heard before the Board), finding that in the good faith opinion
of the Board, the Employee was guilty of conduct set forth above
in this paragraph 16(a) and specifying the particulars thereof in
detail;
(b) Date of Termination. "Date of Termination" shall
mean the date specified in the Notice of Termination as defined
in paragraph 16(e);
(e) Notice of Termination. Any termination by the
Company, pursuant to this Agreement, shall be communicated by
written notice of such termination to the Employee. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice,
from the Company, which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Employee's employment under the
provision so indicated.
(f) Retirement. Termination of the Employee's
employment based on "Retirement" shall mean voluntary termination
in accordance with the Company's retirement policies, generally
applicable to its salaried employees or in accordance with any
retirement arrangement established with the Employee's consent
with respect to the Employee.
17. Termination. The Employee's employment pursuant to
this Agreement shall be terminated upon the occurrence of the
earliest of the following events:
(a) On the death of the Employee;
(b) Whenever the Company and the Employee shall agree
in writing to terminate this Agreement;
(c) Upon the occurrence of an event which would serve
as the basis for the termination of the Employee's employment for
Cause; or,
(d) The material breach by the Employee of his
obligations under this Agreement.
Upon any such termination, the Employee shall be entitled to
receive only the salary payable as of the end of the next pay
period in which the event of termination occurs or becomes
effective and any earned but unpaid bonus or Stock Options, and
he shall not be entitled to additional compensation or benefits.
18. Restrictive Covenant.
(a) As an essential ingredient in consideration of
this Agreement, the Employee agrees that he shall not, during the
term of this Agreement, and for a period of two years from the
effective date of the termination for any reason whatsoever of
his employment under this Agreement, whether such termination is
voluntary or involuntary, either directly or indirectly, for or
on behalf of himself or any person, persons, partnership,
corporation or other entity, other than the Company:
(i) Engage in a competitive business within a 75
mile radius of any of the Companies core business locations;
(ii) Solicit or accept the business of any
current or former customers of the Company or its affiliates
(other than through the obtaining of national accounts where the
solicitation of such business is not made to or through contacts
developed with such customer while in the employ of the Company);
(iii) Except in the course of his employment
hereunder and for the benefit of the Company, take, use,
appropriate or divulge to anyone any Proprietary Information or
other confidential information of the Company; or
(iv) Enter into agreement with or solicit the
employment of, employees of the Company for the purpose of
causing them to leave the Company or to do any of the acts
described in paragraphs 18(a)(i) through (iii) above.
(b) In connection with the Employee's employment, he
will be exposed to Proprietary Information of the Company and its
affiliates. For purposes of this Agreement, "Proprietary
Information" means any trade secret of or private information
concerning the Company and its affiliates, including, without
limitation, the Company's or its affiliates' design, use,
purchase or sale of its Addcar System and agreements pertaining
thereto, landfills and other waste disposal products and
facilities; information concerning product designs, manufacturing
methods, processes, treatment or composition of materials, plant
layout, marketing plans or proposals, contracts, agreements,
customer lists and customer needs, requirements and preferences;
and information concerning existing and potential waste sources
and landfill or waste disposal development and acquisition
opportunities. The Company has expressly or impliedly protected
such information from unrestricted use by persons not associated
with the Company. Information that is generally known to the
Company's competitors without prior disclosure by the Employee
shall be excluded from the scope of "Proprietary Information" for
purposes of this Agreement.
19. Specific Enforcement. In the event of a breach of the
Employee's covenants in this Agreement, it is agreed that damages
will be difficult to ascertain and that the Company may petition
a court of law or equity for, and be granted, injunctive relief
in addition to any other relief which the Company may have under
the law, including reasonable attorneys' fees. The Employee
represents and acknowledges that the enforcement of any remedy
under this Agreement, including specific enforcement, will not
prevent him from earning a livelihood because his abilities are
such that he reasonably can expect to find work. In any
litigation between the parties to this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees to the
extent permitted by law.
20. Benefit.
(a) This Agreement shall inure to the benefit of and
shall be binding upon the Company, its successors and assigns.
Neither the benefit nor burden of this Agreement is assignable by
the Employee. Any attempted assignment by the Employee shall be
null and void and shall terminate this Agreement, except for
provisions regarding confidentiality and non-competition which
shall be enforceable by the Company against the Employee.
(b) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets,
or both of the Company by agreement in form and substance
satisfactory to the Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if such succession
had not taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Employee to
compensation from the Company in the same amount and on the same
terms as he would have been entitled hereunder if his employment
had been terminated for other than Cause, provided that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, the "Company" shall mean
the Company as defined in this Agreement and any successor to its
business or assets or both as aforesaid or which otherwise
becomes bound by all the terms and provisions of this Agreement
by operation of law.
21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Kentucky. The parties hereto irrevocably submit to the
nonexclusive jurisdiction of any State or Federal court sitting
in Boyd County, Kentucky in any action or proceeding arising out
of or relating to this Agreement, and hereby irrevocably agree
that all claims in respect of such action or proceeding may be
heard and determined in such court. The parties hereby
irrevocably waive, to the fullest extent that they may
effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
22. Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and other understandings
with respect to the subject matter hereof. No change,
modification, addition or amendment of this Agreement shall be
enforceable unless in writing and signed by the party against
whom enforcement is sought.
23. Headings. The headings contained in this Agreement are
included for ease of reference only and shall not be considered
in the interpretation or enforcement of this Agreement.
24. Provisions Severable. To the extent that any one or
more of the provisions of this Agreement shall be invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired.
25. Notices. All notices required to be given under this
Agreement shall be in writing and may be given in person or by
United States mail, by delivery service or by electronic
transmission. Any notice directed to a party to this Agreement
shall become effective upon the earliest of the following: (i)
actual receipt by that party; (ii) delivery to the designated
address of that party, addressed to that party; or (iii) if given
by certified or registered United States mail, five business days
after deposit with the United States Postal Service, postage
prepaid, addressed to that party at its designated address. The
designated address of a party shall be as follows unless a party
specifies another address to the other party by means of a notice
given in accordance with the provisions of this paragraph 25:
If to the Company:
Addington Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Fax: (606) 928-3433
If to the Employee:
Kirby J. Taylor
201 Princess Dr.
Bellefonte, Kentucky 41102
IN WITNESS WHEREOF, the Company and the Employee have
executed this Agreement as of the date first set forth above, but
actually on the dates set forth below.
ADDINGTON RESOURCES, INC.
By /s/ Larry Addington
Title: C.E.O.
Date: 1/31/95
/s/ Kirby J. Taylor
KIRBY J. TAYLOR
Date: 1/31/95
MDJ
1/13/95
396:addingto:asc:exhibit1.0e
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered
into as of the 14 day of January, 1994, by and among (i) PNC BANK,
KENTUCKY, INC., a Kentucky banking corporation ("PNC"); (ii) MINING
TECHNOLOGIES, INC., a Kentucky corporation ("Mining"), ADDINGTON
MINING, INC., a Kentucky corporation ("Addington") and ADDWEST
MINING, INC., a Kentucky corporation ("Addwest"; collectively with
Addington and Mining, the "Borrowers"); and (iii) ADDINGTON
RESOURCES, INC. ("ARI"), a Delaware corporation, and ADDINGTON
HOLDING COMPANY, INC. ("AHI"), a Delaware corporation;
(collectively, the "Guarantors").
R E C I T A L S
A. The Borrowers and Guarantors desire to have PNC establish
in favor of the Borrowers a FIFTEEN MILLION AND NO/100 DOLLARS
($15,000,000.00) working capital revolving credit loan (the
"Revolving Credit").
B. The Borrowers and Guarantors also desire to have PNC
establish a TEN MILLION AND NO/100 DOLLARS ($10,000,000.00)
discretionary line of credit in favor of the Borrowers (the
"Discretionary Line of Credit").
C. The Guarantors, in consideration of the substantial
economic benefit that they will receive from the Revolving Credit
and Discretionary Line of Credit, desire to join in this Loan
Agreement for the purpose of making certain representations,
warranties, and covenants in order to induce PNC to establish the
Revolving Credit and Discretionary Line of Credit in favor of the
Borrowers.
NOW, THEREFORE, in consideration of the Recitals and the
mutual covenants and agreements set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions. As used in this Loan Agreement, the
following terms and phrases shall have the meanings set forth below
or by reference. Other terms and phrases are defined elsewhere in
this Loan Agreement and the meanings given to such terms and
phrases shall be applicable throughout this Loan Agreement. The
meanings given terms and phrases in and for purposes of this Loan
Agreement may not be applicable in other Loan Documents.
1.1 "Accounts" shall mean, (i) as to the Borrowers,
Borrowers' rights to receive payment for coal sold by any
Borrowers, which rights to payment have been fully earned by
Borrowers' performance, and which are not evidenced by an
"instrument" or "chattel paper," as those terms are defined in the
Uniform Commercial Code, (ii) as to AHI, AHI's right to receive
payments from Pittston Acquisition Company ("Pittston") pursuant to
Section 1(c) of that certain Stock Purchase Agreement dated as
September 24, 1993, by and between AHI and Pittston (the "Stock
Purchase Agreement"), which rights to payment have been fully
earned by AHI's performance and which are not evidenced by an
"instrument" or "chattel paper" as those terms are defined in the
Uniform Commercial Code, and (iii) as to AHI, all accounts assigned
to AHI pursuant to Section 2 of that certain Agreement entered into
as of January 14, 1994, by and among AHI, Pittston Acquisition
Company, PNC and others (the "Escrow Agreement"), which rights to
payment have been fully earned by AHI and/or any other party
obligated to perform to earn payment of such accounts, and which
are not evidenced by any "instrument" or "chattel paper," as those
terms are defined in the Uniform Commercial Code, which accounts
are also included in the term "Excluded Assets," as that term is
defined in Section 3(c)(i) of the Stock Purchase Agreement.
1.2 "Advance" shall mean a disbursement of proceeds of
the Revolving Credit.
1.3 "Affiliate" shall mean (i) any entity in which more
than ten percent (10%) of the ownership interest (or rights
convertible into such interest) is owned by Borrowers (or either of
them), any Major Shareholder, either Guarantor, any Subsidiary, or
any combination thereof, (ii) any Major Shareholder, (iii) either
Guarantor, (iv) any Subsidiary, and (v) any Person or Entity
controlling, controlled by, or under common control with any of the
Persons or Entities described in (i), (ii) or (iii) of this Section
1.3.
1.4 "and/or" means one or the other or both, or any one
or more or all, of the things or persons or parties in connection
with which the conjunction is used.
1.5 "Borrowers" shall mean Addington Mining, Inc.,
Addwest Mining, Inc. and Mining Technologies, Inc.
1.6 "Borrowers' Agent" shall mean ARI.
1.7 "Borrowers' Disbursement Account" shall mean the
demand deposit account maintained by the Borrowers with PNC for
purposes of the disbursement of Advances by PNC.
1.8 "Borrowing Base" means, with respect to Borrowers,
the amount, computed pursuant to and in accordance with the terms
and provisions of Section 3.4 hereof, which aggregate outstanding
principal balance of the Advances to Borrowers may not exceed at
any time (subject in all events to the maximum amount of the
Revolving Credit established hereunder).
1.9 "Borrowing Base Certificate" means the certificate
as to the level and amount of the Borrowing Base for Borrowers (the
form of which being attached hereto and incorporated herein as
Exhibit 1.9), certified to be true, correct and accurate by a
Designated Officer of the Borrowers' Agent.
1.10 "Borrowing Rate" means, as to a particular Advance,
either (i) a floating rate per annum equal to the Prime Rate
calculated on the basis of an assumed 360 day year for the actual
number of days elapsed, or (ii) the LIBOR rate, as more fully
described in Section 3.7 herein.
1.11 "Business Day" means all calendar days except
Saturdays, Sundays and legal holidays of the United States
Government. With regard only to the time for funding any Advance,
the term Business Day shall also exclude other days on which PNC is
not open for the regular conduct of business as allowed by
applicable law.
1.12 "Capital Expenditures" shall mean any expenditures
of any Borrower, either Guarantor or any Subsidiary which would be
classified as capital expenditures under GAAP and shall include,
without limitation, Capitalized Lease Obligations.
1.13 "Capitalized Lease Obligations" shall mean the
principal amount due under any lease of either of the Borrowers,
either of the Guarantors, or any Subsidiary over the life of the
lease under which the obligations of any Borrower, such Guarantor
or such Subsidiary, as lessee, would be included in determining the
total liabilities for the balance sheet of any Borrower, such
Guarantor, or such Subsidiary in accordance with GAAP.
1.14 "Coal Sales Contracts" shall have the meaning set
out in Section 10.13 hereof.
1.15 "Combined Basis" with regard to any financial or
accounting calculation shall mean the Borrowers and all Guarantors
taken on a consolidated basis in accordance with GAAP.
1.16 "Continuing Representations" shall have the meaning
set out in Section 10.
1.17 "Debt Service" shall mean for any period, the
Interest Expense for such period plus all current maturities of the
Funded Indebtedness (excluding amounts outstanding on the
Revolving Credit) during such period.
1.18 "Default Rate" shall mean the Borrowing Rate plus
5%. The Default Rate is a floating rate per annum, calculated on
an assumed year of 360 days and actual number of days elapsed.
1.19 "Designated Officer" means any officer designated
from time to time by the President or Board of Directors of any
Borrower or a Guarantor, in a writing delivered to PNC, who is
authorized to make any certification or take any action required of
such Borrower or such Guarantor under this Loan Agreement or any
other Loan Document. PNC may rely on any designation until a new,
written designation is received by PNC. The current designated
officers are listed on Exhibit 1.19, and in all events the
President, any Vice President and the Chief Financial Officer of
any Borrower and each Guarantor shall be deemed Designated Officers
of such Borrower or such Guarantor.
1.20 "Discretionary Line of Credit" shall mean that
certain $10,000,000.00 discretionary line of credit established by
PNC for the benefit of the Borrowers, as more fully described in
Section 6.
1.21 "Disqualified Asset" shall have the meaning set out
in Section 3.4 hereof.
1.22 "Earnings Before Interest and Taxes" shall mean for
any period, the sum of (i) the income (or deficit) of Borrowers and
Guarantors taken on a Combined Basis, before provision for income
taxes for the period, calculated in accordance with GAAP, plus,
(ii) Interest Expense for such period.
1.23 "Eligible Accounts Receivable" means bona fide,
collectible outstanding Accounts (as defined in Section 1.1 hereof)
owed to any Borrower by solvent account debtors approved from time
to time by PNC, owed to AHI by Pittston pursuant to Section 1(c) of
the Stock Purchase Agreement or assigned to AHI pursuant to Section
2 of the Escrow Agreement, but excluding all the following: (a)
Accounts which remain unpaid for more than sixty (60) days after
their respective invoice dates; (b) Accounts which are not due and
payable within sixty (60) days after their respective invoice
dates; (c) Accounts which remain unpaid for more than ninety (90)
days after shipment, notwithstanding the invoice date; (d) Accounts
which have not been invoiced by the applicable Borrower as of any
particular date; (e) Accounts in which or to the extent that PNC
reasonably believes the any Borrower has no interest greater than
an interest as agent or attorney-in-fact for another Person or
Entity, and with respect to which such other Person or Entity has
not assigned to PNC its interest pursuant to documents satisfactory
to PNC, in its sole discretion; (f) Accounts payable in other than
United States Dollars or by account debtors located outside of the
United States of America; (g) Unless waived by PNC, commencing 30
days after the date of this Loan Agreement, Accounts for which PNC
has not received a copy of a direction to pay, sent by the
appropriate Borrower to the account debtor of such Account, on a
form approved by PNC, directing all payments from such account
debtor be made to the account of the appropriate Borrower at PNC;
(h) Accounts in which PNC, for any reason, does not have a first,
prior and perfected security interest, valid under applicable law
and securing all Indebtedness; (i) Accounts owed to any Borrower by
an Affiliate; (j) Accounts owed to any Borrower by an account
debtor which is a governmental entity or agency, unless all
required steps have been taken to insure the validity and priority
of PNC's security interest in such Accounts, and (k) Accounts
against which there is any claim, charge, defense or matured right
of offset known to any Borrower.
1.24 "Eligible Equipment" shall mean all Equipment
constituting mobile surface mining equipment owned by any Borrower
or Guarantor, which (i) is free and clear of any and all liens and
encumbrances, (ii) is in good operating condition and repair, and
(iii) is operating on property in Kentucky owned or controlled by
any Borrower or Guarantor. The Eligible Equipment is listed on an
equipment list supplied by Borrowers to the Bank, which is attached
hereto as Exhibit 1.23 and incorporated herein by reference (the
"Equipment List"). Any additions to the Equipment List must be
approved by PNC in writing. The Equipment List (and any additions)
must include the make, model, and serial number of each item of
Equipment, and shall also include the most recent "The Green Guide"
value (or an equivalent valuation approved by PNC) of each item of
Equipment. The Equipment List must be updated on a quarterly
basis, beginning March 1, 1994, which updated Equipment List shall
reflect the addition or deletion of any items of Equipment from the
prior Equipment List, as well as the most recent The Green Guide
value. The Equipment List shall also be updated within five (5)
Business Days of the sale or other disposition of any items of
Eligible Equipment. All Equipment Lists shall be certified by
Borrowers' Agent as being true, accurate and correct.
1.25 "Eligible Inventory" means severed coal purchased
from Affiliates and/or produced by Borrowers in the normal course
of business as inventory for shipment within thirty (30) days of
purchase from an Affiliate or production to fill an unconditional
order to buy by a third party (other than an Affiliate) under a
bona fide and binding Coal Sales Contract setting forth the terms
of such purchase by the third party, including the tonnage, price,
specifications, premiums or penalties, required shipping dates and
such other matters as may be required from time to time by PNC. In
order to be Eligible Inventory, such coal described above must be
fully processed and meet the specifications of the intended sale
and be stored in stockpiles clearly identified as belonging to any
Borrower at one of the loading facilities described on Exhibit 1.25
to this Loan Agreement. Inventory shall cease to be Eligible
Inventory if it is damaged or is not shipped within 30 days of
stockpiling.
1.26 "Equipment" means all machinery, equipment,
facilities and other personal property or fixtures of every kind or
nature now or hereafter located at or on any of the Mining
Properties, or elsewhere, which are now or hereafter owned, leased
or otherwise held by any Borrower, either Guarantor or any
Subsidiary and which are used or useful for the mining,
transportation or processing of coal or otherwise in the conduct of
any Borrower's, either Guarantor's or any Subsidiary's business,
together with all additions, attachments, substitutions,
replacements and improvements to any or all of the foregoing.
1.27 "Equipment Liquidation Value" shall mean the Green
Book value of each item of Eligible Equipment, as the value may
vary from time to time.
1.28 "ERISA" shall have the meaning set out in
Section 9.13 hereof.
1.29 "Event of Default" means the occurrence or
happening of any of the matters set forth in Section 11 hereof.
1.30 "Expiration Date" shall mean January 14, 1995, or
the last day of any approved renewal period of the Revolving Credit
as set out in Section 3.2 hereof.
1.31 "Funded Indebtedness" means all indebtedness of the
Borrowers and Guarantors (on a Combined Basis) which would, for the
applicable period, be classified in whole or in part as a long-term
liability in accordance with GAAP and shall, in any event, include
(i) any indebtedness having a final maturity more than one year
from the date of creation of such indebtedness and (ii) any
indebtedness, regardless of its term, which is renewable or
extendable by the borrower thereof to a date more than one year
from the date of the creation of such indebtedness.
1.32 "GAAP" means generally accepted accounting
principles in the United States of America, as such accounting
principles are generally accepted by the accounting profession on
the date of this Loan Agreement, applied on a consistent basis.
1.33 "The Green Guide" means that certain publication of
Dataquest, Inc., a subsidiary of Dunn & Bradstreet Corporation,
which publication pertains to new and used equipment values.
1.34 "Indebtedness" means (collectively) all obligations
and liabilities of Borrowers and any and all of the Guarantors to
PNC, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, or now or hereafter existing, or
due or to become due, whether debt, lease, contract, or otherwise,
and whether represented by a note or other instrument, Letter of
Credit, or otherwise, now existing or hereafter acquired or arising
either directly or indirectly. Included in the term "Indebtedness"
shall be all obligations of Borrowers under this Loan Agreement,
the Revolving Note, the Discretionary Line of Credit, the other
Loan Documents, as well as all Reimbursement Obligations.
1.35 "Interest Expense" shall mean for any period the
interest paid or accrued during such period (including imputed
interest on Capitalized Lease Obligations) on the Total
Indebtedness of the Borrowers and Guarantors, on a Combined Basis.
1.36 "Inventory Value" shall mean, with respect to
Eligible Inventory, the lower of (i) the cost of production or
purchase of such Eligible Inventory or (ii) the selling price for
such Eligible Inventory under the Coal Sales Contracts under which
such Eligible Inventory will be shipped.
1.37 "Jet Loan" shall mean that certain loan originally
from Citizens Fidelity Bank and Trust Company d/b/a Citizens Energy
Company (now known as PNC Bank, Kentucky, Inc.) to Addington, Inc.
evidenced by that certain Term Note dated February 23, 1987 in the
face amount of $2,828,866.00 as amended by that certain First
Amendment to Term Note dated February 23, 1987 (the "Jet Note")
secured by a security interest in a 1982 Lear Jet, model SS, Serial
Number 023; "N" number N7784; Garrett TFE-331 engines, serial
numbers P85149 and P85176 together with all replacement parts,
repairs, additions, and accessories incorporated in and/or affixed
to and/or substitutions for, any of the foregoing, as more
particularly described in that certain Security Agreement dated as
of February 23, 1987, from Citizens Fidelity Bank and Trust Company
d/b/a Citizens Fidelity Energy Company (now known as PNC Bank,
Kentucky, Inc.) (the "Jet Security Agreement") and perfected by
appropriate security filings with the Federal Aviation Agency (the
"Jet Filings"). All of Addington, Inc.'s right, title and interest
in and to the Jet Note, Jet Security Agreement, and Jet Filings
have been assumed by Addington Resources, Inc. pursuant to the
terms and conditions of that certain Assignment and Assumption
Agreement of even date herewith by and among Addington, Inc., ARI,
and PNC (the "Assumption Agreement"). (The Jet Note, Jet Security
Agreement, Jet Filings and Assumption Agreement are herein
collectively referred to as the "Jet Loan Documents").
1.38 "Leases" shall mean all of the Borrowers' and each
Guarantor's and Subsidiaries mineral and/or surface leases,
subleases, licenses or easements now existing or hereafter arising.
1.39 "Letters of Credit" shall mean all letters of
credit issued pursuant to the terms of this Loan Agreement by PNC.
Letters of Credit shall mean only letters of credit which are
classified under applicable banking laws and regulations as
stand-by performance letters of credit and commercial letters of credit.
The term shall not include stand-by financial letters of credit
unless PNC otherwise agrees (which agreement may be conditioned
upon increased fees relative to such stand-by letters of credit).
1.40 "Loan Documents" mean this Loan Agreement, the
Revolving Note and the Security Instruments and all other
instruments or agreements related hereto which are executed
contemporaneously and in connection with the execution of this Loan
Agreement or hereafter pursuant to the terms hereof. Any reference
to the Loan Documents shall mean such Loan Documents as any of the
same may be amended or modified in writing by PNC, and any other
parties thereto, and shall include future documents executed by PNC
and Borrowers and/or the Guarantors.
1.41 "Loan" means the Revolving Credit.
1.42 "Major Shareholder" shall mean any Person or Entity
owning directly or indirectly in excess of five percent (5%) of the
outstanding capital stock (or interests convertible into such
ownership) of ARI and shall include Larry Addington, Robert
Addington and Bruce Addington.
1.43 "Mining Properties" means all current and future
interests of Borrowers, Guarantors, and their Subsidiaries in the
minerals, surface or use of any real property, whether by fee
ownership, lease, license, easement, agreement or otherwise, which
are used or useful in the mining, transportation and/or processing
of coal or otherwise in the conduct of Borrowers', Guarantors' or
such Subsidiary's business.
1.44 "Net Dollar Amount of Eligible Accounts Receivable"
means the actual amount due and payable to any Borrower by all
account debtors of Borrower's Eligible Accounts Receivable. The
calculation of the Net Dollar Amount of any particular Eligible
Account Receivable shall be based upon the following: The number
of tons of conforming quality coal calculated in good faith and
with reasonable diligence by the Borrowers to have been shipped to
such account debtor pursuant to and in compliance with a bona fide
order or contract, multiplied by the price per ton payable to the
Borrowers, as applicable, by such account debtor (FOB shipping
point) under the applicable order or contract, net of all discounts
and penalties, shall be the Net Dollar Amount Of Eligible Accounts
Receivable for that shipment. If the final shipping weights as
determined by the account debtor or the carrier transporting the
shipment, vary from the calculations set out above, the Net Dollar
Amount Of Eligible Accounts Receivable for that shipment shall be
adjusted accordingly to the proper amount.
1.45 "Operating Cash Sources" means for any period the
net income (or deficit) of Borrowers and Guarantors taken on a
Combined Basis plus amounts in respect of depreciation, depletion
and amortization taken during such period.
1.46 "Person or Entity" means any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, other entity or group,
institution, party or government (whether federal, state, county,
city, municipal or other) or agency or division thereof.
1.47 "Prime Rate" means the interest rate per annum
designated and announced from time to time by PNC as its "Prime
Rate" in effect at its principal office, although it is understood
an agreed that such rate may not be the lowest rate available at
that particular time from PNC on floating rate loans or otherwise
available from PNC in connection with the extension of credit of
any type.
1.48 "Possible Default" means an event or condition
which, with the lapse of any applicable grace period or the giving
of notice, or both, would constitute an Event of Default referred
to in Section 11 hereof.
1.49 "Readily Marketable Debt Securities" means (i)
Certificates of Deposit issued by a state or national bank having
capital and surplus of at least Five Hundred Million and No/100
Dollars ($500,000,000.00), (ii) United States Government
obligations, (iii) Moody rated AAA municipal obligations and (iv)
commercial paper rated Prime-1 by Moody or A-1 by Standard and
Poor; all having a maturity of less than one (l) year from the date
of determination.
1.50 "Reimbursement Obligations" means the obligation of
Borrowers to PNC to reimburse PNC within three (3) Business Days
for any draw under any Letter of Credit.
1.51 "Reporting Date" shall have the meaning set out in
Section 3.4 hereof.
1.52 "Revolving Credit" means the revolving credit
facility in the maximum amount of Fifteen Million and No/100
Dollars ($15,000,000.00) established pursuant to the terms and
conditions set forth in this Loan Agreement.
1.53 "Revolving Note" shall mean the promissory note
face principal amount of $15,000,000.00 issued by the Borrowers to
PNC evidencing the Revolving Credit and described in Section 3
hereof.
1.54 "Security Instruments" means all of the instruments
and rights securing the Indebtedness as referred to in Section 7
hereof and otherwise.
1.55 "Subsidiary" shall mean (i) any corporation more
than fifty percent (50%) of the outstanding stock of which having
ordinary voting power (irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned by any
Borrower, either Guarantor, and/or any Subsidiary, or any
combination thereof; or (ii) any partnership or other entity more
than fifty percent (50%) of the ownership interest (and/or rights
convertible into such interest) of which is owned directly or
indirectly by any Borrower, either Guarantor and/or any Subsidiary,
or any combination thereof.
1.56 "Tangible Net Worth" means (A) the book value of
all assets of the Borrowers and Guarantors taken on a Combined
Basis (including, without limitation, the book value of all Coal
Sales Contracts), but excluding (i) all amounts owed to any
Borrower or to either Guarantor by any Affiliate, (ii) all
unamortized capitalized financing costs, (iii) all patents,
copyrights, trademarks, tradenames, franchises, goodwill and all
other assets which would be classified as intangible assets in
accordance with GAAP, and (vi) all assets located and notes and
receivables due from obligors domiciled outside of the United
States of America, minus (B) all of the Borrowers' and Guarantors'
Total Indebtedness, all as determined in accordance with GAAP.
1.57 "Total Indebtedness" means all current and long
term liabilities and other obligations (including the Indebtedness
and all Capitalized Lease Obligations) of the Borrowers and
Guarantors, as determined in accordance with GAAP.
1.58 "Uniform Commercial Code" means the Uniform
Commercial Code in effect in the Commonwealth of Kentucky from time
to time as currently codified in Chapter 355 of the Kentucky
Revised Statutes.
2. Jet Loan. The Jet Loan is hereby explicitly excluded
from the term Indebtedness. The Jet Loan Documents, to the extent
not varied by this Loan Agreement and the Loan Documents, shall
remain in full force and effect as to the Jet Loan. The Jet Note
shall continue to be paid by ARI in accordance with its terms and
the terms of the Assumption Agreement.
3. Revolving Credit. PNC hereby establishes a revolving
credit in favor of the Borrowers as follows:
3.1 Amount. The total amount of the Revolving Credit
established in favor of the Borrowers is $15,000,000.00; provided,
however, that the aggregate unpaid principal balance of all
Advances at any time outstanding to Borrowers may not exceed the
Borrowing Base for Borrowers calculated as of such time, and at no
time shall the aggregate of all Advances outstanding to Borrowers
exceed $15,000,000.00.
3.2 Term of Revolving Credit. The Revolving Credit
established pursuant to this Loan Agreement shall become effective
immediately as of the date of this Loan Agreement and the Borrowers
may obtain Advances, subject to the terms and conditions contained
herein. The Revolving Credit shall continue in effect until the
Expiration Date, and thereafter for successive periods of 364 days
each, if renewed by PNC in its sole discretion, subject to the
following terms and conditions for each such renewal: (i)
Borrowers' Agent shall submit a written request to PNC no later
than 90 days prior (nor more than 120 days prior) to any Expiration
Date asking for a renewal of the Revolving Credit for an additional
period of 364 days; (ii) PNC shall respond no later than 30 days
prior to the then applicable Expiration Date stating whether or not
PNC shall extend the Revolving Credit for an additional period;
(iii) Failure of PNC to respond no later than 30 days prior to the
applicable Expiration Date shall be deemed a decision by PNC not to
renew the Revolving Credit, and the then applicable Expiration Date
will remain in force. The Borrowers acknowledge that PNC is under
no obligation to renew the Revolving Credit and that all such
renewals or denials thereof shall be in the sole discretion of PNC.
After any Expiration Date beyond which the Revolving Credit is not
renewed, the Borrowers may not obtain any further Advances. Upon
the occurrence of any Event of Default at any time during the term
of the Revolving Credit PNC may, at its sole option, terminate the
Revolving Credit, after which the Borrowers may not obtain any
further Advances. Upon termination of the Revolving Credit by
reason of the occurrence of any Event of Default or the occurrence
of any Expiration Date which is not extended, the unpaid principal
balance of all the Advances, plus all accrued interest shall be due
and payable in full by the Borrowers immediately. PNC may, in its
sole discretion, suspend making Advances while any Possible Default
exists or if any Federal tax lien is filed against any Borrower or
either Guarantor and not released; and during such suspension,
Borrowers shall not be entitled to obtain any Advance. The
termination or suspension of the Revolving Credit by PNC shall not
in any way release or relieve the Borrowers or Guarantors from
their liabilities and obligations incurred under the Loan
Documents, and the provisions of the Loan Documents shall continue
in full force and effect until all Indebtedness shall have been
paid in full.
3.3 Advances, Borrowing Rate and Interest Payments.
Subject to the terms and conditions of this Loan Agreement, PNC
shall grant Borrowers such Advances on the Revolving Credit as
Borrowers may from time to time request, subject to and in
accordance with the provisions of this Loan Agreement; provided,
however, that in no event shall the aggregate unpaid principal
balance of the Advances outstanding at any time to Borrowers exceed
the Borrowing Base of Borrowers calculated as of such time.
Further, the aggregate of all Advances to Borrowers shall at no
time exceed $15,000,000.00. Requests for Advances shall be
processed by PNC chronologically, and at such time as the overall
limit of $15,000,000.00 is reached on the Revolving Credit,
Borrowers shall not be entitled to any further Advances, even if
Borrowers still have borrowing capacity under the Borrowing Base.
The Revolving Credit is a revolving credit facility against which
the Borrowers may make principal payments from time to time and
borrow and reborrow proceeds from time to time, subject to the
limitations established pursuant to the terms hereof. The
Revolving Credit and the Advances shall be evidenced by a Revolving
Note of even date in favor of PNC in face principal amount of
$15,000,000.00. The interest rate applicable to the outstanding
principal balance of the Advances and all past due and unpaid
interest shall be the Borrowing Rate in effect from time to time.
The Borrowers shall pay all accrued interest on the outstanding
Advances monthly, on the last day of each calendar month until the
Revolving Credit is fully paid and terminated. All payments on the
Revolving Note, and all other payments due from the Borrowers to
PNC hereunder, shall be made in immediately available funds at the
principal office of PNC prior to 11:00 a.m. Louisville, Kentucky,
time, on each date specified in the Revolving Note, this Loan
Agreement or any Security Instrument.
3.4 Borrowing Base.
(a) The "Borrowing Base" for Borrowers shall mean
at any time: (i) ninety percent (90%) of the Net Dollar Amount Of
Eligible Accounts Receivable of Borrowers then existing, plus (ii)
fifty percent (50%) of the Inventory Value of all Eligible
Inventory of Borrowers then existing (the "Inventory Component"),
plus (iii) eighty percent (80%) of the Equipment Liquidation Value
of all Eligible Equipment of Borrowers then existing (the
"Equipment Component"). Notwithstanding the foregoing, the
Inventory Component of the Borrowing Base of the Borrowers may not
at any time exceed $2,500,000.00,and the Equipment Component of the
Borrowing Base of the Borrowers may not at any time exceed
$5,000,000.00.
(b) PNC has been granted by the Borrowers a
security interest in all of the Accounts even though some of which
may be not eligible to be included in the Borrowing Base and in all
inventory of the Borrowers whether or not included in Eligible
Inventory. If the aggregate principal balance of all Advances
outstanding at any time to Borrowers exceeds the Borrowing Base of
Borrowers, the Borrowers shall immediately, (within two (2)
Business Days) reduce the outstanding principal balance of Advances
made to Borrowers to a principal level that does not exceed the
Borrowing Base of Borrowers. Borrowers shall deliver to PNC a
current Borrowing Base Certificate, reflecting, among other things,
the Net Dollar Amount of Eligible Accounts Receivable and Inventory
Component and Equipment Component for Borrowers, certified to be
true, correct and accurate by a Designated Officer of any Borrower
or the Borrowers' Agent (i) at the time Borrowers request an
Advance if requested by PNC, and (ii) in any event, as of the last
day of each calendar month (a "Reporting Date") within twenty (20)
Business Days after each Reporting Date, so long as this Loan
Agreement remains in effect or there is any Indebtedness
outstanding, together with copies of all invoices included therein
not previously sent to PNC with a prior Borrowing Base Certificate,
and, if requested by PNC, verification of all weights shipped by
Borrowers in the form of draft surveys, weigh bills or weigh
tickets, as applicable. PNC may, by written notice to the
Borrowers' Agent, require the Borrowing Base Certificate prior to
twenty (20) Business Days after the Reporting Date, but on no less
than five (5) Business Days' notice. PNC may, upon written notice
to the Borrowers' Agent, require a Borrowing Base Certificate be
submitted for Borrowers by Wednesday of each week, calculated as of
Friday of the preceding week (which day each week would then become
the "Reporting Date") if any Possible Default then exists or if any
Event of Default shall have occurred. If and when requested by
PNC, the Borrowers shall also supply to PNC a detailed aged trial
balance of all Eligible Accounts Receivable and a reconciliation
(on a form approved by PNC) of such aging with the most recent
Borrowing Base Certificates, and such other information concerning
the Eligible Accounts Receivable and Eligible Inventory as PNC may
reasonably request from time to time. Each detailed aged trial
balance shall be in a form approved by PNC showing the aging by
invoice date and by shipment date. If any statement or figure
contained in any Borrowing Base Certificate shall prove to be
untrue or incorrect in any material respect, PNC in its sole
discretion (i) may, if such error was knowingly made by any
Borrower, treat such event as an Event of Default under this Loan
Agreement or (ii) may recalculate the Borrowing Base after
deletion, discount for, or adjustment of such matters as are untrue
or incorrect, in which event (and to the extent the outstanding
aggregate balance of the Advances to the Borrowers exceeds the
Borrowing Base) Borrowers shall immediately, within one (1)
Business Day, reduce the outstanding principal balance of the
Advances made to Borrowers to an amount that does not exceed the
recalculated Borrowing Base. If any Eligible Account Receivable
shall cease to be an Eligible Account Receivable or if any Eligible
Inventory ceases to be Eligible Inventory, as defined herein, (a
"Disqualified Asset"), such Disqualified Asset shall automatically
be excluded from the appropriate Borrowing Base, and Borrowers
shall immediately, within one (1) Business Day, repay PNC such
amount of the Advances as is based upon the Disqualified Asset if
the applicable Borrowing Base, as recalculated, is insufficient
otherwise to support the outstanding amount of Advances based upon
that Borrowing Base. Notwithstanding the foregoing, PNC shall
retain its security interest in any such Disqualified Asset.
(c) Borrowers shall: (i) within five (5) Business
Days of learning of same, notify PNC in writing of any material
delay in any Borrower's performance of any obligations to any
account debtor or the assertion by any account debtor of any claim,
offset, counterclaim or defense with respect to any Account(s);
(ii) not agree to any compromise or settlement (but not to include
any penalty, demurrage or other claim in the ordinary course of
business) with respect to any account debtor involving an amount in
excess of the sum of One Hundred Thousand and No/100 Dollars
($100,000.00) in any fiscal year of ARI relative to such account
debtor; provided, however, any compromised or settlement amount
shall be excluded from the calculation of the applicable Borrowing
Base; (iii) inform PNC in writing immediately upon any Borrower
learning of same, which Accounts have ceased to qualify as Eligible
Accounts Receivable and how much previously Eligible Inventory has
ceased to be Eligible Inventory; and (iv) promptly upon learning of
same, notify PNC of all material, adverse information relating to
the ability of any significant account debtor to make payment or
accept further shipments from Borrowers under existing orders or
contracts.
3.5 Purposes of Advances. PNC has not committed to fund
all of the Borrowers' current or future working capital needs. The
credit commitments of PNC set out in this Loan Agreement constitute
the sole obligation of PNC to the ongoing financing of the
Borrowers' businesses. The Borrowers hereby represent to PNC that
as of the date hereof, and after giving effect to the terms hereof,
the Borrowers have sufficient cash flow and sources of working
capital to meet all of its projected working capital and cash flow
needs. The Borrowers and all of the Guarantors have agreed to be
liable for repayment of the Revolving Credit, including interest,
fees and expenses although the specific right to borrow under the
Revolving Credit is solely vested in the Borrowers. The Guarantors
hereby agree to be unconditional guarantors of payment of the
Revolving Note. The benefits of the Revolving Credit are derived
by the Borrowers and all of the Guarantors by, among other things,
the policy of intercompany loans among the Borrowers and Guarantors
to provide for working capital needs of the Borrowers and
Guarantors, which policy existed among the Borrowers and Guarantors
prior to the execution of this Loan Agreement.
3.6 Procedures and Conditions. The obtaining by the
Borrowers of each Advance pursuant hereto shall be subject to the
following terms and conditions:
(a) Borrowers shall be limited to no more than two
(2) Advances per week, and each Advance shall be for no less than
$1,000,000.00.
(b) Whenever Borrowers desire to obtain an Advance
pursuant to this Loan Agreement, Borrowers shall, at a time and
manner acceptable to PNC in the reasonable exercise of its
discretion, request disbursement of an Advance (which request shall
be irrevocable), specifying the amount of the Advance requested and
the date on which Borrowers wish the funds to be made available,
which date shall be no sooner than two (2) Business Days after
receipt by PNC of such request (at least three (3) Business Days
for an advance under the LIBOR rate option). Borrowers hereby
agree to deliver to PNC, prior to each Advance, written
confirmation of such request, in form and substance acceptable to
PNC in the reasonable exercise of its discretion, specifying the
amount of the Advance requested, the date on which the Borrowers
wish the funds to be made available, together with a (i) Borrowing
Base Certificate, if requested by PNC, as of the date of the
request for disbursement of the Advance, (ii) copies of invoices,
the amounts of which are included in the Borrowing Base
Certificate, and (iii) if requested by PNC, verification of weights
shipped by Borrowers and reflected on the invoices, consisting of
draft surveys, weigh bills and weigh tickets, as applicable. The
Borrowers shall further specify in the request for an Advance the
Interest Rate Option selected for the Advance, and the Rate Period
for any LIBOR Rate Advance.
(c) Borrowers shall not be entitled to obtain any
Advance if any Possible Default or Event of Default shall then
exist or immediately thereafter would exist or after any Expiration
Date which is not extended. If any Possible Default shall be
pending, PNC may require in connection with each Advance that the
Eligible Accounts Receivable included in the Borrowing Base not
previously confirmed by PNC, be confirmed to the reasonable
satisfaction of PNC prior to such Advance, by PNC contacting the
relevant account debtors.
(d) All Advances shall be made in strict compliance
with the terms and provisions of this Loan Agreement, unless PNC
elects in its sole discretion to waive any of same in writing.
Each request by Borrowers for an Advance shall, in and of itself,
constitute a continuing representation and warranty by Borrowers
and Guarantors to PNC: (i) that the Borrowers then are, and at the
time the Advance is actually made will be, entitled under this Loan
Agreement to obtain the Advance and that all documents delivered to
PNC in connection with such Advance are true and correct, and (ii)
that no Possible Default or Event of Default then exists.
(e) Borrowers shall not be entitled to obtain an
Advance if any material litigation, including, without limitation,
derivative actions, arbitration proceedings, or governmental
proceedings, that is not disclosed in writing by the Borrowers or
Guarantors to PNC prior to the date of the execution and delivery
of this Loan Agreement, shall be pending against any Borrower,
either Guarantor, or any Subsidiary, which may reasonably be
expected to materially and adversely affect the ongoing ability of
the Borrowers to meet their obligations under the Loan Documents.
Further, Borrowers shall not be entitled to obtain an Advance if
any material development shall have occurred in any previously
disclosed litigation, including, without limitation, derivative
actions, arbitration proceedings or governmental proceedings, which
may reasonably be expected to materially and adversely affect the
ongoing ability of the Borrowers or Guarantors to meet their
obligations under the Loan Documents.
(f) The Borrowers agree to have all of its current
and future Accounts payable by the respective account debtors at
PNC and to execute a lockbox agreement, which shall be in PNC's
customary form relating to the collection of the accounts
receivable at PNC.
3.7 Interest Rate Options. The unpaid principal amount
of each outstanding Advance under the Revolving Credit shall bear
interest for each day until paid on one of the bases selected by
the Borrowers' Agent from among the Interest Rate Options set forth
below (the "Interest Rate Options"). Borrowers understand and
agree that subject to the provisions hereof, Borrowers' Agent may
select different Interest Rate Options to apply to different
Advances.
Available Interest Rate Options
Prime Rate Option: A floating rate per annum (computed
on the basis of a year of 360 days, in accordance with
the Bank's customary practice) for each day equal to the
Prime Rate for such day.
LIBOR Rate Option: A rate per annum (computed on the
basis of a year of 360 days and actual days elapsed)
equal to the LIBOR Rate for the day such LIBOR Rate
Advance is made plus two hundred fifty (250) basis
points. Such rate shall be fixed for the Rate Period
selected for such Advance.
(a) Rate Periods. At any time when Borrowers
select an Advance at the LIBOR Rate Option, Borrowers shall fix a
period (the "Rate Period") which shall be one, two, three, six or
twelve months, which shall be acceptable to PNC in PNC's sole
discretion, during which time the LIBOR Rate Option shall apply to
the corresponding Advance. In no event, however, shall Borrowers
select a Rate Period that extends beyond the Expiration Date,
unless PNC consents, in the exercise of its sole discretion.
(b) Interest After Default. After the occurrence
of an Event of Default, the entire Revolving Credit shall bear
interest for each day until paid (before and after judgment) at a
floating rate per annum (based on a year of 360 days, in accordance
with the Bank's customary practice) which shall be Prime Rate plus
five percent (5%) (the "Default Rate").
(c) Prime Rate Fallback. If any Rate Period
expires and any Advance corresponding to such Rate Period has not
been renewed by Borrowers at the LIBOR Rate Option by sending PNC
an irrevocable written notice of its election to continue such
Advance at the LIBOR Rate Option for a new selected and approved
Rate Period, such Advance shall automatically be converted to the
Prime Rate Option as of the end of such Rate Period.
(d) Time of Prepayments. Borrowers shall have the
right, at its option, from time to time to prepay the Prime Rate
Portion of the Revolving Credit in whole or in part, but each
prepayment (unless the Revolving Note is being fully paid) shall be
in the minimum principal amount of One Hundred Thousand and No/100
Dollars ($100,000.00) or any multiple thereof, unless PNC otherwise
agrees in the exercise of its sole discretion. Borrowers shall not
have the right to prepay any part of the LIBOR Rate Portion of the
Revolving Credit at any time without the prior written consent of
PNC.
(e) Interest Payment for each Advance. Beginning
on January 14, 1994, and on the last day of each calendar month
thereafter after an Advance until paid in full, Maker shall pay all
interest accrued on the Prime Rate Portion, as the same may exist
from time to time. Interest on each Advance under the LIBOR Rate
Option shall be due and payable in full (i) on the last day of the
corresponding Rate Period for each Advance, and (ii) on the first
Business Day of each January, April, July, and October (commencing
no less than 90 days after the date of the Advance) until paid in
full. Notwithstanding the foregoing, any Rate Period for any
Advance under the LIBOR Rate Option which would otherwise end on a
day which is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in another
calendar month, in which case such Rate Period for such Advance
shall end on the next preceding Business Day. Any Rate Period for
any Advance under the LIBOR Rate Option which begins on the last
Business day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Rate Period) shall, subject to the foregoing, end on the last
Business Day of a calendar month. All installments of principal
and/or interest shall be paid to PNC at 500 West Jefferson Street,
Louisville, Kentucky 40202 or at such other place as may be
designated in writing by Bank. Such payment shall be made to the
Bank in U.S. dollars, immediately available funds, without set-off,
counterclaim or other deduction of any nature.
(f) Indemnity. Borrowers shall indemnify PNC
against any loss or expense (including loss of margin) which PNC
has sustained or incurred as a consequence of:
(i) prepayment of any part of any Advance in
the LIBOR Rate Portion on a day other than the last day
of the corresponding Rate Period (whether or not any such
payment is made before or after an Event of Default, or
pursuant to demand or acceleration by PNC of the Note
(following occurrence of an Event of Default), and
whether or not any such payment or prepayment is
consented to by the Bank, unless the Bank shall have
expressly waved such indemnity in writing; or
(ii) Attempt by any Borrower to revoke in whole
or in part any irrevocable notice given to PNC and
relating to the selection of an Interest Rate Option.
If PNC sustains any such loss or expense, PNC shall from time to
time notify Borrowers of the amount determined in good faith by PNC
to be necessary to indemnify PNC for such loss or expense.
Together with such notice, PNC shall furnish to Borrowers a
certificate as to the amount due setting forth in reasonable detail
the reason for and the method of calculating such loss or expense,
such certificate to be conclusive absent manifest error. Such
amount shall be due and payable by the Borrowers, on demand.
(g) LIBOR Rate Unascertainable; Impracticability.
If on any date on which a LIBOR Rate would otherwise be set, the
Bank shall have determined in good faith that due to circumstances
not within the control of the Bank:
(i) adequate and reasonable means do not exist
for ascertaining such LIBOR Rate,
(ii) an event has occurred which materially and
adversely affects the interbank eurodollar market, or
(iii) no major money center banks in the London
Interbank Market are quoting rates for the offering of
deposits in dollars for a period comparable to the Rate
Period and in amounts comparable to the principal amount
of such Advance; or
(iv) the rate quoted by PNC for purposes of
computing the rate of interest on the Advance for the
Rate Period does not adequately and fairly reflect the
cost to PNC of making, funding or maintaining such
Advance for the Rate Period.
then, and in any such event, PNC shall notify the Borrowers of such
determination. Upon such date as shall be specified in such notice
(which shall not be earlier than the date such notice is given) the
obligation of PNC to allow Borrowers to select the LIBOR Rate
Option for any Advance of the Revolving Credit shall be suspended
until PNC shall have notified the Borrowers of its determination in
good faith (which determination shall be conclusive) that the
circumstances giving rise to such previous determination no longer
exist.
(h) Definitions Applicable to Interest Rates. As
used in this Section 3.7:
"LIBOR Rate Portion" shall mean the part of the
unpaid amount of the Revolving Credit bearing interest at such time
under the LIBOR Rate Option.
"LIBOR Rate" for any day for any proposed Advance
shall mean the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which
deposits in dollars are offered in the London interbank market at
approximately 11:00 a.m. (London Time) two (2) Business Days before
the first day of the selected Rate Period in an amount
approximately equal to the principal amount of the requested
Advance to which such Rate Period is to apply and for a period of
time comparable to such Rate Period. The LIBOR Rate shall be
adjusted to reflect the effect of any reserves that PNC may be
required to maintain against "Eurocurrency liabilities" under
Regulation D of the Board of Governors of the Federal Reserve
System (or any subsequent applicable regulation of the Board of
Governors of the Federal Reserve System) (the "Eurocurrency Reserve
Requirement"), and (ii) the FDIC Assessment Rate (being the net
annual assessment rate expressed as a percentage) estimated by PNC
for determining the then-current annual assessment, if any, payable
by PNC to the Federal Deposit Insurance Corporation for insuring
deposits having a maturity equal to the LIBOR. The final LIBOR
Rate shall be calculated as follows: LIBOR Rate divided by 1 minus
(Eurocurrency Reserve Requirement plus FDIC Assessment Rate).
"Prime Rate Portion" shall mean at any time the
part, including the whole, of the unpaid principal amount of the
Revolving Credit bearing interest at such time under the Prime Rate
Option.
3.8 Disbursement of Advances. All disbursements of
Advance proceeds pursuant hereto shall be made by PNC to the
Borrowers by deposit of the proceeds to the Borrowers' Disbursement
Account maintained with PNC.
3.9 Fees.
(a) Origination Fee. The Borrowers shall pay to
PNC an origination fee in the amount of $43,750.00 upon the
execution of this Loan Agreement (the "Initial Origination Fee").
The Initial Origination Fee is based on a one-half of one percent
("%) commitment fee for the Revolving Credit, prorated to reflect
certain fees already paid as part of a certain prior financing
between PNC, Guarantors, certain of Borrowers and others. In the
event the Borrowers and PNC elect to renew the Revolving Credit,
pursuant to the terms and conditions set forth in this Loan
Agreement, Borrowers shall pay to PNC a renewal fee in the amount
of $75,000.00 (the "Renewal Fee") for each and every renewal of the
Revolving Credit, which Renewal Fee shall be due and payable in
full prior to any such extension of the Revolving Credit. The
Initial Origination Fee and Renewal Fee are nonrefundable and shall
not be applied to any other Indebtedness of the Borrowers to PNC.
(b) Commitment Fee. The Borrowers shall pay to
PNC, on a quarterly basis, a Commitment Fee (the "Commitment Fee")
which shall be the amount by which the "Unused Portion Fee" exceeds
the "Free Available Balance Credit" for the same Calculation
Period, as more fully described in this Section.
The Unused Portion Fee shall be equal to one-half
percent ("%) per annum of the average daily difference between the
aggregate principal amount of all Advances outstanding during the
Calculation Period and $15,000,000.00. The "Calculation Period"
shall be the period commencing with the execution date hereof and
ending March 31, 1994, and continuing for each calendar quarter or
portion thereof while the Revolving Credit is in effect.
"Free Available Balance" shall mean the balances in
the Borrowers' and Guarantors' combined non-interest bearing
accounts maintained with PNC in excess of the sum of (a) amounts
required to compensate PNC for services rendered as determined in
accordance with PNC's standard system of analysis for similar
accounts, as amended, supplemented or replaced by time to time by
PNC in its sole discretion, (b) uncollected amounts in such
accounts, and (c) the amount of the reserve requirement in
connection with each such account. The "Free Available Balance
Credit" shall be determined by multiplying the average daily Free
Available Balance times the average daily "Earnings Credit" by the
Calculation Period. "Earnings Credit" shall mean the yield
(expressed as a percentage) on the Free Available Balance, as
determined by PNC in its sole discretion, which shall be the same
method used for similar credits, as applied in a uniform nature.
It is understood that nothing in this Loan Agreement shall obligate
the Borrowers and/or Guarantors to maintain any Free Available
Balance.
The Commitment Fee shall be determined by PNC and billed
to Borrowers and shall be paid by Borrowers to PNC within fifteen
(15) days of the billing date. If not paid within fifteen (15)
days of the billing date, the unpaid portion of any Commitment Fee
shall, without waiving any Possible Default or Event of Default
resulting from such nonpayment, bear interest at the Default Rate
until paid. The Commitment Fee is nonrefundable, is in addition to
all other fees and interest required to be paid by Borrowers, and
shall not be applied to any other Indebtedness of the Borrowers to
PNC.
4. Letters of Credit.
4.1 Issuance, Renewal, and Use of Letters of Credit.
Subject to the terms and conditions of this Loan Agreement, PNC
agrees to issue at the request of and on behalf of Borrowers, or
any of them, from time to time, Letters of Credit, subject to the
terms and conditions of this Loan Agreement and of the particular
Letter of Credit agreements. The Borrowers acknowledge that PNC's
obligation to issue Letters of Credit is not an independent
obligation of PNC, but is a sub-facility of the Revolving Credit
and is subject to certain dollar limitations more fully described
in Section 4.2 herein. The Letters of Credit shall be issued by
PNC and shall be PNC Letters of Credit. At no time may the
aggregate face principal amount of all Letters of Credit issued and
outstanding exceed $3,000,000.00.
4.2 Terms of Letters of Credit. The ability of
Borrowers to request the issuance and/or renewal of Letters of
Credit established pursuant to this Loan Agreement shall become
effective immediately as of the date of this Loan Agreement, and as
of the date hereof Borrowers may request PNC to issue Letters of
Credit, subject to the terms and conditions contained herein. The
Letter of Credit facility shall continue in effect until
January 14, 1995, and may be continued for successive one (1) year
periods, as determined by PNC in the exercise of its sole
discretion, all ending on January 14 (any such January 14 being
a "Letter of Credit Expiration Date"). No Letter of Credit shall
have a maturity date later than the Letter of Credit Expiration
Date, unless agreed to by PNC in the exercise of its sole
discretion.
Upon the written request of the Borrowers, the Letter of
Credit facility may be renewed by PNC (but PNC is under no
obligation to renew the Letter of Credit facility), subject to the
following terms and conditions: (i) Borrowers shall submit a
written request to PNC no later than ninety (90) days prior (nor
more than one hundred twenty (120) days prior) to any Letter of
Credit Expiration Date asking for an extension of the Letter of
Credit facility for an additional year; (ii) PNC shall respond no
later than thirty (30) days prior to the Letter of Credit
Expiration Date stating whether or not PNC shall extend the Letter
of Credit facility for an additional successive one-year period;
(iii) failure of PNC to respond no later than thirty (30) days
prior to the Letter of Credit Expiration Date shall be deemed a
decision by PNC not to renew the Letter of Credit facility. The
Borrowers acknowledge that PNC is under no obligation to extend the
Letter of Credit facility and that all such extensions or denials
thereof shall be in the sole unfettered discretion of PNC.
The occurrence of any Event of Default at any time during the
term of the Letter of Credit facility shall be deemed a termination
of the Letter of Credit facility. Upon termination of the Letter
of Credit facility, Borrowers shall not be entitled to have any
Letters of Credit issued and/or renewed. The termination of the
Letter of Credit facility by PNC shall not in any way release or
relieve Borrowers or Guarantors from their liabilities and
obligations incurred under the Loan Documents, and the provisions
of the Loan Documents shall continue in full force and effect until
all Indebtedness owed by Borrowers to PNC shall have been paid in
full.
The Borrowers acknowledge that PNC's obligation to issue
Letters of Credit is a sub-facility of the Revolving Credit. The
Borrowers further acknowledge that all Letters of Credit are deemed
to be Advances under the Revolving Credit, and that the Borrowing
Base is reduced dollar for dollar for all Letters of Credit issued
and outstanding (including unpaid Reimbursement Obligations). At
all times, PNC's obligation to issue Letters of Credit shall be
limited by the amount of Borrowers' borrowing capacity under the
Revolving Credit. At no time shall the aggregate amount of all
Letters of Credit, plus the sum of all other unpaid Advances under
the Revolving Credit, exceed the lesser of (i) $15,000,000.00 or
(ii) the maximum dollar amount available under the Borrowing Base.
4.3 Procedures and Conditions.
(a) Whenever Borrowers desire that PNC issue and/or
renew a Letter of Credit on its behalf pursuant to this Loan
Agreement, Borrowers or Borrowers' Agent shall deliver to PNC, not
fewer than three (3) Business Days prior to the date upon which
Borrowers desire the Letter of Credit to be issued and/or renewed,
a written Letter of Credit application, in form and substance
satisfactory to PNC in its sole discretion, executed by a duly
authorized officer of Borrowers or by Borrowers' Agent, and
specifying the amount of the Letter of Credit requested, the party
in whose favor the Letter of Credit shall be issued and/or renewed,
the date on which Borrowers desire the Letter of Credit to be
issued and/or renewed, the desired expiration date of the Letter of
Credit, and the purpose(s) for which the Letter of Credit is
requested.
(b) The Borrowers shall submit a Borrowing Base
Certificate, with the requested issued and/or renewed Letter of
Credit shown as an Advance thereunder.
(c) Borrowers shall not be entitled to have PNC
issue and/or renew any Letter of Credit if any Possible Default or
Event of Default shall then exist or immediately thereafter would
exist.
(d) All Letters of Credit shall be issued and/or
renewed in strict compliance with the terms and provisions of this
Loan Agreement and the particular Letter of Credit Agreements,
unless PNC elects in its sole discretion to waive any of the same
in writing. Each request by Borrowers that PNC issue and/or renew
a Letter of Credit pursuant hereto shall, in and of itself,
constitute a continuing representation and warranty by Borrowers to
PNC that: (i) Borrowers then are, and at the time the Letter of
Credit is actually issued and/or renewed will be, entitled under
this Loan Agreement to have the Letter of Credit issued and/or
renewed, and (ii) all of the covenants, agreements, representations
and warranties made by Borrowers and Guarantors herein, in the
other Loan Documents, in the Letter of Credit agreements and in any
writing delivered pursuant hereto or thereto are true and correct,
and have been fully complied with in all material respects as of
such date.
(e) PNC's issuance of any Letter of Credit pursuant
to this Loan Agreement shall be subject to there being no material
litigation, including without limitation, derivative actions,
arbitration proceedings, or governmental proceeding, and not
disclosed in writing by the Borrowers to PNC prior to the date of
execution and delivery of the Loan Agreement shall be known to be
pending or known to be threatened against Borrowers, any
Subsidiary, or any Guarantor. No material undisclosed development
shall have occurred in any previously disclosed litigation,
including, without limitation, derivative actions, arbitration
proceedings, or governmental proceedings, that, in the opinion of
PNC, is likely to materially and adversely affect the financial
position or business or Borrowers, any Subsidiary or any Guarantor
or impair the ability of any of them to perform their obligations
under the Loan Documents.
4.4 Letter of Credit Fee. Borrowers agree to pay to PNC
a Letter of Credit Fee (in each instances, a "Letter of Credit
Fee") with respect to the maximum amount available to be drawn
under each outstanding Letter of Credit issued by PNC, computed at
the rate of one and one-half percent (1"%) per annum of the maximum
amount available to be drawn under such Letter of Credit, from and
including the date of issuance of the Letter of Credit until (and
including all renewals) the date such Letter of Credit shall
terminate in accordance with its terms (the "Credit Termination
Date"). PNC shall, in addition to the Letter of Credit Fee, charge
Borrowers its standard and customary issuance fee for the issuance
or renewal for each Letter of Credit issued or renewed (the
"Issuance Fee"), which Issuance Fee shall be due and payable in
full prior to issuance or renewal of any Letter of Credit. The
Letter of Credit Fee shall be payable annually in advance,
commencing on the date of the issuance of the Letter of Credit and
on the same day of each year thereafter until the Credit
Termination Date as to such Letter of Credit. For all Letters of
Credit having a term of less than one (1) year, the Letter of
Credit Fee shall be paid in advance commencing on the issuance date
of said Letter of Credit. Each Letter of Credit Fee for each
Letter of Credit having a term of less than one (1) year shall be
prorated for the term of such Letter of Credit. Borrowers shall
not be entitled to any refund of a Letter of Credit Fee or Issuance
Fee if any Borrower terminates the applicable Letter of Credit
Agreement, if the particular Letter of Credit is drawn upon, if the
particular Letter of Credit is reduced, if the particular Letter of
Credit is returned to PNC at or prior to the end of the stated term
thereof, or for any other reason whatsoever.
4.5 Reimbursement of Drafts. Borrowers hereby expressly
agree to pay PNC within three (3) Business Days of any draw under
any of the Letters of Credit the amount necessary to fully
reimburse PNC in full for all drafts duly drawn under any of the
Letters of Credit, which amounts shall bear interest at the
"Default Rate" as that term is defined in the Revolving Note,
beginning three (3) Business Days after the date of the draw until
such amounts are paid in full.
4.6 Reimbursement Obligation Absolute. The
Reimbursement Obligation of Borrowers shall be absolute,
unconditional and irrevocable, under all circumstances whatsoever,
including, without limitation, the following circumstances:
(a) Any lack of validity or enforceability of the
Letters of Credit or the Loan Documents;
(b) Any amendment or waiver of, or any consent to
a departure from, all or any of the terms of any or all of the Loan
Documents, other than an amendment to any of the Letters of Credit,
which amendment shall require the written consent of the Borrowers;
(c) Any statement, instrument or other document
presented under the Letters of Credit being forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever; or
(d) The payment by PNC under the Letters of Credit
against presentation of a draft which does not comply with the
terms of the Letters of Credit in any material respect, except to
the extent resulting from the willful misconduct or gross
negligence of PNC in determining whether such draft complies with
the terms of any Letter of Credit.
4.7 Security for Letters of Credit. All Letters of
Credit issued by PNC on behalf of Borrowers, of any of them,
pursuant to this Loan Agreement shall be secured inter se with
equal dignity by all of the Security Instruments and other Loan
Documents, and all of the same, together with the Revolving Note
and all other Indebtedness, shall also be secured with equal
dignity by all of the Loan Documents.
4.8 Collateralization of Letters of Credit.
Notwithstanding any other term or provision contained herein that
may be interpreted to the contrary, PNC hereby reserves the right
to require cash collateral and/or periodic payments into an
interest-bearing escrow account maintained for the benefit of PNC
prior to the issuance of any Letter of Credit. The amount of the
cash collateral and/or the terms of such escrow agreement (if
required by PNC) shall be on terms mutually agreeable to PNC,
Borrowers and Guarantors, and in the event no mutual agreement as
to such amount and/or such terms is reached, then PNC shall have no
obligation to issue any such Letter of Credit.
5. Increased Costs. In addition to accruing interest and
other fees and expenses payable pursuant to the terms hereof, the
Borrowers and Guarantors shall also be liable for reimbursing PNC
for certain increased costs. If, after the date of this Loan
Agreement, any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental or
regulatory authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to PNC of the
principal of or interest on the Indebtedness (other than taxes
imposed on the overall net income of PNC by the jurisdiction, or by
the political subdivision or taxing authority in such jurisdiction,
in which PNC's principal office is located) or shall impose, modify
or deem applicable any reserve (including, without limitation,
Regulations D or K of the Federal Reserve Board), capital adequacy
or similar requirement against assets (funded or contingent) of,
deposits with or for the account of PNC, acquisitions of funds by
PNC or which change is otherwise applicable to the obligations of
PNC under or credit extended by PNC under this Loan Agreement, or
shall impose on PNC any other condition affecting the Revolving
Note, the Discretionary Line of Credit, this Loan Agreement or the
Loan and the result of any of foregoing is to increase the cost to,
or impose any expense (including the loss of margin) upon the
making, maintaining or funding of the Loan or Discretionary Line of
Credit by PNC or to reduce the amount of any sum receivable by PNC
hereunder by an amount deemed by PNC to be material, then PNC shall
promptly thereafter notify the Borrowers of such change and the
Borrowers shall, upon demand, pay to PNC such amount or amounts as
will compensate PNC for such additional cost or reduction. A
certificate of PNC setting forth the basis for the determination of
such amount necessary to compensate PNC as aforesaid shall be
delivered to the Borrowers' Agent and shall be conclusive, except
for manifest error, as to such determination and such amount or
amounts. Such amount shall be due and payable by the Borrowers
and/or the Guarantors to PNC ten (10) Business Days after such
notice is given and shall accrue interest at the Default Rate, if
not paid within that time.
6. Discretionary Line of Credit. Subject to the terms and
conditions contained herein, PNC hereby establishes a discretionary
line of credit (the "Discretionary Line of Credit") in favor of the
Borrowers as follows:
6.1 General Structure; Terms. The discretionary credit
facility shall consist of either a single loan or a series of loans
made by PNC to the Borrowers or the issuance of Letters of Credit
by PNC for the account of the Borrowers. Each of the Borrowers
hereunder shall be the Borrowers under each of the loans, and each
of the Guarantors hereunder shall be a Guarantor under each of the
loans. The purpose of the Discretionary Line of Credit is to
provide the Borrowers, as a corporate group, a source of
flexibility in financing capital expenditures and acquisitions and
in obtaining Letters of Credit needed in the ordinary course of
business.
6.2 Amount, Borrowing Rate, and Repayment. The maximum
amount of the Discretionary Line of Credit shall be Ten Million and
No/100 Dollars ($10,000,000.00), which is the maximum principal
amount that may be outstanding under the Discretionary Line of
Credit at any one time. The interest rate and loan fees shall be
determined at the time a particular borrowing under the
Discretionary Line of Credit is requested. The Discretionary Line
of Credit shall not be subject to any current loan fees. Portions
on the Discretionary Line of Credit used for Letters of Credit
shall be subject to one and one-half percent (1"%) per annum Letter
of Credit Fee, plus PNC's standard and customary Issuance Fee for
each Letter of Credit. Loan fees relative to other loans made
under the Discretionary Line of Credit shall be set relative to
each loan.
6.3 Conditions to Advances under the Discretionary Line
of Credit. Any loan made under the Discretionary Line of Credit
will be subject to (i) PNC's usual and customary approval process,
(ii) appropriate due diligence as to each request for a loan or
Letter of Credit, (iii) such documentation and collateralization as
PNC deems appropriate in the exercise of its sole discretion. PNC
may reject any request for a loan or Letter of Credit under the
Discretionary Line of Credit in the exercise of its sole
discretion. All loans and Letters of Credit made under the
Discretionary Line of Credit shall be cross defaulted and cross
collateralized with each other, as well as the Revolving Note and
this Loan Agreement.
7. Security for the Indebtedness. The Indebtedness,
including the Revolving Note, the Discretionary Line of Credit, and
Reimbursement Obligations under each Letter of Credit, is and shall
be secured by and entitled to the benefits of all the following:
7.1 Security Interests. A continuing first priority
security interest in all current and future accounts as defined in
the Uniform Commercial Code (including all intercompany accounts
and indebtedness), inventory, equipment, general intangibles, and
business records of the Borrowers and Guarantors all pursuant to
that certain Security Agreement of even date herewith (the
"Security Agreement") and accompanying Financing Statements,
executed and delivered by the Borrowers and Guarantors to PNC in
connection with the execution of this Loan Agreement.
7.2 Aircraft Security Interest. A continuing first
priority security interest and lien in and to a certain helicopter,
engines, avionics, and related items as more fully described in
that certain Security Agreement (Aircraft) of even date, by and
between PNC and ARI, and accompanying financing statements and
Federal Aviation Administration filing executed and delivered by
ARI to PNC in connection with the execution of this Loan Agreement.
7.3 Right of Offset. The right of offset described in
Section 12.3 hereof.
7.4 Stock Pledges. The pledge by AHI to PNC of all of
the issued and outstanding capital stock of Addington, Addwest, and
Mining pursuant to a certain Stock Pledge Agreement of even date
herewith (the "Stock Pledge Agreement").
7.5 Other Security; Release. Other security and
instruments, if any, granted by any Borrower or either Guarantor to
PNC, whether of even date herewith or hereafter or heretofore
granted, to secure the Revolving Note, the Discretionary Line of
Credit and/or the other Indebtedness. Except as otherwise provided
herein, PNC shall be under no obligation to release any pledge,
lien, encumbrance or security interest granted hereby unless and
until the outstanding Indebtedness is paid in full and the Loan is
terminated. Upon payment in full of the outstanding Indebtedness
and the termination of the Loan, PNC hereby agrees to execute and
deliver to the Borrowers and Guarantors all documents necessary to
release all pledges, liens, encumbrances and security interests
created hereby and shall execute all documents then or thereafter
necessary to effect such releases and terminations.
8. Conditions Precedent. If, upon the execution and
effectiveness of this Loan Agreement by all parties hereto, one or
more conditions precedent established by PNC to PNC's obligation to
close and initially fund the Loan have not been fulfilled to the
satisfaction of PNC, the parties hereto shall execute a compliance
agreement reflecting any such unfulfilled conditions precedent and
a time limit, acceptable to PNC in its sole discretion, within
which such conditions precedent must be fulfilled to the
satisfaction of PNC. The conditions precedent to the closing and
initial funding of the Loan are set out on Exhibit 8.0 attached
hereto. In the event any one or more conditions precedent set out
in the compliance agreement are not fulfilled within the time
period specified, such failure shall constitute an Event of Default
hereunder without the benefit of any grace period.
9. Covenants. The Borrowers and Guarantors agree that until
the Revolving Note and all the other Indebtedness shall have been
paid in full and the Loan terminated, the Borrowers and Guarantors
shall perform, observe and comply with all of the following terms
and provisions:
9.1 Insurance. Borrowers, Guarantors and all
Subsidiaries shall insure themselves and all their insurable
properties to such extent and against such hazards and liabilities
as is commonly done by businesses similarly situated, but in no
event shall the insurance maintained by any Borrower, either
Guarantor or any Subsidiary be less than that required by any of
the Security Instruments. Further, the Borrowers, Guarantors and
all Subsidiaries shall, within ten (10) days after written request
by PNC, furnish to PNC full information concerning such insurance
of the Borrowers, Guarantors, and Subsidiaries and promptly effect
such additional insurance to protect against additional risks and
in additional amounts as PNC may reasonably request, provided such
request is consistent with prevailing standards in the coal
industry, with PNC named as insureds and loss payees thereon, which
policies shall be in forms approved by PNC.
9.2 Money Obligations. Borrowers, Guarantors, and all
Subsidiaries shall pay in full:
(a) Prior in each case to the date when penalties
would attach, all taxes, assessments and governmental charges and
levies imposed upon them (except only those so long as and to the
extent that the same shall be contested in good faith by
appropriate and timely legal proceedings and for which execution or
enforcement thereof shall have been stayed in accordance with
applicable law), and
(b) All their debts, obligations and liabilities to
third parties, on or prior to their respective due dates, for which
they may be or become liable or to which any or all of their
properties may be or become subject, unless being contested in good
faith.
9.3 Financial Statements.
(a) Borrowers and Guarantors shall furnish to PNC
within 30 days after the end of each calendar month (or by March 31
for January statements), and 45 days after the end of each calendar
quarter, an income statement of ARI (on a consolidated basis and
Combined Basis, if different) for that month or quarter, as
applicable, and for the period from the beginning of the applicable
fiscal year to the end of such month or quarter, and a balance
sheet of ARI (on a consolidated basis and Combined Basis, if
different) as of the end of each such month or quarter, as
applicable, certified by the Chief Financial Officer of ARI to be
true, correct and accurate. Further, with the quarterly financial
statements described above, (i) the Borrowers and Guarantors shall
deliver to PNC consolidating (without eliminating entries) income
statements and balance sheets for such applicable quarter, and (ii)
Borrowers shall deliver to PNC consolidating (with eliminating
entries) income statements and balance sheets for such applicable
quarter.
(b) Borrowers and Guarantors shall furnish to PNC
within 90 days after the end of each fiscal year of ARI, commencing
with the fiscal year ending December 31, 1993, a complete annual
audit report of ARI (on a consolidated basis and Combined Basis, if
different), with complete financial statements including, but not
limited to, a balance sheet, statement of profit and loss and cash
flow statement, prepared and certified by a firm of independent
public accountants of recognized standing acceptable to PNC,
accompanied by an opinion of the auditing firm that such audited
financial statements present fairly the financial position of ARI
as of the date of the audit and the results of the Borrowers' and
Guarantors' operations and cash flows for the year, without
qualification regarding limited scope of the audit, exceptions to
GAAP or regarding the ability of any Borrower or either of the
Guarantors to continue as a going concern; and such other financial
reports of the Borrowers, Guarantors, and Subsidiaries as PNC may
reasonably request from time to time, all of which shall be
certified by the Chief Financial Officer of ARI as being true,
correct and accurate in the form of the certificate shown on
Exhibit 9.3 attached hereto and incorporated herein by reference.
At the time the annual audit report requested above is delivered to
PNC, the Borrowers and Guarantors shall also supply consolidating
financial statements (showing all eliminating entries) covering the
same audit period of the Borrowers, Guarantors, and the
Subsidiaries. Such consolidating statements may be prepared by
Borrowers' and Guarantors' management.
(c) The Borrowers and Guarantors shall supply to
PNC, upon PNC's written request, such other information about the
financial condition, properties and operations of the Borrowers,
Guarantors, and Subsidiaries as Bank may from time to time
reasonably request.
(d) All financial statements specified in clauses
(a) and (b) of this Section 9.3, shall be furnished to PNC with
comparative figures for the corresponding period in the preceding
fiscal year. All financial statements referred to in clause (a)
and (b) above shall be prepared on the accrual basis of accounting,
in accordance with GAAP applied on a basis consistent with prior
years of the Borrowers and Guarantors, on a consolidated (and
consolidating) basis. All financial statements required hereunder
shall be accompanied by a certificate of the Chief Financial
Officer of ARI: (i) stating that there exists no Event of Default
or Possible Default hereunder or describing with particularity any
Event of Default or Possible Default, stating the nature thereof,
the period of existence thereof and what action the Borrowers and
Guarantors have taken or proposes to take with respect thereto; and
(ii) certifying compliance by the Borrowers and Guarantors with all
financial covenants contained in this Loan Agreement and setting
out the calculations reflecting such compliance with reference back
to the applicable financial statements. Calculations of the
covenants set forth in Sections 9.20 and 9.21 must be submitted
with the monthly and quarterly financial statements, while the
covenants set forth in Sections 9.22 and 9.23 must only be
submitted on a quarterly basis.
(e) The Borrowers and Guarantors shall give the PNC
prompt written notice of any condition or event (other than general
economic conditions) which has or is reasonably anticipated by any
Borrower or either Guarantor to result in (i) a material adverse
change in the consolidated condition (financial or otherwise) or
operations of the Borrowers or Guarantors or (ii) a breach of or
noncompliance with any term, condition or covenant contained herein
or in any document delivered pursuant hereto, or (iii) a material
breach of, or noncompliance with, any term, condition or covenant
of any material contract to which any Borrower, either Guarantor,
and/or any Subsidiary are a party or by which they or their
property may be bound.
(f) The Borrowers and Guarantors shall give PNC
prompt written notice of any claims, proceedings or disputes
(whether or not purportedly on behalf of Borrowers, either
Guarantor, and/or any Subsidiary) against, or to the knowledge of
any Borrower, either Guarantor, and/or any Subsidiary, threatened
or affecting any Borrower, either Guarantor, and/or any Subsidiary
which, if adversely determined, would have a material adverse
effect on the business, properties or condition (financial or
otherwise) of any Borrower, either Guarantor or any Subsidiary
(without in any way limiting the foregoing, claims, proceedings, or
disputes involving monetary amounts in excess of $1,000,000 not
fully covered by insurance shall be deemed to be material), or of
any labor controversy resulting in or threatening to result in a
strike against any Borrower, either Guarantor, or any of the
Subsidiaries, and/or any contract miner employed by any Borrower or
either Guarantor, or of any proposal by any public authority to
acquire any of the material assets or business of any Borrower,
either Guarantor and/or any of the Subsidiaries.
9.4 Financial Records. Borrowers and Guarantors shall:
(a) At all times keep true and complete (i)
financial records in a manner which will allow the preparation of
the required financial statements in accordance with GAAP and (ii)
records regarding mining schedules, leases, permits and coal supply
agreements (including copies of all such agreements);
(b) At all reasonable times, permit PNC to examine
any or all of their financial and other records and to make
excerpts therefrom and transcripts thereof;
(c) Maintain their books and records at locations
disclosed to PNC at all times, but with its chief accounting office
maintained at its current principal offices in Boyd County,
Kentucky; and
(d) Maintain their current fiscal year.
9.5 Properties.
(a) Borrowers and Guarantors shall maintain their
respective Equipment in good condition and repair, subject only to
normal wear and tear; and PNC shall have the right to inspect same
from time to time during normal business hours.
(b) Borrowers and Guarantors shall proceed
diligently and prudently to develop their Mining Properties, now
existing or hereinafter acquired, with the objective of maximizing
the revenues therefrom in accordance with sound managerial prac-
tices as determined by Borrowers' and Guarantors' management. The
Borrowers and Guarantors shall keep, and shall cause any Person or
Entity operating under contracts with any Borrower or either
Guarantor to keep their operations in a continuing high state of
efficiency and productivity and shall at all times maintain an
adequate inventory of parts, supplies and equipment as to permit
the mining of coal from the Mining Properties sufficient to meet
the Borrowers' or Guarantors' obligations under any Coal Sales
Contract, as determined by Borrowers' or Guarantors' management.
(c) Borrowers and Guarantors shall on request
submit to PNC copies of all arrival notices, invoices, adjustment
letters, analyses and other communications regarding any Coal Sales
Contracts.
(d) Borrowers and Guarantors shall keep accurate
accounts and records of all coal mined, removed and/or sold by
Borrowers and Guarantors and others from the Mining Properties,
fully posted monthly, and shall furnish to PNC on request a report,
in reasonably satisfactory form, showing the tons of clean coal
(including coal sold raw) mined from each of Borrowers' or
Guarantors' owned and contracted mines (the "Mines"). Upon
request, the Borrowers and Guarantors shall supply to PNC (i)
copies of all railroad weights by railroad car numbers for all coal
sold by Borrowers and Guarantors whether from the Mining Properties
or properties of others, loaded and shipped the preceding month by
rail, (ii) copies of all truck tickets for all coal sold by
Borrowers and Guarantors whether from the Mining Properties or
properties of others, loaded and shipped the preceding month by
truck, (iii) copies of all barge documents or any other documents
for all coal sold by Borrowers and Guarantors whether from the
Mining Properties or properties of others, loaded and shipped by
barge, (iv) proof of payment reasonably satisfactory to PNC of all
royalties under the Leases and otherwise due and of all severance
tax, abandoned mine land fees and other governmental impositions
due with regard to such mining, and (v) all other documents and
information regarding the mining of the Mining Properties as may be
from time to time reasonably requested by PNC. Said books of
accounts and records shall be open at all reasonable times to the
inspection of PNC and its agents or attorneys. Upon prior notice
(written or oral) to the Borrowers' Agent, PNC may at any
reasonable time inspect all property of Borrowers and Guarantors,
whether related to coal, municipal solid waste or other activities
of Borrowers and Guarantors, and furthermore are hereby authorized
by Borrowers to inspect all records maintained by third parties (to
the extent such third party agrees or is obligated to allow such
inspection) as to the shipment of coal from the Mining Properties
or sold by Borrowers, Guarantors or any Subsidiary under agency
agreements, by railroad, truck company, trucker, barge or other
carrier. Prior to the occurrence of an Event of Default, PNC shall
give the Borrowers' Agent prior written notice of any intended
inspection by PNC of any third party's records. Borrowers and
Guarantors will make, execute and deliver all documents, and do all
other acts reasonably necessary to enable PNC to have access to
such third party records for the purpose of verifying the
compliance by said parties with the terms hereof. This Section 9.5
of this Loan Agreement gives PNC, or their representatives,
authority to check all railroad, truck, barge or other carrier
weights and it also gives the agent of the railroad company, truck
company, barge company or such other carrier, the right and
authority to show and give such weights and other information to
PNC and their representatives.
(e) Fifteen (15) Business Days after request by PNC
from time to time, but not more frequently than annually, Borrowers
and Guarantors shall furnish to PNC complete and detailed (i)
schedules of Borrowers' and Guarantors' Mining Properties,
including without limitation, leases, subleases (and all amendments
and supplements to all leases, subleases, etc.) and fee interests,
as of the end of the preceding month, in reasonable detail
satisfactory to PNC (including copies of leases, subleases, and
deeds, if requested), (ii) maps of all properties shown on the
aforesaid schedule, showing the geographic location of all mining
operations, including the locations of seams mined and to be mined,
and (iii) a current and complete list of all the Borrowers' and
Guarantors' Equipment as of the end of the preceding month.
9.6 Corporate Franchise and Licenses. Each Borrower and
each Guarantor shall preserve its respective corporate existence
under the laws of the state of its incorporation and will be and
remain qualified to do business either as a domestic or as a
foreign corporation in all states in which the failure to qualify
would have a material adverse impact on such Borrower or such
Guarantor.
9.7 Notice. The Borrowers and/or Guarantors (acting by
and through a Designated Officer of the Borrowers' Agent) shall
notify PNC in writing, within no more than Seventy-Two (72) hours
(and without the benefit of any grace period afforded in any
provision of this Loan Agreement or any Security Instrument) after
any Borrower or either Guarantor learns of any of the following:
(i) the existence or occurrence of any Event of Default or Possible
Default under this Loan Agreement, or any default under the
Revolving Note or any of the Security Instruments; or (ii) any
representation or warranty made herein, or in any related
instrument or writing, not being or ceasing to be, for any reason,
in any material respect, true and complete and not misleading; or
(iii) the institution of, or adverse determination in, any
litigation, arbitration or governmental proceeding (including but
not limited to an audit or examination by the Internal Revenue
Service) which could reasonably be expected to have a material and
adverse effect upon any Borrower, either Guarantor or any
Subsidiary which notification shall describe the nature thereof,
what happened with respect thereto and what steps are being taken
by Borrowers, Guarantors or Subsidiaries with respect thereto.
9.8 Agreements. The Borrowers, Guarantors, and all
Subsidiaries shall at all times comply to the extent necessary to
prevent a termination or material claim, with all of the terms and
provisions of all of the Coal Sales Contracts and all material
terms and provisions of all other material agreements to which each
is a party. The Borrowers, Guarantors and all Subsidiaries shall
at all times comply with each and every term and provision of the
Leases to the extent necessary to maintain said Leases in full
force and effect. Further, the Borrowers and Guarantors shall not
(i) terminate or (ii) modify in a manner adverse to the Borrowers'
ability to repay the Loan any Coal Supply Contract, without the
prior written consent of PNC.
9.9 Payment of Revolving Note and Other Indebtedness.
The Borrowers shall timely pay the Revolving Note and all the other
Indebtedness in accordance with their respective terms. All
payments on the Revolving Note and the other Indebtedness shall be
made to PNC in immediately available funds at the principal office
of PNC on the date due.
9.10 Compliance with Laws. The Borrowers, Guarantors,
and all Subsidiaries shall at all times comply (or cure any
noncompliance within the applicable cure or abatement period
provided by law or regulation) with the applicable statutes,
regulations, ordinances and other laws applicable to its current
and future activities, including, without limitation, the
"Environmental Laws" described in Section 10.14 hereof, the Federal
Surface Mining Control and Reclamation Act of 1977, as amended, and
state laws implementing said act, other land reclamation and use
statutes and regulations, the Federal Coal Mine Health and Safety
Act of 1969, as amended, and all other applicable federal, state or
local laws and regulations. The Borrowers and Guarantors shall
diligently pursue obtaining within due time proper governmental
permits, licenses, approvals, clearances and authorizations
necessary for the commencement and continuation of its activities,
and shall not conduct mining or waste disposal operations without
proper permits.
9.11 ERISA Compliance. Each Borrower, each Guarantor and
each Subsidiary shall (i) at all times, make prompt payment of all
contributions required under all employee benefit plans or other
plans maintained by any Borrower, either Guarantor or any
Subsidiary and covered by ERISA (the "Plans") and required to meet
the minimum funding standard set forth in ERISA with respect to
their Plans; (ii) within thirty days after the filing thereof,
furnish to PNC, on request, copies of each annual report/return
(Form 5500 Series), as well as all schedules and attachments
required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of their Plans for
each Plan year; (iii) notify PNC immediately of any fact arising in
connection with any of their Plans which might constitute grounds
for termination thereof by the Pension Benefit Guaranty Corporation
or for the appointment by the appropriate United States District
Court of a Trustee to administer such Plan, together with the
statement, if requested by PNC, as to the reason therefor and the
action, if any, proposed to be taken with respect thereto; and (iv)
furnish to PNC, upon its request, such additional information
concerning any of their Plans as may be reasonably required.
9.12 Liens.
Borrowers, Guarantors, or the Subsidiaries, or any
of them shall not incur, create, assume or suffer to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets, except the following (herein the
"Permitted Liens") (i) the liens and security interests granted by
the Borrowers and Guarantors to PNC in connection with the
execution of this Loan Agreement or any previously existing liens
or security interests in favor of PNC (formerly known as Citizens
Fidelity Bank and Trust Company d/b/a Citizens Fidelity Energy
Company), whether for itself or in its capacity as Agent for itself
and/or any other third party, (ii) the lien of ad valorem property
taxes and other taxes, assessments and governmental charges and
levies not yet due and payable, (iii) liens, pledges or deposits
made to secure payment of worker's compensation claims or black
lung claims as required by applicable law or to secure workers'
compensation insurance, (iv) landlords' liens arising under any
Leases or pursuant to applicable law, (v) the liens described on
Exhibit 9.12 attached hereto and incorporated herein by reference,
(vi) appeal bonds, (vii) purchase money security interests
encumbering only the property acquired with the proceeds of a loan
made for that purpose, which loan does not exceed the purchase
price of the property purchased (a "Purchase Money Loan"), (viii)
mechanic's and materialmen's liens less than 30 days old, and (ix)
easements, rights of way and real property interests affecting
title to any Borrower's, either Guarantor's or any Subsidiary's
real estate which is not intended to secure any debt or liability
of any Borrower, either Guarantor or any Subsidiary. Any liens of
any Borrower, either Guarantor, or any Subsidiary that are not
Permitted Liens as described on Exhibit 9.12(a) attached hereto and
incorporated herein by reference.
9.13 Fringe Benefits. The Borrowers, Guarantors, and
the Subsidiaries shall not take any actions to increase the rate
of, or their liability for, contributions to any pension plan,
profit sharing plan, employee benefit plan, as defined in the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or other fringe benefit plan (excluding group life
insurance, group disability insurance and group health insurance
for employees of the Borrowers and Guarantors) beyond the level
thereof as of the date of this Loan Agreement except in the
ordinary course of business for the benefit of its employees.
9.14 Mergers, Sales, Lease of Assets. Without the prior
written consent of PNC, neither any of the Borrowers nor either of
the Guarantors (whether in one transaction or in a series of
transactions) shall:
(a) Be or become a party to any consolidation,
reorganization or merger, unless (i) such Borrower or such
Guarantor is the surviving entity of the consolidation,
reorganization or merger, (ii) no Possible Default or Event of
Default will exist after giving effect to the consolidation,
reorganization or merger, (iii) PNC is given reasonable assurances
that no environmental liability or material contingent liabilities
will attach to any Borrower, either Guarantor, or PNC as a result
of such consolidation, reorganization or merger, and (iv) PNC is
given 30 days prior written notice of any such proposed
consolidation, reorganization or merger;
(b) Dissolve or liquidate;
(c) Sell all or substantially all of its assets;
(d) Purchase all or a substantial part of the
assets of any other corporation, partnership, or other business
enterprise unless (i) after giving effect to the purchase no
Possible Default or Event of Default shall exist, (ii) PNC is given
assurances that no environmental liability or material contingent
liabilities will attach to PNC as a result of such purchase and
reasonable assurances that no unacceptable environmental liability
or material contingent liabilities will attach to any Borrower or
either of the Guarantors as a result of such purchase and (iii) PNC
is given 30 days prior written notice of any such proposed
purchase;
(e) Lease (as lessor) or otherwise transfer
possession of any asset, except the leasing in the ordinary course
of business of mineral reserves not within the Borrowers' or
Guarantors' current five year mining plan;
(f) Sell or otherwise dispose of any asset other
than in the ordinary course of business. PNC shall be under no
obligation to release any lien or security interest in any asset
sold and such asset shall be sold subject to the liens and security
interests in favor of PNC.
9.15 Subsidiaries.
(a) Neither of the Borrowers nor either of the
Guarantors shall transfer the shares of capital stock of any
Subsidiary or grant any option or other rights with respect
thereto, nor shall any Subsidiary issue any additional stock or
grant any options or other rights with respect thereto, except as
may be approved by PNC in writing. Upon the occurrence of an Event
of Default or Possible Default hereunder, neither of the Borrowers
nor either of the Guarantors shall transfer, assign or lend any
money or other property to any Subsidiary, except as may be
approved by PNC in writing.
(b) Neither any of the Borrowers nor either of the
Guarantors shall enter into any transaction, undertaking,
agreement, option, or commitment of any kind with an Affiliate
(other than another Borrower or Guarantor) unless such transaction,
undertaking, agreement, option, or commitment is an arm's length
transaction on commercially reasonable terms.
9.16 Leases. Without the prior written consent of PNC,
neither any of the Borrowers, nor either of the Guarantors, nor any
of the Subsidiaries shall pay or become liable to pay, either
directly or indirectly, lease payments (including fixed rent) or
other amounts, in connection with all current and future operating
leases of both real and/or personal property (excluding payments on
mineral leases and leases between any Borrower and either Guarantor
or between Guarantors or between Borrowers) in excess of the
aggregate sum of $10,000,000.00 in any one fiscal year of ARI,
under all such leases of the Borrowers, Guarantors and all
Subsidiaries together.
9.17 Capital Contributions. Upon the occurrence of an
Event of Default or Possible Default hereunder, neither of the
Borrowers nor either of the Guarantors shall make any capital
contribution to, or investment in, any Subsidiary or purchase or
commit to purchase any additional stock or securities of any kind
from any Subsidiary.
9.18 Investments. All investments of excess cash of the
Borrowers or Guarantors shall be in Readily Marketable Debt
Securities.
9.19 Indebtedness. Without the prior written consent of
PNC, neither of the Borrowers nor either of the Guarantors will
hereafter incur any indebtedness for borrowed money whatsoever or
hereafter guaranty or become directly or contingently liable on any
note or other evidence of indebtedness, letter of credit or
contract that has the effect of constituting a guaranty of an
obligation of a third party or incur any other contingent liability
(all of the foregoing being referred to as "Direct and Contingent
Debt") if the aggregate amount of all Direct and Contingent Debt
incurred by Borrowers and all of the Guarantors in any twelve
consecutive month period ending with the incurrence of any new
Direct or Contingent Debt will exceed Twenty Million Dollars
($20,000,000.00).
9.20 Ratio of Total Indebtedness to Tangible Net Worth.
The Borrowers and Guarantors shall not permit the ratio of their
Total Indebtedness to Tangible Net Worth (on a Combined Basis) be
more than 1.00 to 1.00, at any time while any of the Indebtedness
remains unpaid and outstanding.
9.21 Current Ratio. Borrowers and Guarantors (on a
Combined Basis) shall not permit their ratio of current assets (as
determined in accordance with GAAP) to current liabilities to at
any time be less than 1.00 to 1.00, all as determined in accordance
with GAAP, while any of the Indebtedness remains unpaid and
outstanding.
9.22 Ratio of Total Indebtedness to Tangible Net Worth
(Borrowers). The Borrowers shall not permit the ratio of
Borrowers' Total Indebtedness to Borrowers' Net Worth (on a
consolidated and Combined Basis as to the Borrowers only) to be
more than 1.5 to 1.0, at any time while any of the Indebtedness
remains unpaid and outstanding.
9.23 Current Ratio. The Borrowers (on a consolidated
and Combined Basis as to Borrowers only) shall not permit the ratio
of current Borrowers' assets (as determined in accordance with
GAAP) to Borrowers' current liability to any time be less than 1.0
to 1.0, all as determined in accordance with GAAP, at any time
while any of the Indebtedness remains unpaid and outstanding.
10. Warranties. As a material inducement to PNC to enter
into this Loan Agreement, the Borrowers and Guarantors make the
representations and warranties set forth below. The
representations and warranties set out below, except only those set
out in Sections 10.13(a), 10.4(b), 10.6, and 10.8 of this Loan
Agreement, shall be deemed continuing representations and
warranties (the "Continuing Representations") and shall survive the
execution of this Loan Agreement and shall be deemed to be remade
and restated by both Borrowers and each Guarantor each time an
Advance is requested. Notwithstanding the foregoing, the Borrowers
and Guarantors may update Exhibits 10.9 and 10.14 from time to
time, but such updating shall not relieve the Borrowers and
Guarantors of their obligation to comply with each warranty
contained herein. Nothing above shall limit or affect any other
representation or warranty contained herein or otherwise made at
any time by any Borrower or either Guarantor to PNC, or relieve the
Borrowers or Guarantors of any obligation under any covenant
contained herein or in any other Loan Document.
10.1 Existence and Licenses. Each of the Borrowers and
each Guarantor is a duly incorporated and validly existing
corporation under the laws of the state of its incorporation and
each is qualified to do business in all states in which the failure
to so qualify would have a material and adverse impact upon such
Borrower or such Guarantor, and each Borrower and each Guarantor
has, in full force and effect (or is in the process of obtaining
within applicable legal time periods), all licenses and permits
necessary or appropriate for its business and all other material
licenses and permits.
10.2 Authority and Enforceability. No registration with
or approval of any governmental agency or court of any kind is
required for the due execution and delivery of, or for the
enforceability of, this Loan Agreement, the Revolving Note or any
of the Security Instruments or other Loan Documents. Each Borrower
and each Guarantor (to the extent they are parties to the Loan
Documents) has the legal power and right to execute and deliver
this Loan Agreement, the Revolving Note, the Security Instruments
and the other Loan Documents and to observe and perform all of the
provisions of such instruments. Neither the Borrowers' nor
Guarantors' execution and delivery of this Loan Agreement, the
Revolving Note and Security Instruments or of any other related
writing, nor the performance or observance by either of the
Borrowers or either of the Guarantors of the provisions of any of
such instruments, violates or will violate any existing provision
of the any Borrower's or either Guarantors' Articles of
Incorporation, By-laws or corporate actions or any law applicable
to any Borrower or either Guarantor or otherwise constitutes a
default or violation under any existing contract or other
obligation binding upon it or its property, with or without the
passage of time or the giving of notice or both. The officers of
the Borrowers and Guarantors executing and delivering this Loan
Agreement, the Revolving Note, Security Instruments and other Loan
Documents on behalf of the Borrowers and Guarantors have been duly
authorized to do so, and upon execution by PNC of all Loan
Documents to which PNC is a party, this Loan Agreement, the
Revolving Note, the Security Instruments and the other Loan
Documents are legally binding upon the Borrowers and Guarantors.
10.3 Litigation and Taxes.
(a) No litigation or proceeding involving any
Borrower, either Guarantor, or any Subsidiary which would have a
material adverse affect on any Borrower, either Guarantor, or any
Subsidiary (or any combination thereof) is pending or is known by
any Borrower or either Guarantor to be threatened in any court or
administrative agency, federal, state or local, except as listed on
Exhibit 10.3 attached hereto and incorporated herein by reference.
(b) Neither any of the Borrowers, nor either of the
Guarantors, nor any Subsidiary is in default in the payment of any
tax, nor is any assessment threatened in respect thereof (other
than the assessment of ad valorem property taxes not yet due and
payable), and each of them have filed timely all federal, state and
local tax returns (or are under valid extensions) and have paid all
taxes required to be paid therewith, unless being contested in good
faith as provided in Section 9.2 hereof. The charges, accruals and
reserves in respect of taxes on the financial statements of the
Borrowers and Guarantors are adequate. Neither of the Borrowers
nor either of the Guarantors know of any proposed material tax
assessment against any of them, and no extension of time for the
assessment of federal, state or local taxes of any Borrower or
either Guarantor is in effect or has been requested except as
disclosed in the financial statements previously furnished to PNC.
10.4 Financial Statements.
(a) Each Borrower's, each Guarantor's and each
Subsidiary's audited and unaudited financial statements, heretofore
furnished to PNC have been prepared in accordance with GAAP
consistently applied, omit no material contingent liabilities of
any kind that are not disclosed or otherwise reflected therein, and
fairly present their respective financial conditions as of their
dates and the results of the Borrowers', Guarantors', and
Subsidiaries operations for the respective fiscal periods then
ending.
(b) Since the respective dates of the statements
referred to in Sections 9.3 and 10.4(a), there has been no material
adverse change in any of the Borrowers', Guarantors' or
Subsidiaries' respective financial condition, properties or
businesses.
10.5 Default. No Possible Default or Event of Default
exists under this Loan Agreement, nor will any such Event of
Default or Possible Default begin to exist immediately after the
execution and delivery hereof.
10.6 Subsidiaries. The Borrowers and Guarantors have no
Subsidiaries, nor do they own any stock in other corporations or
other interests of any kind in any other business, except as shown
on Exhibit "10.6", attached hereto and incorporated herein by
reference.
10.7 Liens. The properties of the Borrowers, Guarantors,
and the Subsidiaries are subject only to those liens, encumbrances,
pledges and mortgages permitted by Section 9.12 hereof.
10.8 Loans to Related Parties. The only loans or
advances in excess of $50,000.00 made by any Borrower, and/or
either Guarantor and/or any of their Subsidiaries to any Affiliate
and the only loans and/or obligations which any Borrower, and/or
either Guarantor and/or any of the Subsidiaries have guaranteed for
any Affiliate are disclosed on Exhibit "10.8", attached hereto and
made a part hereof.
10.9 Employee Benefit Plans.
(a) All employee benefit plans, as defined in
Section 3(3) of ERISA, provided by, afforded or made available by
any Borrower, either Guarantor or any Subsidiary are listed on
Exhibit "10.9", attached hereto and incorporated herein by
reference (hereinafter referred to collectively as "Employee
Plans").
(b) There are no multi-employer plans, as defined
in Section 4001(a)(3) of ERISA, to which any Borrower, either
Guarantor, or any Subsidiary contributes, or under which any
Borrower, either Guarantor, or any Subsidiary has any present or
future obligations or liability.
(c) Each of the Employee Plans which is an employee
pension benefit plan, as defined in Section 3(2) of ERISA
(hereinafter referred to as "Pension Plans"), and which is intended
to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code of 1986, or any successor provision
(hereinafter referred to as the "Code") has been determined by the
Internal Revenue Service to be so qualified or shall be timely
filed with the Internal Revenue Service seeking such a
determination, and no Borrower, no Guarantor, nor any Subsidiary is
aware of any fact that would adversely affect such qualified
status. Each Employee Plan has been operated and administered in
all material respects in accordance with the requirements of ERISA
and the applicable provisions of the Code.
(d) None of the Pension Plans subject to Title IV
of ERISA has been the subject of a reportable event as defined in
Section 4043 of ERISA for which the 30-day notice requirement has
not been waived. None of the Pension Plans have incurred a
complete or partial termination within the meaning of Section
411(d)(3) of the Code.
(e) No proceedings by the Pension Benefit Guaranty
Corporation to terminate any Pension Plan (or any Pension Plan
which is under common control with any Borrower, either Guarantor
or any Subsidiary within the meaning of Section 414(b) or (c) of
the Code) pursuant to Subtitle C of Title IV of ERISA have been
instituted or threatened. No liability under Subtitle D of Title
IV of ERISA has been incurred by any Borrower, either Guarantor, or
any Subsidiary with respect to any Pension Plan or any Pension Plan
maintained by a trade or business whether or not incorporated which
is under common control with any Borrower, either Guarantor, or any
Subsidiary within the meaning of Sections 414(b) or (c) of the
Code.
(f) The actuarial present value of the total
accrued benefits, determined on an ongoing basis, under each
Pension Plan which is a defined benefit pension plan does not, as
of its latest valuation date, exceed the fair market value of the
total assets of the plan based upon the actuarial assumptions and
methods used to fund the plan.
(g) No Pension Plan has incurred any accumulated
funding deficiency (whether or not waived) as defined in Section
412 of the Code and all contributions to the Pension Plans
necessary to satisfy minimum funding have been made and will be
made on or prior to the date due.
(h) There has been no prohibited transaction (as
that term is defined in Section 4975 of the Code or in Part 4 of
Subtitle B of Title I of ERISA) which respect to any Employee Plan
for which there is no applicable exception. No penalty or tax
under Section 502(i) of ERISA or Section 4975 of the Code has been
imposed upon any Borrower, either Guarantor or any Subsidiary.
(i) There are no pending or, to any Borrower's,
either Guarantor's, or any Subsidiary's best knowledge, threatened
claims or pending investigations or assessments with respect to any
Employee Plan, by an employee or beneficiary covered under any
Employee Plan, or by any governmental agency, or otherwise
involving any Employee Plan or pending or threatened investigation
which allege a breach of fiduciary duties or violations of other
applicable state or federal law which could result in material
liability on the part of any Borrower, either Guarantor or any
Subsidiary, or any of the Employee Plan under ERISA or any other
law, nor to the best knowledge of any Borrower, either Guarantor or
any Subsidiary is there any basis for such a claim.
10.10 Investment Company Act. Neither of the Borrowers
nor either of the Guarantors is an "investment company" or a
company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
10.11 Regulation U. Neither of the Borrowers nor either
of the Guarantors is engaged principally in the business of
extending credit for the purpose of purchasing or carrying margin
stock within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System. No part of the proceeds of the Loan
will be used, directly or indirectly, for the purpose of purchasing
or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, or for the
purpose of purchasing or carrying or trading in any securities.
10.12 Reports. Borrowers and Guarantors have made
available to PNC reserve reports and other estimates of coal
reserves, relating to the Mining Properties. Borrowers and
Guarantors represent that the factual information contained in such
reports and information, subject to changes resulting from mining,
acquisitions and dispositions since the date of such information,
which changes have not been materially adverse to the business of
Borrowers or Guarantors, is true and correct to the best of their
information and belief; that all estimates of coal reserves and
similar matters contained therein have been prepared in accordance
with accepted engineering or accounting practices by persons
qualified to make such estimates, and that any future projections
as to tonnages, costs and other matters contained therein have been
prepared by qualified persons in accordance with their customary
practice with respect thereto in the regular conduct of their
business.
10.13 Sales Contracts. All coal sales contracts, the
accounts of which may at any time be included in the Borrowing Base
(collectively referred to as the "Coal Sales Contracts") have been
duly and properly authorized, executed and entered into or assumed
by the appropriate Borrower and remain in full force and effect.
Neither of the Borrowers is in default under any Coal Sales
Contract.
10.14 Environmental Matters. The Borrowers and
Guarantors hereby warrant and represent to PNC that to the best of
their knowledge and except as set out in Exhibit "10.14" attached
hereto and incorporated herein by reference: (i) there are no
hazardous substances disposed of, stored or present on, in or
under, any of the Mining Properties, nor have any Borrower, either
Guarantor, or any Subsidiary arranged for the storage, treatment,
transportation reuse or recycling, or disposal of any such
substances or wastes at any other sites prior to the date hereof,
any of which disposal, storage, presence or arrangement would
reasonably be expected to result in a material adverse claim
against any Borrower, either Guarantor or any Subsidiary; (ii)
there are no releases in reportable quantities under CERCLA of any
hazardous substances to the environment from or at any facility
owned or operated by any Borrower, either Guarantor or any
Subsidiaries which would reasonably be expected to result in any
material obligation or liability of any Borrower, either Guarantor
or any Subsidiary; (iii) each Borrower, each Guarantor, and each
Subsidiary are in compliance in all material respects with all
federal, state and local statutes, rules, ordinances and other laws
and regulations relating to protection of the environment,
including, without limitation, the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act and the
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. S6901, et
seq.; the Clean Air Act, 42 U.S.C. S7401, et seq.; the Clean Water
Act, 33 U.S.C. S1251, et seq.; the Safe Drinking Water Act, 42
U.S.C. S300f, et seq.; the Toxic Substances Control Act, 15 U.S.C.
S2601, et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. S136, et seq.; the Emergency Planning and Community
Right-To-Know Act, 42 U.S.C. S11001, et seq.; and the Comprehensive
Environmental Response, Compensation and Liability Act, as amended,
42 U.S.C. S9601, et seq. ("CERCLA") (collectively, "Environmental
Laws"); (iv) no conditions exist at any facility of any Borrower,
either Guarantor or any Subsidiary which would necessitate material
remedial action by any Borrower, either Guarantor or any Subsidiary
under CERCLA or any other Environmental Law; (v) no conditions
exist on any other property for which any Borrower, either
Guarantor or any Subsidiaries are, or would reasonably be expected
to be, responsible for all or any portion of costs or expenses in
any material amount associated with the clean-up of such property
under CERCLA or any other Environmental Laws; (vi) no liens have
been asserted against any assets of any Borrower, either Guarantor
or any Subsidiaries for all or any portion of the costs or expenses
associated with the clean-up of any waste disposal site or other
property under CERCLA or any other Environmental Laws; and (vii)
there are no pending or threatened material claims, assessments, or
litigation against any Borrower, either Guarantor or any Subsidiary
with respect to any alleged material noncompliance with any
Environmental Laws. Borrowers and Guarantors agree, jointly and
severally, to indemnify and hold harmless PNC from any and all
losses, costs, damages or expenses (including reasonable attorneys'
fees) which may result from any of the aforesaid representations or
warranties being untrue at any time and for any liability of any
nature which may be incurred by PNC under CERCLA or any other
Environmental Laws relating to any transaction between PNC, the
Borrowers, and/or the Guarantors. This indemnity shall survive the
payment in full of the Revolving Note, the termination of the Loan
and the discharge and/or release of any or all Security Instruments
or other Loan Documents, but shall not extend to losses, costs,
damages or expenses which arise solely from the willful act or
omission of PNC.
11. Events of Default. Each of the following shall
constitute an Event of Default hereunder:
11.1 Payments/Defaults. If any principal or interest on
any of the Indebtedness, including but not limited to the Revolving
Note or any portion of the Discretionary Line of Credit, shall not
be paid in full punctually when due and payable and shall remain
unpaid for a period of five (5) days after the respective due date
thereof, or if any Event of Default occurs under this Loan
Agreement, under any other Loan Document, or under the Jet Loan
Documents.
11.2 Draws under Letters of Credit. If there is a draw
under any Letter of Credit and PNC is not fully reimbursed for the
full amount of such draw in three (3) Business Days.
11.3 Covenants and Agreements. If any Borrower, either
Guarantor, or any Subsidiary shall violate or fail to perform or
observe any covenant, agreement, condition or other provision
(other than as governed by Section 11.1 or Section 11.4 hereof)
contained or referred to in this Loan Agreement and such failure or
omission shall not have been fully corrected to the complete
satisfaction of PNC within 30 days after PNC has given written
notice thereof to the Borrowers' Agent.
11.4 Environmental Default. If any default or Event or
Default occurs (i) under that certain Revolving Credit Agreement
dated as of May 26, 1993, by and among Addington Environmental,
Inc., Collection Services, Inc., Ohio County Balefill, Inc.,
Epperson Waste Disposal, Inc., Tri-K Landfill, Inc., Uwharrie
Environmental, Inc., Green Valley Environmental Corp., Addington
Resources, Inc., Addington Holding Company, Inc., and The First
National Bank of Boston (the "Environmental Loan Agreement"), or
(ii) any of the "Obligations," as that term is defined in the
Environmental Loan Agreement.
11.5 Negative Covenants. If any Borrower, either
Guarantor, or any Subsidiary shall violate or fail to perform or
observe any covenant, agreement, condition or other provision
contained or referred to in Sections 9.12 through 9.23, inclusive,
hereof, the same shall constitute an immediate Event of Default
hereunder.
11.6 Accuracy of Statements. If any representation or
warranty or other statement of fact contained herein or in any of
the Security Instruments or in any writing, certificate, report or
statement at any time furnished by or for any Borrower or either
Guarantor to PNC pursuant to or in connection with this Loan
Agreement or otherwise in connection with the transactions
contemplated hereby shall be false or misleading in any material
respect or shall omit to state a material fact required to be
stated therein in order to make the statements contained therein,
in light of the circumstances under which made, not misleading, on
the date as of which made and taking into account all other
disclosures made to PNC whether or not made with knowledge of same.
Notwithstanding the foregoing, except with regard to
representations and warranties made as of the date of this Loan
Agreement, if any Continuing Representation (other than in Section
8.5 hereafter ceases to be true and correct in all material
respects, such event shall not constitute an Event of Default if
the Borrowers and/or Guarantors takes all actions necessary to make
such representation or warranty true and correct within 30 days of
PNC giving the Borrowers' Agent written notice that such
representation or warranty is no longer true and correct.
11.7 Change In Control. An Event of Default shall exist
if at any time (i) Larry Addington does not have direct ownership
of at least 25% (on a fully diluted basis except only for dilution
resulting from stock issuances by ARI) of all outstanding capital
stock of ARI, or (ii) Larry Addington, together with the senior
management of ARI existing as of the execution date of this Loan
Agreement do not have direct ownership of at least forty percent
(40%) (on a fully diluted basis except only for dilution resulting
from stock issuances by ARI) of all outstanding capital stock of
ARI or (iii) Larry Addington is not vested by the Board of
Directors of the Borrowers with authority and control over all
operations of ARI and the Borrowers and Guarantors.
11.8 Judgments and Liens. If a final judgment or
judgments for the payment of money in excess of the sum of One
Million Dollars ($1,000,000.00) in the aggregate shall be rendered
against any Borrower, either Guarantor, or any Subsidiary and such
judgment or judgments shall remain unsatisfied and in effect and
shall not have been discharged within sixty (60) consecutive days
after the entry thereof and execution thereon shall not have been
stayed pending appeal, or if so stayed, ten (10) days after the
expiration of such stay; or if an action to enforce a lien upon or
security interest in, any asset of any Borrower, either Guarantor
or any Subsidiary is commenced, unless being contested in good
faith and the recovery of any such asset by the claiming party is
stayed.
11.9 Solvency and Other Matters. If any Borrower or
either Guarantor shall (a) discontinue business, or (b) make a
general assignment for the benefit of their creditors, or (c) apply
for or consent to the appointment of a custodian, receiver, trustee
or liquidator of all or a substantial part of their assets, or (d)
be adjudicated a bankrupt or insolvent, or (e) file a voluntary
petition in bankruptcy or file a petition or an answer seeking a
composition, reorganization or an arrangement with creditors or
seeking to take advantage of any other law (whether federal or
state) relating to relief for debtors, or admit (by answer, default
or otherwise) the material allegations of any petition filed
against them in any bankruptcy, reorganization, composition,
insolvency or other proceeding (whether federal or state) relating
to relief for debtors, or (f) suffer or permit to continue unstayed
and in effect for sixty (60) consecutive days any judgment, decree
or order entered by a court or governmental agency of competent
jurisdiction, which assumes control of any Borrower, either
Guarantor or any Subsidiary, or approves a petition seeking a
reorganization, composition or arrangement of any Borrower, either
Guarantor or any Subsidiary, or any other judicial modification of
the rights of any of their respective creditors, or appoints a
custodian, receiver, trustee or liquidator for any Borrower, either
Guarantor or any Subsidiary or for all or a substantial part of
either of their business or assets, or (g) not be paying their
debts as they become due, or (h) be enjoined or restrained from
conducting all or a material part of any of their businesses as now
conducted and the same is not dismissed and dissolved within sixty
(60) days after the entry thereof.
12. Remedies Upon Default. Notwithstanding any contrary
provision or inference herein or elsewhere:
12.1 Optional Acceleration. If any Event of Default
referred to in Section 11.1 through Section 11.8 hereof shall
occur, PNC, in its sole and absolute discretion, without further
notice to the Borrowers or Guarantors, may declare all or any of
the Indebtedness, including but not limited to the Revolving Note
to be, whereupon the same shall be, accelerated and immediately due
and payable in full, all without any presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived by
the Borrowers and Guarantors.
12.2 Automatic Acceleration. If any Event of Default
referred to in Section 11.9 hereof shall occur, all of the
Indebtedness, including the Revolving Note shall thereupon become
accelerated and immediately due and payable in full, all without
presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived by the Borrowers and Guarantors.
12.3 Offsets. If any Event of Default shall occur, PNC
shall have the right then, or at any time thereafter, to set off
against, and to appropriate and apply toward the payment of the
Indebtedness (in such order as PNC may select in its sole
discretion), including but not limited to the indebtedness
evidenced by the Revolving Note, whether or not such indebtedness
shall then have matured or be due and payable and whether or not
PNC has declared the Revolving Note and/or other Indebtedness to be
in default and immediately due, any and all deposit balances and
other sums and indebtedness and other property then held or owed by
PNC to or for the credit or account of any Borrower or either
Guarantor, and in and on all of which the Borrowers and Guarantors
hereby grant PNC a first security interest, pledge and lien to
secure all the Indebtedness, all without notice to or demand upon
the Borrowers, the Guarantors or any other Person or Entity, all
such notices and demands being hereby expressly waived by Borrowers
and Guarantors.
12.4 Default Rate. Upon the occurrence of any Event of
Default, the interest rate applicable to the outstanding principal
balance of the Revolving Note (including all Reimbursement
Amounts), and all past due interest shall, at PNC's option, be
increased to the Default Rate until all of the Indebtedness is paid
in full. The assessment or collection of the Default Rate shall
not constitute a waiver of any Event of Default.
12.5 Rights Under Loan Documents. If any Event of
Default shall occur, PNC shall also have all rights and remedies
granted it under this Loan Agreement and under any and all of the
Security Instruments or other Loan Documents securing or intended
to secure the Indebtedness.
12.6 Rights Cumulative. All of the rights and remedies
of PNC upon occurrence of an Event of Default or Possible Default
hereunder shall be cumulative to the greatest extent permitted by
law and shall be in addition to all those rights and remedies
afforded PNC at law or equity.
13. Interpretation.
(a) No course of dealing in respect of, or any
omission or delay in the exercise of, any right, power, remedy or
privilege by PNC shall operate as a waiver thereof, nor shall any
right, power, remedy or privilege of PNC be exclusive of any other
right, power, remedy or privilege referred to herein or in any
related document or now or hereafter available at law, in equity,
in bankruptcy, by statute or otherwise. Each such right, power,
remedy or privilege may be exercised by PNC, either independently
or concurrently with others, and as often and in such order as PNC
may deem expedient. No waiver or consent granted by PNC with
respect to this Loan Agreement, the Indebtedness or any Security
Instrument or related writing shall be binding upon PNC, unless
specifically granted in writing by a duly authorized officer of
PNC, which writing shall be strictly construed.
(b) Time shall be of the essence in the performance
of all of Borrowers' and Guarantors' obligations under this Loan
Agreement, the Indebtedness, the Security Instruments and the other
instruments related hereto.
(c) The provisions of this Loan Agreement shall
bind and benefit Borrowers, Guarantors and PNC and their respective
successors, personal representatives and assigns, including each
subsequent holder, if any, of any of the Revolving Notes or any
other Indebtedness. Notwithstanding the foregoing, neither of the
Borrowers nor either of the Guarantors may assign any of its rights
under this Loan Agreement to any other Person or Entity.
(d) The several caption, section and subsection
headings of this Loan Agreement are inserted for convenience only
and shall be ignored in interpreting the provisions of this Loan
Agreement.
(e) This Loan Agreement, and the other Loan
Documents and the respective rights and obligations of the parties
hereto shall be construed in accordance with and governed by the
laws of the Commonwealth of Kentucky, except to the extent the laws
of any other state shall govern the enforcement of PNC's rights in
security for any of the Indebtedness.
(f) This Loan Agreement and the other Loan
Documents contain the entire agreement of the parties pertaining to
their subject matter and supersede all prior written and oral
agreements pertaining hereto.
(g) This Loan Agreement may be modified only in
writing executed by PNC, Borrowers, Borrowers' Agent, and
Guarantors.
(h) The invalidity or unenforceability, whether in
general or in any particular circumstance, of any provision of this
Loan Agreement, shall not affect its validity or enforceability in
any other circumstance, or any other provision hereof. The parties
hereto hereby agree that this Loan Agreement shall be so
interpreted to give effect and validity to all the provisions
hereof to the fullest extent permitted by law.
(i) With regard to terms used herein, the singular
usage shall include the plural and the plural shall include the
singular.
(j) The obligations of the Borrowers and Guarantors
hereunder and under the Revolving Note and all of the Indebtedness
shall be joint and several.
14. Notices. All notices required or permitted to be given
hereunder shall be given in writing and (i) personally delivered or
(ii) sent by registered or certified U. S. mail, return receipt
requested, postage prepaid, addressed as follows (or to such other
address as to which any party hereof shall have given the other
written notice) or (iii) sent by telecopy transmission (with a hard
copy sent by U.S. Mail promptly) to the Fax Numbers listed below
(or to such other Fax Number as to which any party shall have given
written notice):
If to PNC: PNC Bank, Kentucky, Inc.
500 West Jefferson Street
Louisville, Kentucky 40202
Attn: Natural Resources Division
Fax No. 502-581-2302
If to Borrowers or
Guarantors: c/o Addington Resources, Inc.
Route 180, 1500 Big Run Road
Ashland, Kentucky 41101
Attn: Chief Financial Officer
Fax No. 606-928-9527
and shall be deemed given when actually delivered in person or when
deposited in the United States mails, or when receipt is confirmed
by the intended recipient of a telecopy transmission, in accordance
with the foregoing, as applicable.
15. Survival of Covenants, Agreements, Warranties and
Representations. All covenants, agreements, warranties and
representations made by the Borrowers and Guarantors herein shall
survive the making of the Loan and each Advance and the execution
and delivery of the Revolving Note, this Loan Agreement and any and
all Security Instruments and shall be deemed to be continuing
(except to the extent limited by Section 10 hereof) covenants,
agreements, representations and warranties at all times while any
portion of the Indebtedness, including the Revolving Note, remains
unpaid and shall be further deemed to be remade and restated by
Borrowers and Guarantors each time an Advance is requested.
16. Fees and Expenses. The Borrowers and/or Guarantors shall
pay all out-of-pocket expenses (including attorneys' fees) incurred
by PNC in connection with the closing of the Loan, including, but
not limited to, the reasonable fees and expenses of PNC incurred in
preparing and revising this Loan Agreement, the Revolving Note and
the Security Instruments and all related documents, in closing the
Loan, in making Advances and in the filing and/or recordation from
time to time of Financing Statements and/or other Security
Instruments, including all filing and/or recording fees and taxes
and all note or security fees and/or taxes and also all other
similar fees and/or taxes. Further, following the occurrence of
any Event of Default under this Loan Agreement and during the
continuance of any Possible Default, the Borrowers and/or
Guarantors will pay to PNC, to the extent allowable by applicable
law, such further amounts as shall be sufficient to reimburse fully
PNC for all of their reasonable costs and expenses of enforcing
their rights and remedies under this Loan Agreement, the Revolving
Note and the Security Instruments, and in protecting or preserving
any security for the Indebtedness including without limitation,
PNC's reasonable attorneys', appraisers' auditors' and accountants'
fees, court costs, security costs and maintenance costs, and the
same shall be deemed evidenced by the Revolving Note and secured by
all the Security Instruments. All obligations provided for in this
Section 14 shall survive termination or cancellation of this Loan
Agreement for any reason whatsoever.
17. Liability of PNC. The Borrowers and Guarantors agree
that PNC shall not be liable for any act or omission relating to
the Loan, unless such act or omission constitutes gross negligence
or intentional misconduct by PNC and PNC shall not be liable to
Borrowers or Guarantors for consequential or special damages
arising out of any act or omission of PNC relating to the Loan.
PNC shall have no liability to any Borrower or either Guarantor as
a result of any delay in funding any Advance due to technical
communication or computer problems or as a result of any delay
within the Federal Reserve wire transfer system, and PNC shall not
have any liability to any Borrower or either Guarantor as a result
of any act or omission of PNC.
18. Jury Trial Waiver. BORROWERS AND GUARANTORS HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LOAN AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OUT OF ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER WRITTEN OR ORAL) OR ACTIONS OF THE
BORROWERS, GUARANTORS OR PNC.
19. Exhibits. All of the Exhibits described in this Loan
Agreement are attached hereto and incorporated herein by reference.
20. Termination of Indenture. Notwithstanding any other term
or condition contained herein that may be interpreted to the
contrary, this Loan Agreement, the Revolving Note, and all of the
other Loan Documents shall be null, void, and without effect until
such time as Borrowers provide PNC with evidence satisfactory to
PNC in the exercise of its sole discretion the certain Indenture
dated as of July 1, 1988, by and between ARI and Security Pacific
National Bank, Trustee (now known as Bank of America National Trust
and Savings Association), as the same has been amended or modified
(the "Indenture"), has been terminated and that all indebtedness of
ARI referred to in the Indenture has been paid in full.
21. Counterparts. This Loan Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which, when so executed and delivered by all
parties, shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the day, month and year first above written.
PNC BANK, KENTUCKY, INC.
By: /s/ Christopher Moravec
Christopher Moravec
Vice-President
("PNC")
MINING TECHNOLOGIES, INC.
By: /s/ Doug D. Moore
Title: Vice President
ADDINGTON MINING, INC.
By: /s/ Doug D. Moore
Title: President
ADDWEST MINING, INC.
By: /s/ Doug D. Moore
Title: President
(the "Borrowers")
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Title: Vice President
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
Title: Treasurer
(the "Guarantors")
m:\sws\pnc\ari\pittston\loan-agr.#2
EXHIBITS
1.9 -- Borrowing Base Certificate
1.19 -- Designated Officers
1.23 -- Eligible Equipment List
1.25 -- Loading Facilities
8.0 -- Conditions Precedent
9.3 -- Form of Certificate for Financial Information
9.12 -- Current Liens
9.12(a) -- Liens that are not Permitted Liens
10.3 -- Litigation
10.6 -- Subsidiaries
10.8 -- Affiliate Loans
10.9 -- Employee Benefit Plans
10.14 -- Environmental Disclosures
March 7, 1994
Mr. Douglas Striebel
Addington Holding Company, Inc.
Route 180, Big Run Road
Ashland, Kentucky 41101
Re: Amendment to Loan Agreement
Dear Doug:
The purpose of this letter is to amend that certain Loan
Agreement dated as of January 14, 1994 by and among (i) PNC Bank,
Kentucky, Inc. ("PNC"); (ii) Mining Technologies, Inc., Addington
Mining, Inc., Addwest Mining, Inc. (collectively, the
"Borrowers"); and (iii) Addington Resources, Inc. and Addington
Holding Company, Inc. (the "Guarantors") (the "Loan Agreement").
The Borrowers and Guarantors hereby acknowledge and agree
that the maximum principal amount available under the
"Discretionary Line of Credit", as that term is defined in the
Loan Agreement, is hereby reduced by $2,500,000 from $10,000,000
to $7,500,000. The Maker and Guarantors further represent and
warrant that no draws or disbursements have been made under the
Discretionary Line of Credit.
Except as amended pursuant to this letter, the Loan
Agreement shall remain in full force and effect. Please
acknowledge and consent to the terms and conditions of this
letter by having the appropriate Addington entities countersign
in the spaces provided below. Should you have any problems or
questions, please feel free to contact me.
Very truly yours,
PNC Bank, Kentucky, Inc.
By: /s/ Christopher Moravec
Christopher Moravec
Vice President
ACKNOWLEDGED AND CONSENTED
TO AS OF THIS 7th DAY OF
MARCH, 1994
MINING TECHNOLOGIES, INC.
By: /s/ Doug D. Moore
Its: Secretary
ADDINGTON MINING, INC.
By: /s/ Doug D. Moore
Its: President
ADDWEST MINING, INC.
By: /s/ Doug D. Moore
Its: President
("Borrowers")
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Its: Vice President
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
Its: Secretary/Treasurer
("Guarantors")
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT ("Amendment") is
made and entered into as of the 25th day of May, 1994, by and
among (i) PNC BANK, KENTUCKY, INC., a Kentucky banking
corporation ("PNC"); (ii) MINING TECHNOLOGIES, INC., a Kentucky
corporation ("Mining"), ADDINGTON MINING, INC., a Kentucky
corporation ("Addington"), and ADDWEST MINING, INC., a Kentucky
corporation ("Addwest"; collectively with Addington and Mining,
the "Borrowers"); and (iii) ADDINGTON RESOURCES, INC. ("ARI"), a
Delaware corporation, and ADDINGTON HOLDING COMPANY, INC.
("AHI"), a Delaware corporation; (collectively, the
"Guarantors").
A. Pursuant to the terms and conditions of that certain
Loan Agreement dated as of January 14, 1994, as amended pursuant
to that certain Amendment to Loan Agreement letter dated as of
March 7, 1994, both being by and among PNC, the Borrowers and
the Guarantors (collectively, the "Loan Agreement"), PNC
established in favor of the Borrowers, among other things, a
Fifteen Million and No/100 Dollar ($15,000,000.00) working
capital revolving credit loan (the "Revolving Credit").
B. PNC, Borrowers, and Guarantors desire to amend the Loan
Agreement to, among other things, add additional authorized
signatories for the Borrowing Base Certificate.
C. The Guarantors desire to acknowledge and consent to the
changes set forth in this Amendment.
NOW, THEREFORE, for and in consideration of the Recitals,
and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 3.4(b) of the Loan Agreement is hereby amended
to allow Mark Strong, Financial Analysist for the Borrowers and
Guarantors, and Ed Raine, Controller for the Borrowers and
Guarantors, to execute any and all Borrowing Base Certificates
that are submitted to PNC and certify all information contained
therein as being true, correct, and accurate.
2. Section 3.6(a) of the Loan Agreement is hereby amended
to read as follows:
"(a) Borrower shall be limited to no more than
one Advance per day, and each Advance shall be for no
less than $1,000,000.00."
3. Section 3.6(b) of the Loan Agreement is hereby amended
to read as follows:
"(b) Whenever Borrowers desire to obtain an
Advance pursuant to this Loan Agreement, Borrowers
shall, at a time and manner acceptable to PNC in the
reasonable exercise of its discretion, request
disbursement of an Advance (which request shall be
irrevocable), specifying the amount of the Advance
requested and the date on which Borrowers want the
funds to be made available, which date shall be no
sooner than (i) the same Business Day for any Prime
Rate Advance requested on any Business Day before 2:00
p.m., Louisville, Kentucky time, and (ii) the next
Business Day for any LIBOR Rate Advance requested on
any Business Day before 11:00 a.m., Louisville,
Kentucky time. All requests for a Prime Rate Advance
may be made by telephone without a follow up written
confirmation. All requests for a LIBOR Rate Advance
may be made by telephone, but with a written facsimile
confirmation sent to PNC no later than twelve (12)
hours after the telephone request. In addition, the
Borrowers hereby agree to deliver to PNC (i) copies of
invoices, the amounts of which are included in the
Borrowing Base Certificate, which invoices shall be
forwarded to PNC with each Borrowing Base Certificate,
and (ii) if requested by PNC, verification of weights
shipped by Borrowers and reflected on the invoices,
consisting of draft surveys, weigh bills and weigh
tickets, as applicable. The Borrowers shall further
specify in the request for an Advance the Interest Rate
Option selected for the Advance, and the rate period
for any LIBOR Rate Advance."
4. PNC, Borrowers and Guarantors acknowledge and agree
that the Borrowers and Guarantors must no longer submit a
Borrowing Base Certificate with each request for an Advance, but
instead shall submit a Borrowing Base Certificate on Wednesday of
each week, which Borrowing Base Certificate shall reflect, among
other things, the Net Dollar Amount of Eligible Accounts
Receivable as of the close of business on the prior Friday, the
Inventory Component, which shall be updated monthly in the final
Borrowing Base Certificate provided to PNC in any month and
setting forth the Inventory Component as of the last day of the
prior month, and the Equipment Component, which shall be updated
in accordance with the requirements of Section 1.24 of the Loan
Agreement.
5. Exhibit 1.9 to the Loan Agreement (Borrowing Base
Certificate) is hereby amended to read as set forth on Exhibit
1.9 to this Amendment, which is attached hereto and incorporated
herein by reference.
6. Exhibit 1.23 to the Loan Agreement (Eligible Equipment
List) is hereby amended to read as set forth on Exhibit 1.23 to
this
Amendment, which is attached hereto and incorporated herein
by reference.
7. Exhibit 1.25 to the Loan Agreement (Loading Facilities)
is hereby amended to read as set forth on Exhibit 1.25 to this
Amendment, which is attached hereto and incorporated herein by
reference.
8. The Borrowers and Guarantors, as the case may be,
hereby remake and restate, as of the date of this Amendment, each
and every warranty and representation set forth in the Loan
Agreement and all other Loan Documents and further represent and
warrant that no Event of Default or Possible Default now exists
under the Loan Agreement, as amended hereby, or under any other
Loan Document.
9. As amended hereby, the Loan Agreement shall remain in
full force and effect. Further, all references to the Loan
Agreement in any of the Loan Documents shall be deemed references
to the Loan Agreement as amended hereby or as hereafter amended
by the parties.
10. All terms not defined herein shall have the same
meaning given them in the Loan Agreement.
11. The Guarantors hereby acknowledge and consent to the
terms and conditions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have made and entered
into this Amendment as of the day, month and year first above
written.
PNC BANK, KENTUCKY, INC.
By: /s/ Christopher Moravec
Its: Vice President
("PNC")
MINING TECHNOLOGIES, INC.
By: /s/ Doug D. Moore
Its: Secretary
("Mining")
ADDINGTON MINING, INC.
By: /s/ Doug D. Moore
Its: President
("Addington")
ADDWEST MINING, INC.
By: /s/ Doug D. Moore
Its: President
("Addwest")
(collectively, the "Borrowers")
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Its: Vice President
("ARI")
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
Its: Secretary/Treasurer
("AHI")
(collectively, the "Guarantors")
cyw-m:\sws\pnc\ari\pittston\2nd-amdt.#2
GDM DRAFT
10/04/94
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT ("Amendment") is made
and entered into as of the 17th day of October, 1994, by and among
(i) PNC BANK, KENTUCKY, INC., a Kentucky banking corporation
("PNC"); (ii) MINING TECHNOLOGIES, INC., a Kentucky corporation
("Mining"), ADDINGTON MINING, INC., a Kentucky corporation
("Addington"), and ADDWEST MINING, INC., a Kentucky corporation
("Addwest"; collectively with Addington and Mining, the
"Borrowers"); and (iii) ADDINGTON RESOURCES, INC. ("ARI"), a
Delaware corporation, and ADDINGTON HOLDING COMPANY, INC.
("AHI"), a Delaware corporation; (collectively, the
"Guarantors").
A. Pursuant to the terms and conditions of that certain
Loan Agreement dated as of January 14, 1994, as amended pursuant
to that certain Amendment to Loan Agreement letter dated as of
March 7, 1994 and that certain Second Amendment to Loan Agreement
dated as of March 25, 1994, all being by and among PNC, the
Borrowers and the Guarantors (collectively, the "Loan
Agreement"), PNC established in favor of the Borrowers, among
other things, a Fifteen Million and No/100 Dollar
($15,000,000.00) working capital revolving credit loan (the
"Revolving Credit").
B. PNC, Borrowers, and Guarantors desire to amend the Loan
Agreement to, among other things, allow the Borrowers to begin
using the Equipment Component of the Borrowing Base more fully
described in the Loan Agreement.
C. The Guarantors desire to acknowledge and consent to the
changes set forth in this Amendment.
NOW, THEREFORE, for and in consideration of the Recitals,
and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Exhibit 1.23 to the Loan Agreement (Eligible Equipment
List) is hereby amended to read as set forth on Exhibit 1.23 to
this Amendment, which is attached hereto and incorporated herein
by reference. Borrowers and Guarantors hereby represent and
warrant that each item of Eligible Equipment listed on Exhibit
1.23 satisfies all of the requirements for "Eligible Equipment"
set forth in the Loan Agreement, and that each item of Eligible
Equipment is insured for no less than its Equipment Liquidation
Value, with the Bank named as loss payee/additional insured on
any such policies.
2. Upon the execution of this Amendment, the Borrowers
shall be entitled to use the Equipment Component of the Borrowing
Base, subject to the terms and conditions set forth in the Loan
Agreement, including but not limited to the timely submission of
Borrowing Base Certificates that include the Equipment Component
calculations.
3. The Borrowers and Guarantors, as the case may be,
hereby remake and restate, as of the date of this Amendment, each
and every warranty and representation set forth in the Loan
Agreement and all other Loan Documents and further represent and
warrant that no Event of Default or Possible Default now exists
under the Loan Agreement, as amended hereby, or under any other
Loan Document.
4. Except as amended hereby, the Loan Agreement shall
remain in full force and effect. Further, all references to the
Loan Agreement in any of the Loan Documents shall be deemed
references to the Loan Agreement as amended hereby or as
hereafter amended by the parties.
5. All capitalized terms not defined herein shall have the
same meaning given them in the Loan Agreement.
6. The Guarantors hereby acknowledge and consent to the
terms and conditions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have made and entered
into this Amendment as of the day, month and year first above
written.
PNC BANK, KENTUCKY, INC.
By: /s/ Christopher Moravec
Its: Vice President
("PNC")
MINING TECHNOLOGIES, INC.
By: /s/ Doug D. Moore
Its: Secretary
("Mining")
ADDINGTON MINING, INC.
By: /s/ John Lynch
Its: Secretary
("Addington")
ADDWEST MINING, INC.
By: /s/ John Lynch
Its: Secretary
("Addwest")
(collectively, the "Borrowers")
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Its: Vice President
("ARI")
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
Its: Secretary/Treasurer
("AHI")
(collectively, the "Guarantors")
cyw-m:\sws\pnc\ari\pittston\3rd-amdt
FOURTH AMENDMENT TO LOAN AGREEMENT
AND RELATED LOAN DOCUMENTS
THIS FOURTH AMENDMENT TO LOAN AGREEMENT AND RELATED LOAN
DOCUMENTS (the "Amendment") is made and entered into as of the
14 day of January, 1995, by and among (i) PNC BANK, KENTUCKY,
INC., a Kentucky banking corporation ("PNC"), (ii) MINING
TECHNOLOGIES, INC., a Kentucky corporation ("Mining"), ADDINGTON
MINING, INC., a Kentucky corporation ("Addington") and ADDWEST
MINING, INC., a Kentucky corporation ("Addwest"; collectively,
with Addington and Mining, the "Borrowers"); and (iii) ADDINGTON
RESOURCES, INC. ("ARI"), a Delaware corporation and ADDINGTON
HOLDING COMPANY, INC. ("AHI"), a Delaware corporation
(collectively, the "Guarantors").
RECITALS:
A. PNC, the Borrowers, and Guarantors previously entered
into a certain Loan Agreement dated as of January 14, 1994 as
amended pursuant to that certain Letter Agreement dated as of
March 7, 1994 by and among PNC, the Borrowers, the Guarantors,
that certain Second Amendment to Loan Agreement dated as of March
25, 1994 by and among PNC, the Borrowers, and the Guarantors, and
that certain Third Amendment to Loan Agreement dated as of
October 17, 1994 by and among PNC, the Borrowers, and the
Guarantors (collectively, the "Original Loan Agreement").
B. Pursuant to the terms of the Original Loan Agreement,
PNC established in favor of the Borrowers a $15,000,000.00
working capital revolving credit loan (the "Revolving Credit").
C. Pursuant to the terms of the Original Loan Agreement,
PNC established in favor of the Borrowers a discretionary line of
credit in the maximum amount of $7,500,000.00 (the "Discretionary
Line of Credit").
D. The Borrowers and Guarantors desire to have PNC extend
the Revolving Credit for another year, terminate the
Discretionary Line of Credit, and to take other actions more
fully described herein.
E. The Guarantors, in consideration of the substantial
economic benefit that they receive from the Revolving Credit
desire to join in this Amendment.
NOW, THEREFORE, for and in consideration of the Recitals,
and for other good and other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. The definition of "Expiration Date" set forth in
Section 1.30 is hereby amended to read as follows:
"Expiration Date shall mean January 14, 1996
or the last day of any approved renewal
period of the Revolving Credit as set out in
Section 3.2 hereof."
2. Section 3.9(b) of the Original Loan Agreement is hereby
amended to read as follows:
"(b) Commitment Fee. The Borrowers shall pay
to PNC, on a quarterly basis, a commitment
fee (the "Commitment Fee") which shall be the
amount by which the "Unused Portion Fee"
exceeds the "Free Available Balance Credit"
for the same Calculation Period, as more
fully described in this Section.
The Unused Portion Fee shall be equal to
one-half percent (1/2%) per annum of the
average daily difference between the
aggregate principal amount of all Advances
outstanding during the Calculation Period and
the maximum amount available to be drawn
under the Borrowing Base. The "Calculation
Period" shall be the period commencing with
the execution date hereof and ending March
31, 1994, and continuing for each calendar
quarter or portion thereof while the
Revolving Credit is in effect."
The remainder of Section 3.9(b) shall be unchanged.
3. The Letter of Credit facility more fully described in
Section 4 of the Original Loan Agreement is hereby continued
until January 14, 1996, with January 14, 1996 being the current
"Letter of Credit Expiration Date". The Borrowers and Guarantors
acknowledge and agree that no Letter of Credit shall have a
maturity date later than the Letter of Credit Expiration Date,
unless agreed to by PNC in the exercise of its sole discretion.
4. The Borrowers' ability to obtain any loans or draws
under the Discretionary Line of Credit is hereby terminated, and
the terms and conditions of Section 6 of the Original Loan
Agreement are hereby declared to be null, void, and
unenforceable.
5. The Borrowers hereby agree to pay PNC, upon the
execution of this Amendment, the "Renewal Fee" described in the
Original Loan Agreement for the renewal of the Revolving Credit.
6. The "Expiration Date" set forth in that certain
Revolving Note dated as of January 14, 1994 in the face principal
amount of $15,000,000.00 made by Borrowers to the order of PNC
and guaranteed by the Guarantors is hereby extended from January
14, 1995 to January 14, 1996.
7. The Borrowers and Guarantors acknowledge and agree that
the "Termination Date", as that term is defined in that certain
Guaranty dated as of January 14, 1994 by and between PNC and the
Guarantors is hereby extended to February 14, 1996.
8. The Borrowers and Guarantors, as the case may be,
hereby remake and restate, as of the date of this Amendment, each
and every warranty and representation set forth in the Original
Loan Agreement and in all other Loan Documents and further
represent and warrant that no Event of Default or Possible
Default now exists under the Original Loan Agreement, as amended
hereby, or under any other Loan Document, as the same may have
been amended from time to time.
9. Except as hereby amended, the Original Loan Agreement
and all other Loan Documents shall remain in full force and
effect. Further, all references to the Loan Agreement in any of
the Loan Documents shall be deemed references to the Original
Loan Agreement, as amended hereby, or as hereafter amended by the
parties.
10. All capitalized terms not defined herein shall have the
same meaning given them in the Original Loan Agreement.
11. All Security Instruments and/or any instrument pledged
as security for the Revolving Note and other Indebtedness, as the
same may be amended from time to time, are hereby deemed to be
amended to the extent necessary to reflect the terms and
conditions of this Amendment, and the parties hereto agree that
all liens, security interests and pledges created thereby fully
secure the Revolving Note and the entire Indebtedness.
12. The Guarantors hereby acknowledge, consent, and agree
to the terms and conditions of this Amendment.
IN WITNESS WHEREOF, the parties have made and entered into
this Amendment as of the day, month, and year first above
written.
PNC BANK, KENTUCKY, INC.
By: /s/ Christopher Moravec
Christopher Moravec
Vice President
("PNC")
MINING TECHNOLOGIES, INC.
By: /s/Doug D. Moore
Its: Secretary
("Mining")
ADDINGTON MINING, INC.
By: /s/Doug D. Moore
Its: President
("Addington")
ADDWEST MINING, INC.
By: Doug D. Moore
Its: President
("Addwest")
(collectively, with Addington and
Mining, the "Borrowers")
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Its: Vice President
("ARI")
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
Its: Secretary/Treasurer
("AHI")
(collectively, the "Guarantors")
cyw-m:\sws\pnc\ari\95\4th-amd.la
396:addingto\asc\exhibit1.0j
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of May 31, 1994
by and among
ADDINGTON ENVIRONMENTAL, INC.,
(the "Parent"),
GREEN VALLEY ENVIRONMENTAL CORP.,
MID-STATE ENVIRONMENTAL, INC.,
and the Subsidiaries of the Parent
listed on Schedule 1 hereto
(the "Borrowers")
and
THE FIRST NATIONAL BANK OF BOSTON
("FNBB"),
and
CONTINENTAL BANK N.A.
("Continental")
(Collectively, the "Banks")
and
FNBB as Agent for the Banks
(the "Agent")
1. DEFINITIONS AND RULES OF INTERPRETATION................ ...1
1.1. Definitions.........................................1
1.2. Rules of Interpretation............................14
2. THE REVOLVING CREDIT FACILITY.............................15
2.1. Commitment to Lend.................................15
2.2. Reduction of the Commitment........................15
2.3. The Notes..........................................16
2.4. Interest on Loans..................................16
2.5. Election of Eurodollar Rate; Notice of Election;
Interest Periods; Minimum Amounts...................16
2.6. Requests for Revolving Credit Loans................17
2.7. Funds for Loans....................................18
2.8. Maturity of the Loans..............................19
2.9. Mandatory Repayments of the Loans..................19
2.10. Optional Prepayments or Repayments of Loans.......19
3. LETTERS OF CREDIT.........................................19
3.1. Letter of Credit Commitment........................19
3.2. Reimbursement Obligation of the Borrowers..........20
3.3. Letter of Credit Payments..........................21
3.4. Obligations Absolute...............................21
3.5. Reliance by Agent..................................22
4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND
SEVERAL LIABILITY........................................22
4.1. Fees...............................................22
4.2. Payments...........................................23
4.3. Computations........................................24
4.4. Capital Adequacy...................................24
4.5. Certificate........................................24
4.6. Interest on Overdue Amounts........................25
4.7. Interest Limitation................................25
4.8. Eurodollar Indemnity...............................25
4.9. Illegality; Inability to Determine
Eurodollar Rate....................................25
4.10. Additional Costs, Etc.............................26
4.11. Concerning Joint and Several
Liability of the Borrowers.........................27
4.12. New Borrowers.....................................29
5. REPRESENTATIONS AND WARRANTIES............................30
5.1. Corporate Authority................................30
5.2. Governmental Approvals.............................31
5.3. Title to Properties; Leases........................31
5.4. Financial Statements; Solvency.....................31
5.5. No Material Changes, Etc...........................31
5.6. Franchises, Patents, Copyrights, Etc...............32
5.7. Litigation.........................................32
5.8. No Materially Adverse Contracts, Etc...............32
5.9. Compliance With Other Instruments, Laws, Etc.......32
5.10. Tax Status........................................33
5.11. No Event of Default...............................33
5.12. Holding Company and Investment Company Acts.......33
5.13. Absence of Financing Statements, Etc..............33
5.14. Employee Benefit Plans.............................33
5.15. Use of Proceeds...................................34
5.16. Environmental Compliance..........................34
5.17. Perfection of Security Interests..................36
5.18. Certain Transactions..............................36
5.19. Subsidiaries......................................37
5.20. True Copies of Charter and Other Documents........37
5.21. Disclosure........................................37
5.22. Deposit Accounts..................................37
5.23. Permits and Governmental Authority................38
5.24. Material Contracts................................38
6. AFFIRMATIVE COVENANTS OF THE BORROWERS AND
THE GUARANTORS............................................38
6.1. Punctual Payment...................................38
6.2. Maintenance of Office...............................38
6.3. Records and Accounts................................38
6.4. Financial Statements, Certificates and
Information........................................39
6.5. Corporate Existence and Conduct of Business........41
6.6. Maintenance of Properties..........................41
6.7. Insurance..........................................41
6.8. Taxes..............................................42
6.9. Inspection of Properties, Books, and
Contracts..........................................42
6.10. Review By Consulting Engineer.....................42
6.11. Compliance with Laws, Contracts, Licenses and
Permits; Maintenance of Material
Licenses and Permits..............................42
6.12. Environmental Indemnification.....................43
6.13. Further Assurances................................43
6.14. Notice of Potential Claims or Litigation..........44
6.15. Notice of Certain Events Concerning
Insurance and Environmental Claims................44
6.16. Response Actions..................................45
6.17. Environmental Assessments.........................45
6.18. Notice of Default.................................45
6.19. Closure and Post Closure Liabilities..............46
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS...............46
7.1. Restrictions on Indebtedness.......................46
7.2. Restrictions on Liens..............................47
7.3. Restrictions on Investments........................49
7.4. Mergers, Consolidations, Acquisitions, Sales.......49
7.5. Sale and Leaseback.................................50
7.6. Restricted Distributions and Redemptions...........50
7.7. Landfill Development Expenditures..................50
7.8. Employee Benefit Plans.............................50
8. FINANCIAL COVENANTS OF THE BORROWERS......................51
8.1. Current Ratio......................................51
8.2. Leverage Ratio.....................................52
8.3. Interest Coverage Ratios...........................52
8.4. Fixed Charge Coverage Ratios.......................52
8.5. Profitable Operations..............................52
9. CLOSING CONDITIONS........................................52
9.1. Corporate Action...................................53
9.2. Loan Documents, Etc................................53
9.3. Certified Copies of Charter Documents..............53
9.4. Incumbency Certificate.............................53
9.5. Validity of Liens..................................53
9.6. UCC Search Results.................................53
9.7. Taxes..............................................53
9.8. Title Insurance....................................53
9.9. Certificates of Insurance..........................54
9.10. Opinions of Counsel...............................54
9.11. Amendments to Other Agreements....................54
10. CONDITIONS OF ALL LOANS..................................54
10.1. Representations True; No Event of Default.........54
10.2. Performance; No Event of Default..................55
10.3. No Legal Impediment...............................55
10.4. Governmental Regulation...........................55
10.5. Proceedings and Documents.........................55
11. COLLATERAL SECURITY......................................55
12. EVENTS OF DEFAULT; ACCELERATION;
TERMINATION OF COMMITMENT................................56
12.1. Events of Default and Acceleration................56
12.2. Termination of Commitment.........................59
12.3. Remedies..........................................59
13. GUARANTY.................................................60
13.1. Guaranty..........................................60
13.2. Guaranty Absolute.................................60
13.3. Effectiveness; Enforcement........................61
13.4. Waiver............................................61
13.5. Expenses..........................................61
14. SETOFF...................................................62
15. THE AGENT................................................62
15.1. Authorization.....................................62
15.2. Employees and Agents..............................62
15.3. No Liability......................................62
15.4. No Representations................................63
15.5. Payments..........................................63
15.6. Holders of Notes..................................64
15.7. Indemnity.........................................64
15.8. Agent as Bank.....................................65
15.9. Resignation.......................................65
16. EXPENSES.................................................65
17. INDEMNIFICATION..........................................66
18. SURVIVAL OF COVENANTS, ETC...............................66
19. SYNDICATION AND PARTICIPATION............................66
20. PARTIES IN INTEREST......................................67
21. NOTICES, ETC.............................................68
22. MISCELLANEOUS............................................68
23. ENTIRE AGREEMENT, ETC....................................69
24. Consents, Amendments, Waivers, Etc.......................69
25. WAIVER OF JURY TRIAL.....................................69
26. GOVERNING LAW............................................70
27. SEVERABILITY.............................................71
Exhibits
Exhibit A -- Form of Note
Exhibit B -- Form of Loan and Letter of Credit Request
Exhibit C -- Form of Compliance Certificate
Exhibit D -- Environmental Compliance Certificate
Exhibit E -- Required Insurance
Exhibit F -- Borrower's Standard Due Diligence Practices
Schedules
Schedule 1 - Subisidiaries of the Parent
Schedule 3.1(a) - Existing Letters of Credit
Schedule 5.7 - Litigation
Schedule 5.16 - Environmental Compliance
Schedule 5.22 - Depository Accounts
Schedule 5.23 - Permitting Exceptions
Schedule 5.24 - Material Contracts
Schedule 7.1(c) - Existing Debt
Schedule 7.2(g) - Existing Liens
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made
as of the 31st day of May, 1994, by and among ADDINGTON
ENVIRONMENTAL, INC., a Kentucky corporation (the "Parent"), GREEN
VALLEY ENVIRONMENTAL CORP. ("Green Valley"), MID-STATE
ENVIRONMENTAL, INC. ("Mid-State"), the Subsidiaries of the Parent
listed on Schedule 1 hereto, (the "Subsidiaries", the Parent, Green
Valley, Mid-State, and such Subsidiaries herein collectively
referred to as the "Borrowers"), each of which Borrowers is a
Kentucky corporation, and (unless otherwise listed on Schedule 1
hereto) each of which Borrowers has its principal place of business
at 771 Corporate Drive, Lexington, Kentucky 40503, ADDINGTON
RESOURCES, INC. ("ARI") and ADDINGTON HOLDING COMPANY, INC.,
("AHC"), each of which companies is a Delaware corporation with its
principal place of business at 1500 North Big Run Road, Ashland,
Kentucky 41102 (collectively, the "Guarantors," and, individually,
a "Guarantor"), and THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a
national banking association having its principal place of business
at 100 Federal Street, Boston, Massachusetts 02110, CONTINENTAL
BANK N.A. ("Continental"), a national banking association having
its principal place of business at 231 South LaSalle Street,
Chicago, Illinois 60697 (each a "Bank" and collectively, the
"Banks"), and FNBB as agent for the Banks (the "Agent").
1 DEFINITIONS AND RULES OF INTERPRETATION.
1.1 Definitions. The following terms shall have the
means set forth in this 1 or elsewhere in the provisions of
this Agreement referred to below:
Accountants. See 6.4(a).
Agent. See Preamble.
Agent's Head Office. 100 Federal Street, Boston,
Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agency Agreement Confirmation Letter. The Agency Agreement
Confirmation Letter dated as of the Closing Date confirming the
Agency Agreement dated as of May 26, 1993 by and among FNBB, AHC
and Bank of Delaware, a Delaware banking association, pursuant to
which Bank of Delaware confirms that it is holding the shares of
Green Valley, Mid-State, and the Parent for the benefit of the
Agent.
Agreement. This Amended and Restated Revolving Credit
Agreement, including the Schedules and Exhibits hereto, all as may
be amended and in effect from time to time.
Applicable Laws. See 6.10.
Applicable Rate. The applicable rate per annum of interest on
the Loans set forth in the following table:
<TABLE>
<CAPTION>
Applicable Rate for Applicable Rate for
Pricing Ratio Base Rate Loans Eurodollar Loans
<S> <C> <C>
less than 1.5:1 Base Rate Eurodollar Rate plus 2%
greater than or Base Rate plus 0.5% Eurodollar Rate plus
2.5%
equal to 1.5:1
but less than
or equal to 2:1
greater than Base Rate plus 0.75% Eurodollar Rate plus
2.75%
2:1 but less
than 3:1
greater than or Base Rate plus 1% Eurodollar plus 3%
equal to 3:1
</TABLE>
Each Applicable Rate shall become effective (a) with respect
to Base Rate Loans, on the first day after receipt by the Banks of
financial statements delivered pursuant to 6.4(a) or (b) hereof
which indicate a change in the Pricing Ratio and in the Applicable
Rate in accordance with the above table, and (b) with respect to
Eurodollar Loans, on the first day of each Interest Period which
begins after receipt by the Banks of such financial statements.
Assignment of Contracts and Permits. The Amended and Restated
Collateral Assignment of Contracts and Permits dated as of the
Closing Date by and among the Borrowers and the Agent for the
benefit of the Banks, as amended.
Authority. The Wayne County Solid Waste Management Authority,
a public corporation existing under the laws of the State of
Georgia.
Balance Sheet Date. December 31, 1993.
Banks. FNBB, Continental, and any other Person who becomes an
assignee of any rights and obligations of a Bank pursuant to 19(a)
hereof.
Base Rate. The higher of (a) the annual rate of interest
announced from time to time by the Agent at the Agent's Head
Office, as its "base rate" (it being understood that such rate is
a reference rate and not necessarily the lowest rate of interest
charged by the Agent) or (b) one percent (1%) above the overnight
federal funds effective rate, as published by the Board of
Governors of the Federal Reserve System, as in effect from time to
time.
Base Rate Loans. Loans bearing interest calculated by
reference to the Base Rate.
Bonds. The Solid Waste Revenue Bonds (Addington
Environmental, Inc. Project) Series 1994 in a principal amount of
approximately $7,400,000 plus forty-nine day's interest at the
maximum rate provided in the Trust Indenture to be issued by the
Authority.
Borrowers. See Preamble.
Broadhurst. Broadhurst Environmental, Inc., a Kentucky
Corporation.
Business Day. Any day on which banking institutions in
Boston, Massachusetts and Chicago, Illinois, are open for the
transaction of banking business.
Capital Assets. Fixed assets, both tangible (such as land,
landfills, buildings, fixtures, machinery and equipment) and
intangible (such as patents, copyrights, trademarks, franchises and
good will); provided that Capital Assets shall not include any item
customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with GAAP.
Certified. With respect to the financial statements of any
Person, such statements as audited by a firm of independent
auditors, whose report expresses the opinion, without
qualification, that such financial statements present fairly the
financial position of such Person.
6.4(b).
Closing Date. The date on which the conditions precedent set
forth in 9 are satisfied.
Code. The Internal Revenue Code of 1986, as amended and in
effect from time to time.
Collateral. All of the property, rights and interests of the
Borrowers and the Guarantors that are or are intended to be subject
to the security interests and mortgages created by the Security
Documents.
Commitment. With respect to each Bank, the amount determined
by multiplying such Bank's Commitment Percentage by the amount of
the Total Commitment specified in 2.1 hereof to make Loans to, and
to participate in the issuance, extension and renewal of Letters of
Credit for the account of, the Borrower.
Commitment Percentage. With respect to each Bank, the
percentage set forth beside its name below (subject to adjustment
pursuant to 19(a) hereof):
<TABLE>
<CAPTION>
Bank Percentage
<S> <C>
FNBB 62.5%
Continental 37.5%
</TABLE>
Compliance Certificate. See 6.4(c).
Consolidated or consolidated. With reference to any term
defined herein, shall mean that term as applied to the accounts of
the Borrowers consolidated in accordance with GAAP.
Consolidated Current Assets. All assets of the Borrowers on
a consolidated basis that, in accordance with GAAP, are properly
classified as current assets, provided that notes and accounts
receivable shall be included only if good and collectible as
determined by the Borrowers in accordance with established practice
consistently applied and, with respect to such notes, only if
payable on demand or within one (1) year from the date as of which
Consolidated Current Assets are to be determined and if not
directly or indirectly renewable or extendible at the option of the
debtors, by their terms, or by the terms of any instrument or
agreement relating thereto, beyond such year, and, with respect to
such accounts receivable, only if payable and outstanding not more
than one hundred twenty (120) days after the date of the shipment
of goods or provision of services or other transaction out of which
any such account receivable arose; and such notes and accounts
receivable shall be taken at their face value less reserves
determined to be sufficient in accordance with GAAP.
Consolidated Current Liabilities. All liabilities of the
Borrowers on a consolidated basis maturing on demand or within one
(1) year from the date as of which Consolidated Current Liabilities
are to be determined, and such other liabilities as may properly be
classified as current liabilities in accordance with GAAP.
Consolidated Earnings Before Interest and Taxes or EBIT. For
any period, the consolidated net income (or deficit) of the
Borrowers determined in accordance with GAAP, plus (a) interest
expense, and (b) income tax expense and minus interest income in
excess of 5% of total EBIT.
Consolidated Earnings Before Interest, Taxes, and Amortization
or EBITDA. For any period, the consolidated net income (or
deficit) of the Borrowers determined in accordance with GAAP, plus
(a) interest expense, (b) income tax expense, (c) depreciation
expense, and (d) amortization expense for such period and minus
interest income in excess of 5% of total EBITDA.
Consolidated Net Income. The consolidated net income (or
deficit) of the Borrowers, after deduction of all expenses, taxes,
and other proper charges, determined in accordance with GAAP.
Consolidated Total Interest Expense. For any period, the
aggregate amount of interest expense required to be paid or accrued
by the Borrowers during such period in accordance with GAAP on all
Indebtedness of the Borrowers outstanding during all or any part of
such period, including capitalized interest expense for such
period, but excluding expense related to amortization of deferred
financing costs relating to the Loans and excluding non-cash
interest on Indebtedness of the Parent.
Consolidated Tangible Net Worth. The excess of Consolidated
Total Assets over Consolidated Total Liabilities less the sum of:
(a) the total book value of all assets of the Borrowers on a
consolidated basis properly classified as intangible assets under
GAAP, including such items as good will, the purchase price of
acquired assets in excess of the fair market value thereof,
purchased collection routes, trademarks, trade names, service
marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing on the consolidated balance sheet of
the Borrowers); plus
(b) all amounts representing any write-up in the book value
of any consolidated assets resulting from a revaluation thereof
subsequent to the Balance Sheet Date.
Consolidated Total Assets. All assets of the Borrowers
determined on a consolidated basis in accordance with GAAP.
Consolidated Total Liabilities. All liabilities of the
Borrowers determined on a consolidated basis in accordance with
GAAP.
Consulting Engineer. Air & Water Research, Inc., or such
other engineering firm acceptable to the Agent.
Datedown Endorsement. A datedown endorsement to title
policies #443-722219, 443-722220, and 443-722221 issued by
Commonwealth Land Title Insurance Company, satisfactory to the
Agent, and indicating that the Agent continues to have a first
priority mortgage on the real properties described in such
policies, subject only to those exceptions set forth in the
policies as of the original date of issuance of such policies.
Default. See 12.
Delinquent Bank. See 15.5(c).
Depository Accounts. See 5.22.
Disposal. See "Release".
Distribution. The declaration or payment of any dividend on
or in respect of any shares of any class of capital stock of any
Person, other than dividends payable solely in shares of common
stock of such Person; the purchase, redemption, or other retirement
of any shares of any class of capital stock of such Person,
directly or indirectly through a Subsidiary or otherwise; the
return of capital by any Person to its shareholders as such; or any
other distribution on or in respect of any shares of any class of
capital stock of such Person.
Dollars or $. Dollars in lawful currency of the United States
of America.
Drawdown Date. The date on which any Loan is made or is to be
made, or the date on which any Loan is to be converted or continued
in accordance with 2.5 hereof.
Employee Benefit Plan. Any employee benefit plan within the
meaning of 3(3) of ERISA maintained or contributed to by the
Parent or any Borrower or any ERISA Affiliate, other than a
Multiemployer Plan.
Environmental Laws. See 5.16(a).
ERISA. The Employee Retirement Income Security Act of 1974,
as amended and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single
employer with any Borrower under 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of 4043 of ERISA and
the regulations promulgated thereunder as to which the requirement
of notice has not been waived.
Eurodollar Business Day. Any Business Day on which dealings
in foreign currency and exchange are carried on among banks in
London, England.
Eurodollar Interest Determination Date. For any Interest
Period, the date two Eurodollar Business Days prior to the first
day of such Interest Period.
Eurodollar Loans. Loans bearing interest calculated by
reference to the Eurodollar Rate.
Eurodollar Offered Rate. The rate per annum at which deposits
of dollars are offered to the Agent by prime banks in whatever
Eurodollar interbank market may be selected by the Agent, in its
sole discretion, acting in good faith, at or about 11:00 a.m. local
time in such interbank market, on the Eurodollar Interest
Determination Date for a period equal to the period of such
Interest Period in an amount substantially equal to the principal
amount requested to be loaned at or converted to a rate based on
the Eurodollar Offered Rate.
Eurodollar Rate. The rate per annum, rounded upwards to the
nearest 1/16 of 1%, determined by the Agent with respect to an
Interest Period, in accordance with the following formula:
Eurodollar Rate = Eurodollar Offered Rate
1-Reserve Rate
Event of Default. See 12.
Existing L/Cs. See 3.1(b).
generally accepted accounting principles or GAAP. (a) When
used in 8 or in connection with the Pricing Ratio, whether
directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the
principles promulgated or adopted by the Financial Accounting
Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, and (ii) to the extent consistent
with such principles, the accounting practice of the Borrowers
reflected in their consolidated financial statements for the year
ended on the Balance Sheet Date, and (b) when used in general,
other than as provided above, means principles that are (i)
consistent with the principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past
financial statements of the Borrowers adopting the same principles,
provided that in each case referred to in this definition of
"generally accepted accounting principles" a certified public
accountant would, insofar as the use of such accounting principles
is pertinent, be in a position to deliver an unqualified opinion
(other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such
principles have been properly applied.
Guaranteed Obligations. See 13.1.
Guaranteed Pension Plan. Any employee pension benefit plan
within the meaning of 3(2) of ERISA maintained or contributed to
by any Borrower or any Guarantor or any ERISA Affiliate the
benefits of which are guaranteed on termination in full or in part
by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Guarantors. See preamble.
Hazardous Substances. See 5.16(b).
Indebtedness. All obligations, contingent and otherwise, that
in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, or to which reference should be made
by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations
(including capitalized leases and operating leases on real
property, trucks, and heavy landfill equipment with a term longer
than 5 years and all other operating leases with a term longer than
3 years), whether direct or indirect; (b) all liabilities secured
by any mortgage, pledge, security interest, lien, charge, or other
encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been
assumed; and (c) all guarantees, endorsements and other contingent
obligations in respect of indebtedness of others, whether direct or
indirect, including any obligation to supply funds to or in any
manner to invest in, directly or indirectly, the debtor, to
purchase indebtedness, or to assure the owner of indebtedness
against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the
obligations to reimburse the issuer in respect of any letters of
credit.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of a
conversion from a Base Rate Loan into a Eurodollar Loan or the
making of a Eurodollar Loan, and ending one (1), two (2), three (3)
or six (6) months thereafter, as the case may be, as the Borrowers
may select; and
(b) thereafter, each subsequent Interest Period shall begin
on the last day of the preceding Interest Period, and end one (1),
two (2), three (3), or six (6) months thereafter, as the case may
be, as the Borrowers may select;
(c) provided that any Interest Period which would otherwise
end on a day which is not a Eurodollar Business Day shall be
extended to the next Eurodollar Business Day unless the result of
such extension would be to carry such Interest Period into another
calendar month, in which event such Interest Period shall end on
the preceding Eurodollar Business Day.
Investments. All expenditures made and all liabilities
incurred (contingently or otherwise) for the acquisition of stock
or Indebtedness of, or for loans, advances, capital contributions
or transfers of property to, or in respect of any guaranties (or
other commitments as described under Indebtedness), or obligations
of, any Person. In determining the aggregate amount of Investments
outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less
than the principal amount of the obligations guaranteed and still
outstanding; (b) there shall be included as an Investment all
interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall
be deducted in respect of each such Investment any amount received
as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating
distribution); (d) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment,
whether as dividends, interest or otherwise, except that accrued
interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the
aggregate amount of Investments any decrease in the value thereof.
Landfill Development Projects. Projects which involve the
initial siting, permitting, and construction of new landfills,
excluding the expansion or acquisition of existing landfills.
Lease Purchase Agreement. The Lease Purchase Agreement in
form and substance satisfactory to FNBB to be entered into by and
between the Authority and Broadhurst, as such agreement may be
amended and in effect from time to time.
Letters of Credit. Standby Letters of Credit issued or to be
issued by the Agent under 3 hereof for the account of any
Borrower.
Letter of Credit Applications. Letter of Credit Applications
in such form as may be agreed upon by any Borrower and the Agent
from time to time which are entered into pursuant to 3 hereof as
such Letter of Credit Applications are amended, varied or
supplemented from time to time.
Letter of Credit Fee. See 4.1(b).
Letter of Credit Participation. See 3.1(b).
Loan Documents. This Agreement, the Notes, the Letter of
Credit Applications, the Letters of Credit, the Reimbursement
Agreement, and the Security Documents, each as amended, modified,
or supplemented from time to time.
Loan and Letter of Credit Request. See 2.6.
Loans. Revolving credit loans made or to be made by the Banks
to the Borrowers pursuant to 2.
Majority Banks. As of any date, the Banks holding one hundred
percent (100%) of the outstanding principal amount of the Loans on
such date; and if no such principal is outstanding, the Banks whose
aggregate Commitments constitute one hundred percent (100%) of the
Total Commitment.
Maturity Date. May 31, 1997.
Maximum Drawing Amount. The maximum aggregate amount from
time to time that the beneficiaries may draw under outstanding
Letters of Credit.
Mortgages. The mortgages and deeds of trust, from the
Borrowers to the Agent with respect to the fee and leasehold
interests of the Borrowers in the Real Property subject thereto and
in form and substance satisfactory to the Agent.
Multiemployer Plan. Any multiemployer plan within the meaning
of 3(37) of ERISA maintained or contributed to by any Borrower or
any ERISA Affiliate.
Notes. The promissory note of the Borrowers evidencing the
Loans dated the date of this Agreement and in substantially the
form of Exhibit A hereto.
Obligations. All indebtedness, obligations and liabilities of
the Borrowers to the Banks and the Agent, and the Guaranteed
Obligations of the Guarantors, individually or collectively,
existing on the date of this Agreement or arising thereafter,
direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or any of the other Loan
Documents or in respect of any of the Loans made or Reimbursement
Obligations incurred or the Letters of Credit, the Notes or any
other instrument at any time evidencing any thereof.
Operations Agreement. The Amended and Restated Operations
Agreement dated January 10, 1994 by and between the Authority and
Broadhurst with respect to the Wayne County Project.
Original Credit Agreement. The Revolving Credit Agreement
dated as of May 26, 1993 by and among FNBB and the Borrowers, as
amended.
Original Loans. See 2.1(b).
PBGC. The Pension Benefit Guaranty Corporation created by
4002 of ERISA and any successor entity or entities having similar
responsibilities.
Permitted Acquisitions. See 7.4.
Permitted Liens. See 7.2.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and
any government or any governmental agency or political subdivision
thereof.
Pricing Ratio. As at the end of any fiscal quarter of the
Borrowers, the ratio of (a) Indebtedness of the Borrowers for
borrowed money to (b) EBITDA.
Proforma EBIT. For any period, (a) four times the
consolidated net income (or deficit) of the Borrowers for the most
recent fiscal quarter plus (b) the aggregate net income for the
previous twelve months of any Subsidiaries acquired within the
past twelve months or to be acquired (excluding that portion
derived from landfill operations the Remaining Permitted Life of
which is less than two years after the Maturity Date, but including
that portion derived from the operation of the Tri-K landfill prior
to September 30, 1995) as if the Subsidiaries had been owned for
those twelve months, determined in accordance with GAAP and, with
respect to a newly acquired Subsidiary or Subsidiary to be acquired
or Subsidiary acquired within those twelve months, by reference to
such Subsidiary's financial statements (which have been audited if
required by the Securities and Exchange Commission pursuant to
Regulation S-X or Form 8-K or which otherwise have been reviewed
and analyzed by the Parent in accordance with its standard due
diligence practices) as such statements may be adjusted by
agreement between the Banks and the Borrowers, plus (c) interest
expense, and (b) income tax expense for such period and minus
interest income in excess of 5% of total Proforma EBIT.
Proforma EBITDA. For any period, (a) four times the
consolidated net income (or deficit) of the Borrowers for the most
recent fiscal quarter plus (b) the aggregate net income for the
previous twelve months of any Subsidiaries acquired within the
past twelve months or to be acquired (excluding that portion
derived from landfill operations the Remaining Permitted Life of
which is less than two years after the Maturity Date, but including
that portion derived from the operation of the Tri-K landfill prior
to September 30, 1995) as if the Subsidiaries had been owned for
those twelve months, determined in accordance with GAAP and, with
respect to a newly acquired Subsidiary or Subsidiary to be acquired
or Subsidiary acquired within those twelve months, by reference to
such Subsidiary's financial statements (which have been audited if
required by the Securities and Exchange Commission pursuant to
Regulation S-X or Form 8-K or which otherwise have been reviewed
and analyzed by the Parent in accordance with its standard due
diligence practices) as such statements may be adjusted by
agreement between the Banks and the Borrowers, plus (c) interest
expense, (d) income tax expense, (e) depreciation expense, and (f)
amortization expense for such period and minus interest income in
excess of 5% of total Proforma EBITDA.
Proforma Interest Expense. The annual interest obligations at
the current rates of interest on existing Indebtedness of the
Borrowers (including Letter of Credit Fees) and the Indebtedness to
be assumed or incurred in connection with an acquisition.
Real Property. All real property heretofore, now, or
hereafter owned, operated, or leased by the Borrowers.
Reimbursement Agreement. Reimbursement Agreement to be
entered into between the Parent and FNBB regarding the Wayne County
Letter of Credit, as amended an in effect from time to time.
Reimbursement Obligation. The Borrowers' obligation to
reimburse the Agent and the Banks on account of any drawing under
any Letter of Credit as provided in 3.2.
Release. Shall have the meaning specified in the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. 9601 et seq. ("CERCLA") and the term
"Disposal" (or "Disposed") shall have the meaning specified in the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901 et
seq. ("RCRA") and regulations promulgated thereunder; provided,
that in the event either CERCLA or RCRA is amended so as to broaden
the meaning of any term defined thereby, such broader meaning shall
apply as of the effective date of such amendment and provided
further, to the extent that the laws of a state wherein the
property lies establishes a meaning for "Release" or "Disposal"
which is broader than specified in either CERCLA or RCRA, such
broader meaning shall apply.
Remaining Permitted Life. The number of months remaining in
any landfill's useful life, determined by dividing (a) the
remaining permitted capacity of such landfill by (b) the most
recent estimate of the current rate of monthly use.
Reserve Rate. The rate, expressed as a decimal, at which the
Agent or any Bank would be required to maintain reserves under
Regulation D of the Board of Governors of the Federal Reserve
System (or any subsequent or similar regulation relating to such
reserve requirements) against "Eurocurrency Liabilities" (as such
term is defined in Regulation D), or against any other category of
liabilities which might be incurred by the Agent or any Bank to
fund Loans bearing interest based on the Eurodollar Rate, if such
liabilities were outstanding.
Security and Pledge Agreement. The Amended and Restated
Security and Pledge Agreement, dated the Closing Date, among the
Borrowers, the Guarantors, and the Agent in form and substance
satisfactory to the Agent.
Security Documents. The Security and Pledge Agreement, the
Mortgages, the Assignment of Contracts and Permits, the Agency
Agreement and the Agency Agreement Confirmation Letter, each as
amended and in effect from time to time, and any additional
documents evidencing or perfecting the Agent's lien on the assets
of the Borrowers and the stock of the Parent, Green Valley,
Mid-State,
and the Subsidiaries of the Parent for the benefit of the Banks.
Subsidiary. Any corporation, association, trust, or other
business entity of which the designated parent shall at any time
own directly or indirectly through a Subsidiary or Subsidiaries at
least a majority of the outstanding capital stock or other interest
entitled to vote generally.
Total Commitment. See 2.1.
Trust Indenture. The Trust Indenture in form and substance
satisfactory to FNBB to be entered into by the Authority and the
Trustee with respect to the Wayne County Project.
Trustee. Nationsbank of Virginia, National Association in its
capacity as trustee under the Trust Indenture.
Wayne County Letter of Credit. The letter of credit to be
issued in a principal amount of approximately $7,400,000, plus
forty-nine days' interest at the maximum rate provided in the Trust
Indenture by FNBB for the benefit of the Trustee. Wayne County
Loan
Agreement. The loan agreement to be entered into by and between
Broadhurst and the Authority regarding the Bonds in form and
substance
satisfactory to the Agent.
Wayne County Project. The solid waste landfill facility to
be located at Broadhurst Road, Wayne County, Georgia including all
buildings, structures and improvements erected thereon, and all
fixtures, attachments, appliances, equipment, machinery or personal
property of any kind to be incorporated in or used or intended to
be used in connection therewith.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented
from time to time in accordance with its terms and the terms of
this Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms capitalized but not otherwise defined
herein have the meanings assigned to them by generally accepted
accounting principles applied on a consistent basis by the
accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the
Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts, have the meanings assigned to them therein.
(h) Reference to a particular "" refers to that section of
this Agreement unless otherwise indicated.(i) The words "herein",
"hereof", "hereunder" and words of like import shall refer to this
Agreement as a whole and not to any particular section or
subdivision of this Agreement.
2. THE REVOLVING CREDIT FACILITY.
2.1. Commitment to Lend.
(a) Subject to the terms and conditions set forth in this
Agreement, each of the Banks agrees to lend to the Borrowers and
the Borrowers may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date, upon notice by the
Parent on behalf of Borrowers to the Agent given in accordance with
2.6, such Bank's Commitment Percentage of such sums as are
requested up to a maximum aggregate amount (after giving effect to
all amounts requested and the Maximum Drawing Amount of all Letters
of Credit) not to exceed $40,000,000 at any time, as such amount
may be reduced pursuant to 2.2 hereof (the "Total Commitment").
The Loans shall be made pro rata in accordance with each Bank's
Commitment Percentage. Each request for a Loan hereunder shall
constitute a representation and warranty by the Borrowers that the
conditions set forth in 9 and 10, as the case may be, have been
satisfied on the date of such request.
(b) Subject to the terms and conditions set forth herein,
each Bank severally agrees that (i) FNBB shall maintain as Loans
hereunder, on and immediately after the Closing Date, the
outstanding Loans made by FNBB to the Borrowers (the "Original
Loans") pursuant to the Original Credit Agreement less
Continental's Commitment Percentage of such Original Loans. On the
Closing Date, Continental shall purchase by assignment and
assumption from FNBB Continental's Commitment Percentage of the
Original Loans.
2.2 Reduction of the Commitment. The Borrowers shall have
the right at any time and from time to time upon two (2) Business
Days' prior written notice to the Agent and the Banks to reduce by
$1,000,000 or an integral multiple thereof or terminate entirely
the Total Commitment provided that the Total Commitment shall not
be reduced under this 2.2 to an amount which would be less than
the Maximum Drawing Amount of all Letters of Credit unless the
Borrowers have posted cash collateral pursuant to 3.2(b) hereof.
Upon the effective date of any such reduction or termination, the
Borrowers shall pay to the Agent for the respective accounts of the
Banks the full amount of any Commitment Fee then accrued on the
amount of the reduction. No reduction or termination of the Total
Commitment once made may be revoked; the portion of the Total
Commitment reduced or terminated may not be reinstated; and amounts
in respect of such reduced or terminated portion may not be
reborrowed.
2.3 The Notes. The Loans shall be evidenced by the separate
promissory notes of the Borrowers in substantially the form of
Exhibit A hereto (the "Notes"), dated as of the Closing Date and
completed with appropriate insertions. One Note shall be payable
to the order of each Bank in a principal amount equal to such
Bank's Commitment Percentage of the Total Commitment or, if less,
the outstanding amount of all Loans made by such Bank, plus
interest accrued thereon, as set forth below. The Borrowers
irrevocably authorize each Bank to make or cause to be made, in
connection with a Drawdown Date of any Loan or at the time of
receipt of any payment of principal on the Note, an appropriate
notation on such Bank's records reflecting the making of such Loan
or the receipt of such payment (as the case may be). The
outstanding amount of the Loans set forth on such Bank's record
shall be prima facie evidence of the principal amount thereof owing
and unpaid to such Bank, but the failure to record, or any error in
so recording, any such amount shall not limit or otherwise affect
the obligations of the Borrowers hereunder or under any Note to
make payments of principal of or interest on any Note when due.
2.4. Interest on Loans. The outstanding principal amount of
the Loans shall bear interest at the rate per annum equal to the
Applicable Rate. Interest shall be payable (a) quarterly in
arrears on the last Business Day of each calendar quarter for the
quarter ending on such date, on all Base Rate Loans, (b) on the
last day of the applicable Interest Period, and if such Interest
Period is longer than three months, also three months following the
commencement of such Interest Period, on all Eurodollar Loans, and
(c) on the Maturity Date for all Loans.
2.5 Election of Eurodollar Rate; Notice of Election;
Interest Periods; Minimum Amounts. (a) At the Borrowers' option,
so long as no Default or Event of Default has occurred and is then
continuing, the Borrowers may (i) elect to convert any Base Rate
Loan or a portion thereof to a Eurodollar Loan, (ii) at the time of
any Loan and Letter of Credit Request, specify that such requested
Loan shall be a Eurodollar Loan, or (iii) upon expiration of the
applicable Interest Period, elect to maintain an existing
Eurodollar Loan as such, provided that the Borrower gives notice to
the Agent pursuant to 2.5(b) hereof. Upon determining any
Eurodollar Rate, the Agent shall forthwith provide notice thereof
to the Borrowers, and each such notice to the Borrowers shall be
considered prima facie correct and binding, absent manifest error.
(b) Three (3) Eurodollar Business Days prior to the making of
any Eurodollar Loan or the conversion of any Base Rate Loan to a
Eurodollar Loan, or, in the case of an outstanding Eurodollar Loan,
the expiration date of the applicable Interest Period, the
Borrowers shall give written, telex or telecopy notice received by
the Agent not later than 2:00 p.m. (Boston time) of its election
pursuant to 2.5(a). Each such notice delivered to the Agent shall
specify the aggregate principal amount of the Loans to be borrowed
or maintained as or converted to Eurodollar Loans and the requested
duration of the Interest Period that will be applicable to such
Eurodollar Loan, and shall be irrevocable and binding upon the
Borrowers. If the Borrowers shall fail to give the Agent notice of
their election hereunder together with all of the other information
required by this 2.5(b) with respect to any Loan, whether at the
end of an Interest Period or otherwise, such Loan shall be deemed
a Base Rate Loan. The Agent agrees to give the Banks prompt notice
of any notice received from the Borrowers under this 2.5(b).
(c) Notwithstanding anything herein to the contrary, the
Borrowers may not specify an Interest Period that would extend
beyond the Maturity Date.
(d) All Eurodollar Loans shall be in a minimum amount of not
less than $1,000,000. In no event shall the Borrowers have more
than seven (7) different maturities of Eurodollar Loans outstanding
at any time.
2.6 Requests for Revolving Credit Loans. The Parent on
behalf of the Borrowers shall give to the Agent written notice in
the form of Exhibit B hereto (or telephonic notice confirmed by
telecopy the same day in the form of Exhibit B hereto) of each Loan
requested hereunder (a "Loan and Letter of Credit Request"),
together with a Datedown Endorsement, not later than 11:00 a.m.
(Boston time) (a) on the proposed Drawdown Date of any Base Rate
Loan, or (b) 2:00 p.m. Boston time three Eurodollar Business Days
prior to the Drawdown Date of any Eurodollar Loan. Each such
notice shall be given by the Parent on behalf of the Borrowers and
shall specify the principal amount of the Loan requested and shall
include a current Loan and Letter of Credit Request, reflecting the
Maximum Drawing Amount of all Letters of Credit outstanding. Each
Loan and Letter of Credit Request shall be irrevocable and binding
on the Borrowers and shall obligate the Borrowers to accept the
Loan requested from the Banks on the proposed Drawdown Date. Each
of the representations and warranties made by or on behalf of any
of the Borrowers to the Agent and the Banks in this Agreement or
any other Loan Document shall be true and correct in all material
respects when made and shall, for all purposes of this Agreement,
be deemed to be repeated on and as of the date of the submission of
any Loan and Letter of Credit Request and on and as of the Drawdown
Date of such Loan or the date of issuance of such Letter of Credit
(except to the extent of changes resulting from transactions
contemplated or permitted by this Agreement and the other Loan
Documents and changes occurring in the ordinary course of business
that singly or in the aggregate are not materially adverse and to
the extent that such representations and warranties expressly
relate to an earlier date).
2.7. Funds for Loans.
(a) Not later than 2:00 p.m. (Boston time) on the
proposed Drawdown Date of any Loan, each of the Banks will make
available to the Agent, at the Agent's Head Office, in
immediately available funds, such Bank's Commitment Percentage
of the amount of the requested Loan. Upon receipt from each
Bank of such amount, and upon receipt of the documents
required by 9 and 10 and the satisfaction of the other
conditions set forth herein, to the extent applicable, the
Agent will make available to the Borrower the aggregate amount
of such Loan made available to the Agent by the Banks. The
failure or refusal of any Bank to make available to the Agent
at the aforesaid time and place on any Drawdown Date the
amount of its Commitment Percentage of the requested Loan
shall not relieve any other Bank from its several obligation
hereunder to make available to the Agent the amount of such
other Bank's Commitment Percentage of any requested Loan.
(b) The Agent may, unless notified to the contrary by
any Bank prior to a Drawdown Date, assume that such Bank has made
(or, prior to 5:00 p.m. Boston time on such Business Day, will
make) available to the Agent on such Drawdown Date the amount
of such Bank's Commitment Percentage of the Loan to be made on
such Drawdown Date, and the Agent may (but it shall not be
required to), in reliance upon such assumption, make available
to the Borrower a corresponding amount. If any Bank makes
available to the Agent such amount on a date after such
Drawdown Date, such Bank shall pay to the Agent on demand an
amount equal to the product of (i) the average computed for
the period referred to in clause (iii) below, of the weighted
average interest rate paid by the Agent for federal funds
acquired by the Agent during each day included in such period,
times (ii) the amount of such Bank's Commitment Percentage of
such Loan, times (iii) a fraction, the numerator of which is
the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Loan shall become immediately
available to the Agent, and the denominator of which is 365.
A statement of the Agent submitted to such Bank with respect
to any amounts owing under this paragraph shall be prima facie
evidence of the amount due and owing to the Agent by such
Bank. If the amount of such Bank's Commitment Percentage of
such Loan is not made available to the Agent by such Bank
within three (3) Business Days following such Drawdown Date,
the Agent shall be entitled to recover such amount from the
Borrower on demand, with interest thereon at the rate per
annum applicable to the Loan made on such Drawdown Date.
2.8. Maturity of the Loans. The Loans and any unpaid
Reimbursement Obligations shall mature and shall be due and payable
on the Maturity Date. The Borrowers promise to pay on the Maturity
Date, and there shall become absolutely due and payable on the
Maturity Date, all Loans and Reimbursement Obligations outstanding
on such date, together with any and all accrued and unpaid interest
thereon.
2.9. Mandatory Repayments of the Loans. If at any time the
outstanding amount of the Loans plus the Maximum Drawing Amount of
all outstanding Letters of Credit exceeds the Total Commitment
whether by reduction of the Total Commitment or otherwise, then the
Borrowers shall immediately pay the amount of such excess to the
Agent for application to the Loans, or if no Loans shall be
outstanding, to be held by the Agent as collateral security for the
Reimbursement Obligations provided, however, that if the amount of
cash collateral held by the Agent pursuant to this 2.9 exceeds the
Maximum Drawing Amount the Agent shall return such excess to the
Borrowers.
2.10. Optional Prepayments or Repayments of Loans. Subject
to the provisions of 4.8 hereof, the Borrowers shall have the
right, at their election, to repay or prepay the outstanding amount
of the Loans, as a whole or in part, at any time without penalty or
premium. The Borrowers shall give the Agent, no later than
10:00 a.m., Boston time, on the Business Day of such proposed
prepayment or repayment, written notice (or telephonic notice
confirmed in writing) of any proposed prepayment or repayment
pursuant to this 2.10, specifying the proposed date of prepayment
or repayment of Loans and the principal amount to be paid.
3. LETTERS OF CREDIT.
3.1. Letter of Credit Commitment.
(a) Subject to the terms and conditions hereof and the
execution and receipt of a Loan and Letter of Credit Request
reflecting the Maximum Drawing Amount of all Letters of Credit
(including the requested Letter of Credit) and a Letter of
Credit Application at least four Business Days prior to
issuance and a Datedown Endorsement at least one Business Day
prior to issuance, the Agent, in reliance upon the agreement
of the Banks set forth in 3.1(b) hereof and upon the
representations and warranties of the Borrowers contained
herein, agrees to issue standby letters of credit (or, the
case of the Wayne County Letter of Credit, a direct pay letter
of Credit), in such form as may be requested from time to time
by the Borrowers and agreed to by the Agent; provided,
however, that, after giving effect to such request, the
aggregate Maximum Drawing Amount of all letters of credit
issued at any time under this 3.1 (the "Letters of Credit")
shall not exceed the lesser of $10,000,000 or the unused
portion of the Total Commitment, and no Letter of Credit shall
have an expiration date later than the earlier of (i) one year
after the date of issuance of the Letter of Credit, or (ii)
thirty (30) days prior to the Maturity Date.
(b) Each Bank severally agrees that it shall be
absolutely liable, without regard to the occurrence of any Default or
Event of Default or any other condition precedent whatsoever,
to the extent of such Bank's Commitment Percentage thereof, to
reimburse the Agent on demand for the amount of each draft
paid by the Agent under each Letter of Credit to the extent
that such amount is not reimbursed by the Borrowers pursuant
to 3.2 (such agreement for a Bank being called herein the
"Letter of Credit Participation" of such Bank). Each Bank
agrees that its obligation to reimburse the Agent pursuant to
this 3.1(b) shall not be affected in any way by any
circumstance other than the gross negligence or willful
misconduct of the Agent. Upon issuance of the Wayne County
Letter of Credit, each Bank shall hereby be deemed to have
purchased from the Agent a Letter of Credit Participation in
the Wayne County Letter of Credit to the extent of such Bank's
Commitment Percentage, and the Wayne County Letter of Credit
shall be deemed to be a Letter of Credit as defined herein.
It is hereby acknowledged and agreed that each of the
outstanding Letters of Credit described in Schedule 3.1 hereto
(the "Existing L/Cs") which were issued by FNBB under the
Original Credit Agreement shall be permitted to remain
outstanding on and after the Closing Date and shall constitute
Letters of Credit under this Agreement.
(c) Each such payment made by a Bank shall be treated
as the purchase by such Bank of a participating interest in the
Borrowers' Reimbursement Obligation under 3.2 in an amount
equal to such payment. Each Bank shall share in accordance
with its participating interest in any interest which accrues
pursuant to 3.2.
3.2. Reimbursement Obligation of the Borrowers. In order to
induce the Agent to issue, extend and renew each Letter of Credit,
the Borrowers hereby agree to reimburse or pay to the Agent with
respect to each Letter of Credit issued, extended or renewed by the
Agent hereunder as follows:
(a) if any draft presented under any Letter of Credit is
honored by the Agent or the Agent or any Bank otherwise makes
payment with respect thereto, (i) the amount paid by the Agent
or any Bank under or with respect to such Letter of Credit,
and (ii) the amount of any taxes, fees, charges or other costs
and expenses whatsoever incurred by the Agent or any Bank in
connection with any payment made under, or with respect to,
such Letter of Credit shall be deemed to be a Loan hereunder.
(b) upon the reduction (but not termination) of the
Total Commitment to an amount less than the Maximum Drawing
Amount, an amount equal to such difference, which amount shall
be held by the Agent for the benefit of the Banks and the
Agent as cash collateral for all Reimbursement Obligations,
and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to
all Letters of Credit in accordance with 12, an amount equal
to the then Maximum Drawing Amount on all Letters of Credit,
which amount shall be held by the Agent for the benefit of the
Banks and the Agent as cash collateral for all Reimbursement
Obligations.
(d) Each such payment shall be made to the Agent at
the Agent's Head Office in immediately available funds. Interest
on any and all amounts remaining unpaid by the Borrowers under
this 3.2 at any time from the date such amounts become due
and payable (whether as stated in this 3.2, by acceleration
or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Agent on demand at the rate
specified in 4.6(b) hereof.
3.3. Letter of Credit Payments. If any draft shall be
presented or other demand for payment shall be made under any
Letter of Credit, the Agent shall notify the Borrowers of the date
and amount of the draft presented or demand for payment and of the
date and time when it expects to pay such draft or honor such
demand for payment. On the date that such draft is paid or other
payment is made by the Agent, the Agent shall promptly notify the
Borrowers of the amount of any unpaid Reimbursement Obligation.
All such unpaid Reimbursement Obligations with respect to Letters
of Credit shall be deemed to be Loans.
3.4. Obligations Absolute. The Borrowers' obligations under
this 3 shall be absolute and unconditional under any and all
circumstances and irrespective of the occurrence of any Default or
Event of Default or any condition precedent whatsoever or any
setoff, counterclaim or defense to payment which the Borrowers may
have or have had against the Agent or any Bank or any beneficiary
of a Letter of Credit. The Borrowers further agree with the Agent
and the Banks that the Agent and the Banks shall not be responsible
for, and the Borrowers' Reimbursement Obligations under 3.2 shall
not be affected by, among other things, the validity or genuineness
of documents or of any endorsements thereon, even if such documents
should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among the
Borrowers, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of the Borrowers,
or against the beneficiary of any Letter of Credit or any such
transferee or any other Person. The Agent and the Banks shall not
be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit. The
Borrowers agree that any action taken or omitted by the Agent and
the Banks under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be
binding upon the Borrowers and shall not result in any liability on
the part of the Agent and the Banks to the Borrowers.
3.5. Reliance by Agent. To the extent not inconsistent with
3.4, the Agent shall be entitled to rely, and shall be fully
protected in relying upon, any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document 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,
independent accountants and other experts selected by the Agent.
4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL
LIABILITY.
4.1. Fees.
(a) Commitment Fee. The Borrowers agree to pay to the
Banks a commitment fee at the rate of one-half of one percent
(1/2%) per annum on the unused portion of the Total Commitment
during each calendar quarter or portion thereof from the
Closing Date to the Maturity Date (or to the date of
termination in full of the Total Commitment, if earlier).
This commitment fee shall be payable quarterly in arrears on
the last day of each calendar quarter for the calendar quarter
ending on such date, commencing on June 30, 1994, with a final
payment on the Maturity Date.
(b) Letter of Credit Fee. The Borrowers shall pay a
fee (the "Letter of Credit Fee") to the Agent equal to (a) one and
one-half percent (1 1/2%) per annum of the Maximum Drawing
Amount of each Letter of Credit backing performance bonds of
the Borrowers and (b) two percent (2%) per annum of the
Maximum Drawing Amount of all other Letters of Credit
(including Letters of Credit backing landfill closure
obligations), from the date of issuance of such Letter of
Credit to its expiration date. Such Letter of Credit Fee
shall be payable in arrears on the last day of each calendar
quarter for the quarter ending on such date, and on the
Maturity Date. The Agent's customary issuance fee, payable in
accordance with the Agent's customary practice shall be
payable on the date of issuance of any Letter of Credit. The
issuance fee and a portion of the Letter of Credit Fee equal
to one-fourth of one percent (1/4%) of the Maximum Drawing
Amount shall be retained by the Agent, and the remainder of
the Letter of Credit Fee shall be shared by the Banks pro-rata
in accordance with their Commitment Percentages.
(c) Closing Fee. The Borrowers shall pay to the Banks
closing fee equal to one-half of one percent of the increase
in the Total Commitment ($100,000), on the Closing Date,
$75,000 of which shall be for the account of Continental and
$25,000 of which shall be for the account of FNBB.
4.2. Payments.
(a) All payments of principal, interest, Reimbursement
Obligations, fees and any other amounts due hereunder or under
any of the other Loan Documents shall be made to the Agent,
received at the Agent's head office in immediately available
funds by 12:00 p.m. on any due date.
(b) All payments by the Borrowers hereunder and under
any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction
for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by
any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless the Borrowers are
compelled by law to make such deduction or withholding. If
any such obligation is imposed upon the Borrowers with respect
to any amount payable by it hereunder or under any of the
other Loan Documents, the Borrowers will pay to the Agent or
the Banks, on the date on which such amount is due and payable
hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable the Agent or
the Banks to receive the same net amount which the Agent or
the Banks would have received on such due date had no such
obligation been imposed upon the Borrowers. The Borrowers
will deliver promptly to the Agent or the Banks certificates
or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the
Borrowers hereunder or under such other Loan Document.
4.3. Computations. All computations of interest on
Eurodollar Loans shall be based on a 360-day year and paid for the
actual number of days elapsed. All other computations of interest
on the Loans and of Letter of Credit Fees or other fees shall,
unless otherwise expressly provided herein, be based on a 365 or
366-day year and paid for the actual number of days elapsed.
Except as otherwise provided in the definition of the term
"Interest Period," whenever a payment hereunder or under any of the
other Loan Documents becomes due on a day that is not a Business
Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such
extension.
4.4 Capital Adequacy. If any present or future law,
governmental rule, regulation, policy, guideline or directive
(whether or not having the force of law) or the interpretation
thereof by a court or governmental authority with appropriate
jurisdiction affects the amount of capital required or expected to
be maintained by the Agent or any Bank or any corporation
controlling the Agent or any Bank and the Agent or such Bank
determines that the amount of capital required to be maintained by
it is increased by or based upon the existence of the Loans, the
Letters of Credit, or commitment with respect thereto, then the
Agent or such Bank may notify the Borrowers of such fact. To the
extent that the costs of such increased capital requirements are
not reflected in the Base Rate (if relating to Base Rate Loans),
the Borrowers and the Agent or such Bank shall thereafter attempt
to negotiate in good faith, within thirty (30) days of the day on
which the Borrowers receive such notice, an adjustment payable
hereunder that will adequately compensate the Agent or such Bank in
light of these circumstances. If the Borrowers and the Agent or
such Bank are unable to agree to such adjustment within thirty (30)
days of the date on which the Borrowers receive such notice, then
commencing on the date of such notice (but not earlier than the
effective date of any such increased capital requirement), the fees
payable hereunder shall increase by an amount that will, in the
Agent's or such Bank's reasonable determination, provide adequate
compensation. The Agent or such Bank shall allocate such cost
increases among its customers in good faith and on an equitable
basis.
4.5. Certificate. A certificate setting forth any
additional amounts payable pursuant to 4.4 and a reasonable
explanation of such amounts which are due, submitted by the Agent
or any Bank to the Borrowers, shall be conclusive, absent manifest
error, that such amounts are due and owing.
4.6. Interest on Overdue Amounts. Overdue principal and (to
the extent permitted by applicable law) interest on the Loans and
all other overdue amounts payable hereunder or under any of the
other Loan Documents shall bear interest compounded monthly and
payable on demand at a rate per annum equal to the Base Rate plus
4% until such amount shall be paid in full (after as well as before
judgment).
4.7. Interest Limitation. Notwithstanding any other term of
this Agreement or any Note or any other document referred to herein
or therein, the maximum amount of interest which may be charged to
or collected from any person liable hereunder or under any Note by
the Agent or any Bank shall be absolutely limited to, and shall in
no event exceed, the maximum amount of interest which could
lawfully be charged or collected under applicable law (including,
to the extent applicable, the provisions of Section 5197 of the
Revised Statutes of the United States of America, as amended, 12
U.S.C. Section 85, as amended), so that the maximum of all amounts
constituting interest under applicable law, howsoever computed,
shall never exceed as to any person liable therefor such lawful
maximum, and any term of this Agreement, the Note, the Letter of
Credit Applications, or any other document referred to herein or
therein which could be construed as providing for interest in
excess of such lawful maximum shall be and hereby is made expressly
subject to and modified by the provisions of this paragraph.
4.8. Eurodollar Indemnity. The Borrowers agree to indemnify
the Agent and the Banks and to hold them harmless from and against
any loss, cost or expenses (including loss of anticipated profits)
that the Agent or any Bank may sustain or incur as a consequence of
(a) default by the Borrowers in payment of the principal amount of
or any interest on any Eurodollar Loans as and when due and
payable, including any such loss or expense arising from interest
or fees payable by the Agent or any Bank to lenders of funds
obtained by it in order to maintain its Eurodollar Loans, or (b)
default by the Borrowers in making a borrowing or conversion after
the Borrowers have given (or are deemed to have given) notice
pursuant to 2.5 or 2.6, the making of any payment of a Eurodollar
Loan or the making of any conversion of any such Eurodollar Loan to
a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest
or fees payable by the Agent or any Bank to lenders of funds
obtained by it in order to maintain any such Loans.
4.9. Illegality; Inability to Determine Eurodollar
Rate. Notwithstanding any other provision of this Agreement, if
(a) the introduction of, any change in, or any change in the
interpretation of, any law or regulation applicable to the Agent
shall make it unlawful, or any central bank or other governmental
authority having jurisdiction thereof shall assert that it is
unlawful, for the Agent or any Bank to perform its obligations in
respect of any Eurodollar Loans, or (b) if the Agent or any Bank
shall reasonably determine with respect to Eurodollar Loans that
(i) by reason of circumstances affecting any Eurodollar interbank
market, adequate and reasonable methods do not exist for
ascertaining the Eurodollar Rate which would otherwise be
applicable during any Interest Period, or (ii) deposits of Dollars
in the relevant amount for the relevant Interest Period are not
available to the Agent or such Bank in any Eurodollar interbank
market, or (iii) the Eurodollar Rate does not or will not
accurately reflect the cost to the Agent or such Bank of obtaining
or maintaining the applicable Eurodollar Loans during any Interest
Period, then the Agent shall promptly give telephonic, telex or
cable notice of such determination to the Borrowers (which notice
shall be conclusive and binding upon the Borrowers). Upon such
notification by the Agent, the obligation of the Banks to make
Eurodollar Loans shall be suspended until the Agent and the
affected Bank(s) determine that such circumstances no longer exist,
and the outstanding Eurodollar Loans shall continue to bear
interest at the applicable rate based on the Eurodollar Rate until
the end of the applicable Interest Period, and thereafter shall be
deemed converted to Base Rate Loans in loans equal principal
amounts.
4.10. Additional Costs, Etc. If any present or future
applicable law, which expression, as used herein, includes
statutes, rules and regulations thereunder and interpretations
thereof by any competent court or by any governmental or other
regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and
notices at any time or from time to time hereafter made upon or
otherwise issued to the Agent or any Bank by any central bank or
other fiscal, monetary or other authority (whether or not having
the force of law), shall impose on the Agent or any Bank any tax,
levy, impost, duty, charge fees, deduction or withholdings of any
nature or requirements with respect to this Agreement, the other
Loan Documents, the Loans, the Total Commitment, the Letters of
Credit or any class of loans or commitments or letters of credit of
which any of the Loans, the Total Commitment or the Letters of
Credit forms a part, and the result of any of the foregoing is:
(i) to increase the cost to the Agent or any Bank
of making, funding, issuing, renewing, extending or
maintaining the Loans, the Total Commitment, or the Letters of
Credit; or
(ii) to reduce the amount of principal, interest or
other amount payable to the Agent or any Bank hereunder on
account of the Total Commitment, the Loans, drawings under the
Letters of Credit, or
(iii) to require the Agent or any Bank to make any
payment or to forego any interest or other sum payable
hereunder, the amount of which payment or foregone interest or
other sum is calculated by reference to the gross amount of
any sum receivable or deemed received by the Agent or any Bank
from the Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand
made by the Agent or any Bank at any time and from time to time and
as often as the occasion therefor may arise, pay to the Agent or
such Bank such additional amounts as will be sufficient to
compensate the Agent or such Bank for such additional cost,
reduction, payment or foregone interest or other sum (after the
Agent or such Bank shall have allocated the same fairly and
equitably among all customers of any class generally affected
thereby).
4.11. Concerning Joint and Several Liability of the
Borrowers.
(a) Each of the Borrowers is accepting joint and several
liability hereunder and under the other Loan Documents in
consideration of the financial accommodations to be provided
by the Agent and the Banks under this Agreement, for the
mutual benefit, directly and indirectly, of each of the
Borrowers and in consideration of the undertakings of each
other Borrower to accept joint and several liability for the
Obligations.
(b) Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a
surety but also as a co-debtor, joint and several liability
with the other Borrowers, with respect to the payment and
performance of all of the Obligations (including, without
limitation, any Obligations arising under this 4.11), it
being the intention of the parties hereto that all the
Obligations shall be the joint and several Obligations of each
of the Borrowers without preferences or distinction among
them.
(c) If and to the extent that any of the Borrowers shall
fail to make any payment with respect to any of the
Obligations as and when due or to perform any of the
Obligations in accordance with the terms thereof, then in each
such event the other Borrowers will make such payment with
respect to, or perform, such Obligation.
(d) The Obligations of each of the Borrowers under the
provisions of this 4.11 constitute full recourse Obligations
of each of the Borrowers enforceable against each such
corporation to the full extent of its properties and assets,
irrespective of the validity, regularity or enforceability of
this Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this
Agreement, each of the Borrowers hereby waives notice of
acceptance of its joint and several liability, notice of any
Loans made under this Agreement, notice of any action at any
time taken or omitted by the Agent or any Bank under or in
respect of any of the Obligations, and, generally, to the
extent permitted by applicable law, all demands, notices and
other formalities of every kind in connection with this
Agreement. Each of the Borrowers hereby assents to, and
waives notice of, any extension or postponement of the time
for the payment of any of the Obligations, the acceptance of
any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action
or acquiescence by the Agent or any Bank at any time or times
in respect of any default by any of the Borrowers in the
performance or satisfaction of any term, covenant, condition
or provision of this Agreement, any and all other indulgences
whatsoever by the Agent or any Bank in respect of any of the
Obligations, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any
security for any of the Obligations or the addition,
substitution or release, in whole or in part, of any of the
Borrowers. Without limiting the generality of the foregoing,
each of the Borrowers assents to any other action or delay in
acting or failure to act on the part of the Agent or any Bank
with respect to the failure by any of the Borrowers to comply
with any of its respective Obligations, including, without
limitation, any failure strictly or diligently to assert any
right or to pursue any remedy or to comply fully with
applicable laws or regulations thereunder, which might, but
for the provisions of this 4.11, afford grounds for
terminating, discharging or relieving any of the Borrowers, in
whole or in part, from any of its Obligations under this
4.11, it being the intention of each of the Borrowers that,
so long as any of the Obligations hereunder remain
unsatisfied, the Obligations of such Borrowers under this
4.11 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of
each of the Borrowers under this 4.11 shall not be diminished
or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, re-construction or similar
proceeding with respect to any of the Borrowers, the Agent, or
any Bank. The joint and several liability of the Borrowers
hereunder shall continue in full force and effect
notwithstanding any absorption, merger, amalgamation or any
other change whatsoever in the name, membership, constitution
or place of formation of any of the Borrowers, the Agent, or
any Bank.
(f) The provisions of this 4.11 are made for the
benefit of the Agent and the Banks and their successors and
assigns, and may be enforced in good faith by them from time
to time against any or all of the Borrowers as often as
occasion therefor may arise and without requirement on the
part of the Agent and the Banks first to marshal any of their
claims or to exercise any of their rights against any other
Borrower or to exhaust any remedies available to them against
any other Borrower or to resort to any other source or means
of obtaining payment of any of the Obligations hereunder or to
elect any other remedy. The provisions of this 4.11 shall
remain in effect until all of the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time,
any payment, or any part thereof, made in respect of any of
the Obligations, is rescinded or must otherwise be restored or
returned by the Agent or the Banks upon the insolvency,
bankruptcy or reorganization of any of the Borrowers, or
otherwise, the provisions of this 4.11 will forthwith be
reinstated in effect, as though such payment had not been
made.
(g) Each Borrower and each Guarantor shall be liable
under this Agreement only for the maximum amount of such
liabilities that can be incurred under applicable law without
rendering this Agreement, as it relates to such Borrower or
such Guarantor, voidable under applicable law relating to
fraudulent conveyance and fraudulent transfer, and not for any
greater amount. Accordingly, if any provisions of this
Agreement creating any obligation of any Borrower or any
Guarantor in favor of any Bank or the Agent shall be declared
to be invalid or unenforceable in any respect or to any
extent, it is the stated intention and agreement of the
Borrowers, the Guarantors, the Agent, and the Banks that any
balance of the obligation created by such provision and all
other obligations of the Borrowers and the Guarantors to the
Banks or the Agent created by other provisions of this
Agreement shall remain valid and enforceable, and that all
sums not in excess of those permitted under applicable law
shall remain fully collectible by the Banks and the Agent from
the Borrowers and the Guarantors.
4.12. New Borrowers. Any newly-created Subsidiaries shall
become Borrowers hereunder by signing the Notes, entering into an
amendment to this Agreement with the other parties hereto providing
that such Subsidiary shall become a Borrower hereunder, and
providing such other documentation as the Agent may reasonably
request including, without limitation, documentation with respect
to conditions noted in 9 hereof. In such event, the Agent is
hereby authorized by the parties to amend Schedule 1 hereto to
include such Subsidiary as a Borrower hereunder.
5. REPRESENTATIONS AND WARRANTIES. The Borrowers and the
Guarantors (where applicable) represent and warrant to the Agent
and the Banks that:
5.1. Corporate Authority.
(a) Incorporation; Good Standing. Each of the
Borrowers and the Guarantors (i) is a corporation duly organized,
validly existing and in good standing under the laws of its
respective state of incorporation, (ii) has all requisite
corporate power to own its property and conduct its business
as now conducted and as presently contemplated, and (iii) is
in good standing as a foreign corporation and is duly
authorized to do business in each jurisdiction in which its
property or business as presently conducted or contemplated
makes such qualification necessary except where a failure to
be so qualified would not have a material adverse effect on
the business, assets or financial condition of such Borrower
or the Guarantor.
(b) Authorization. The execution, delivery and
performance of its Loan Documents and the transactions
contemplated hereby and thereby (i) are within the corporate
authority of each of the Borrowers and the Guarantors, (ii)
have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any
material breach or contravention of any provision of law,
statute, rule or regulation to which any of the Borrowers or
the Guarantors is subject or any judgment, order, writ,
injunction, license or permit applicable to any of the
Borrowers or the Guarantors so as to materially adversely
affect the assets, business or any activity of the Borrowers
or the Guarantors, and (iv) do not conflict with any provision
of the corporate charter or bylaws of the Borrowers or the
Guarantors or any agreement or other instrument binding upon
the Borrowers or the Guarantors.
(c) Enforceability. The execution, delivery and
performance of the Loan Documents will result in valid and
legally binding obligations of the Borrowers and the
Guarantors enforceable against each in accordance with the
respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor
may be brought.
5.2. Governmental Approvals. The execution, delivery and
performance by the Borrowers and the Guarantors of the Loan
Documents and the transactions contemplated hereby and thereby do
not require any approval or consent of, or filing with, any
governmental agency or authority other than those already obtained.
5.3. Title to Properties; Leases. The Borrowers own all of
the assets reflected in the consolidated balance sheets as at the
Balance Sheet Date or acquired since that date (except property and
assets sold or otherwise disposed of in the ordinary course of
business since that date), subject to no mortgages, capitalized
leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
5.4. Financial Statements; Solvency.
(a) There has been furnished to the Banks consolidated
financial statements of the Borrowers dated the Balance Sheet
Date. Said balance sheets and statements of operations and
cash flow have been prepared in accordance with GAAP, have
been inspected by the Accountants, fairly present the
financial condition of the Borrowers, on a consolidated basis,
as at the close of business on the date thereof and the
results of operations for the period then ended, and reflect
all accrued all closure and post closure liabilities. There
are no contingent liabilities of the Borrowers as of such date
involving material amounts, known to the officers of the
Borrowers which have not been disclosed in said balance sheets
and the related notes thereto, as the case may be.
(b) The Borrowers (both before and after giving effect
to the transactions contemplated by this Agreement) are
solvent (i.e., they have assets having a fair value in excess
of the amount required to pay their probable liabilities on
their existing debts as they become absolute and matured) and
have, and expect to have, the ability to pay their debts from
time to time incurred in connection therewith as such debts
mature.
(c) The Agent and the Banks have received a true and
correct statement identifying total accruals with respect to
landfill closure liabilities.
5.5. No Material Changes, Etc. Since the Balance Sheet
Date, there have occurred no material adverse changes in the
financial condition or business of the Borrowers as shown on or
reflected in the consolidated balance sheet of the Borrowers as at
the Balance Sheet Date, or the consolidated statements of income
and cash flow for the fiscal year then ended other than changes in
the ordinary course of business which have not had any material
adverse effect either individually or in the aggregate on the
business or financial condition of the Borrowers. Since the
Balance Sheet Date, there has not been any Distribution.
5.6. Franchises, Patents, Copyrights, Etc. Each of the
Borrowers possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in
respect of the foregoing, adequate for the conduct of its business
substantially as now conducted without known conflict with any
rights of others.
5.7. Litigation. Except as shown on Schedule 5.7 hereto,
there are no actions, suits, proceedings or investigations of any
kind pending or threatened against any Borrower before any court,
tribunal or administrative agency or board which, if adversely
determined, might, either in any case or in the aggregate,
materially adversely affect the properties, assets, financial
condition or business of the Borrowers, considered as a whole, or
materially impair the right of the Borrowers, considered as a
whole, to carry on business substantially as now conducted, or
result in any substantial liability not adequately covered by
insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet or which question the validity of any of
the Loan Documents, or any action taken or to be taken pursuant
hereto or thereto.
5.8. No Materially Adverse Contracts, Etc. None of the
Borrowers is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Borrowers' officers has or is expected
in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrowers as a whole. None of
the Borrowers is a party to any contract or agreement which in the
judgment of the Borrowers' officers has or is expected to have any
materially adverse effect on the business of the Borrowers as a
whole, except as otherwise reflected in adequate reserves.
5.9. Compliance With Other Instruments, Laws, Etc. None of
the Borrowers is violating any provision of its charter documents
or by-laws or any agreement or instrument by which any of them may
be subject or by which any of them or any of their properties may
be bound or any decree, order, judgment, or any statute, license,
rule or regulation, in a manner which could result in the
imposition of substantial penalties or materially and adversely
affect the financial condition, properties or business of any of
the Borrowers.
5.10. Tax Status. The Borrowers have made or filed all
federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is
subject (unless and only to the extent that any Borrower has set
aside on its books provisions reasonably adequate for the payment
of all unpaid and unreported taxes); and have paid all taxes and
other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith; and have
set aside on their books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Borrowers
know of no basis for any such claim.
5.11. No Event of Default. No Default or Event of Default
has occurred and is continuing.
5.12. Holding Company and Investment Company Acts. None of
the Borrowers is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of
1935; nor is any of them a "registered investment company", or an
"affiliated company" or a "principal underwriter" of a "registered
investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
5.13. Absence of Financing Statements, Etc. To our
knowledge, except as contemplated by 7.2 of this Agreement, there
is no financing statement, security agreement, chattel mortgage,
real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, which purports to
cover, affect or give notice of any present or possible future lien
on, or security interest in, any assets or property of any of the
Borrowers or rights thereunder.
5.14. Employee Benefit Plans.
(a) In General. Except as shown on or reflected in the
financial statements of the Borrowers provided to the Banks
pursuant to 5.4(a) hereof and in the financial statements,
reports, and other information provided to the Banks pursuant
to 6.4 hereof, each Employee Benefit Plan has been maintained
and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Code,
including but not limited to the provisions thereunder
respecting prohibited transactions.
(b) Terminability of Welfare Plans. Under each Employee
Benefit Plan which is an employee welfare benefit plan within
the meaning of 3(1) or 3(2)(B) of ERISA, no benefits are due
unless the event giving rise to the benefit entitlement occurs
prior to plan termination (except as required by Title I, part
6 of ERISA.) Each Borrower or ERISA Affiliate, as
appropriate, may terminate each such Plan at any time (or at
any time subsequent to the expiration of any applicable
bargaining agreement) in the discretion of such Borrower or
ERISA Affiliate without liability to any Person.
(c) Guaranteed Pension Plans. None of the Borrowers is
a sponsor of, or contributor to, a Guaranteed Pension Plan.
(d) Multiemployer Plans. No Borrower nor any ERISA
Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of
a complete or partial withdrawal from such Multiemployer Plan
under 4201 of ERISA or as a result of a sale of assets
described in 4204 of ERISA. No Borrower nor any ERISA
Affiliate has been notified that any Multiemployer Plan is in
reorganization or is insolvent under and within the meaning of
4241 or 4245 of ERISA or that any Multiemployer Plan intends
to terminate or has been terminated under 4041A of ERISA.
5.15. Use of Proceeds. The proceeds of the Loans shall be
used for working capital, capital expenditures, general corporate
purposes and Permitted Acquisitions. No proceeds of the Loans
shall be used in any way that will violate Regulations G, T, U or
X of the Board of Governors of the Federal Reserve System.
5.16. Environmental Compliance. The Borrowers have taken
all reasonable steps to investigate the past and present condition
and usage of the Real Properties and the operations conducted
thereon and, based upon such diligent investigation, have
determined that, except as shown on Schedule 5.16 hereto:
(a) None of the Borrowers is in current violation, or
alleged violation, of any judgment, decree, order, law,
permit, license, rule or regulation pertaining to
environmental matters, including without limitation, those
arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air
Act, the Toxic Substances Control Act, or any state or local
statute, regulation, ordinance, order or decree relating to
health, safety or the environment (the "Environmental Laws"),
which violation would have a material adverse effect on the
business, assets or financial condition of the Borrowers on a
consolidated basis.
(b) None of the Borrowers has received notice from any
third party including, without limitation: any federal, state
or local governmental authority, (i) that any one of them has
been identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under CERCLA
with respect to a site listed on the National Priorities List,
40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,
as defined by 42 U.S.C. 6903(5), any hazardous substances as
defined by 42 U.S.C. 9601(14), any pollutant or contaminant
as defined by 42 U.S.C. 9601(33) and any toxic substance,
methane gas, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated, transported
or disposed of has been found at any site at which a federal,
state or local agency or other third party has conducted or
has ordered that any Borrower conduct a remedial
investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a named
party to any claim, action, cause of action, complaint, legal
or administrative proceeding arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous
Substances.
(c) (i) No portion of the Real Property has been used
for the handling, processing, storage or disposal of Hazardous
Substances except in accordance with applicable Environmental
Laws; and no underground tank or other underground storage
receptacle for Hazardous Substances is located on such
properties; (ii) in the course of any activities conducted by
the Borrowers, or operators of the Real Property, no Hazardous
Substances have been generated or are being used on such
properties except in accordance with applicable Environmental
Laws; (iii) there have been no unpermitted Releases or
threatened Releases of Hazardous Substances on, upon, into or
from the Real Property, which Releases would have a material
adverse effect on the value of such properties; (iv) to the
best of the Borrowers' knowledge, there have been no Releases
on, upon, from or into any real property in the vicinity of
the Real Property which, through soil or groundwater
contamination, may have come to be located on, and which would
have a material adverse effect on the value of, such
properties; and (v) in addition, any Hazardous Substances that
have been generated on the Real Property have been transported
offsite only by carriers having an identification number
issued by the EPA, treated or disposed of only by treatment or
disposal facilities maintaining valid permits as required
under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Borrowers'
knowledge, operating in compliance with such permits and
applicable Environmental Laws.
(d) The Borrowers further represent that they have
provided to, or for examination by, the Agent or its
environmental engineer, true and complete copies of all
material documents, reports, site assessments, data,
communication and other materials in any of their possession
or to which they have access, which contain information with
respect to material environmental liabilities of the Borrowers
related to compliance with Environmental Laws or conditions at
the Real Property, and the Borrowers have disclosed all
material environmental liabilities at such Real Property on
Schedule 5.16 hereto.
(e) except for landfill closure requirements, none of
the Real Property is or shall be subject to any applicable
environmental clean-up responsibility law or environmental
restrictive transfer law or regulation, by virtue of the
transactions set forth herein and contemplated hereby.
5.17. Perfection of Security Interests. All filings,
assignments, pledges and deposits of documents or instruments have
been made and all other actions have been taken that are necessary
under applicable law, or reasonably requested by the Agent, to
establish and perfect the Agent's security interests in the
Collateral as described in the Security Documents for the benefit
of the Banks. The Collateral and the Agent's rights with respect
to the Collateral are not subject to any setoff, claims,
withholdings or other defenses, except for Permitted Liens. The
Borrowers and the Guarantors are the owners of the Collateral free
from any lien, security interest, encumbrance and any other claim
or demand, except for Permitted Liens.
5.18. Certain Transactions. Except for (a) arm's length
transactions pursuant to which the Borrowers make payments in the
ordinary course of business upon terms no less favorable than the
Borrowers could obtain from third parties, and (b) transactions
which do not involve an aggregate amount of more than $400,000 in
any fiscal year, none of the officers, directors, or employees of
the Borrowers are presently a party to any transaction with the
Borrowers (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such
employee or, to the knowledge of the Borrowers, any corporation,
partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer,
director, trustee or partner.
5.19. Subsidiaries.
(a) Schedule 1 sets forth a complete and accurate list of
the Parent and its Subsidiaries, including the name and
jurisdiction of incorporation, together with the number of
authorized and outstanding shares of each. Each Subsidiary is
wholly owned by the Parent, and Green Valley and the Parent
are wholly-owned by AHC. AHC and Mid-State are wholly-owned
by ARI. Each of ARI, AHC, the Parent and the Guarantors has
good and marketable title to all of the shares it purports to
own of the stock of each Subsidiary, the Parent, Green Valley,
Mid-State, and AHC, as the case may be, free and clear in each
case of any lien. All such shares have been duly issued and
are fully paid and non-assessable. Except as set forth on
Schedule 1, none of the Borrowers is engaged in any joint
venture or partnership with any other Person.
(b) Except as described on Schedule 1, no Person has
outstanding any rights (either pre-emptive or other) or
options (except for the options for common stock issued to
management employees, in accordance with a bona fide option
plan approved by the Board of Directors of the Parent or the
Guarantors) to subscribe for or purchase from the Borrowers,
or any warrants or other agreements providing for or requiring
the issuance by the Borrowers of, any capital stock or any
securities convertible into or exchangeable for its capital
stock.
5.20. True Copies of Charter and Other Documents. The
Borrowers have furnished the Agent copies, in each case true and
complete as of the Closing Date, of (a) all charter and other
incorporation documents (together with any amendments thereto) and
(b) by-laws (together with any amendments thereto).
5.21. Disclosure. No representation or warranty made by the
Borrowers or the Guarantors in this Agreement or in any agreement,
instrument, document, certificate, statement or letter furnished to
the Agent or any Bank by or on behalf of or at the request of the
Borrowers in connection with any of the transactions contemplated
by the Loan Documents contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements contained therein not misleading in light of the
circumstances in which they are made.
5.22. Deposit Accounts. The Borrowers maintain the deposit
accounts listed on Schedule 5.22 hereto and no other deposit
accounts other than (a) the accounts maintained at the Agent's head
office and at Continental's head office (the "Depository
Accounts"), and (b) miscellaneous accounts maintained by the
Subsidiaries of the Parent, provided that no one such account may
have a balance of greater than $10,000 at any time, and provided
further that the aggregate balance in all such accounts may at no
time exceed $250,000. The aggregate amount of collected funds held
in each such deposit account at the close of any Business Day shall
not exceed the amount specified for such account on Schedule 5.22;
any amounts in excess of the amounts specified in Schedule 5.22
shall be immediately transferred to the Depository Accounts.
5.23. Permits and Governmental Authority. Except as
disclosed in Schedule 5.23, all permits required for the
construction and operation of all landfills currently owned,
operated or being developed by the Borrowers have been obtained and
remain in full force and effect and are not subject to any appeals
or further proceedings or to any unsatisfied conditions that may
allow material modification or revocation. The Borrowers are not
in violation of any such permits.
5.24. Material Contracts. Schedule 5.24 sets forth a
complete list of all material contracts and agreements, including,
without limitation, (a) all landfill operations agreements, (b) all
contracts with municipalities for trash collection and hauling, and
(c) all tipping contracts (in the case of (b) and (c) above, to the
extent any contract generates revenues of at least $500,000 per
year) to which any Borrower is a party.
6. AFFIRMATIVE COVENANTS OF THE BORROWERS AND THE
GUARANTORS. The Borrowers and the Guarantors, where applicable,
jointly and severally covenant and agree that, so long as any Loan,
any Note, any Letter of Credit, or any Obligation is outstanding or
the Banks have any obligation to make Loans or the Agent has any
obligation to issue, extend, or renew any Letters of Credit
hereunder:
6.1. Punctual Payment. The Borrowers will duly and
punctually pay or cause to be paid the principal and interest on
the Loans, all Reimbursement Obligations, fees and other amounts
provided for in this Agreement and the other Loan Documents, all in
accordance with the terms of this Agreement and such other Loan
Documents.
6.2. Maintenance of Office. The Borrowers will maintain
their chief executive offices at 771 Corporate Drive, Lexington,
Kentucky 40503 or at such other place in the United States of
America as the Borrowers shall designate upon 30 days prior written
notice to the Banks.
6.3. Records and Accounts. The Borrowers will keep true and
accurate records and books of account in which full, true and
correct entries will be made in accordance with GAAP and with the
requirements of all regulatory authorities and maintain adequate
accounts and reserves for all taxes (including income taxes),
depreciation, depletion, obsolescence and amortization of its
properties, all other contingencies, and all other proper reserves.
6.4. Financial Statements, Certificates and
Information. The Borrowers will deliver to the Banks:
(a) as soon as practicable, but, in any event not later
than 90 days after the end of each fiscal year of the
Borrowers, the consolidated and consolidating balance sheets
of Borrowers as at the end of such year, statements of cash
flows, and the related consolidated and consolidating
statements of operations, each setting forth in comparative
form the figures for the previous fiscal year, all such
consolidated and consolidating financial statements to be in
reasonable detail, prepared, in accordance with GAAP and, with
respect to the consolidated financial statements, certified by
Arthur Andersen or by other independent auditors, selected by
the Parent and satisfactory to the Banks (the "Accountants").
In addition, simultaneously therewith, the Borrowers shall use
their best efforts to provide the Banks with a written
statement from such Accountants to the effect that they have
read a copy of this Agreement, and that, in making the
examination necessary to said certification, they have
obtained no knowledge of any Default or Event of Default, or,
if such accountants shall have obtained knowledge of any then
existing Default or Event of Default they shall disclose in
such statement any such Default or Event of Default; provided,
that such Accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of
Default;
(b) as soon as practicable, but in any event not later
than 45 days after the end of each fiscal quarter of the
Borrowers, copies of the consolidated balance sheet and
statement of operations of the Borrowers as at the end of such
quarter, subject to year end adjustments, and the related
statement of cash flows, all in reasonable detail and prepared
in accordance with GAAP with a certification by the principal
financial or accounting officer of the Parent, Mid-State and
Green Valley (the "CFO") that the consolidated financial
statements are prepared in accordance with GAAP and fairly
present the consolidated financial condition of the Borrowers
as at the close of business on the date thereof and the
results of operations for the period then ended;
(c) simultaneously with the delivery of the financial
statements referred to in (a) and (b) above, (i) a statement
in the form of Exhibit C hereto (the "Compliance Certificate")
certified by the CFO that the Borrowers are in compliance with
the covenants contained in 6, 7 and 8 hereof as of the end
of the applicable period setting forth in reasonable detail
computations evidencing such compliance, provided that if the
Borrowers shall at the time of issuance of such certificate or
at any other time obtain knowledge of any Default or Event of
Default, the Borrowers shall include in such certificate or
otherwise deliver forthwith to the Banks a certificate
specifying the nature and period of existence thereof and what
action the Borrowers propose to take with respect thereto;
(ii) an Environmental compliance certificate in the form of
Exhibit D, hereto; and (iii) a schedule of landfills that will
include the following information: amounts and breakdown of
capitalized costs, capacity used, and landfill closure and
post-closure accruals and money spent to date on Landfill
Development Projects;
(d) not later than 30 days after the end of each month,
copies of the consolidated balance sheet and statement of
operations and cash flow statement as at the end of such
month, each in reasonable detail and prepared in accordance
with GAAP, certified by the CFO;
(e) contemporaneously with or promptly following the
delivery thereof to the board of directors of the Parent,
copies of the financial information concerning the Parent in
substantially the same form in which such information is
supplied to the board of directors of the Parent;
(f) contemporaneously with, or promptly following, the
filing or mailing thereof, copies of all material of a
financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Guarantors or
any of the Borrowers;
(g) contemporaneously with the filing thereof with the
Securities and Exchange Commission, the quarterly and annual
financial statements of ARI.
(h) from time to time such other financial data,
including auditors' management letters, and other information
as the Banks or the Agent may reasonably request.
The Borrowers and the Guarantors hereby authorize the Agent
and the Banks to disclose any information obtained pursuant to this
Agreement to all appropriate governmental regulatory authorities
where required by law; provided, however, that the Agent and the
Banks shall, to the extent practicable and allowable under law,
notify the Borrowers and the Guarantors within a reasonable period
prior to the time any such disclosure is made; and provided
further, this authorization shall not be deemed to be a waiver of
any rights to object to the disclosure by the Agent or any Bank of
any such information which any Borrower or the Guarantors has or
may have under the federal Right to Financial Privacy Act of 1978,
as in effect from time to time.
6.5. Corporate Existence and Conduct of Business. Except
where the failure of a Guarantor or a Borrower to remain so
qualified would not materially adversely impair the financial
condition of the Borrowers on a consolidated basis, each Borrower
will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, corporate
rights and franchises; effect and maintain its foreign
qualifications, licensing, domestication or authorization except as
terminated by its Board of Directors in the exercise of its
reasonable judgment; and shall not become obligated under any
contract or binding arrangement which, at the time it was entered
into would materially adversely impair the financial condition of
the Borrowers, on a consolidated basis. Each Borrower will
continue to engage primarily in the business of collection,
transfer, hauling, disposal or recycling of solid waste (excluding
hazardous waste as that term is defined in RCRA).
6.6. Maintenance of Properties. The Borrowers will cause
all material properties used or useful in the conduct of their
businesses to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the
Borrowers may be necessary so that the businesses carried on in
connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this section shall
prevent any Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in
the judgment of such Borrower, desirable in the conduct of its or
their business and which does not in the aggregate materially
adversely affect the business of the Borrowers on a consolidated
basis.
6.7. Insurance. The Borrowers will maintain with
financially sound and reputable insurance companies, funds or
underwriters' insurance of the kinds listed on Exhibit E, covering
the risks (other than risks arising out of or in any way connected
with personal liability of any officers and directors thereof) and
in the relative proportionate amounts usually carried by reasonable
and prudent companies conducting businesses similar to that of the
Borrowers, including, to the extent it is commercially available,
environmental impairment insurance policies in amounts not less
than the existing coverage policies maintained by the Borrowers,
which are listed in Exhibit E hereto. In addition, the Borrowers
will furnish from time to time, upon the Agent's request, a summary
of the insurance coverage of each of the Borrowers, which summary
shall be in form and substance satisfactory to the Agent and, if
requested by the Agent, will furnish to the Agent copies of the
applicable policies.
6.8. Taxes. The Borrowers will each duly pay and discharge,
or cause to be paid and discharged, before the same shall become
overdue, all taxes, assessments and other governmental charges
(other than taxes, assessments and other governmental charges
imposed by foreign jurisdictions which in the aggregate are not
material to the business or assets of any Borrower on an individual
basis or of the Borrowers on a consolidated basis) imposed upon it
and its real properties, sales and activities, or any part thereof,
or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies, which if unpaid might by law become
a lien or charge upon any of its property; provided, however, that
any such tax, assessment, charge, levy or claim need not be paid if
the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if such Borrower shall have
set aside on its books adequate reserves with respect thereto; and
provided, further, that such Borrower will pay all such taxes,
assessments, charges, levies or claims forthwith upon the
commencement of proceedings to foreclose any lien which may have
attached as security therefor.
6.9. Inspection of Properties, Books, and Contracts. The
Borrowers shall permit the Agent and the Banks or any of their
designated representatives, upon reasonable notice, to visit and
inspect any of the properties of the Borrowers, to examine the
books of account of the Borrowers (including the making of periodic
accounts receivable reviews), or contracts (and to make copies
thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Borrowers with, and to be advised as
to the same by, their officers, all at such times and intervals as
the Agent or any Bank may reasonably request, and the costs thereof
shall be at the Borrowers' expense.
6.10. Review By Consulting Engineer. Upon reasonable notice
by the Agent, the Borrowers will permit the Consulting Engineer to
review the plans and specifications for, and the operations of, any
landfill owned, operated, or proposed to be acquired by any
Borrower, and will provide the Consulting Engineer with copies of
such documents as the Consulting Engineer may reasonably request.
Such review by the Consulting Engineer may include one or more site
visits. The reasonable costs of all such reviews by the Consulting
Engineer shall be at the Borrowers' sole cost and expense.
6.11. Compliance with Laws, Contracts, Licenses and Permits;
Maintenance of Material Licenses and Permits. Each Borrower will
(i) comply with the provisions of its charter documents and by-laws
and all agreements and instruments by which it or any of its
properties may be bound; and (ii) comply with all applicable laws
and regulations (including Environmental Laws), decrees, orders,
judgments, licenses and permits, including, without limitation, all
environmental permits hereto ("Applicable Laws"), except where
noncompliance with such Applicable Laws would not have a material
adverse effect in the aggregate on the consolidated financial
condition, properties or businesses of the Borrowers. If at any
time while any Note, or any Loan or Letter of Credit is outstanding
or the Banks have any obligation to make Loans or the Agent has any
obligation to issue, extend, or renew any Letters of Credit
hereunder, any authorization, consent, approval, permit or license
from any officer, agency or instrumentality of any government shall
become necessary or required in order that any Borrower may fulfill
any of its obligations hereunder, such Borrower will immediately
take or cause to be taken all reasonable steps within the power of
such Borrower to obtain such authorization, consent, approval,
permit or license and furnish the Banks with evidence thereof.
6.12. Environmental Indemnification. The Borrowers covenant
and agree that they will indemnify and hold the Agent and the Banks
harmless from and against any and all claims, expense, damage, loss
or liability incurred by the Agent or any Bank (including all
reasonable costs of legal representation incurred by the Agent or
such Bank) relating to (a) any Release or threatened Release of
Hazardous Substances on the Real Property; (b) any violation of any
Environmental Laws with respect to conditions at the Real Property
or the operations conducted thereon; or (c) the investigation or
remediation of offsite locations at which the Borrowers or their
predecessors are alleged to have directly or indirectly Disposed of
Hazardous Substances. It is expressly acknowledged by the
Borrowers that this covenant of indemnification shall survive any
foreclosure or any modification, release or discharge of any or all
of the Security Documents or the payment of the Loans and shall
inure to the benefit of the Agent, the Banks, and their successors
and assigns.
6.13. Further Assurances. The Borrowers will cooperate with
the Agent and the Banks and execute such further instruments and
documents as the Agent or any Bank shall reasonably request to
carry out to the satisfaction of the Agent and the Banks the
transactions contemplated by this Agreement, including the
execution and delivery of financing statements and, with respect to
any real property acquired after the Closing Date, a fully executed
mortgage or deed of trust over such real estate, in form and
substance satisfactory to the Agent, together with title insurance
policies, surveys, evidences of insurances with the Agent named as
loss payee and additional insured, legal opinions and other
documents and certificates with respect to such real estate as
reasonably required by the Agent. The Borrowers further agree
that, following the taking of such actions with respect to such
real estate, the Agent shall have for the benefit of the Banks and
the Agent a valid and enforceable first priority mortgage or deed
of trust over such real estate, free and clear of all defects and
encumbrances except for Permitted Liens.
6.14. Notice of Potential Claims or Litigation. The
Borrowers shall deliver to the Agent, within 30 days of receipt
thereof, written notice of the initiation of any action, claim,
complaint, or any other notice of dispute or potential litigation
(including without limitation any alleged violation of any
Environmental Law), wherein the potential liability is in excess of
$500,000, together with a copy of each such notice received by any
Borrower.
6.15. Notice of Certain Events Concerning Insurance and
Environmental Claims. (a) The Borrowers will provide the Agent
with written notice as to any cancellation or material change in
any insurance of any of the Borrowers within ten (10) Business Days
after such Borrower's receipt of any notice (whether formal or
informal) of such cancellation or change by any of its insurers.
(b) The Borrowers will promptly notify the Agent in
writing of any of the following events:
(i) upon any Borrower's obtaining knowledge of
any violation of any Environmental Law regarding the Real
Property or any Borrower's operations which violation
could have a material adverse effect on the Real Property
or on any Borrower's operations; (ii) upon any Borrower's
obtaining knowledge of any potential or known Release, or
threat of Release, of any Hazardous Substance at, from,
or into the Real Property which it reports in writing or
is required to report in writing to any governmental
authority and which is material in amount or nature or
which could materially affect the value of the Real
Property; (iii) upon any Borrower's receipt of any notice
of violation of any Environmental Laws or of any Release
or threatened Release of Hazardous Substances, including
a notice or claim of liability or potential
responsibility from any third party (including without
limitation any federal, state or local governmental
officials) and including notice of any formal inquiry,
proceeding, demand, investigation or other action with
regard to (A) any Borrower's or any Person's operation of
the Real Property, (B) contamination on, from or into the
Real Property, or (C) investigation or remediation of
offsite locations at which any Borrower or any of their
predecessors are alleged to have directly or indirectly
Disposed of Hazardous Substances; (iv) upon any
Borrower's obtaining knowledge that any expense or loss
has been incurred by such governmental authority in
connection with the assessment, containment, removal or
remediation of any Hazardous Substances with respect to
which any Borrower may be liable or for which a lien may
be imposed on the Real Property; or (v) any setoff,
claims (including, with respect to the Real Estate,
environmental claims), withholdings or other defenses to
which any of the Collateral, or the Agent's rights with
respect to the Collateral, are subject.
6.16. Response Actions. The Borrowers covenant and agree
that if any Release or Disposal of Hazardous Substances shall occur
or shall have occurred on the Real Property, the Borrowers will
cause the prompt containment and removal of such Hazardous
Substances and remediation of the Real Property as necessary to
comply with all Environmental Laws or to preserve the value of the
Real Property.
6.17. Environmental Assessments. If the Agent or any Bank
in its good faith judgment, after discussion with the Borrowers,
has reason to believe that the value of the Real Property may have
declined since the Closing Date or that the environmental condition
of the Real Property has deteriorated, after reasonable notice by
the Agent or such Bank, whether or not an Event of Default shall
have occurred, the Agent or such Bank may, from time to time, for
the purpose of assessing and ensuring the value of the Real
Property, obtain one or more environmental assessments or audits of
the Real Property prepared by a hydrogeologist, an independent
engineer or other qualified consultant or expert approved by the
Agent or such Bank to evaluate or confirm (i) whether any Hazardous
Substances are present in the soil or water at the Real Property
and (ii) whether the use and operation of the Real Property
complies with all Environmental Laws. Environmental assessments
may include without limitation detailed visual inspections of the
Real Property including, without limitation, any and all storage
areas, storage tanks, drains, dry wells and leaching areas, and the
taking of soil samples, surface water samples and ground water
samples, as well as such other investigations or analyses as the
Agent or such Bank deems appropriate. The reasonable costs of all
such environmental assessments shall be at the sole cost and
expense of the Borrowers.
6.18. Notice of Default. The Borrowers will promptly
notify the Agent in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other
action in respect of a claimed default (whether or not constituting
an Event of Default) under this Agreement or any other note,
evidence of indebtedness, indenture or other obligation evidencing
indebtednesses in excess of $250,000 as to which any Borrower is a
party or obligor, whether as principal or surety, the Borrowers
shall forthwith give written notice thereof to the Agent,
describing the notice of action and the nature of the claimed
default. The Borrowers shall immediately notify the Agent of any
breach or claimed breach of any landfill or recycling center
franchise operating agreements.
6.19. Closure and Post Closure Liabilities. The
Borrowers will at all times adequately disclose and accrue, in
accordance with GAAP and as required by applicable Environmental
Laws or securities laws, all closure and postclosure liabilities
with respect to the landfill operations conducted by the Borrowers.
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. The
Borrowers agree that, so long any Loan, as any Note, or any
Obligation is outstanding or the Banks have any obligation to make
Loans or the Agent has any obligation to issue, extend or renew any
Letters of Credit hereunder:
7.1 Restrictions on Indebtedness. None of the Borrowers
shall become or be a guarantor or surety of, or otherwise create,
incur, assume, or be or remain liable, contingently or otherwise,
with respect to any Indebtedness, or become or be responsible in
any manner (whether by agreement to purchase any obligations,
stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services or otherwise) with respect to any
undertaking or Indebtedness of any other Person, or incur any
Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising
under this Agreement or the Loan Documents;
(b) Other existing Indebtedness listed on Schedule
7.1(c) hereto, on the terms and conditions in effect as of the
date hereof, together with any renewals, extensions or
refinancings thereof on terms which are not materially
different than those in effect as of the date hereof;
(c) Current liabilities incurred in the ordinary course
of business not incurred through (i) the borrowing of money,
or (ii) the obtaining of credit except for credit on an open
account basis customarily extended and in fact extended in
connection with normal purchases of goods and services;
(d) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials
and supplies to the extent that payment therefor shall not at
the time be required to be made in accordance with the
provisions of 6.8 and Indebtedness of the Borrowers secured
by liens of carriers, warehousemen, mechanics and materialmen
permitted by 7.2;
(e) Indebtedness in respect of judgments or awards which
have been in force for less than the applicable period for
taking an appeal so long as execution is not levied thereunder
or in respect of which any Borrower shall at the time in good
faith be prosecuting an appeal or proceedings for review and
in respect of which a stay of execution shall have been
obtained pending such appeal or review and in respect of which
the Borrowers have maintained adequate reserves;
(f) incurrence by any Borrower of guaranty, suretyship
or indemnification obligations in connection with such
Borrower's performance of services for its respective
customers in the ordinary course of its business; and
(g) Indebtedness of East Carolina Environmental, Inc. in
an aggregate amount not to exceed $6,000,000 with respect to
the Bertie landfill in form and substance satisfactory to the
Banks;
(h) Indebtedness of Broadhurst to the Wayne County Solid
Waste Management Authority in an aggregate amount not to
exceed $7,400,000 pursuant to the Wayne County Loan Agreement;
and
(i) Other Indebtedness of the Borrowers incurred after
the date hereof through the borrowing of money or the
obtaining of credit for purchase money leases or equipment
financing, not to exceed an aggregate amount of $2,250,000 for
all Borrowers;
provided however that (x) Ohio County Balefill, Inc. shall not
have Indebtedness in an aggregate amount exceeding $800,000, (y)
Collection Services, Inc. shall not have Indebtedness in an
aggregate amount exceeding $1,200,000, and (z) no other Subsidiary
shall have Indebtedness in excess of $250,000 in the aggregate with
respect to items (c) through (g), excluding accounts payable
arising out of contracts to construct or expand landfills, transfer
stations or recycling centers.
7.2. Restrictions on Liens. None of the Borrowers will
create or incur or suffer to be created or incurred or to exist any
lien, encumbrance, mortgage, pledge, charge, restriction or other
security interest of any kind upon any property or assets of any
character, whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or
assets or the income or profits therefrom for the purpose of
subjecting the same to the payment of Indebtedness or performance
of any other obligation in priority to payment of its general
creditors; or acquire, or agree or have an option to acquire, any
property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or
suffer to exist for a period of more than 30 days after the same
shall have been incurred any Indebtedness or claim or demand
against it which if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its
general creditors; or sell, assign, pledge or otherwise transfer
any accounts, contract rights, general intangibles or chattel
paper, with or without recourse, except as follows (the "Permitted
Liens"):
(a) Liens securing Indebtedness permitted under 7.1(i)
incurred in connection with the lease or acquisition of
property or fixed assets useful or intended to be used in
carrying on the business of the Borrowers, provided that such
Liens shall encumber only the property or assets so acquired
and shall not exceed the fair market value thereof;
(b) Liens to secure taxes, assessments and other
government charges or claims for labor, material or supplies
in respect of obligations not overdue;
(c) Deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment
insurance, old age pensions or other social security
obligations;
(d) Liens in respect of judgments or awards, the
Indebtedness with respect to which is permitted by 7.1(e);
(e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 120
days from the date of creation thereof in respect of
obligations not overdue;
(f) Encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property
and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which any
Borrower is a party, which defects do not individually or in
the aggregate have a material adverse effect on the business
of such Borrower individually or of the Borrowers on a
consolidated basis;
(g) Liens existing as of the date hereof and listed on
Schedule 7.2(g) on the terms and conditions in effect as of
the date hereof;
(h) Liens in favor of the Trustee pursuant to the Wayne
County Security Documents; and
(i) Liens in favor of the Agent for the benefit of the
Banks under the Security Documents.
7.3. Restrictions on Investments. None of the Borrowers
shall make or permit to exist or to remain outstanding any
Investment other than:
(a) Investments in obligations of the United States of
America and agencies thereof and obligations guaranteed by the
United States of America that are due and payable within one
year from the date of acquisition;
(b) certificates of deposit, time deposits or repurchase
agreements which are fully insured or are issued by commercial
banks organized under the laws of the United States of America
or any state thereof and having a combined capital, surplus,
and undivided profits of not less than $100,000,000;
(c) commercial paper, maturing not more than nine months
from the date of issue, provided that, at the time of
purchase, such commercial paper is not rated lower than "P-1"
by Moody's Investors Service, Inc., or "A-1" by Standard &
Poor's Corporation;
(d) Investments by the Parent in any other Person which
is a Borrower;
(e) Other Investments in an aggregate amount outstanding
not exceeding $2,000,000 at any time provided that no Borrower
shall make any Investment in a Subsidiary that is not wholly-
owned by such Borrower.
7.4. Mergers, Consolidations, Acquisitions, Sales. None
of the Borrowers shall be a party to any merger, consolidation or
exchange of stock, or purchase or otherwise acquire all or
substantially all of the assets or stock of any class of, or any
partnership or joint venture interest in, any other Person except
a merger or consolidation where the Parent is the surviving
corporation, provided such transaction will not otherwise create
any Event of Default hereunder, or sell, transfer, convey or lease
any assets or group of assets (except sales of equipment in the
ordinary course of business) or sell or assign, with or without
recourse, any receivables. In addition, the Parent may only
purchase or otherwise acquire all of the stock of any Person or all
or substantially all of the assets of any other Person, if each of
the following conditions have been met: (a) the Agent shall have
been provided with a Compliance Certificate demonstrating that the
Borrowers are in current compliance with and, giving effect to the
proposed acquisition (including any borrowings made or to be made
in connection therewith), will not create an Event of Default; (b)
the business to be acquired involves the collection, transfer,
hauling, disposal or recycling of solid waste (excluding hazardous
waste as that term is defined in RCRA); (c) the business to be
acquired operates in the continental United States; (d) all of the
assets to be acquired shall be placed in an existing or newly
created wholly-owned Subsidiary, 100% of the stock of which has
been or will be pledged to the Agent for the benefit of the Banks
and which is a Borrower or, in the case of a stock acquisition, the
acquired company shall become or shall be merged into a wholly-
owned Subsidiary of the Parent that is a Borrower; (e) a copy of
the purchase agreement, together with audited (if available, or
otherwise unaudited) financial statements for any Subsidiary to be
acquired or created for the preceding two (2) fiscal years shall
have been furnished to the Agent and the Banks; (f) each
acquisition of a landfill is preceded by the Parent's standard due
diligence practices as set forth in Exhibit F hereto, and (g) the
cash consideration to be paid by the Parent in connection with such
acquisition (including the amount of all liabilities assumed) does
not exceed $2,000,000 (a "Permitted Acquisition").
7.5. Sale and Leaseback. Except for the sale and
leaseback of the site of the Wayne County Project pursuant to the Lease
Purchase Agreement, none of the Borrowers shall enter into any
arrangement, directly or indirectly, whereby any Borrower shall
sell or transfer any property owned by it in order then or
thereafter to lease such property or lease other property which
such Borrower intends to use for substantially the same purpose as
the property being sold or transferred.
7.6. Restricted Distributions and Redemptions. None of
the Borrowers will declare or pay any Distributions (other than
Distributions payable solely in common stock of such Borrower)
provided that any Borrower that is a Subsidiary of the Parent may
pay Distributions to its shareholders so long as no Default or
Event of Default exists or would be created by the making of such
Distribution. The Borrowers shall not redeem, convert, retire or
otherwise acquire shares of any class of capital stock of the
Borrowers in aggregate amount in excess of $100,000 in any year.
The Borrowers shall not effect or permit any change in or amendment
to any document or instrument pertaining to the terms of the
Borrowers' capital stock.
7.7. Landfill Development Expenditures. The Borrowers
shall not make or commit to make any expenditures in excess of
$2,000,000 in the aggregate in any fiscal year with respect to
Landfill Development Projects.
7.8. Employee Benefit Plans. None of the Borrowers nor
any ERISA Affiliate will:
(a) engage in any "prohibited transaction" within the
meaning of 406 of ERISA or 4975 of the Code which could
result in a material liability for any Borrower; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in
302 of ERISA, whether or not such deficiency is or may be
waived; or
(c) fail to contribute to any Guaranteed Pension Plan to
an extent which, or terminate any Guaranteed Pension Plan in
a manner which, could result in the imposition of a lien or
encumbrance on the assets of any Borrower pursuant to 302(f)
or 4068 of ERISA; or
(d) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of 4001 of
ERISA) of all Guaranteed Pension Plans exceeding the value of
the aggregate assets of such Plans, disregarding for this
purpose the benefit liabilities and assets of any such Plan
with assets in excess of benefit liabilities.
The Borrowers will (i) promptly upon filing the same with the
Department of Labor or Internal Revenue Service, furnish to the
Agent a copy of the most recent actuarial statement required to be
submitted under 103(d) of ERISA and Annual Report, Form 5500, with
all required attachments, in respect of each Guaranteed Pension
Plan and (ii) promptly upon receipt or dispatch, furnish to the
Agent any notice, report or demand sent or received in respect of
a Guaranteed Pension Plan under 302, 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer
Plan, under 4041A, 4202, 4219, or 4245 of ERISA.
8. FINANCIAL COVENANTS OF THE BORROWERS. The Borrowers
agree that, so long as any Loan, any Note, any Obligation, or any
Letter of Credit is outstanding or the Banks have any obligation to
make Loans or the Agent has any obligation to issue, extend or
renew any Letters of Credit hereunder:
8.1. Current Ratio. The ratio of Consolidated Current
Assets to Consolidated Current Liabilities shall not at any time be
less than the stated ratio for the respective periods set forth
below:
Period Ratio
Closing Date through 12/31/94 1.25:1
Thereafter 1.5:1
8.2. Leverage Ratio. The ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth shall not at any
time exceed 1.25:1.
8.3. Interest Coverage Ratios.
(a) As of the end of any quarter commencing with the
fiscal quarter ending June 30, 1994, the ratio of EBIT for the
four quarters ending on that date to Consolidated Total
Interest Expense as at the end of such period shall not be
less than 3:1.
(b) As at the end of any fiscal quarter commencing with
the fiscal quarter ending June 30, 1994 the ratio of Proforma
EBIT to Proforma Interest Expense shall not be less than the
stated ratio for the respective periods set forth below:
Fiscal Quarter Ending Ratio
6/30/94 through 6/30/95 2.25:1
Thereafter 2.5:1
8.4. Fixed Charge Coverage Ratios. (a) As of the end of any
fiscal quarter commencing with the fiscal quarter ending June 30,
1994, the ratio of (i) EBITDA to (ii) Consolidated Total Interest
Expense plus the current maturities of long term debt shall not be
less than 4:1. (b) As of the end of any fiscal quarter commencing
with the fiscal quarter ending June 30, 1994, the ratio of (i) Proforma
EBITDA to (ii) Proforma Interest Expense plus the current portion
or maturities of long term debt shall not be less than the stated
ratio for the respective periods set forth below:
Fiscal Quarter Ending Ratio
6/30/94 2:1
Thereafter 2.25:1
8.5. Profitable Operations. The Borrowers will not permit
Consolidated Net Income to be less than $1.00 in any quarter.
9. CLOSING CONDITIONS. The obligations of the Banks to
make the Loans and of the Agent to issue Letters of Credit on the
Closing Date and otherwise be bound by the terms of this
Agreement shall be subject to the satisfaction of each of the
following conditions precedent:
9.1. Corporate Action. All corporate action necessary for
the valid execution, delivery and performance by each Borrower
and each Guarantor of the Loan Documents shall have been duly and
effectively taken, and evidence thereof satisfactory to the Agent
shall have been provided to the Agent.
9.2. Loan Documents, Etc. Each of the Loan Documents
shall have been duly and properly authorized, executed and
delivered by the respective parties thereto and shall be in full
force and effect in a form satisfactory to the Banks.
9.3. Certified Copies of Charter Documents. The Agent
shall have received from the Borrowers and the Guarantors a copy,
certified by a duly authorized officer of such Person to be true
and complete on the Closing Date, of each of (a) its charter or
other incorporation documents (including certificates of merger
and name changes) as in effect on such date of certification, and
(b) its by-laws as in effect on such date.
9.4. Incumbency Certificate. The Agent shall have
received an incumbency certificate, dated as of the Closing Date,
signed by duly authorized officers giving the name and bearing a
specimen signature of each individual who shall be authorized:
(a) to sign the Loan Documents on behalf of the Borrowers and the
Guarantors; (b) to make Loan and Letter of Credit Requests; and
(c) to give notices and to take other action on the Borrowers'
and the Guarantors' behalf under the Loan Documents.
9.5. Validity of Liens. The Security Documents shall be
effective to create in favor of the Agent for the benefit of the
Banks a legal, valid and enforceable first security interest in
and lien upon the Collateral. All filings, recordings,
deliveries of instruments and other actions necessary or
desirable in the opinion of the Agent to protect and preserve
such security interests shall have been duly effected. The Agent
shall have received evidence thereof in form and substance
satisfactory to the Agent.
9.6. UCC Search Results. The Agent shall have received
the results of UCC searches with respect to the Collateral owned
by the Borrowers indicating no liens other than Permitted Liens
and otherwise in form and substance satisfactory to the Agent.
9.7 Taxes. The Agent shall have received evidence of
payment of real estate taxes and municipal charges on all Real
Property not delinquent on or before the Closing Date.
9.8 Title Insurance. The Agent shall have received
mortgagee policies of title insurance or commitments to issue
such policies or satisfactory endorsements of existing policies,
together with proof of payment of all fees and premiums for such
policies or endorsements, from title insurers and in amounts
satisfactory to the Agent, insuring the interest of the Agent as
first mortgagee under the Mortgages and otherwise subject only to
Permitted Liens.
9.9. Certificates of Insurance. The Agent shall have
received (i) a certificate of insurance from an independent
insurance broker dated as of the Closing Date, or within 15 days
prior thereto, identifying insurers, types of insurance,
insurance limits, and policy terms, and otherwise describing the
insurance obtained in accordance with the provisions of the
Security Documents and (ii) copies of all policies evidencing
such insurance (or certificates therefor signed by the insurer or
an agent authorized to bind the insurer).
9.10. Opinions of Counsel. The Banks shall have received,
in form and substance satisfactory to the Banks, (a) from Brown,
Todd & Heyburn, an opinion addressed to the Banks, dated the
Closing Date regarding corporate matters and due authorization,
execution, delivery and enforceability of the Loan Documents, (b)
from Brown, Todd & Heyburn, an opinion concerning permitting
matters with respect to the landfill owned by Dozit Co., Inc.,
and (c) from Jones, Cork & Miller an opinion concerning
permitting matters with respect to the Wayne County Project..
9.11. Amendments to Other Agreements. The Banks shall
have received evidence of the amendment of all other agreements
to which any Borrower or any Guarantors is a party as necessary
to (a) permit such Borrower or such Guarantor to enter into this
Agreement and the other Loan Documents, (b) maintain the first
priority of the Agent's lien on the Collateral for the benefit of
the Banks, and (c) subordinate the obligations of the Borrowers
under such other agreements to the Obligations on terms and
conditions satisfactory to the Banks.
10. CONDITIONS OF ALL LOANS.
The obligations of the Banks to make any Loan and the
obligation of the Agent to issue any Letter of Credit on and
subsequent to the Closing Date is subject to the following
conditions precedent:
10.1 Representations True; No Event of Default. Each of
the representations and warranties of the Borrowers and the
Guarantors contained in this Agreement or in any document or
instrument delivered pursuant to or in connection with this
Agreement shall be true as of the date as of which they were made
and shall also be true at and as of the time of the making of the
Loan or the issuance, extension, or renewal of any Letter of
Credit with the same effect as if made at and as of that time
(except to the extent of changes resulting from transactions
contemplated or permitted by this Agreement and changes occurring
in the ordinary course of business which singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier
date) and no Default or Event of Default shall have occurred and
be continuing.
10.2. Performance; No Event of Default. The Borrowers and
the Guarantors shall have performed and complied with all terms
and conditions herein required to be performed or complied with
by them prior to or at the time of any Loan or the issuance,
extension, or renewal of any Letter of Credit, and at the time of
any Loan, there shall exist no Default or Event of Default or
condition which would result in a Default or an Event of Default
upon consummation of such Loan or the issuance, extension, or
renewal of any Letter of Credit. Each request by the Borrowers
for a Loan (including without limitation each request for
issuance of a Letter of Credit) subsequent to the first Loan
shall constitute certification by the Borrowers that the
conditions specified in 10.1 and 10.2 will be duly satisfied on
the date of such Loan or Letter of Credit issuance.
10.3. No Legal Impediment. No change shall have occurred
in any law or regulations thereunder or interpretations thereof
which in the reasonable opinion of the Agent and each Bank would
make it illegal for any Bank to make Loans or for the Agent to
issue, extend or renew any Letters of Credit hereunder.
10.4. Governmental Regulation. The Banks shall have
received such statements in substance and form reasonably
satisfactory to the Banks as they shall require for the purpose
of compliance with any applicable regulations of the Comptroller
of the Currency or the Board of Governors of the Federal Reserve
System.
10.5. Proceedings and Documents. All proceedings in
connection with the transactions contemplated by this Agreement
and all documents incident thereto shall have been delivered to
the Banks or the Agent, as the case may be as of the date hereof
in substance and in form satisfactory to the Banks and the Agent,
including without limitation a Letter of Credit and Loan Request
in the form attached hereto as Exhibit C, and the Banks and the
Agent shall have received all information and such counterpart
originals or certified or other copies of such documents as the
Banks and the Agent may reasonably request.
11. COLLATERAL SECURITY. The Obligations and the
Guaranteed Obligations shall be secured by a perfected security
interest (having, with respect to each category of Collateral,
the respective rights and priorities set forth in the Security
Documents) in all of the pledged assets of the Borrowers, AHC's
stock of the Parent, Mid-State, and Green Valley, and the
Parent's stock of its Subsidiaries, whether now owned or
hereafter acquired, pursuant to the terms of the Security
Documents.
12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF
COMMITMENT.
12.1. Events of Default and Acceleration. If any of the
following events ("Events of Default" or, if the giving of notice
or the lapse of time or both is required, then, prior to such
notice and/or lapse of time, "Defaults") shall occur:
(a) if the Borrowers shall fail to pay any principal
of the Loans when the same shall become due and payable,
whether at the Maturity Date or any accelerated date of
maturity or at any other date fixed for payment;
(b) if the Borrowers shall fail to pay any interest or
fees or other amounts owing hereunder within five (5)
Business Days after the same shall become due and payable
whether at the Maturity Date or any accelerated date of
maturity or at any other date fixed for payment;
(c) if the Borrowers shall fail to comply with the
covenants contained in 6, 7 or 8 hereof or in the
Reimbursement Agreement;
(d) if the Borrowers shall fail to perform any term,
covenant or agreement (other than those specified in
subsections (a), (b), and (c) above) contained herein or in
any of the other Loan Documents (other than the
Reimbursement Agreement) within 30 days after written notice
of such failure has been given to the Borrowers by the
Agent;
(e) if any representation or warranty contained in
this Agreement or in any document or instrument delivered
pursuant to or in connection with this Agreement shall prove
to have been false in any material respect upon the date
when made or repeated;
(f) if any Borrower or any Guarantor shall fail to pay
at maturity, or within any applicable period of grace, any
and all obligations for borrowed money or any guaranty with
respect thereto in an aggregate amount greater than
$250,000, or fail to observe or perform any material term,
covenant or agreement contained in any agreement by which it
is bound, evidencing or securing borrowed money in an
aggregate amount greater than $250,000 for such period of
time as would, or would have permitted (assuming the giving
of appropriate notice if required) the holder or holders
thereof or of any obligations issued thereunder to
accelerate the maturity thereof; or
(g) if any Borrower or any Guarantor makes an
assignment for the benefit of creditors, or admits in
writing its inability to pay or generally fails to pay its
debts as they mature or become due, or petitions or applies
for the appointment of a trustee or other custodian,
liquidator or receiver of any Borrower or any Guarantor or
of any substantial part of the assets of any Borrower or the
Guarantor or commences any case or other proceeding relating
to any Borrower or any Guarantor under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or takes any
action to authorize or in furtherance of any of the
foregoing, or if any such petition or application is filed
or any such case or other proceeding is commenced against
any Borrower or any Guarantor and or any Borrower or any
Guarantor indicates its approval thereof, consent thereto or
acquiescence therein;
(h) a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating
any Borrower or any Guarantor bankrupt or insolvent, or
approving a petition in any such case or other proceeding,
or a decree or order for relief is entered in respect of any
Borrower or any Guarantor in an involuntary case under
federal bankruptcy laws as now or hereafter constituted, and
such decree or order remains in effect for more than thirty
(30) days, whether or not consecutive;
(i) if there shall remain in force, undischarged,
unsatisfied and unstayed, for more than thirty (30) days,
whether or not consecutive, any final judgment against any
Borrower or any Guarantor which, with other outstanding
final judgments, (x) against the Borrowers exceeds in the
aggregate $250,000 or (y) against the Guarantors exceeds in
the aggregate $2,500,000, after taking into account any
undisputed insurance coverage;
(j) with respect to any Guaranteed Pension Plan, an
ERISA Reportable Event shall have occurred and the Banks
shall have determined in their reasonable discretion that
such event reasonably could be expected to result in
liability of any Borrower to the PBGC or the Plan in an
aggregate amount exceeding $300,000 and such event in the
circumstances occurring reasonably could constitute grounds
for the termination of such Plan by the PBGC or for the
appointment by the appropriate United States District Court
of a trustee to administer such Plan; or a trustee shall
have been appointed by the United States District Court to
administer such Plan; or the PBGC shall have instituted
proceedings to terminate such Plan;
(k) if any of the Loan Documents shall be canceled,
terminated, revoked or rescinded or the Agent's security
interests in substantially all of the Collateral shall cease
to be perfected or shall cease to have the priority
contemplated by the Security Documents, otherwise than in
accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Banks, or any
action at law, suit or in equity or other legal proceeding
to cancel, revoke or rescind any of the Loan Documents shall
be commenced by or on behalf of the Borrowers or the
Guarantors or any of their respective stockholders, or any
court or any other governmental or regulatory authority or
agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is
illegal, invalid or unenforceable in accordance with the
terms thereof;
(l) any of the Borrowers shall be enjoined, restrained
or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any
material part of its business and such order shall continue
in effect for more than thirty (30) days;
(m) there shall occur any material damage to, or loss,
theft or destruction of, any Collateral, whether or not
insured, or any strike, lockout, labor dispute, embargo,
condemnation, act of God or public enemy, or other casualty,
which in any such case causes, for more than thirty (30)
consecutive days, the cessation or substantial curtailment
of revenue producing activities at any facility of the
Borrowers if such event or circumstance is not covered by
business interruption insurance and would have a material
adverse effect on the business or financial condition of the
Borrowers, taken as a whole;
(n) there shall occur the loss, suspension or
revocation of, or failure to renew, any license or permit
now held or hereafter acquired by any of the Borrowers if
such loss, suspension, revocation or failure to renew would
have a material adverse effect on the business or financial
condition of such Borrower or on the Borrowers taken as a
whole; or
(o) there shall have occurred any event of default
under the Reimbursement Agreement;
then, and in any such event, so long as the same may be
continuing, the Banks may, by notice in writing to the Borrowers
and the Guarantors, declare all amounts owing with respect to
this Agreement, the Note and the other Loan Documents and all
Reimbursement Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Borrowers and the
Guarantors; provided that in the event of any Event of Default
specified in 12(g) or 12(h), all such amounts shall become
immediately due and payable automatically and without any
requirement of notice from the Banks or the Agent. Upon demand
by the Majority Banks after the occurrence of any Event of
Default, the Borrowers shall immediately provide to the Agent
cash in an amount equal to the aggregate Maximum Drawing Amount
of all Letters of Credit outstanding, to be held by the Agent as
collateral security for the Obligations.
12.2. Termination of Commitment. If any Event of Default
specified in 12.1(g) or (h) shall occur, any unused portion of
the Total Commitment hereunder shall forthwith terminate and the
Banks shall be relieved of all obligations to make Loans and the
Agent shall be relieved of all further obligations to issue,
extend, or renew Letters of Credit. If any other Event of
Default shall have occurred and is continuing, or if on any
Drawdown Date or other date for issuing, extending or renewing
any Letter of Credit the conditions precedent to the making of
the Loans to be made on such Drawdown Date or (as the case may
be) to issuing, extending or renewing such Letter of Credit on
such other date are not satisfied, the Banks may by notice to the
Borrowers, terminate the unused portion of the Total Commitment
hereunder, and upon such notice being given, such unused portion
of the Total Commitment hereunder shall terminate immediately and
the Banks and the Agent shall be relieved of all further
obligations to make Loans to or issue Letters of Credit for the
account of the Borrowers hereunder. No termination of any
portion of the Total Commitment hereunder shall relieve the
Borrowers of any of their existing Obligations to the Agent or
any Bank hereunder or elsewhere.
12.3. Remedies. If any one or more of the Events of
Default shall have occurred and be continuing, and whether or not
the Banks shall have accelerated the maturity of the Loans
pursuant to 12.1, the Banks, if owed any amount with respect to
the Loans or the Reimbursement Obligations, may proceed to
protect and enforce their rights by suit in equity, action at law
or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this
Agreement and the other Loan Documents or any instrument pursuant
to which the Obligations or the Guaranteed Obligations to the
Agent or any Bank are evidenced, including, without limitation,
as permitted by applicable law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment
thereof or any legal or equitable right of the Banks or the
Agent. No remedy herein conferred upon the Agent, the Banks or
the holder of any Note or purchaser of any Letter of Credit
participation is intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or any other
provision of law.
13. GUARANTY.
13.1 Guaranty. For value received and hereby
acknowledged and as an inducement to the Banks and the Agent to
make the Loans and Letters of Credit available to the Borrowers,
each of the Guarantors hereby unconditionally and irrevocably
guarantees (a) the full punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of each of the
Borrowers now or hereafter existing whether for principal,
interest, fees, expenses or otherwise, and (b) the strict
performance and observance by the Borrowers of all agreements,
warranties and covenants applicable to the Borrowers in the Loan
Documents and (c) the obligations of the Guarantors under the
Loan Documents (such Obligations collectively being hereafter
referred to as the "Guaranteed Obligations").
13.2 Guaranty Absolute. The Guarantors guarantee that
the Guaranteed Obligations will be paid strictly in accordance with
the terms hereof, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Banks or the Agent with respect
thereto. The liability of the Guarantors under this guaranty
with regard to the Guaranteed Obligations shall be absolute and
unconditional irrespective of:
(a) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Guaranteed
Obligations or any other amendment or waiver of or any
consent to departure from this Agreement (with regard to
such Guaranteed Obligations);
(b) any release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the
Guaranteed Obligations;
(c) any change in ownership of any Borrower or the
addition of any new Borrower pursuant to 4.12 hereof;
(d) any acceptance of any partial payment(s) from any
of the Borrowers; or
(e) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, any
Guarantor in respect of its Obligations hereunder as a
guarantor.
This guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any
Guaranteed Obligation is rescinded or must otherwise be returned
by the Banks upon the insolvency, bankruptcy or reorganization of
any Borrower or otherwise, all as though such payment had not
been made.
13.3. Effectiveness; Enforcement. The guaranty herein of
the Guarantors shall be effective and shall be deemed to be made
with respect to each Loan made and each Letter of Credit issued
to the Borrowers or any individual Borrower as of the time it is
made. No invalidity, irregularity or unenforceability by reason
of any bankruptcy or similar law, or any law or order of any
government or agency thereof purporting to reduce, amend or
otherwise affect any liability of any Borrower, and no defect in
or insufficiency or want of powers of any Borrower or irregular
or improperly recorded exercise thereof, shall impair, affect, be
a defense to or claim against such guaranty. This guaranty is a
continuing guaranty and shall (a) survive any termination of this
Agreement, and (b) remain in full force and effect until payment
in full of, and performance of, all Guaranteed Obligations and
all other amounts payable under this guaranty. This guaranty is
made for the benefit of the Agent and Banks and their respective
successors and assigns, and may be enforced from time to time as
often as occasion therefor may arise and without requirement on
the part of the Banks or the Agent first to exercise any rights
against any individual Borrower, or to resort to any other source
or means of obtaining payment of any of the said obligations or
to elect any other remedy.
13.4 Waiver. Except as otherwise specifically provided
in any of the Loan Documents, the Guarantors hereby waive
promptness, diligence, protest, notice of protest, all suretyship
defenses, notice of acceptance and any other notice with respect
to any of the Guaranteed Obligations and this guaranty and any
requirement that the Agent and the Banks protect, secure, perfect
to ensure any security interest or lien or any property subject
thereto or exhaust any right or take any action against any
individual Borrower, or any other Person. The Guarantors also
irrevocably waive, to the fullest extent permitted by law, all
defenses which at any time may be available to it in respect of
the Guaranteed Obligations by virtue of any statute of
limitations, valuation, stay, moratorium law or other similar law
now or hereafter in effect.
13.5 Expenses. The Guarantors hereby promise to
reimburse the Agent for all reasonable out-of-pocket fees and disbursements
(including all reasonable attorneys' fees), incurred or expended
in connection with the preparation, filing or recording, or
interpretation of this Guaranty, the other Loan Documents to
which any Guarantor is a party, or any amendment, modification,
approval, consent or waiver hereof or thereof, or with the
enforcement of any Guaranteed Obligations. The Guarantors will
pay any taxes (including any interest and penalties in respect
thereof) other than the Agent's federal and state income taxes,
payable on or with respect to the transactions contemplated by
this Guaranty, the Guarantors hereby agreeing to indemnify the
Agent with respect thereto.
14. SETOFF. Regardless of the adequacy of any
collateral, during the continuance of an Event of Default, any deposits or
other sums credited by or due from the Agent or any Bank to the
Borrowers or the Guarantors and any securities or other property
of the Borrowers or the Guarantors in the possession of the Agent
or any Bank may be applied to or set off against the payment of
the Obligations or Guaranteed Obligations and any and all other
liabilities, direct, or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, of the
Borrowers or the Guarantors to the Agent or any Bank.
15. THE AGENT.
15.1. Authorization. The Agent is authorized to take
such action on behalf of each of the Banks and to exercise all such
powers as are hereunder and under any of the other Loan Documents
and any related documents delegated to the Agent, together with
such powers as are reasonably incident thereto, provided that no
duties or responsibilities not expressly assumed herein or
therein shall be implied to have been assumed by the Agent. The
relationship between the Agent and the Banks is and shall be that
of agent and principal only, and nothing contained in this
Agreement or any of the other Loan Documents shall be construed
to constitute the Agent as a trustee for any Bank.
15.2. Employees and Agents. The Agent may exercise its
powers and execute its duties by or through employees or agents
and shall be entitled to take, and to rely on, advice of counsel
concerning all matters pertaining to its rights and duties under
this Agreement and the other Loan Documents. The Agent may
utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by the Borrowers.
15.3. No Liability. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other
Person assisting them in their duties nor any agent or employee
thereof, shall be liable for any waiver, consent or approval
given or any action taken, or omitted to be taken, in good faith
by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the
consequences of any oversight or error of judgment whatsoever,
except that the Agent or such other Person, as the case may be,
may be liable for losses due to its willful misconduct or gross
negligence.
15.4. No Representations. The Agent shall not be
responsible for the execution or validity or enforceability of
this Agreement, the Notes, the Letters of Credit, any of the
other Loan Documents or any instrument at any time constituting,
or intended to constitute, collateral security for the Notes, or
for the value of any such collateral security or for the
validity, enforceability or collectability of any such amounts
owing with respect to the Notes, or for any recitals or
statements, warranties or representations made herein or in any
of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrowers or the
Guarantors, or be bound to ascertain or inquire as to the
performance or observance of any of the terms, conditions,
covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for
the Notes or to inspect any of the properties, books or records
of the Borrowers or the Guarantors. The Agent shall not be bound
to ascertain whether any notice, consent, waiver or request
delivered to it by the Borrowers or the Guarantors or any holder
of any of the Notes shall have been duly authorized or is true,
accurate and complete. The Agent has not made nor does it now
make any representations or warranties, express or implied, nor
does it assume any liability to the Banks, with respect to the
credit worthiness or financial conditions of the Borrowers or the
Guarantors. Each Bank acknowledges that it has, independently
and without reliance upon the Agent or any other Bank, and based
upon such information and documents as it has deemed appropriate,
made its own credit analysis and decision to enter into this
Agreement.
15.5. Payments.
(a) A payment by the Borrowers or the Guarantors to
the Agent hereunder or any of the other Loan Documents for
the account of any Bank shall constitute a payment to such
Bank. The Agent agrees promptly to distribute to each Bank
such Bank's pro rata share of payments received by the Agent
for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
(b) If in the opinion of the Agent the distribution of
any amount received by it in such capacity hereunder, under
the Notes or under any of the other Loan Documents might
involve it in liability, it may refrain from making
distribution until its right to make distribution shall have
been adjudicated by a court of competent jurisdiction. If a
court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be
repaid, each Person to whom any such distribution shall have
been made shall either repay to the Agent its proportionate
share of the amount so adjudged to be repaid or shall pay
over the same in such manner and to such Persons as shall be
determined by such court.
(c) Notwithstanding anything to the contrary contained
in this Agreement or any of the other Loan Documents, any
Bank that fails (i) to make available to the Agent its pro
rata share of any Loan or to purchase any Letter of Credit
Participation or (ii) to comply with the provisions of 15
with respect to making dispositions and arrangements with
the other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of
its pro rata share of such payments due and payable to all
of the Banks, in each case as, when and to the full extent
required by the provisions of this Agreement, shall be
deemed delinquent (a "Delinquent Bank") and shall be deemed
a Delinquent Bank until such time as such delinquency is
satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrowers
or the Guarantors, whether on account of outstanding Loans,
unpaid Reimbursement Obligations, interest, fees or
otherwise, to the remaining nondelinquent Banks for
application to, and reduction of, their respective pro rata
shares of all outstanding Loans and unpaid Reimbursement
Obligations. The Delinquent Bank hereby authorizes the
Agent to distribute such payments to the nondelinquent Banks
in proportion to their respective pro rata shares of all
outstanding Loans and unpaid Reimbursement Obligations. A
Delinquent Bank shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the
assigned payments to all outstanding Loans and unpaid
Reimbursement Obligations of the nondelinquent Banks, the
Banks' respective pro rata shares of all outstanding Loans
and unpaid Reimbursement Obligations have returned to those
in effect immediately prior to such delinquency and without
giving effect to the nonpayment causing such delinquency.
15.6 Holders of Notes. The Agent may deem and treat the
payee of any Note or the purchaser of any Letter of Credit
Participation as the absolute owner or purchaser thereof for all
purposes hereof until it shall have been furnished in writing
with a different name by such payee or by a subsequent holder,
assignee or transferee.
15.7. Indemnity. The Banks ratably agree hereby to
indemnify and hold harmless the Agent from and against any and
all claims, actions and suits (whether groundless or otherwise),
losses, damages, costs, expenses (including any expenses for
which the Agent has not been reimbursed by the Borrower as
required by 16), and liabilities of every nature and character
arising out of or related to this Agreement, the Notes, or any of
the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the
same shall be directly caused by the Agent's willful misconduct
or gross negligence.
15.8. Agent as Bank. In its individual capacity, FNBB
shall have the same obligations and the same rights, powers and
privileges in respect to its Commitment and the Loans made by it,
and as the holder of any of the Notes and as the purchaser of any
Letter of Credit Participations, as it would have were it not
also the Agent.
15.9 Resignation. The Agent may resign at any time by
giving sixty (60) days prior written notice thereof to the Banks
and the Borrowers. Upon any such resignation, the Majority Banks
shall have the right to appoint a successor Agent. Unless a
Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable
to the Borrowers. If no successor Agent shall have been so
appointed by the Majority Banks and shall have accepted such
appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a
financial institution having a rating of not less than A or its
equivalent by Standard & Poor's Corporation. 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 hereunder. After any retiring Agent's
resignation, the provisions of this Agreement and the other Loan
Documents shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was
acting as Agent.
16. EXPENSES. Whether or not the transactions
contemplated herein shall be consummated, the Borrowers hereby
promise to reimburse the Agent for all reasonable out-of-pocket
fees and disbursements (including all reasonable attorneys' fees,
collateral evaluation costs and engineering fees), incurred or
expended in connection with the preparation, filing or recording,
or interpretation of this Agreement, the other Loan Documents, or
any amendment, modification, approval, consent or waiver hereof
or thereof. The Borrowers further agree to reimburse the Agent
and the Banks for all such fees and disbursements expended in
connection with the enforcement of any Obligations or the
satisfaction of any indebtedness of the Borrowers hereunder or
thereunder, or in connection with any litigation, proceeding or
dispute hereunder in any way related to the credit hereunder.
The Borrowers will pay any taxes (including any interest and
penalties in respect thereof) other than the Banks' federal and
state income taxes, payable on or with respect to the
transactions contemplated by this Agreement (the Borrowers hereby
agreeing to indemnify the Banks with respect thereto).
17. INDEMNIFICATION. The Borrowers agree to indemnify
and hold harmless the Agent and the Banks, as well as the their
shareholders, directors, agents, officers, subsidiaries and
affiliates, from and against all damages, losses, settlement
payments, obligations, liabilities, claims, suits, penalties,
assessments, citations, directives, demands, judgments, actions
or causes of action, whether statutorily created or under the
common law, and reasonable costs and expenses incurred, suffered,
sustained or required to be paid by an indemnified party by
reason of or resulting from the transactions contemplated hereby,
except any of the foregoing which result from the gross
negligence or willful misconduct of the indemnified party. In
any investigation, proceeding or litigation, or the preparation
therefor, the Agent and the Banks shall each be entitled to
select its own counsel and, in addition to the foregoing
indemnity, the Borrowers agree to pay promptly the reasonable
fees and expenses of such counsel. In the event of the
commencement of any such proceeding or litigation, the Borrowers
shall be entitled to participate in such proceeding or litigation
with counsel of their choice at their expense, provided that such
counsel shall be reasonably satisfactory to the Agent or such
Bank. The covenants of this 17 shall survive payment or
satisfaction of payment of amounts owing with respect to the
Notes or any other Loan Document.
18. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated
herein, all covenants, agreements, representations and warranties
made herein, in the other Loan Documents or in any documents or
other papers delivered by or on behalf of the Borrowers or the
Guarantors pursuant hereto shall be deemed to have been relied
upon by the Agent and the Banks, notwithstanding any
investigation heretofore or hereafter made by any of them, and
shall survive the making by the Banks of the Loans and the
issuance, extension or renewal by the Agent of any Letters of
Credit, as herein contemplated, and shall continue in full force
and effect so long as any amount due under this Agreement, any
Letter of Credit or the Note remains outstanding and unpaid or
the Banks have any obligation to make any Loans or the Agent has
any obligation to issue, extend, or renew any Letters of Credit
hereunder. All statements contained in any certificate or other
paper delivered by or on behalf of the Borrowers pursuant hereto
or in connection with the transactions contemplated hereby shall
constitute representations and warranties by the Borrowers or the
Guarantors hereunder.
19. SYNDICATION AND PARTICIPATION.
(a) It is understood and agreed that each of the Banks
shall have the right to assign at any time all or any
portion of its Commitment Percentage of the Total Commitment
and interests in the risk relating to any Loans in an amount
equal to or greater than $5,000,000, to additional banks or
other financial institutions with the consent of the
Borrowers (such consent not to be unreasonably withheld),
and that each bank or other financial institution which
executes and delivers to the Banks and the Borrowers
hereunder a counterpart joinder in form and substance
satisfactory to the Banks and such bank or financial
institution shall, on the date specified in such counterpart
joinder, become a party to this Agreement and the other Loan
Documents for all purposes of this Agreement and the other
Loan Documents, and its Commitment Percentage shall be as
set forth in such counterpart joinder. Upon the execution
and delivery of such counterpart joinder, (i) the Borrowers
shall issue to the bank or other financial institution a
Note in the amount of such bank's or other financial
institution's Commitment Percentage of the Total Commitment
dated the Closing Date or such other date as may be
specified by the Agent and otherwise completed in
substantially the form of Exhibit A; (ii) this Agreement
shall be appropriately amended to reflect (x) the status of
such bank or financial institution as a party hereto and (y)
the status and rights of the Banks and Agent hereunder; and
(iii) the Borrowers shall take such action as the Agent may
reasonably request to perfect any security interests or
mortgages in favor of the Banks, including any bank or
financial institution which becomes a party to this
Agreement.
(b) Each Bank shall also have the right to assign to,
or may grant participations to, one or more banks or other
financial institutions in or to all or any part of any Loans
owing to such Bank and the Note held by such Bank. The
documents evidencing any such assignment or participation
may provide that, except with the consent of the bank or
financial institution that is a party thereto, such Bank
will not consent to (A) the reduction in or forgiveness of
the stated principal of or rate of interest on or Commitment
Fee with respect to the portion of any Loan subject to such
participation or assignment, (B) the extension or
postponement of any stated date fixed for payment of
principal or interest or Commitment Fee with respect to the
portion of any Loan subject to such participation or
assignment, or (C) the waiver or reduction of any right to
indemnification of such Bank hereunder, or (D) except as
otherwise permitted hereunder, the release of any
Collateral. Notwithstanding the foregoing, no syndication
or participation shall operate to increase the Total
Commitment hereunder or otherwise alter the substantive
terms of this Agreement.
20. PARTIES IN INTEREST. All the terms of this Agreement
and the other Loan Documents shall be binding upon and inure to
the benefit of and be enforceable by the respective successors
and assigns of the parties hereto and thereto; provided, that no
Borrower shall assign or transfer its rights hereunder without
the prior written consent of the Banks.
21. NOTICES, ETC. Except as otherwise expressly provided
in this Agreement, all notices and other communications made or
required to be given pursuant to this Agreement or the other Loan
Documents shall be in writing and shall be delivered in hand,
mailed by United States first-class mail, postage prepaid, or
sent by telegraph, telex or telecopier and confirmed by letter,
addressed as follows:
(a) if to the Borrowers or the Guarantors, at 771
Corporate Drive, Suite 1000, Lexington, Kentucky 40503,
Attention: William R. Nelson, telecopy number (606) 223-4718,
with a copy to Douglas Striebel, Addington Resources,
Inc., 1500 North Big Run Road, Ashland, Kentucky 41102;
(b) if to FNBB or the Agent, at 100 Federal Street,
Boston, Massachusetts 02110, Attention: A.E. Nancy Howard,
Director, telecopy number 617-434-2160;
(c) if to Continental, at 231 South LaSalle Street,
Chicago, Illinois 60697, Attention: Robert P. Rospierski,
telecopy number 312-828-1974;
or such other address for notice as shall have last been
furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly
given or made and to have become effective (a) if delivered by
hand to a responsible officer of the party to which it is
directed, at the time of the receipt thereof by such officer, (b)
if sent by registered or certified first-class mail, postage
prepaid, five Business Days after the posting thereof, and (c) if
sent by telex or cable, at the time of the dispatch thereof, if
in normal business hours in the country of receipt, or otherwise
at the opening of business on the following Business Day.
22. MISCELLANEOUS. The rights and remedies herein
expressed are cumulative and not exclusive of any other rights
which the Banks or the Agent would otherwise have. The captions
in this Agreement are for convenience of reference only and shall
not define or limit the provisions hereof. This Agreement and
any amendment hereof may be executed in several counterparts and
by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this
Agreement it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom
enforcement is sought.
23. ENTIRE AGREEMENT, ETC. The Loan Documents and any
other documents executed in connection herewith or therewith
express the entire understanding of the parties with respect to
the transactions contemplated hereby. Neither this Agreement nor
any term hereof may be changed, waived, discharged or terminated,
except as provided in 24 hereof. No waiver shall extend to or
affect any obligation not expressly waived or impair any right
consequent thereon.
24. Consents, Amendments, Waivers, Etc. Any consent or
approval required or permitted by this Agreement to be given by
all of the Banks may be given, and any term of this Agreement,
the other Loan Documents or any other instrument related hereto
or mentioned herein may be amended, and the performance or
observance by the Borrowers or the Guarantors of any terms of
this Agreement, the other Loan Documents or such other instrument
or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written
consent of the Borrowers and the written consent of the Majority
Banks. Notwithstanding the foregoing, the rate of interest on
the Notes, the term of the Notes, the amount of the Commitments
of the Banks, and the amount of Commitment Fees or Letter of
Credit Fees hereunder may not be changed without the written
consent of the Borrowers and the written consent of each Bank
affected thereby; the definition of Majority Banks may not be
amended without the written consent of all of the Banks; and the
amount of the Agent's Fee or any Letter of Credit Fees payable
for the Agent's account and 15 may not be amended without the
written consent of the Agent. No waiver shall extend to or
affect any obligation not expressly waived or impair any right
consequent thereon. No course of dealing or delay or omission on
the part of the Agent or any Bank in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto.
No notice to or demand upon the Borrowers or the Guarantors shall
entitle the Borrowers or the Guarantors to other or further
notice or demand in similar or other circumstances.
25. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THE
GUARANTORS HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT
TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS
PROHIBITED BY LAW, EACH BORROWER AND EACH GUARANTOR HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION
REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR
IN ADDITION TO, ACTUAL DAMAGES. THE BORROWERS AND THE GUARANTORS
(a) CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE
AGENT OR ANY BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE AGENT OR SUCH BANK WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGE THAT
THE AGENT AND EACH OF THE BANKS HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A
PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS' AND THE
GUARANTORS' WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
26. GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER
LOAN DOCUMENTS ARE CONTRACTS UNDER THE <PAGE>
LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH (EXCLUDING THE
LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AND THE
GUARANTORS CONSENT TO THE JURISDICTION OF ANY OF THE FEDERAL OR
STATE COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS IN CONNECTION
WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE AGENT OR THE BANKS UNDER THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
27. SEVERABILITY. The provisions of this Agreement are
severable and if any one clause or provision hereof shall be held
invalid or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this
Agreement in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement under seal as of the date first set forth above.
THE BORROWERS:
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
COLLECTION SERVICES, INC.
By: /s/ William R. Nelson
Title: President
OHIO COUNTY BALEFILL, INC.
By: /s/ William R. Nelson
Title: President
EPPERSON WASTE DISPOSAL, INC.
By: /s/ William R. Nelson
Title: President
TRI-K LANDFILL, INC.
By: /s/ William R. Nelson
Title: President
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
GREEN VALLEY ENVIRONMENTAL
CORP.
By: /s/ William R. Nelson
Title: President
EAST CAROLINA ENVIRONMENTAL,
INC.
By: /s/ William R. Nelson
Title: President
BROADHURST ENVIRONMENTAL,
INC.
By: /s/ William R. Nelson
Title: President
MID-STATE ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
DOZIT CO., INC.
By: /s/ William R. Nelson
Title: President
MULLIS TREE SERVICE, INC.
By: /s/ William R. Nelson
Title: President
THE GUARANTORS:
ADDINGTON RESOURCES, INC.
By: /s/ William R. Nelson
Title: Vice President
ADDINGTON HOLDING COMPANY,
INC.
By: /s/ William R. Nelson
Title: Vice President
THE BANKS:
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ Ann E. Howard
Title: Director
CONTINENTAL BANK N.A.
By: /s/ Robert P. Rospierski
Title: Vice President
FIRST AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "First Amendment") is made and entered into as of
the 30th day of June, 1994, by and among ADDINGTON ENVIRONMENTAL,
INC., a Kentucky corporation (the "Parent"), GREEN VALLEY
ENVIRONMENTAL CORP. ("Green Valley"), MID-STATE ENVIRONMENTAL, INC.
("MidState"), the Subsidiaries of the Parent listed on Schedule 1
hereto, (the "Subsidiaries", the Parent, Green Valley, Mid-State,
and such Subsidiaries herein collectively referred to as the
"Borrowers"), each of which Borrowers is a Kentucky corporation,
and (unless otherwise listed on Schedule 1 hereto) each of which
Borrowers has its principal place of business at 771 Corporate
Drive, Lexington, Kentucky 40503, ADDINGTON RESOURCES, INC. ("ARI")
and ADDINGTON HOLDING COMPANY, INC., ("AHC"), each of which
companies is a Delaware corporation with its principal place of
business at 1500 North Big Run Road, Ashland, Kentucky 41102
(collectively, the "Guarantors," and, individually, a "Guarantor"),
and THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking
association having its principal place of business at 100 Federal
Street, Boston, Massachusetts 02110, CONTINENTAL BANK, an Illinois
banking corporation (formerly, Continental Bank N.A., a national
banking association, hereinafter "Continental") having its
principal place of business at 231 South LaSalle Street, Chicago,
Illinois 60697 (each a "Bank" and collectively, the "Banks"), and
FNBB as agent for the Banks (the "Agent").
WHEREAS, the Borrowers and FNBB entered into an Amended and
Restated Revolving Credit Agreement dated as of May 31, 1994 (the
"Credit Agreement") pursuant to which the Banks extended credit to
the Borrowers on the terms set forth therein;
WHEREAS, the Banks and the Borrowers have agreed to amend the
Credit Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used herein without
definition have the meanings ascribed to them in the Credit
Agreement.
2. Amendment to 2.4. Subclause (a) of 2.4 is hereby
deleted in its entirety and the following inserted in place
thereof: "(a) monthly in arrears on the first Business Day of each
calendar month for the immediately preceding month, on all Base
Rate Loans".
3. Amendment 3.1(a). Section 3.1(a) of the Credit
Agreement is hereby amended by inserting the phrase, ", provided
that the Wayne County Letter of Credit shall have an expiration
date not later than the Maturity Date" immediately following the
phrase, "Maturity Date" in subsection (ii) thereof.
4. Ratification, etc.
Except as expressly amended hereby, the Credit Agreement, the
other Loan Documents and all documents, instruments and agreements
related thereto are hereby ratified and confirmed in all respects
and shall continue in full force and effect. This First Amendment
and the Credit Agreement shall hereafter be read and construed
together as a single document, and all references in the Credit
Agreement or any related agreement or instrument to the Credit
Agreement shall hereafter refer to the Credit Agreement as amended
by this First Amendment.
5. GOVERNING LAW.
THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH
LAWS.
6. Counterparts. This First Amendment may be executed in
any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed and delivered
shall be an original, but all of which counterparts taken together
shall be deemed to constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Banks.
7. Effectiveness. This First Amendment shall become
effective upon its execution and delivery by the respective parties
hereto.
8. Entire Agreement. THIS WRITTEN LOAN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement under seal as of the date first set forth above.
THE BORROWERS:
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
COLLECTION SERVICES, INC.
By: /s/ William R. Nelson
Title: President
OHIO COUNTY BALEFILL, INC.
By: /s/ William R. Nelson
Title: President
EPPERSON WASTE DISPOSAL, INC.
By: /s/ William R. Nelson
Title: President
TRI-K LANDFILL, INC.
By: /s/ William R. Nelson
Title: President
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
GREEN VALLEY ENVIRONMENTAL CORP.
By: /s/ William R. Nelson
Title: President
EAST CAROLINA ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
BROADHURST ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
MID-STATE ENVIRONMENTAL, INC.
By: /s/ William R. Nelson
Title: President
DOZIT CO., INC.
By: /s/ William R. Nelson
Title: President
MULLIS TREE SERVICE INC.
By: /s/ William R. Nelson
Title: President
THE GUARANTORS:
ADDINGTON RESOURCES, INC.
By: /s/ William R. Nelson
Title: Vice President
ADDINGTON HOLDING COMPANY, INC.
By: /s/ William R. Nelson
Title: Vice President
THE BANKS:
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By: /s/ Ann E. Howard
Title: Director
CONTINENTAL BANK
By: /s/ Paul Frye
Title: Senior Vice President
396\sddingto\asc\1stamda.rev
SH032795956
SECOND AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Second Amendment") is made and entered
into as of the 12th day of October, 1994, by and among ADDINGTON
ENVIRONMENTAL, INC., a Kentucky corporation (the "Parent"),
GREEN VALLEY ENVIRONMENTAL CORP. ("Green Valley"), MID-STATE
ENVIRONMENTAL, INC. ("Mid-State"), the Subsidiaries of the
Parent listed on Schedule 1 hereto, (the "Subsidiaries", the
Parent, Green Valley, Mid-State, and such Subsidiaries herein
collectively referred to as the "Borrowers"), each of which
Borrowers is a Kentucky corporation, and (unless otherwise
listed on Schedule 1 hereto) each of which Borrowers has its
principal place of business at 771 Corporate Drive, Lexington,
Kentucky 40503, ADDINGTON RESOURCES, INC. ("ARI") and ADDINGTON
HOLDING COMPANY, INC., ("AHC"), each of which companies is a
Delaware corporation with its principal place of business at
1500 North Big Run Road, Ashland, Kentucky 41102 (collectively,
the "Guarantors," and, individually, a "Guarantor"), THE FIRST
NATIONAL BANK OF BOSTON ("FNBB"), a national banking association
having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110, BANK OF AMERICA ILLINOIS (formerly
Continental Bank and Continental Bank N.A.), having its
principal place of business at 231 South LaSalle Street,
Chicago, Illinois 60697 (each a "Bank" and collectively, the
"Banks"), and FNBB as agent for the Banks (the "Agent").
WHEREAS, the Borrowers and FNBB entered into an Amended and
Restated Revolving Credit Agreement dated as of May 31, 1994 as
amended June 30, 1994, (the "Credit Agreement") pursuant to
which the Banks extended credit to the Borrowers on the terms
set forth therein;
WHEREAS, the Banks and the Borrowers have agreed to amend
the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used herein without
definition have the meanings ascribed to them in the Credit
Agreement.
2. Amendment to 3.1. The amount $10,000,000 appearing
in the fifteenth line of Subclause (a) of 3.1 is hereby amended
to $15,000,000.
3. Ratification, etc.
Except as expressly amended hereby, the Credit Agreement,
the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in
all respects and shall continue in full force and effect. This
Second Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all
references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended by this Second Amendment.
4. GOVERNING LAW.
THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH
SUCH LAWS.
5. Counterparts. This Second Amendment may be executed in
any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed and
delivered shall be an original, but all of which counterparts
taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with
the Banks.
6. Effectiveness. This Second Amendment shall become
effective upon its execution and delivery by the respective
parties hereto.
7. Entire Agreement. This THE CREDIT loan agreement AS
AMENDED represents the final agreement between the parties and
may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement under seal as of the date second set forth above.
THE BORROWERS:
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
COLLECTION SERVICES, INC.
By: /s/ Stephen Addington
Title: Vice President
OHIO COUNTY BALEFILL, INC.
By: /s/ Stephen Addington
Title: Vice President
EPPERSON WASTE DISPOSAL, INC.
By: /s/ Stephen Addington
Title: Vice President
TRI-K LANDFILL, INC.
By: /s/ Stephen Addington
Title: Vice President
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
GREEN VALLEY ENVIRONMENTAL
CORP.
By: /s/ Stephen Addington
Title: Vice President
EAST CAROLINA ENVIRONMENTAL,
INC.
By: /s/ Stephen Addington
Title: Vice President
BROADHURST ENVIRONMENTAL,
INC.
By: /s/ Stephen Addington
Title: Vice President
MID-STATE ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
DOZIT CO., INC.
By: /s/ Stephen Addington
Title: Vice President
MULLIS TREE SERVICE, INC.
By: /s/ Stephen Addington
Title: Vice President
THE GUARANTORS:
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
Title:
ADDINGTON HOLDING COMPANY,
INC.
By: /s/ R. Douglas Striebel
Title:
THE BANKS:
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ Arthur Oberheim
Title: Vice President
BANK OF AMERICA ILLINOIS
(formerly Continental Bank and
Continental Bank N.A.)
By: /s/ Robert P. Rospierski
Title: Vice President
THIRD AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT ("Third Amendment") is made and entered into as
of the 21st day of February, 1995, by and among ADDINGTON
ENVIRONMENTAL, INC., a Kentucky corporation (the "Parent"),
GREEN VALLEY ENVIRONMENTAL CORP. ("Green Valley"), MID-STATE
ENVIRONMENTAL, INC. ("Mid-State"), the Subsidiaries of the
Parent listed on Schedule 1 hereto (the "Subsidiaries", the
Parent, Green Valley, Mid-State, and such Subsidiaries herein
collectively referred to as the "Borrowers"), each of which
Borrowers is a Kentucky corporation, and (unless otherwise
listed on Schedule 1 hereto) each of which Borrowers has its
principal place of business at 771 Corporate Drive, Lexington,
Kentucky 40503, ADDINGTON RESOURCES, INC. ("ARI") and ADDINGTON
HOLDING COMPANY, INC., ("AHC"), each of which companies is a
Delaware corporation with its principal place of business at
1500 North Big Run Road, Ashland, Kentucky 41102 (collectively,
the "Guarantors," and, individually, a "Guarantor"), THE FIRST
NATIONAL BANK OF BOSTON ("FNBB"), a national banking association
having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110, BANK OF AMERICA ILLINOIS ("BAI")
(formerly Continental Bank and Continental Bank N.A.), having
its principal place of business at 231 South LaSalle Street,
Chicago, Illinois 60697 (each a "Bank" and collectively, the
"Banks"), and FNBB as agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Guarantors, the Banks and the
Agent entered into an Amended and Restated Revolving Credit
Agreement dated as of May 31, 1994 as amended June 30, 1994 and
October 12, 1994 (the "Credit Agreement"), pursuant to which the
Banks extended credit to the Borrowers on the terms set forth
therein;
WHEREAS, the Banks, the Borrowers and the Guarantors have
agreed to amend the Credit Agreement as hereinafter set forth
which shall include, but in no way be limited to, increasing the
maximum aggregate amount available under the facility from
$40,000,000 to $50,000,000;
NOW, THEREFORE, for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used herein without
definition have the meanings ascribed to them in the Credit
Agreement.
2. Amendments to 1.1. The following amendments are made
to 1.1:
(a) The percentages appearing in the definition of
"Commitment Percentage" are amended as follows:
"Bank Percentage
FNBB 60%
Bank of America Illinois 40%;
(b) The following definition of "Alternate L/C Fee" is
added to 1.1:
"Alternate L/C Fee. The applicable Letter of Credit Fee
set forth in the following table:
<TABLE>
<CAPTION>
Alternate L/C Fee
for letters of credit
backing landfill Alternate L/C Fee
closure funds and for all other
Pricing Ratio performance bonds letters of credit
<S> <C> <C>
less than 1.5:1 1.0% per annum 2.0% per annum
greater than or 1.25% per annum 2.5% per annum
equal to 1.5:1
but less than
2:1
greater than or 1.375% per annum 2.75% per annum
equal to 2:1
but less than
3:1
greater than or 1.5% per annum 3.0% per annum
equal to 3:1
</TABLE>
Any change in or to the Alternate L/C Fee shall be reflected in
the next quarterly invoice for Letter of Credit Fees issued by
the Agent after receipt by the Banks of financial statements
delivered pursuant to 6.4(a) or (b) hereof which indicate a
change both in the Pricing Ratio and in the Alternate L/C Fee in
accordance with the above table, and the Alternate L/C Fee
payable shall be the Alternate L/C Fee in effect on the date of
issuance of such invoices.
(c) The following definition of "Alternate Rate" is added
to 1.1:
"Alternate Rate. The applicable rate per annum of interest
on the Loans set forth in the following table:
<TABLE>
<CAPTION>
Alternate Rate for Alternate Rate for
Pricing Ratio Base Rate Loans Eurodollar Loans
<S> <C> <C>
less than 1.5:1 Base Rate Eurodollar Rate plus
2.0%
greater than or Base Rate plus Eurodollar Rate
equal to 1.5:1 0.50% plus 2.5%
but less than
2:1
greater than or Base Rate plus Eurodollar Rate
equal to 2:1 0.75% plus 2.75%
but less than
or equal to 3:1
greater than Base Rate plus Eurodollar Rate
3:1 1.0% plus 3.0%
</TABLE>
Any change in the Alternate Rate shall become effective (a) with
respect to Base Rate Loans, on the first day after receipt by
the Banks of financial statements delivered pursuant to 6.4(a)
or (b) hereof which indicate a change both in the Pricing Ratio
and in the Alternate Rate in accordance with the above table,
and (b) with respect to Eurodollar Loans, on the first day of
each Interest Period which begins after receipt by the Banks of
such financial statements.";
(d) The following definition of "Applicable L/C Fee" is
added to 1.1:
"Applicable L/C Fee. The applicable Letter of Credit Fee
set forth in the following table:
<TABLE>
<CAPTION>
Applicable L/C Fee
for letters of credit
backing landfill Applicable L/C Fee
closure funds and for all other letters
Pricing Ratio performance bonds of credit
<S> <C> <C>
less than 1.5:1 1.0% per annum 1.75% per annum
greater than or 1.125% per annum 2.25% per annum
equal to 1.5:1
but less than
2:1
greater than or 1.25% per annum 2.5% per annum
equal to 2.2:1
but less than
or equal to 3:1
greater than 1.375% per annum 2.75% per annum
3:1
</TABLE>
Any change in the Applicable L/C Fee shall be reflected in the
next quarterly invoice for Letter of Credit Fees issued by the
Agent after receipt by the Banks of financial statements
delivered pursuant to 6.4(a) or (b) hereof which indicate a
change in the Pricing Ratio and in the Applicable L/C Fee in
accordance with the above table, and the Applicable L/C Fee
payable shall be the Applicable L/C Fee in effect on the date
of issuance of such invoice.";
(e) The table appearing in the definition of "Applicable
Rate" is deleted and the following table is substituted in its
place:
<TABLE>
<CAPTION>
Applicable Rate Applicable Rate
for Base Rate for Eurodollar
Pricing Ratio Loans Loans
<S> <C> <C>
less than 1.5:1 Base Rate Eurodollar Rate
pus 1.75%
greater than or Base Rate plus Eurodollar Rate
equal to 1.5:1 0.25% plus 2.25%
but less than
or equal to 2:1
greater than Base Rate plus Eurodollar Rate
2:1 but less 0.50% plus 2.50%
than 3:1
greater than or Base Rate plus Eurodollar plus
equal to 3:1 0.75% 2.75%
</TABLE>
; and
(f) The definition of "Consolidated Net Income" is deleted
and the following new definition is substituted in its place:
"Consolidated Net Income (or Deficit). The Consolidated
Net Income (or deficit) of the Borrowers, after deduction
of all expenses, taxes, and other proper charges,
determined in accordance with GAAP, but excluding
$2,000,000 in expenses incurred in the quarter ending
September 30, 1994."
3. Amendment to 2.1. The amount "$40,000,000" appearing in
the eighth line of subclause (a) of 2.1 is hereby amended to
"$50,000,000."
4. Amendment to 2.4. The first sentence 2.4 of the Credit
Agreement is deleted and the following new sentence is substituted
in its place:
"The outstanding principal amount of the Loans shall bear
interest at the rate per annum equal to the Applicable
Rate provided that the outstanding principal amount of
the Loans shall bear interest at the Alternate Rate from
the date hereof until such time as either (a) EBITDA,
measured for four consecutive quarters, exceeds
$11,000,000 or (b) the Borrowers have hired a new
President (the "Rate Change Event"). Interest shall be
payable (a) monthly in arrears on the first Business Day
of each calendar month for the immediately preceding
month, on all Base Rate Loans, (b) on the last day of the
applicable Interest Period, and if such Interest Period
is longer than three months, also three months following
the commencement of such Interest Period on all
Eurodollar Loans, and (c) on the Maturity Date for all
Loans."
5. Amendment to 3.1. The amount "$15,000,000" appearing in
the fifteenth line of subclause (a) of 3.1 is hereby amended to
"$20,000,000."
6. Amendment to 4.1. The first sentence of 4.1(b) is
deleted and the following sentence is substituted in its place:
"The Borrowers shall pay a fee (the "Letter of
Credit Fee") to the Agent equal to the Applicable
L/C Fee provided that the Letter of Credit Fee shall
be equal to the Alternate L/C Fee until the Rate
Change Event; provided however, that the fee for the
Wayne County Letter of Credit shall in either case
be equal to one and one-half percent (1 1/2%) per
annum on the Maximum Drawing Amount thereof."
7. Amendment to 8.1. 8.1 of the Credit Agreement is
deleted and the following new 8.1 is substituted in its
place:
"8.1 Current Ratio. The ratio of Consolidated
Current Assets to Consolidated Current Liabilities
shall not at any time be less than 1.25:1."
8. Amendment to 8.3. 8.3 of the Credit Agreement is
deleted and the following new 8.3 is substituted in its
place:
"8.3 Interest Coverage Ratios.
(a) As of the end of any quarter commencing
with the fiscal quarter ending December 31,
1994, the ratio of EBIT for the four quarters
ending on that date to Consolidated Total
Interest Expense as at the end of such period
shall not be less than 2.75:1.
(b) As at the end of any fiscal quarter
commencing with the fiscal quarter ending
December 31, 1994 the ratio of Proforma EBIT to
Proforma Interest Expense shall not be less than
the stated ratio for the respective periods set
forth below:
Fiscal Quarter Ending Ratio
12/31/94 through 12/31/96 2:1
Thereafter 2.25:1"
9. Amendment to 8.4. 8.4 of the Credit Agreement is
deleted and the following new 8.4 is substituted in its
place:
"8.4 Fixed Charge Coverage Ratios.
(a) As of the end of any fiscal quarter
commencing with the fiscal quarter ending
December 31, 1994, the ratio of (i) EBITDA to
(ii) Consolidated Total Interest Expense plus
the current maturities of long term debt shall
not be less than 3.5:1.
(b) As of the end of any fiscal quarter
commencing with the fiscal quarter ending
December 31, 1994, the ratio of (i) Proforma
EBITDA to (ii) Proforma Interest Expense plus
the current portion or maturities of long term
debt shall not be less than the stated ratio for
the respective periods set forth below:
Fiscal Quarter Ending Ratio
12/31/94 through 12/31/96 2:1
Thereafter 2.25:1."
10. Amendment to 7.1. Subsection (g) is deleted from
7.1."
11. Amendment to 12.1. 12.1 of the Credit Agreement is
amended by deleting the text appearing after (o) and inserting
the following text in its place:
"then, and in any such event, so long as the same
may be continuing, the Agent may, and upon the
request of the Majority Banks, shall, by notice in
writing to the Borrowers and the Guarantor, declare
all amounts owing with respect to this Agreement, the
Notes and the other Loan Documents and all
Reimbursement Obligations to be, and they shall
thereupon forthwith become, immediately due and
payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly
waived by the Borrowers and the Guarantors; provided
that in the event of any Event of Default specified
in 12(g) or 12(h), all such amounts shall become
immediately due and payable automatically and without
any requirement of notice from the Agent or any Bank.
Upon demand by the Majority Banks after the
occurrence of any Event of Default, the Borrowers
shall immediately provide to the Agent cash in an
amount equal to the aggregate Maximum Drawing Amount
of all Letters of Credit outstanding, to be held by
the Agent as collateral security for the
Obligations."
12. Ratification, etc.
Except as expressly amended hereby, the Credit Agreement,
the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in
all respects and shall continue in full force and effect. This
Third Amendment and the Credit Agreement shall hereafter be read
and construed together as a single document, and all references
in the Credit Agreement or any related agreement or instrument
to the Credit Agreement shall hereafter refer to the Credit
Agreement as amended by this Third Amendment.
13. GOVERNING LAW.
THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH
LAWS.
14. Counterparts. This Third Amendment may be executed in
any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed and
delivered shall be an original, but all of which counterparts
taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with
the Banks.
15. Effectiveness. This Third Amendment shall
become effective upon the satisfaction of each of the
following conditions:
(a) This Third Amendment shall have been
executed and delivered by the respective parties hereto;
(b) The Borrowers shall have executed and
delivered to the Banks amended Notes reflecting the
increase in the Total Commitment;
(c) The Borrowers shall have executed and
recorded a mortgage on the Dozit landfill;
(d) The Borrowers shall have delivered to the
Agent certified copies of corporate resolutions
satisfactory to the Agent authorizing this Third
Amendment, the Notes and all related documents;
(e) The Borrowers shall have delivered to the
Agent legal opinion letters satisfactory to the Agent as
to the due organization, legal existence and authority of
the Borrowers to execute the Loan Documents and the due
execution, delivery, validity and binding effect of the
Loan Documents; and
(f) The Borrowers shall have executed and
delivered to the Agent the Post Closing Side Letter with
respect to, among other things (a) the furnishing of UCC
Lien Reports, (b) the delivery of the Pinellas
Environmental, Inc. stock certificates in accordance with
the Security and Pledge Agreement, and (c) the execution
and delivery of the Mid-State mortgage upon the exercise
of the Mid-State purchase option and a mortgagee's policy
of title insurance; and
(g) The Borrower shall have paid a set up fee in an
amount equal to one half of one percent (0.5%) of the
increase in the Maximum Drawing Amount referenced in 2.1
of the Credit Agreement which shall constitute a set up
fee for this Third Amendment equal to $50,000, which fee
shall be shared by the Banks on a pro rata basis according
to each respective Bank's percentage of the increase in
the Maximum Drawing Amount which, for this Third
Amendment, shall equal fifty percent (50%) to FNBB and
fifty percent (50%) to BAI.
16. Entire Agreement. THE CREDIT AGREEMENT AS AMENDED
represents the final agreement between the parties and may not
be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the undersigned have duly executed
this Third Amendment under seal as of the date set forth
above.
THE BORROWERS:
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
COLLECTION SERVICES, INC.
By: /s/ Stephen Addington
Title: Vice President
OHIO COUNTY BALEFILL, INC.
By: /s/ Stephen Addington
Title: Vice President
EPPERSON WASTE DISPOSAL, INC.
By: /s/ Stephen Addington
Title: Vice President
TRI-K LANDFILL, INC.
By: /s/ Stephen Addington
Title: Vice President
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
GREEN VALLEY ENVIRONMENTAL
CORP.
By: /s/ Stephen Addington
Title: Vice President
EAST CAROLINA ENVIRONMENTAL,
INC.
By: /s/ Stephen Addington
Title: Vice President
BROADHURST ENVIRONMENTAL,
INC.
By: /s/ Stephen Addington
Title: Vice President
MID-STATE ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
DOZIT CO., INC.
By: /s/ Stephen Addington
Title: Vice President
MULLIS TREE SERVICE, INC.
By: /s/ Stephen Addington
Title: Vice President
PINELLAS ENVIRONMENTAL, INC.
By: /s/ Stephen Addington
Title: Vice President
THE GUARANTORS:
ADDINGTON RESOURCES, INC.
By: /s/ R. Doublas Streibel
Title: Vice President, CFC
ADDINGTON HOLDING COMPANY,
INC.
By: /s/ R. Douglas Streibel
Title: Secretary/Treasurer
THE BANKS:
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ Arthur Oberheim
Title: Vice President
BANK OF AMERICA ILLINOIS
(formerly Continental Bank and
Continental Bank N.A.)
By: /s/ Robert P. Rospierski
Title: Vice President
396\addingto\asc\exhibi10.k
<PAGE>
CREDIT AGREEMENT
Between
ADDWEST MINERALS, INC.
as Borrower
and
N M ROTHSCHILD & SONS LIMITED
as Lender
Dated as of June 14, 1994
CREDIT AGREEMENT
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
ARTICLE 1 - CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES; . . 1
1.1 Certain Defined Terms. . . . . . . . . . . . . . . 1
1.2 Accounting Principles. . . . . . . . . . . . . . . 14
ARTICLE 2 - COMMITMENT, FEES, USE OF PROCEEDS. . . . . . . . . 14
2.1 Commitment . . . . . . . . . . . . . . . . . . . . 14
2.2 Fees . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Use of Proceeds. . . . . . . . . . . . . . . . . . 15
ARTICLE 3 - PROCEDURE AND PAYMENT. . . . . . . . . . . . . . . 15
3.1 Borrowing Procedure. . . . . . . . . . . . . . . . 15
3.2 Note . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Loan Conversion Election . . . . . . . . . . . . . 16
3.4 Principal and Interest Payments Generally. . . . . 16
3.5 Interest . . . . . . . . . . . . . . . . . . . . . 17
3.6 Repayment of the Loans . . . . . . . . . . . . . . 18
3.7 Voluntary Prepayments. . . . . . . . . . . . . . . 18
3.8 Mandatory Prepayments. . . . . . . . . . . . . . . 18
3.9 Priority of Prepayments. . . . . . . . . . . . . . 18
3.10 Application of Prepayments; Premiums and
Penalties. . . . . . . . . . . . . . . . . . . . 19
3.11 Risk of Loss . . . . . . . . . . . . . . . . . . . 19
3.12 Inability to Continue to Provide Gold;
Mandatory Switching. . . . . . . . . . . . . . . 19
3.13 Increased Costs and Reduction in Return. . . . . . 19
3.14 Payments and Computations. . . . . . . . . . . . . 19
3.15 Payment on Non-Business Days . . . . . . . . . . . 20
3.16 Taxes. . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 4 - HEDGING FACILITY; LENDER ROYALTY . . . . . . . . . 21
4.1 Establishment of Hedging Facility. . . . . . . . . 21
4.2 Lender's Royalty . . . . . . . . . . . . . . . . . 21
ARTICLE 5 - COLLATERAL SECURITY. . . . . . . . . . . . . . . . 22
5.1 Security Documents . . . . . . . . . . . . . . . . 22
5.2 No Limitation on Application of Security
Interests. . . . . . . . . . . . . . . . . . . . 22
5.3 Recordings and Filings of Security Documents. . . 22
5.4 Protection of Security Document Liens. . . . . . . 22
5.5 Right of Set-off . . . . . . . . . . . . . . . . . 23
5.6 Proceeds Account . . . . . . . . . . . . . . . . . 23
5.7 Additional Collateral. . . . . . . . . . . . . . . 23
ARTICLE 6 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 24
6.1 Conditions Precedent to Initial Advance. . . . . . 24
6.2 Conditions Precedent to All Advances . . . . . . . 25
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 26
7.1 Representations and Warranties of Borrower . . . . 26
ARTICLE 8 - AFFIRMATIVE COVENANTS OF BORROWER. . . . . . . . . 33
8.1 Compliance with Laws, Etc. . . . . . . . . . . . . 33
8.2 Reporting Requirements . . . . . . . . . . . . . . 33
8.3 Inspection . . . . . . . . . . . . . . . . . . . . 35
8.4 Maintenance of Insurance . . . . . . . . . . . . . 36
8.5 Maintenance of Equipment, Etc. . . . . . . . . . . 36
8.6 Keeping of Records and Books of Account. . . . . . 36
8.7 Preservation of Corporate Existence, Etc . . . . . 36
8.8 Conduct of Business. . . . . . . . . . . . . . . . 36
8.9 Notice of Default. . . . . . . . . . . . . . . . . 36
8.10 Defense of Title . . . . . . . . . . . . . . . . . 37
8.11 Operation of the Project . . . . . . . . . . . . . 37
8.12 Hedging Requirements . . . . . . . . . . . . . . . 37
8.13 Maintenance of the Property. . . . . . . . . . . . 37
8.14 Key Personnel. . . . . . . . . . . . . . . . . . . 37
ARTICLE 9 - NEGATIVE COVENANTS OF BORROWER . . . . . . . . . . 37
9.1 Indebtedness . . . . . . . . . . . . . . . . . . . 38
9.2 Liens, Etc . . . . . . . . . . . . . . . . . . . . 38
9.3 Assumptions, Guarantees, Etc. of Indebtedness
of Other Persons . . . . . . . . . . . . . . . . 39
9.4 Investments in Other Persons . . . . . . . . . . . 39
9.5 Mergers, Etc . . . . . . . . . . . . . . . . . . . 39
9.6 Financial Covenants. . . . . . . . . . . . . . . . 39
9.7 Project Reserves . . . . . . . . . . . . . . . . . 39
9.8 Minimum Reserves . . . . . . . . . . . . . . . . . 40
9.9 Debt Service Coverage. . . . . . . . . . . . . . . 40
9.10 Restriction on Dividends and Redemptions . . . . . 40
9.11 Limitations on Price Fixing Commitments. . . . . . 40
9.12 Sale of Project Assets . . . . . . . . . . . . . . 40
9.13 Restrictions on Capital Expenditures, Etc. . . . . 40
9.14 Take or Pay Contracts. . . . . . . . . . . . . . . 40
9.15 Restrictive and Inconsistent Agreements. . . . . . 41
9.16 Limitations on Payment of Certain Indebtedness . . 41
ARTICLE 10 - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 41
10.1 Event of Default . . . . . . . . . . . . . . . . . 41
10.2 Remedies Upon Event of Default.. . . . . . . . . . 43
ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . 44
11.1 Termination of Completion Guarantee. . . . . . . . 44
11.2 Independent Consultant Monitoring of Financial
Covenants. . . . . . . . . . . . . . . . . . . . 44
11.3 Amendments, Etc. . . . . . . . . . . . . . . . . . 44
11.4 Notices, Etc . . . . . . . . . . . . . . . . . . . 44
11.5 No Waiver; Remedies. . . . . . . . . . . . . . . . 45
11.6 Costs, Expenses and Taxes. . . . . . . . . . . . . 45
11.7 Binding Effect; Assignment . . . . . . . . . . . . 46
11.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . 46
11.9 Submission to Jurisdiction . . . . . . . . . . . . 46
11.10 Waiver of Jury Trial . . . . . . . . . . . . . . . 47
11.11 Execution in Counterparts. . . . . . . . . . . . . 47
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 1.1 (a) Material Agreements
Schedule 1.1 (b) Completion Test
Schedule 1.1 (c) Existing Bank Indebtedness
Schedule 3.6 (b) Scheduled Principal Payments
Schedule 7.1 (a) Subsidiaries
Schedule 7.1 (e) Litigation
Schedule 7.1 (h) Disclosure Schedule
Schedule 7.1 (i) Employee Plans
Schedule 7.1 (j) Existing Liens
Schedule 7.1 (n) Borrower's Capital Structure
Schedule 7.1 (s) Environmental Disclosures
Schedule 7.1 (t) Borrower's Indebtedness
Schedule 8.4 Insurance
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Note
Exhibit B Form of Request for Loan
Exhibit C Form of Mortgage
Exhibit D Form of Hedging Agreement
Exhibit E Form of Completion Guarantee
Exhibit F Development Plan
Exhibit G-1 Form of Borrower's Omnibus Certificate
Exhibit G-2 Form of Guarantor's Omnibus Certificate
Exhibit H-1 Form of Opinion of Borrower's Counsel
Exhibit H-2 Form of Opinion of Guarantor's Counsel
Exhibit H-3 Form of Security Opinion
Exhibit I Form of Security Agreement
Exhibit J Form of Conversion/Interest Period Notice
Exhibit K Form of Royalty Conveyance
Exhibit L Form of Bank Account Agreement
</TABLE>
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of June 14, 1994, is by
and between ADDWEST MINERALS, INC., a corporation organized and
existing under the laws of Kentucky ("Borrower"), and N M
ROTHSCHILD & SONS LIMITED, a company organized and existing under
the laws of England ("Lender").
Recitals
A. By this Credit Agreement the parties hereto desire
to set forth the terms of their agreement pursuant to which Lender
will make available to Borrower certain loans in gold or in United
States Dollars, to be used by Borrower for purposes of developing
and operating certain gold properties in Mohave County, Arizona.
B. The loans provided for herein will be guaranteed by
Addington Resources, Inc., of which Borrower is a wholly owned
subsidiary, until such gold properties meet certain operating
standards as provided herein, and will be secured by first and
prior liens in favor of Lender on the real and personal property
comprising such gold properties and production therefrom.
Agreement
NOW, THEREFORE, in consideration of the following mutual
covenants and agreements, Borrower and Lender hereby agree as
follows:
ARTICLE 1
CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES;
1.1 Certain Defined Terms. As used in this Agreement
and unless otherwise expressly indicated, the following terms shall
have the following meanings:
"Acceptable Delivery Location" means the offices of
Lender in London, England; Johnson Matthey Refining, Inc., Salt
Lake City, Utah; Metalor USA Refining Corp., North Attleboro,
Massachusetts; or any other location as mutually agreed by Borrower
and Lender.
"Advance" means an advance of a Loan, in Gold or Dollars
as the case may be, by Lender to Borrower as provided in Section
2.1.
"Advance Period" means the period during which Lender
will make Advances of Loans to Borrower, subject to all of the
terms and conditions hereof, which period shall commence on the
date hereof and shall continue until the first to occur of (a) the
Completion Date and (b) the Maturity Date.
"Affiliate" means any Person directly or indirectly
controlling or controlled by or under common control with Borrower,
provided that, for purposes of this definition, "control," as used
with respect to any Person, shall mean 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.
"Agreement" means this Credit Agreement, as it may be
amended, supplemented, or otherwise modified and in effect from
time to time.
"Applicable Margin" means, with respect to the rate of
interest payable by Borrower on Loans, (a) through the Completion
Date, one and one half percent (1 1/2%), and (b) after the
Completion Date, two and one half percent (2 1/2%).
"Bank Account Agreement" means an agreement among
Borrower, a bank and Lender, substantially in the form of Exhibit
L, pertaining to the Proceeds Account and, at Lender's election, to
any other bank accounts maintained by Borrower.
"Borrower's Expenditure" means the expenditure by
Borrower of not less than $2,000,000 of its funds which do not
constitute Indebtedness, in a prudent and reasonable manner, on or
for the benefit of the Property in carrying out Project activities
contemplated by the Development Plan.
"Borrower's Financial Forecast" shall have the meaning
specified in Section 8.2(c).
"Breakage Costs" means all costs and losses which Lender
may incur as a result of payment of the Principal Amount of any
Loan other than at the end of an Interest Period, Lender's good
faith computation of such costs and losses to be conclusive and
binding in the absence of error, and the amount thereof to be paid
in same day funds upon demand by Lender.
"Business Day" means a day of the year (i) on which banks
in Denver, Colorado and London, England are open for business and
(ii) on which a London Gold Fixing occurs.
"Capitalized Lease Liabilities" means all monetary
obligations of Borrower under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan
Document, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or
any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of
a penalty.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, reformed or
otherwise modified from time to time.
"CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List, as amended,
reformed or otherwise modified from time to time.
"Collateral" means all properties, rights and interests
subject to the Security Documents.
"Commitment" of Lender has the meaning set forth in
Section 2.1.
"Commitment Fee" shall have the meaning specified in
Section 2.2(b).
"Completion" means (a) completion of construction of the
improvements contemplated by the Development Plan; (b) satisfaction
by Borrower of the Completion Test within the time frame specified
in the Development Plan; (c) receipt by Lender of a certificate
from Borrower and the Independent Consultant confirming
satisfaction by Borrower of (a) and (b); and (d) compliance by
Borrower with the requirements of Section 5.6 concerning the
Proceeds Account.
"Completion Date" means the date on which Completion
occurs.
"Completion Guarantee" means the Guarantee of the
Guarantor in the form of Exhibit E hereto.
"Completion Test" means a series of testing procedures
and performance standards established by the Independent Consultant
and approved by Lender concerning the Project, as more particularly
provided in Schedule 1.1(b) hereto.
"Contingent Liability" means any agreement, undertaking
or arrangement by which any Person guarantees, endorses or
otherwise becomes or is contingently liable upon (by direct or
indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to, or otherwise to invest in, a debtor,
or otherwise to assure a creditor against loss) the indebtedness,
obligation of any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the
shares of any other Person. The amount of any Person's obligation
under any Contingent Liability shall (subject to any limitation set
forth therein ) be deemed to be the outstanding principal amount
(or maximum principal amount, if larger) of the debt, obligation or
other liability guaranteed thereby.
"Conversion/Interest Period Notice" means a notice from
Borrower to Lender concerning a conversion of all Gold Loans to
Dollar Loans, or a conversion of all Dollar Loans to Gold Loans, or
a notice regarding Borrower's election concerning an Interest
Period for a Loan to take effect on the completion of a current
Interest Period, substantially in the form of Exhibit I hereto.
"Date of Default" shall have the meaning specified in
Section 10.2(a).
"Debt Service" shall have the meaning specified in
Section 9.9.
"Default" means any Event of Default or any condition or
event which, after notice or lapse of time or both, would
constitute an Event of Default.
"Default Rate" means the Interest Rate applicable to the
Loans during periods when amounts payable by Borrower as principal
repayments, interest payments or fee or expense payments are due
and payable but unpaid by Borrower, which shall be an annual rate
of interest which is equal to the Dollar Loan Interest Rate or Gold
Loan Interest Rate (whichever is applicable to the Loans), plus
four percent (4%).
"Development Plan" means the construction and development
plans and the projections of mining rates, expenses and other
matters for the Project which is appended hereto as Exhibit F,
together with such modifications thereof after the Effective Date
as may be approved by Lender.
"Discount Rate" means 5% per annum.
"Dollar Loan" means an Advance of Dollars by Lender to
Borrower pursuant to Section 2.1.
"Dollar Loan Interest Rate" means with respect to an
Interest Period pertaining to a Dollar Loan, an interest rate per
annum equal to the sum of (y) the LIBOR Rate in effect on the first
day of the Interest Period, plus (z) the Applicable Margin.
"Dollar Value," when used with reference to the value of
any Gold, shall mean, as of any date of determination, the value,
expressed in Dollars, of such Gold determined at the London Price
on such date or another price basis if agreed in writing by
Borrower and Lender.
"Dollars" and the sign "$" each mean lawful money of the
United States of America.
"Effective Date" means July __, 1994.
"Environmental Laws" means federal, state, local and
foreign laws or regulations, codes, orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder
relating to pollution or protection of the environment, including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"Event of Default" has the meaning set forth in Section
10.1.
"Existing Bank Indebtedness" means all existing
Indebtedness of Borrower for borrowed funds (other than
Indebtedness to Guarantor), which Existing Bank Indebtedness is
identified in Schedule 1.1(c).
"Expenditure Forecast" means a monthly forecast of
Project expenditures, in form reasonably acceptable to Lender,
submitted by Borrower to Lender monthly in accordance with Section
8.2(1).
"Financial Forecast" has the meaning specified in Section
8.2(c).
"Funded Indebtedness" means at any date:
(a) the Principal Amount of the Loans at such date;
and
(b) all other Indebtedness of Borrower included
within clauses (a) , (b) , and (c) , of the definition of the term
"Indebtedness" outstanding at such date.
"Future Net Gold Flow" means for any period:
(a) Borrower's net share of the total estimated
ounces of Gold to be produced from the Project pursuant to the
Development Plan during such period as specified in the Development
Plan,
less
(b) the Gold Equivalent Cost of Future Production
for such period.
"GAAP" means generally accepted accounting principles in
the United States of America.
"GOFO" means the rate per annum (rounded upwards if
necessary to the nearest five one-hundredths of one percent (0.
05%) ) equal to (i) the mean of the offered rates as of 11:00 a.m.,
London time, appearing on the display designated as page "GOFO" on
the Reuter Monitor Money Rates Service (or such other page as may
replace the GOFO page on that service for the purpose of displaying
London interbank gold forward offered rates of major bullion
traders) for a term equivalent to the Interest Period, or (ii) if
fewer than two offered rates appear on the display referred to in
(i) above, the rate determined by Lender (which determination shall
be conclusive in the absence of manifest error) to be the average
of the rates at which major bullion traders are offering Gold
deposits for a term equivalent to the Interest Period in the London
interbank Gold market at about 11:00 a.m., London time.
"Gold" means various amounts of ounces of gold of a
purity of at least .995 fine, and otherwise of grade and quality
conforming to the usual requirements for good delivery in the
London Gold Market. As used herein, the term "ounces" means fine
troy ounces.
"Gold Equivalent Cost of Future Production" means, for
any period, the Gold equivalent of the total Project operating
costs and capital costs (if any) for such period as set forth in
the Development Plan, converted into ounces of Gold at the
applicable prices provided for in Price Fixing Commitments.
"Gold Loan" means an Advance of Gold by Lender to
Borrower pursuant to Section 2.1.
"Gold Loan Interest Rate" means with respect to an
Interest Period pertaining to a Gold Loan, an interest rate per
annum equal to the sum of (y) the LIBOR Rate minus GOFO in effect
on the first day of the Interest Period, plus (z) the Applicable
Margin.
"Gold Value," when used in reference to the value in Gold
of outstanding Dollar Loans, the Principal Amount of the Dollar
Loans, divided by the London Price on the date of determination.
Gold Value shall be expressed in ounces of Gold.
"Governmental Acts" has the meaning set forth in Section
3.12.
"Governmental Authority" means the United States, the
state, county, city and political subdivisions in which any
property of Borrower is located or which exercises valid
jurisdiction over any such property, or in which Borrower conducts
business or is otherwise present, and any agency, department,
commission, board, bureau or instrumentality of any of them which
exercises valid jurisdiction over Borrower.
"Governmental Requirement" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other
direction or requirement (including, without limitation,
Environmental Laws, energy regulations and occupational, safety and
health standards or controls) of any Governmental Authority.
"Guarantee" shall mean any obligation, contingent or
otherwise, of any Person guaranteeing any Indebtedness or
obligation of any other Person in any manner, whether directly or
indirectly, and including, without limitation, any obligation of
such Person, direct or indirect, (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Indebtedness
or obligation, or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such Indebtedness
or obligation, (ii) to purchase property, securities or services
for the purpose of assuring the owner of such Indebtedness or
obligation of the payment of such Indebtedness or obligation, or
(iii) to maintain working capital, equity capital or any other
financial statement condition of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or obligation;
provided, however, that the term Guarantee shall not include
endorsements for collection or deposit, in either case in the
ordinary course of business.
"Guarantor" means Addington Resources, Inc., a Delaware
corporation, of which Borrower is a wholly-owned subsidiary.
"Hazardous Material" means:
(a) any "hazardous substance", as defined by CERCLA
or by applicable state law;
(b) any "hazardous waste", as defined by the
Resource Conservation and Recovery Act, as amended, reformed or
otherwise modified from time to time;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material or substance within the
meaning of any other applicable federal, state or local law,
regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, all as amended, reformed or otherwise
modified from time to time.
"Hedging Agreement" means the agreement between Borrower
and Lender dated as of April 20, 1994 regarding forward sale of
Gold produced from the Property, substantially in the form appended
hereto as Exhibit D.
"Indebtedness" means, for any Person, without
duplication:
(a) all obligations of such Person for borrowed
money or precious metals (including (i) in the case of such
obligations, all notes payable and drafts accepted representing
extensions of credit; (ii) in the case of the Borrower, Borrower's
Obligations; and (iii) in the case of such precious metals, Gold)
and all obligations evidenced by bonds, debentures, notes, or other
similar Instruments on which interest charges are customarily paid;
(b) all obligations, contingent or otherwise,
relative to the face amount of all letters of credit, whether or
not drawn, and bankers' acceptances issued for the account of such
Person;
(c) all obligations of such Person as lessee under
leases which have been or should be, in accordance with GAAP,
recorded as Capitalized Lease Liabilities;
(d) all other items which, in accordance with GAAP,
would be included as liabilities on the liability side of the
balance sheet of such Person as of the date at which Indebtedness
is to be determined;
(e) net liabilities of such Person under Price
Fixing Commitments;
(f) whether or not so included as liabilities in
accordance with GAAP, all obligations of such Person to pay the
deferred purchase price of property or services, and indebtedness
(excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention
agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(g) all Contingent Liabilities of such Person in
respect of any of the foregoing.
"Independent Consultant" means Behre Dolbear & Company,
Inc. or other consulting firm selected by Lender after consultation
with Borrower.
"Installment Payment Date" means the dates on which
repayments of the Loan are scheduled to be made by the Borrower as
provided in Section 3.6(b).
"Instrument" means any contract, agreement, indenture,
mortgage, document or writing (whether formal agreement, letter or
otherwise) under which any obligation is evidenced, assumed or
undertaken, or any Lien (or right or interest therein) is granted
or perfected.
"Interest Period" has the meaning set forth in Section
3.5(b).
"Interest Rate" shall mean the interest rate applicable
to the Loans from time to time, which shall be one of the Dollar
Loan Interest Rate, the Gold Loan Interest Rate or the Default
Rate, as applicable.
"LIBOR Rate" means, relative to any Interest Period for
Dollar Loans, the rate of interest equal to the average (rounded
upwards, if necessary, to the nearest 1/16 of 101) of the rates per
annum quoted by the Reuter Monitor Money Rates Service at which
Dollar deposits in immediately available funds are offered in the
London interbank market as at or about 11:00 a.m., London time, two
Business Days prior to the beginning of such Interest Period for
delivery on the first day of such Interest Period, and in an amount
approximately equal to the Dollar Loan outstanding to which the
rate will apply and for a period approximately equal to such
Interest Period.
"Lien" means, as to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance in or on, or
any interest or title of any vendor, lessor, lender or other
secured party to, or of such Person under any conditional sale or
other title retention agreement or capital lease with respect to,
any property or asset owned or held by such Person, or the signing
or filing of a financing statement which names such Person as
debtor, or the signing of any security agreement authorizing any
other party as the secured party thereunder to file any financing
statement. A Person shall be deemed to be the owner of any assets
that it has placed in trust for the benefit of the holders of its
indebtedness which indebtedness is deemed to be extinguished under
generally accepted accounting principles but for which such Person
remains legally liable, and such trust shall be deemed to be a
Lien.
"Loans" means Gold Loans and Dollar Loans.
"Loan Documents" means this Agreement, the Note, the
Hedging Agreement, the Requests for Loans, the Conversion/Interest
Period Notices, the Security Documents and each other Instrument
executed by Borrower and delivered to Lender in connection with
this Agreement or any of the foregoing Instruments, whether or not
specifically identified in this paragraph.
"Loan Life Ratio" means, at any date, the ratio,
expressed as a percentage, of
(a) the Present Value of Future Net Gold Flow from
the Project for the period commencing on such date and ending on
the Scheduled Maturity Date,
to
(b) the Principal Amount of the outstanding Loans.
"London Gold Fixing" means a gold price fixing meeting
among the five members from time to time of the London Gold market.
"London Price" means, on any day, the fixing price per
fine ounce troy (in Dollars) for Gold as announced at the afternoon
London Gold Fixing for such day; provided, however, that if the
afternoon London Gold Fixing shall not have occurred for such day,
the "London Price" for such day shall be the fixing price per fine
ounce troy (in Dollars) for Gold as announced at the morning London
Gold Fixing for such day, or if the morning London Gold Fixing
shall not have occurred for such day, the "London Price" for such
day shall be the publicly quoted price per fine ounce troy (in
Dollars) for Gold on such other accessible international gold
market (allowing for physical delivery of such Gold) as may be
reasonably selected by Lender, unless such day is not a Business
Day on which a London Gold Fixing has occurred, in which case the
"London Price" shall be the last quoted London Price.
"Management Fee", shall have the meaning specified in
Section 2.2(c).
"Material Agreements" means the contracts, agreements,
leases and other binding commitments and undertakings of Borrower,
the performance or breach of which could have a Materially Adverse
Effect on Borrower, which Instruments are identified in Schedule
1.1(a).
"Materially Adverse Effect" means, with respect to any
Person, an effect, resulting from any occurrence of whatever nature
(including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), which is
materially adverse to:
(a) the consolidated business, assets, revenues,
financial condition, operations or prospects of such Person;
(b) the ability of such Person to make any payment
or perform any other material obligation required under any
material agreement (including, with respect to the Borrower, this
Agreement or any of the Loan Documents) or, in the case of the
Borrower, to develop and operate the Property in accordance with
the Development Plan; or
(c) in the case of Borrower, involves a liability
or obligation (other than contractual commitments entered into by
Borrower in the ordinary course of business which are not in
default) of $100,000 or more.
"Maturity Date" means the date on which the Loans are
payable in full by Borrower, being the earlier of the Scheduled
Maturity Date or any date on which Lender accelerates the due date
of the Loans pursuant to the provisions of Article 10.
"Maximum Credit Amount" means $9,330,000.
"Monetary Cap" means $13,995,000, and shall constitute
the maximum Principal Amount of Gold Loans which may be outstanding
hereunder from time to time as provided in Section 3.8(a).
"Month" means a calendar month.
"Mortgage" means the Mortgage, Deed of Trust, Assignment,
Security Agreement and Financing Statement dated as of June 14,
1994, granted by Borrower to Lender and Fred E. Furguson, Jr. (or
other Person acceptable to Lender) as Trustee for Lender and
covering all the right, title and interest of Borrower in the
Property, in the form of Exhibit C hereto.
"Note" means the Promissory Note which evidences the
Loans, dated as of June 14, 1994, which Promissory Note is made by
Borrower and payable to the order of Lender, in the form of Exhibit
A hereto.
"Obligations" means all obligations of Borrower with
respect to the repayment or performance of all obligations
(monetary or otherwise) of Borrower arising under or in connection
with this Agreement and each other Loan Document.
"Omnibus Certificate" means the certificates from
Borrower and Guarantor, respectively, substantially in the form of
Exhibits G-1 and G-2 hereto.
"Opinion of Borrower's Counsel" means the legal opinion
of Parcel, Mauro, Hultin & Spaanstra, P.C., counsel to Borrower,
substantially in the form of Exhibit H-1 hereto.
"Opinion of Guarantor's Counsel" means the legal opinion
of Brown, Todd & Heyburn, counsel to the Guarantor, substantially
in the form of Exhibit H-2 hereto.
"Other Taxes" shall have the meaning specified in Section
3.16 (b).
"Ounce of Gold" means a fine ounce troy weight of gold in
form readily tradeable with members of The London Bullion Market
Association (or any successor thereto) from time to time.
"Permitted Liens" means the Liens identified in Schedule
7.1(j) and the Liens permitted by clauses (i) through vii of
Section 9.2.
"Person" means an individual, partnership, corporation
(including a business trust), joint venture or other entity, or a
foreign state or political subdivision thereof or any agency of
such state or subdivision.
"Plan" means a pension plan providing benefits for
employees of Borrower or any affiliate (as such term is defined in
the definition of "Termination Event" herein) and covered by Title
IV of ERISA.
"Present Value of Future Net Gold Flow" means, for any
period (a "Calculation Period"), the aggregate of Future Net Gold
Flow for such period, discounted, with respect to any Future Net
Gold Flow scheduled to accrue during any period referred to in the
Gold Flow Schedule (a "Schedule Period"), at the Discount Rate to
the first day of such Calculation Period from the last day of such
Schedule Period.
"Price Fixing Commitments" means net forward sale
contracts for Gold or put options with respect to Gold, including
forward sale contracts pursuant to the Hedging Agreement, with
counterparties satisfactory to Lender, entered into by Borrower.
"Principal Amount" means, as of any date, (a) with
respect to Gold Loans, the aggregate principal amount (calculated
in ounces of Gold) of the Gold Loans at such date, and (b) with
respect to Dollar Loans, the aggregate principal amount in Dollars
of such Dollar Loans at such date.
"Proceeds Account" means a demand deposit account
established by the Borrower at a bank acceptable to Lender in its
sole discretion, which account is more particularly described in
Section 5.6.
"Project" means the business and operations of the
Property in accordance with the Development Plan.
"Project Life Ratio" means, at any date, the ratio,
expressed as a percentage, of
(a) the Present Value of Future Net Gold Flow from
the Project for the period commencing on such date and ending on
the last day of the Project Production Period, to
(b) the Principal Amount of the outstanding Loans
as at such date.
"Project Permits" means all approvals, permits,
authorizations and consents required of any Governmental Authority
in connection with the operation of the Project.
"Project Production Period" means the period commencing
on the Effective Date and continuing until the date on which the
Proven and Probable Reserves of the Property included in the
Project have been extracted, milled, refined and sold in accordance
with the Development Plan.
"Property" means the patented and unpatented mining and
millsite claims, leases and other property interests in which
Borrower directly or indirectly holds an interest, situated in
Mohave County, Arizona, and all facilities situated thereon,
together with all property and assets associated with such
property, as described in the Mortgage.
"Proven and Probable Reserves" means the aggregate of
proven and probable reserves of gold at the Project economically
recoverable at a gold price of U.S. $385/ounce (or other price
approved by Lender in its sole discretion) pursuant to the
Development Plan defined as follows: (a) "Proven Reserves" are such
reserves for which (i) quantity is computed from dimensions
revealed in outcrops, trenches, workings, or drill holes, (ii)
grade and/or quality are computed from the results of detailed
sampling, and (iii) the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so
well defined that size, shape, depth and mineral content of
reserves are well established, and (b) "Probable Reserves" are such
reserves for which quantity and grade and/or quality are computed
from information similar to that used for Proven Reserves, but the
sites for inspection, sampling and measurement are farther apart or
are otherwise less adequately spaced and the degree of assurance,
although lower than that for Proven Reserves, is high enough for an
experienced mining engineer reasonably to assume continuity between
points of observation; or such other definition of such terms as
may hereafter be adopted by the United States Securities and
Exchange Commission.
"Quarter" means a calendar quarter.
"Release" means a release, as such term is defined in
CERCLA.
"Request for Loan" means the irrevocable request for an
Advance of a Gold Loan or Dollar Loan by Borrower, in the form set
forth in Exhibit B hereto, signed by an authorized officer of
Borrower.
"Resource Conservation and Recovery Act" means the
Resource Conservation and Recovery Act, 42 U.S.C. Section 690, et
sea, as amended, reformed or otherwise modified from time to time.
"Royalty" means the net smelter return royalty on
production of minerals from the Property to be conveyed to Lender
by Borrower pursuant to the Royalty Conveyance.
"Royalty Conveyance" means the Royalty Conveyance
pertaining to the Royalty which is in the form of Exhibit K hereto.
"Scheduled Maturity Date" means October 31, 1996.
"Security Agreement" means the Security Agreement dated
as of April 12, 1994 between Borrower, as debtor and Lender, as
secured party, substantially in the form appended hereto as Exhibit
I.
"Security Documents" means the Mortgage, the Security
Agreement, the Bank Account Agreement, all modifications and
amendments thereof, and all amended or other Uniform Commercial
Code financing statements required to be filed or notices required
to be given in order to perfect the Liens created by any of the
foregoing.
"Security Opinion" means a legal opinion from counsel in
Arizona acceptable to Lender concerning the Security Documents and
Liens created thereby and certain other matters, substantially in
the form of Exhibit H-3 hereto.
"Subsidiary" means any corporation, association or other
business entity more than 50% of each class of equity or voting
securities of which is owned, directly or indirectly, by Borrower
thereof.
"Taxes" shall have the meaning specified in Section 3.16.
"Title Insurance Commitment" means a commitment from a
title insurance company acceptable to Lender to issue a title
insurance policy in form acceptable to Lender in the Maximum Credit
Amount pertaining to the Property which confirms Borrower's
ownership thereof subject only to Permitted Liens; and which
confirms that upon appropriate recording the Lien on the Property
established by the Mortgage will be a first and prior Lien thereon.
"Year" means a calendar year.
1.2 Accounting Principles. All accounting terms not
otherwise defined herein shall be construed, all financial
computations required under this Agreement shall be made, and all
financial information required under this Agreement shall be
prepared, in accordance with GAAP applied on a basis consistent
with the financial statements referred to in Section 8.1(f) except
as specifically provided herein.
ARTICLE 2
COMMITMENT, FEES, USE OF PROCEEDS
2.1 Commitment. Subject to all of the terms and
conditions of this Agreement, Lender agrees to Advance to Borrower
in multiple Advances, either ounces of Gold as Gold Loans or
Dollars as Dollar Loans, up to the Maximum Credit Amount. The
Principal Amount of each Advance shall be determined as of the date
of such Advance for purposes of determining compliance with the
Maximum Credit Amount limitations on Advances hereunder. Each
Advance, whether in Dollars or Gold, shall be in a Principal Amount
of not less than $500,000 or the Gold Value thereof.
2.2 Fees.
(a) Arrangement Fee. Borrower agrees to pay Lender
a fee (the "Arrangement Fee") in the amount of $46,650 concurrently
with the execution hereof by Borrower and Lender. The Arrangement
Fee is not refundable to Borrower, in whole or in part, under any
circumstances.
(b) Commitment Fee. Borrower agrees to pay Lender
a fee (the "Commitment Fee") in the amount of one percent (1%) per
annum of the amount by which the Principal Amount of the Loans
outstanding is less than the Maximum Credit Amount. For purposes
of calculating the Commitment Fee due and payable from time to
time, Gold Loans outstanding, if any, will be converted to the
Dollar Value thereof. The Commitment Fee will commence on the
Effective Date and will be payable by Borrower quarterly in arrears
not later than the tenth day of each succeeding quarter with
respect to the preceding quarter.
(c) Management Fee. Borrower agrees to pay Lender
a management fee (the "Management Fee") in the amount of $25,000
per annum from the Effective Date until all Obligations of Borrower
hereunder are satisfied. The Management Fee will be payable in
arrears on each November 1 and April 1 after the Effective Date,
and on the date on which Borrower satisfies all Obligations
hereunder. Any Management Fee payment which pertains to a period
of less than six months shall be prorated.
(d) Fee Payments. Payments of the Arrangement Fee,
Commitment Fee and Management Fee shall be made in Dollars, as
provided in Section 3.14.
2.3 Use of Proceeds. Borrower will utilize the Loans
exclusively as provided in the Development Plan.
ARTICLE 3
PROCEDURE AND PAYMENT
3.1 Borrowing Procedure. Not less than two Business
Days prior to the desired date of each Advance of a Loan, Borrower
will submit a Request for Loan to Lender. The Request for Loan,
which will be effective only upon actual receipt by Lender, will
specify whether a Gold Loan or a Dollar Loan is requested and if a
Gold Loan is requested, will contain a provisional calculation of
the number of ounces of Gold to be Advanced by Lender to Borrower
based on the London Price in effect on the date the Request for
Loan is submitted by Borrower and will specify a Business Day on
which Borrower wishes to have the Advance made. The number of
ounces of Gold actually Advanced by Lender on date of the Advance
will be adjusted to reflect the London Price of Gold on the second
Business Day prior to the date of the Advance. Advances of Gold
will be made by delivery of Gold to Borrower's account at any
Acceptable Delivery Location. Gold to Borrower's account at any
Acceptable Delivery Location. Advances of Dollars will be made by
deposit thereof in the Proceeds Account.
3.2 Note. The Loans shall be evidenced by the Note.
Borrower authorizes Lender to enter upon the schedule attached to
and constituting a part of the Note each Advance and each repayment
of the Principal Amount thereof, which entries shall constitute
evidence of the accuracy of the information so entered, in the
absence of error. The failure so to record any such amount or any
error in so recording any such amount shall not, however, limit or
otherwise affect the obligations of Borrower under the Note to
repay the Principal Amount of the Loans together with all interest
accruing thereon and fees accruing with respect thereto.
3.3 Loan Conversion Election. All outstanding Loans
will be of the same type, that is, will be Gold Loans or Dollar
Loans. Subject to the terms and conditions hereof, Borrower is
hereby granted the right to elect once, and only once during the
term of this Agreement prior to the Maturity Date, (a) only if no
Event of Default is outstanding or would be caused by such
conversion; (b) only if a conversion from Gold Loans to Dollar
Loans would not cause the Maximum Credit Amount to be exceeded; and
(c) only concurrently with the end of the Interest Period or other
Interest Periods applicable to the Loans to convert all outstanding
Loans from Gold Loans to Dollar Loans, or to convert all
outstanding Loans from Dollar Loans to Gold Loans. Such election
shall be effected by Borrower's delivery to Lender of a
Conversion/Interest Period Notice and shall be effective three
Business Days after receipt by Lender of such Notice. Such
election shall apply to and govern all Loans Advanced by Lender
after the effective date of such election.
For purposes of effecting any such conversion, the
equivalency calculations shall be made by Lender on the effective
date of such conversion. Gold Loans will be converted to Dollar
Loans by multiplying the Principal Amount of ounces of Gold
outstanding as Gold Loans by the London Price on the date of the
Advance. Dollar Loans will be converted to Gold Loans by dividing
the Principal Amount of Dollar Loans outstanding by the London
Price on the date of the Advance. After any such conversion Lender
will promptly provide Borrower with notice of the equivalency
amounts so calculated and the outstanding Principal Amount of the
Loans so converted.
3.4 Principal and Interest Payments Generally. All
principal and interest payments of Gold Loans shall be made in
Gold. All principal and interest payments of Dollar Loans shall be
made in Dollars. If a conversion of Loans in accordance with
Section 3.12 occurs during an Interest Period, interest will be
payable in Gold through the date of conversion and in Dollars after
the date of conversion.
3.5 Interest
(a) General. Borrower shall pay interest on the
outstanding Principal Amount of the Loans calculated on a 360-day
year basis, at the Gold Loan Interest Rate if the Loans are Gold
Loans or at the Dollar Loan Interest Rate if the Loans are Dollar
Loans, in either case subject to Section 3.5(c) below. Interest
payable shall be calculated daily. Interest shall be payable on
the last day of each Interest Period; provided, however, that when
Borrower has selected an Interest Period of more than 90 days,
interest shall be payable at 90 day intervals within such period
and on the last day of such period.
(b) Interest Periods. Borrower may select an
interest period with respect to each Loan ("Interest Period") of
30, 90 or 180 days, or of such other period of days as may be
agreed to by Lender in its sole discretion, on a 360-day year
basis; provided, however, (i) that no more than two Interest
Periods may be outstanding at the same time, and (ii) that Borrower
may not select an Interest Period if Lender determines that it is
not able to borrow Gold for such Interest Period in accordance with
customary practice (in the case of the Gold Loan) or that Dollars
are not available to Lender in the London Interbank market for such
requested Interest Period (in the case of a Dollar Loan), in which
event Borrower must select another Interest Period which does not
present such problem. Borrower will select Interest Periods by
giving notice to Lender in the Request for Loan and thereafter at
least three Business Days prior to the expiration of the Interest
Period then in effect by a Conversion/Interest Period Notice. If
at any time Borrower fails to give timely notice of its Interest
Period selection, then Borrower shall be deemed to have selected an
Interest Period containing the same number of days as the Interest
Period currently expiring. No Interest Period shall end after an
Installment Payment Date, unless the Principal Amount of Loans
which would be outstanding following termination of such Interest
Period would be equal to or less than the amount to which the
Principal Amount outstanding will be reduced after the installment
payment to be made on the Installment Payment Date.
(c) Default Interest. Notwithstanding the
provisions of Section 3.5(a) above, interest on the Loans shall
accrue and shall be payable by Borrower at the Default Rate during
all periods when any amounts payable by Borrower as principal
repayments, interest payments or fee or expense payments are due
and payable hereunder, whether by acceleration or otherwise, but
remain unpaid by Borrower. Without prejudice to the rights of
Lender under the preceding sentence, Borrower shall indemnify
Lender against any direct loss or expense (not including lost
profits on re-employment of capital) which Lender may sustain or
incur as a result of the failure by Borrower to pay when due the
Principal Amount of the Loans. A certificate or other notice of
Lender submitted to Borrower setting forth the basis for the
determination of Default Rate interest due and of the amounts
necessary to indemnify Lender in respect of such loss or expense,
shall constitute evidence of the accuracy of the information
contained therein in the absence of error and, absent notice from
Borrower of such error, shall be conclusive and binding for all
purposes.
3.6 Repayment of the Loans.
(a) Principal Repayments Generally. Borrower
agrees to repay the Loan as provided herein.
(b) Scheduled Principal Payments. Subject to the
other terms hereof pertaining to mandatory prepayments of the
Loans, Borrower will make payment in full of the unpaid principal
amount of the Loans not later than the Maturity Date. Prior
thereto, Borrower shall make a mandatory repayment of the Principal
Amount of the Loans on the dates and in the amounts specified in
Schedule 3.6(b) hereto.
3.7 Voluntary Prepayments. Borrower may prepay the
Loans in whole or in part at the end of any Interest Period, in
minimum amounts of $500,000 or the Gold Dollar Value equivalent
thereof, and in integral multiples thereof, by providing Lender not
less than thirty days' prior notice thereof. Prepayment on a day
other than the end of an Interest Period shall be accompanied by
payment of Lender's Breakage Costs. Upon the giving of such
notice, which shall be irrevocable, the amount of the prepayment,
as set forth in said notice, together with interest thereon, shall
be due and payable on the date set forth therein.
3.8 Mandatory Prepayments.
(a) Prepayments Where Gold Loans Principal Amount
Exceeds Monetary Cap. If, at any time, the aggregate Principal
Amount Outstanding of the Gold Loans expressed in Dollars exceeds
the Monetary Cap, Borrower shall, at Lender's election given by
notice to Borrower, within seven Business Days after such notice,
prepay sufficient ounces of Gold, together with accrued and unpaid
interest on the Principal Amount repaid, so that, after such
prepayment, the aggregate Principal Amount of the Gold Loans
expressed in Dollars is equal to or less than the Monetary Cap.
(b) Prepayments Upon Loan Acceleration. Borrower
will prepay the Loans in full, together with accrued interest
thereon and unpaid fees, upon acceleration of the due date of the
Loans by Lender pursuant to Section 10.2.
3.9 Priority of Prepayments. All prepayments made by
Borrowers pursuant to Sections 3.7 and 3.8 shall be accompanied by
payment of Lender's Breakage Costs, and (b) shall be applied first
to accrued and unpaid interest on the Loans as of the end of the
most recent Interest Period, then to any other amounts then payable
by Borrower hereunder, then to principal.
3.10 Application of Prepayments; Premiums and Penalties.
Any prepayment of the Loans pursuant to Section 3.8(a) shall be
applied to the unpaid installments set forth in Section 3.6(b) pro
rata. Any other prepayment of the Loans shall be applied to the
unpaid installments set forth in Section 3.6(b) in inverse order of
maturity. All prepayments shall be without premium or penalty,
other than the obligation of Borrower to pay Lender's Breakage
Costs, if any.
3.11 Risk of Loss. Lender will assume all risk of loss
of, or damage to, any Gold to be Advanced by it to Borrower until
it has been delivered to Borrower at an Acceptable Delivery
Location. Unless Lender has received notice of error within seven
Business Days of Borrower's receipt of any Gold so Advanced,
Borrower's receipt of the quantity and quality of the Gold will be
conclusively deemed to be as set out in Lender's delivery order.
Borrower will assume all risk of loss of, or damage to, any Gold to
be delivered by it to Lender hereunder until it has been delivered
to Lender at an Acceptable Delivery Location.
3.12 Inability to Continue to Provide Gold; Mandatory
Switching. Lender shall not be liable for any failure to comply
with its obligations under or pursuant to this Article 3, and shall
be entitled to terminate any arrangements entered into under this
Article without liability, if such failure is caused directly or
indirectly, wholly or partly, by act or omission of any government
or competent authority, lack of availability of Gold, force majeure
or other contingency, circumstance or event of any nature beyond
the control of Lender. Notwithstanding any other provision hereof,
all Gold Loans will be converted to Dollar Loans upon any such
event effective as of the date Lender gives Borrower notice of the
foregoing.
3.13 Increased Costs and Reduction in Return. If due to
(a) the introduction of, or any change (including, without
limitation, any change by way of imposition or increase of reserve
requirements) in, or in the interpretation of, any law or
regulation or (b) the compliance by Lender with any guideline or
request from any central bank or other governmental authority
having jurisdiction over Lender (whether or not having the force of
law) collectively referred to as "Governmental Acts," there shall
be any increase in the cost or reduction in return to Lender of
agreeing to make or making, funding or maintaining the Loans, then
Borrower shall from time to time, upon demand by Lender, pay to
Lender additional amounts sufficient to identify it against such
increased costs or reduction in return; provided that Lender agrees
to use reasonable efforts to mitigate the increased cost or
reduction in return to the greatest extent practicable. A
certificate as to the amount of such increased cost or reduced
return, submitted to Borrower by Lender, shall be conclusive absent
manifest error.
3.14 Payments and Computations. Borrower shall make each
payment due in Gold hereunder the Note not later than 9:00 a.m.
(Denver time) on the day when due. Borrower shall make each
payment due in Dollars hereunder not later than 9:00 a.m. (Denver
time) on the day when due Lender at its address referred to in
Section 11.4 in immediately available funds. Payments in Gold
shall be made by delivery of Gold to the account of Lender at any
Acceptable Delivery Location. Borrower agrees to pay all shipping,
insurance, refining charges and other costs related to such
delivery and warrants that such Gold upon its delivery to the
account of Lender shall be free and clear of all liens,
encumbrances, charges and security interests except those in favor
of Lender. Borrower hereby authorizes Lender, if and to the extent
payment of money owed to it is not made when due hereunder or under
the Note, to charge from time to time against Borrower's accounts
with Lender any amount so due. All computations of interest
hereunder shall be made on the basis of a year of 360 days for the
actual number of days elapsed (including the first day but
excluding the last day).
3.15 Payment on Non-Business Days. Whenever any payments
of Gold or Dollars to be made hereunder or under the Note shall be
stated to be due on a day which is not a Business Day, such return
or payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the
computation of payment of interest or fees, as the case may be,
unless such next succeeding Business Day is after the end of the
Interest Period, in which case the payment will be made on the next
preceding Business Day and such payment shall not reflect the
actual payment date in the computation of interest or fees due and
payable.
3.16 Taxes.
(a) General. Any and all payments by Borrower
hereunder shall be made free and clear of and without deduction for
any and all present or future taxes, levies, duties, imposts,
deductions, charges or withholdings, and all liabilities with
respect thereto (excluding taxes imposed on Lender's income and
franchise taxes imposed on Lender) imposed by the jurisdiction
under the laws of which Lender is organized, or the United States
or any other jurisdiction under the laws of which Lender is
otherwise subject to tax, or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to Lender, (i) the
sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 3.16) Lender receives an
amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions and
(iii) Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable
law.
(b) Other Taxes. In addition, Borrower agree to
pay any present or future stamp, sales, use or documentary taxes or
any other excise or property taxes, charges, duties or similar
levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect
to, this Agreement, any of the Loan Documents, or any Instrument
contemplated thereby (hereinafter referred to as "Other Taxes").
(c) Tax Indemnity. Borrower hereby indemnify
Lender for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.16) paid by
Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto.
(d) Payment of Taxes. Within 30 days after the
date of any payment of Taxes or Other Taxes withheld by Borrower in
respect of any payment to Lender, Borrower will furnish to Lender
the original or a certified copy of a receipt evidencing payment
thereof.
(e) Survival. Without prejudice to the survival of
any other agreement hereunder, the agreements and obligations
contained in this Section 3.16 shall survive the payment in full of
the Loans and interest hereunder.
(f) Lender Taxes. Lender represents that, under.
applicable law and treaties in effect as of the date hereof, no
United States federal taxes will be required to be withheld by
Borrower with respect to any payment to be made to Lender in
respect of this Agreement. Lender agrees upon written request of
Borrower to deliver to Borrower, in duplicate, duly completed and
signed copies of either Form 1001 (relating to Lender and entitling
Lender to a complete exemption from withholding on all amounts to
be received by Lender pursuant to this Agreement, the Loans and the
Note as a result of a tax treaty concluded with the United States)
or Form 4224 (relating to all amounts to be received by Lender
pursuant to this Agreement, the Loans and the Note) of the Internal
Revenue Service.
ARTICLE 4
HEDGING FACILITY; LENDER ROYALTY
4.1 Establishment of Hedging Facility. Prior to the
date hereof, Lender established a Gold hedging facility in favor of
Borrower on the terms and conditions of the Hedging Agreement.
4.2 Lender's Royalty. Concurrently with the execution
of this Agreement, Borrower will execute and deliver to Lender the
Royalty Conveyance. The Royalty Conveyance will be and remain
effective in accordance with its terms regardless of the magnitude
or duration of the Loans made by Lender to Borrower hereunder, if
any. Such royalty is intended to remain in effect for twelve
months after the Scheduled Maturity Date. If the Scheduled
Maturity Date is extended by agreement of the parties, the Royalty
Conveyance will be modified to extend the term of the royalty for
a corresponding period.
ARTICLE 5
COLLATERAL SECURITY
5.1 Security Documents. As security for the due
repayment of all Gold loaned hereunder, for the payment of all
moneys due hereunder, for the performance of all Obligations of
Borrower, or any of them, including by way of example and not
limitation, the obligations of Borrower under the Note; or pursuant
to the Hedging Agreement; or pursuant to any of the Security
Documents or any other Loan Document, Borrower shall,
contemporaneously with the execution of this Agreement, execute and
deliver to Lender the Security Documents, including:
(a) the Security Agreement;
(b) the Mortgage;
(c) the Bank Account Agreements; and
(d) Uniform Commercial Code Financing Statements,
amendments or assignments thereof, and notices to third Persons as
Lender may require in connection with the perfection of its
security interests in the property and interests subject to the
Security Documents.
5.2 No Limitation on Application of Security Interests.
Borrower and Lender agree that notwithstanding any provision of any
Security Document to the contrary, all Liens created and perfected
pursuant to the Security Documents shall secure all Obligations of
Borrower.
5.3 Recordings and Filings of Security Documents.
Lender will record, file or deliver to account debtors as necessary
the Security Documents, as appropriate, at Borrower's expense,
promptly after execution and delivery thereof by Borrower.
5.4 Protection of Security Document Liens. As and when
requested to do so by Lender, Borrower will cause to be delivered
to Lender from time to time any financing statements, continuation
statements, extension agreements and other documents, properly
completed and executed (and acknowledged when required) by
Borrower, in form and substance satisfactory to Lender, for the
purpose of perfecting or protecting Lender's Liens on the property
and interests subject to the Security Documents.
5.5 Right of Set-off. Upon the occurrence and during
the continuance of any Event of Default, Lender is hereby
authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by Borrower), to
set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other
indebtedness at any time owing by Lender to or for the credit or
the account of Borrower against any and all of the Obligations of
Borrower now or hereafter existing, although such obligations may
be contingent and unmatured. Lender agrees promptly to notify
Borrower after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such
set-off and application. The rights of Lender under this Section
are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
5.6 Proceeds Account. As a condition precedent to the
Initial Advance, Borrower will establish a demand deposit account
with a bank reasonably acceptable to the Lender (the "Proceeds
Account") into which all unexpended Advances of Dollar Loans will
be deposited by Lender and all revenues of Borrower, from the
Project or from any other source, will be deposited by the
Borrower. Prior to completion, all funds in the Proceeds Account
will be expended by Borrower only for costs and expenses provided
for in the Development Plan. As further conditions precedent to
the Initial Advance, (a) Borrower and the bank at which the
Proceeds Account is established will execute and deliver to Lender
a Bank Account Agreement pertaining to the Proceeds Account, and
(b) Borrower will have notified all of its account debtors to pay
all amounts due Borrower directly into the Proceeds Account and
will have provided evidence of such notification to Lender. After
Completion, disbursements or withdrawals from the Proceeds Account
will be made by Borrower only in accordance with Expenditure
Forecasts which have been approved by Lender in accordance with
Section 8.2(i), or as otherwise permitted by this Agreement, or as
approved by Lender in its sole discretion.
5.7 Additional Collateral. Borrower and Lender intend
that the Security Documents cover and extend to all property rights
and interests of Borrower, real or personal, tangible or
intangible, presently held or hereafter acquired, which are related
to the Project, the production therefrom, and the Proceeds of all
of the foregoing. In the event that Borrower acquires any property
right or interest related to the Project which is not subject to
the Lien of the Security Documents, upon request therefor from
Lender, Borrower shall promptly execute such Instruments and take
such actions as Lender may reasonably request in order to perfect
a first and prior Lien on such right or interest. Whether or not
Lender requests that any such right or interest be subjected to the
Security Documents, Borrower agrees to keep such rights or
interests related to the Project free and clear of all Liens other
than Permitted Liens.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Advance. The
obligations of Lender to extend the initial Advance of the Loans,
to execute the Hedging Agreement and to perform its other
obligations hereunder, are subject to satisfaction of the following
conditions precedent.
(a) Lender or its counsel shall have received the
following on or before the date of initial Advance of Loans, each
dated on or no more than five days prior to such date, and in form
and substance as shall be satisfactory to Lender:
(i) this Agreement, duly executed by Borrower;
(ii) the Note, duly executed by Borrower;
(iii) the Hedging Agreement, together with
evidence satisfactory to Lender of aggregate Price Fixing
Commitments which comply with the requirements of Section 8.12;
(iv) the Royalty Conveyance, duly executed by
Borrower;
(v) the Security Documents, duly executed by
Borrower (other than the Bank Account Agreement), together with any
Uniform Commercial Code Financing Statements, amendments thereto,
notices or other Instruments determined by Lender to be necessary
or desirable to perfect the Liens established pursuant to the
Security Documents;
(vi) the Completion Guarantee, duly executed
by Guarantor;
(vii) the Request for Loan, duly executed by
Borrower;
(viii) an Omnibus Certificate for each of
Borrower and Guarantor, duly executed by an officer thereof;
(ix) a Certificate from the Secretary of State
of Borrower's state of incorporation, confirming the due
organization and good standing of Borrower in such state;
(x) Certificates from the Secretaries of
State of Arizona and Colorado, in each case certifying that
Borrower is duly qualified to do business in such state as a
foreign corporation;
(xi) the Opinion of Borrower's Counsel;
(xii) the Security Opinion;
(xiii) the Opinion of Guarantor's Counsel;
(xiv) certificates of issuing insurance
companies, confirming compliance by Borrower with the insurance
requirements set forth in Section 8.4;
(xv) accurate and complete copies of the
financial statements ref erred to in Section 7. 1 (f);
(xvi) the Title Insurance Commitment; and
(xvii) such other approvals, opinions or
documents as Lender may reasonably request.
(b) The following shall be correct as of the date of the
initial Advance of the Loans by Lender:
(i) Borrower shall have completed Borrower's
Expenditure and shall have provided Lender with evidence thereof
satisfactory to Lender;
(ii) since the date of the financial statements
of Borrower and Guarantor most recently delivered to Lender
(referred to in Section 7. 1 (f)), there has been no material
adverse change in the financial condition, operations or business
of Borrower or Guarantor;
(iii) there is no pending or threatened action
or proceeding affecting Borrower or Guarantor before any court,
governmental agency or arbitrator, including any matter involving
Environmental Laws, which could be reasonably expected to have a
material adverse effect upon the financial condition, operations or
business of Borrower or Guarantor;
(iv) a Phase I environmental audit of the
Property has been conducted at Borrower's expense by a consultant
acceptable to Lender in its sole discretion, and Lender has
approved the results thereof;
(v) all management personnel for the Project
have been approved by Lender and the Independent Consultant; and
(vi) Borrower has paid all Existing Bank
Indebtedness.
6.2 Conditions Precedent to All Advances. The
obligation of Lender to make all Advances is subject to
satisfaction of the following conditions precedent:
(a) there shall exist no Event of Default;
(b) all representations and warranties made by
Borrower herein shall be true and correct on the date of such
Advance, except for such changes therein as shall be acceptable to
Lender;
(c) all Governmental Requirements and all material
approvals and consents (including, without limitation, all material
approvals and consents required in connection with any
environmental statutes, rules or regulations) of Governmental
Authorities or other Persons, if any, required in connection with
the conduct of the Project, including specifically the activities
contemplated by the Development Plan, through the date of such
Advance, shall have been obtained and remain in effect;
(d) the Completion Guarantee of the Guarantor shall
be in full force and effect in accordance with its terms, Guarantor
shall not have notified Borrower or Lender of any intention of
Guarantor not to honor its obligations under the Completion
Guarantee, and Lender shall not have received any information or
have any other basis reasonably to conclude that Guarantor would
not, or could not, honor its obligations under the Completion
Guarantee;
(e) the Liens established by the Security Documents
shall be in full force and effect as valid, enforceable first
priority Liens on the Collateral, except for Permitted Liens;
(f) no event shall have occurred or condition exist
which would have a Materially Adverse Effect on Borrower; and
(g) Lender shall have received such additional
approvals, consents and opinions as it may reasonably require.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of Borrower.
Borrower represent and warrant as follows:
(a) Organization, Qualification and Subsidiaries.
Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Kentucky and has
all requisite corporate power and authority to enter into this
Agreement and the Loan Documents and to carry out the transactions
contemplated hereby and thereby. Borrower is duly qualified to do
business as a foreign corporation in the States of Arizona and
Colorado and in each other jurisdiction where the nature of its
business or properties requires such qualification. Borrower has
no subsidiaries, except as indicated in Schedule 7.1(a) . The
capital stock of Borrower is duly authorized, validly issued, fully
paid and non-assessable. Guarantor is a corporation duly
incorporated, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and
authority to enter into the Completion Guarantee and to carry out
the transactions contemplated thereby.
(b) Authorization; No Conflict. The execution,
delivery and performance by Borrower of this Agreement, of the
other Loan Documents and the Royalty Conveyance have been duly
authorized by all necessary corporate action on the part of
Borrower and do not and will not (i) require any consent or
approval of the stockholders of Borrower; (ii) contravene
Borrower's charter or bylaws; (iii) violate any provision of any
law, rule, regulation (including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to Borrower; (iv)
result in a breach of or constitute a default under or require the
consent of any party pursuant to any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
Borrower is a party or by which it or its properties may be bound
or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than Liens arising under the Security
Documents) upon or with respect to any of the properties now owned
by Borrower; and, to the best knowledge of Borrower, Borrower is
not in default in any material respect under any such law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or
instrument, except as otherwise disclosed to Lender in writing
prior to the date hereof. The execution, delivery and performance
by Guarantor of the Completion Guarantee has been duly authorized
by all necessary corporate action and does not and will not
contravene Guarantor's charter or bylaws.
(c) Governmental Consents; Project Permits and
Authorizations. No authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority is
required (i) for the due execution and delivery of, and due
performance of the financial obligations of Borrower under, this
Agreement, any other Loan Document or the Royalty Conveyance or for
the due execution, delivery and performance by the Guarantor of the
Completion Guarantee, or (ii) for the due performance of all other
obligations of Borrower under this Agreement, any other Loan
Document or the Royalty Conveyance (other than registrations or
filings to perfect the liens created by the Security Documents or
the recording of the Royalty Conveyance, except such
authorizations, approvals or other actions as have been obtained or
notices or filings as have been made, and except those
authorizations, approvals or other actions, or such notices or
filings which are not presently necessary for development or
operations at the Project and which Borrower after due inquiry
reasonably expects will be acquired or made in a timely fashion.
All Project Permits have been duly issued to or are held by
Borrower, are valid and in good standing and free of any violation
thereof by Borrower, and Borrower has not received any notice of an
asserted violation or proposed revocation, withdrawal or material
modification thereof.
(d) Binding Obligations. This Agreement is, and
the Loan Documents and Royalty Conveyance, when delivered
hereunder, will be legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms (except as limited by applicable bankruptcy, insolvency,
reorganization moratorium and similar laws or equitable principles
affecting enforcement of creditors' rights generally at the time in
effect).
(e) Litigation. Except as indicated in Schedule
7.1(e), there is no action, proceeding or investigation pending or
threatened in writing against or involving Borrower which alleges
the violation of any laws, including Environmental Laws, or which
questions the validity of this Agreement, or any of the Loan
Documents, or the Royalty Conveyance, or any action taken or to be
taken pursuant to this Agreement, or any of the Loan Documents, or
which questions the nature or extent of Borrower's title to the
Property or which might result, either in any case or in the
aggregate, in any Materially Adverse Effect on the business,
operations, condition (financial or otherwise), aggregate
properties or aggregate assets of Borrower or in any material
liability on the part of Borrower.
(f) Financial Statements; No Material Adverse
Change. The balance sheet of Borrower and the consolidated balance
sheet of Guarantor as of December 31, 1993, and the related
consolidated statements of income and retained earnings of such
Persons for the period then ended, audited by Arthur Andersen, and
the unaudited consolidated balance sheets of Borrower and Guarantor
as of December 31, 1993, and the related unaudited consolidated
statements of income and retained earnings of such Persons for the
period then ended, copies of which have been furnished to Lender,
fairly present the financial condition of Borrower and Guarantor as
at such date and the results of the operations of such Persons for
the period ended on such date, all in accordance with GAAP
consistently applied. Neither Borrower nor Guarantor has on the
date hereof any material Contingent Liability or liability for
taxes, long-term leases or unusual forward or long-term commitments
which are not reflected in such financial statements. Since such
date, except as previously disclosed in writing to Lender, neither
the business, operations or prospects of Borrower or Guarantor, nor
any of their respective properties or assets, have been affected by
any occurrence or development (whether or not insured against)
which would result, either in any case or in the aggregate, in a
Materially Adverse Effect on Borrower or Guarantor.
(g) Other Agreements. Borrower is not a party to
any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or other
corporate restriction which would, in the absence of a Default
thereunder, result in a Materially Adverse Effect on Borrower, or
materially impair the ability of Borrower to carry out its
obligations under this Agreement, or any of the Loan Documents or
the Royalty Conveyance.
(h) Information Accurate. Except as disclosed to
Lender on Schedule 7.1(h) hereto, none of the information delivered
to Lender by Borrower contains any material misstatement of fact or
omits to state a material fact, and all projections contained in
any such information, exhibits or reports, including in particular
the Development Plan, were based on information which when
delivered was, to the best knowledge of Borrower, true and correct,
and to the best knowledge of Borrower all calculations contained in
such projections were accurate, and such projections presented
Borrower's then-current estimate of its future business, operations
and affairs and, since the date of the delivery of such
projections, to the best knowledge of Borrower, there has been no
material change in the assumptions underlying such projections, or
the basis therefor or the accuracy thereof.
(i) Employee Benefit Plans. Borrower has not
established, does not maintain and has made no contributions to, or
has any liability with respect to, any Plan, except Plans
identified in Schedule 7.1(i).
(j) Title to Properties; Liens.
(i) With respect to those properties owned in
fee simple by Borrower which are subject to any of the Security
Documents, Borrower is in exclusive possession of and owns such
properties free and clear of all material defects of title, burdens
on production or Liens (except Liens disclosed in Schedule 7.1(i)),
except those specifically identified in the opinions of counsel to
Borrower delivered pursuant hereto.
(ii) With respect to those properties held
under leases or other contracts which are subject to any of the
Security Documents: (A) Borrower is in exclusive possession of such
properties; (B) Borrower has not received any notice of, and have
no knowledge of any default of any of the terms or provisions of
such leases or contracts; (C) Borrower has the authority under such
leases or contracts to perform fully its obligations under this
Agreement, the Loan Documents and the Royalty Conveyance; (D) to
the best of Borrower's knowledge and belief, such leases and
contracts are valid and are in good standing; and (E) to the best
of Borrower's knowledge and belief, the properties covered thereby
are free and clear of all defects of title or Liens, except for
those specifically identified in the opinions of counsel to
Borrower delivered in connection herewith or disclosed in Schedule
7.1(1) hereto or in such leases or contracts. Borrower has
delivered or will make available to Lender all information
concerning title to the properties in Borrower's possession or
control which Lender requests.
(iii) With respect to unpatented mining claims
which are subject to any of the Security Documents, to the best of
Borrower's knowledge and belief, except as provided in the opinions
of counsel to Borrower and special counsel to Borrower delivered
pursuant hereto and subject to the paramount title of the United
States: (A) the unpatented mining claims are free of Liens, except
as disclosed in Schedule 7.1(1); (B) the unpatented mining claims
were properly located and monumented; (C) all required location and
validation work was properly performed; (D) location notices and
certificates were properly recorded and filed with appropriate
governmental agencies; (E) all assessment work required to hold the
unpatented mining claims has been performed in a manner consistent
with that typically performed within generally accepted standards
of the mining industry through the assessment year ending September
1, 1992 through August 31, 1994; (F) all rental payments have been
duly and timely made in order to maintain such unpatented mining
claims after September 1, 1992, (G) all affidavits of assessment
work and other filings required to maintain the claims in good
standing have been timely recorded or filed with appropriate
governmental agencies; and (H) Borrower has no knowledge of
conflicting claims, except overlaps to avoid gaps or to maintain
parallel end lines, or inadvertent overstakings which do not
materially impair Borrower's property position, taken as a whole,
Nothing in this Section 7.1(i)(iii), however, shall be deemed to be
a representation or a warranty that any of the unpatented mining
claims contains a discovery of minerals.
(k) Securities Activities. The proceeds of the
Loans hereunder will not be used to acquire any security in any
transaction which is subject to Sections 13 and 14 of the
Securities Exchange Act of 1934. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U issued by
the Board of Governors of the Federal Reserve System), and the
proceeds of the Loans will not be used to purchase or carry margin
stock or to extend credit to others for the purpose of purchasing
or carrying any margin stock.
(l) Solvency. Borrower is not entering into the
arrangements contemplated by this Agreement or any of the other
Loan Documents or the Royalty Conveyance with actual intent to
hinder, delay or defraud either present or future creditors. on and
as of the date hereof, and thereafter on and as of the date of the
undertaking of any actions contemplated by this Agreement,
including, without limitation, the Advances of the Loans, the
execution of the Hedging Agreement and the Royalty Conveyance,
after giving effect to the Loans, and all such Instruments, and to
any fees and expenses in connection with such undertaking, (i)
Borrower's property at a fair valuation, is, and will be, greater
than the sum of its Indebtedness (including its Contingent
Liabilities); (ii) the present fair salable value of Borrower's
assets exceeds, and will exceed, the probable liability of Borrower
on its Indebtedness (including its Contingent Liabilities) as they
become absolute and mature; (iii) Borrower has not, and will not
have, incurred, and does not intend to, or believe that it will,
incur debts (including its Contingent Liabilities) beyond its
ability to pay such debts as such debts mature (taking into account
the timing and amounts of cash to be received by Borrower from any
source, and of amounts to be payable on or in respect of its
debts), and the cash available to Borrower after taking into
account all other anticipated uses of the cash, is, and is
anticipated to be, sufficient to pay all such amounts on or in
respect of such debts (including its Contingent Liabilities), when
such amounts are required to be paid; and (iv) Borrower has
sufficient capital with which to conduct its business and
Borrower's capital does not constitute unreasonably small capital
with which to conduct its business. As used in clauses (i) through
(iv) above, the terms therein shall have the meanings as used in
Section 548 of the Federal Bankruptcy Code, the Uniform Fraudulent
Conveyance Act and any applicable state law concerning fraudulent
conveyances as such may from time to time have been amended or
developed by judicial interpretation to the date the
representations herein are made.
(m) Warranties of Borrower With Respect to Gold.
Borrower warrants that Gold delivered by Borrower to Lender
hereunder will conform to the description of the Gold herein and
shall be free of Liens or rights or claims of interest by third
Persons. THERE ARE NO EXPRESS WARRANTIES WITH RESPECT TO SUCH GOLD
OTHER THAN THOSE SPECIFIED HEREIN. NO WARRANTY OF MERCHANTABILITY,
OR ANY WARRANTY OF ANY OTHER NATURE, SHALL BE IMPLIED.
(n) Capital Structure of Borrower. Borrower has
the number of authorized, issued and outstanding shares specified
in Schedule 7.1(n). Borrower is a wholly-owned subsidiary of
Guarantor. Except as indicated in Schedule 7.1(n); Borrower has no
outstanding obligations to issue additional shares or other equity
interests, including any stock or securities convertible into or
exercisable or exchangeable for any shares of its capital stock or
any rights or options to purchase any of the foregoing, or to
convert any existing Indebtedness to equity interests in Borrower.
(o) Forward Sales Obligations. Borrower has no
obligations currently in effect for the sale of Gold except forward
sales arrangements as contemplated by the Development Plan.
(p) Material Agreements; Absence of Default. All
of Borrower's Material Agreements are identified in Schedule
1.1(a). Borrower is not in default under any of the Material
Agreements and has not received any notice of an asserted default
thereunder from any other Person that is a party to any such
agreement.
(q) Taxes and Other Payments. Borrower has filed
all tax returns (including all property tax returns and other
similar tax returns applicable to the Property) and reports
required by law to have been filed by it and has paid all taxes and
governmental charges thereby shown to be owing and all claims for
sums due for labor, material, supplies, personal property and
services of every kind and character provided with respect to, or
used in connection with the Property and no claim for the same
exists except as permitted hereunder, except any such taxes,
charges or amounts which are being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been set aside on the books of Borrower.
(r) Development Plan. The Development Plan has
been prepared in accordance with prudent mining practices and after
diligent inquiry by Borrower, and Borrower is not aware of any
facts or state of affairs which would materially hinder or prevent
Borrower from operating the Property in accordance with the
Development Plan and achieving, after allowance for existing
royalty burdens, the net Gold production provided for therein.
(s) Environmental Laws. Except as set forth in
Schedule 7.1(s);
(i) all facilities and property (including
underlying groundwater) comprising the Property have been, and
continue to be, owned, operated, leased or utilized by Borrower in
material compliance with all Environmental Laws;
(ii) with respect to the Property, there have
been no past, and there are no pending or threatened claims,
complaints, notices or requests for information received by
Borrower with respect to any alleged violation of any Environmental
Law;
(iii) there have been no Releases of Hazardous
Materials at, on or under any property presently or formerly owned
or operated by Borrower that singly, or in the aggregate, have, or
may reasonably be expected to have a Materially Adverse Effect on
Borrower;
(iv) no property now or previously owned,
operated or leased by Borrower is listed or proposed for listing
(with respect to owned property only) on the National Priorities
List pursuant to CERCLA, on the CERCLIS or any similar state list
of sites requiring investigation or clean-up;
(v) there are no underground or aboveground
storage tanks, active or abandoned, including petroleum storage
tanks, on or under any property now or previously owned, operated
or leased by Borrower that singly or in the aggregate, have, or may
reasonably be expected to have, a Materially Adverse Effect on
Borrower;
(vi) Borrower has not directly transported or
directly arranged for the transportation of any Hazardous Material
to any location which is listed or proposed for listing on the
National Priorities List pursuant to CERCLA, on the CERCLIS or on
any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to
material claims against Borrower for any remedial work, damage to
natural resources or personal injury, including claims under
CERCLA;
(vii) there are no polychlorinated biphenyls
or friable asbestos present at any property now or previously
owned, operated or leased by Borrower that, singly or in the
aggregate, have, or may reasonably be expected to have, a
Materially Adverse Effect with respect to Borrower; and
(viii) no conditions exist at, on or under any
property now or previously owned, operated or leased by Borrower
which, with the passage of time, or the giving of notice or both,
would give rise to liability under any Environmental Law that,
individually or in the aggregate, have, or may reasonably be
expected to have, a Materially Adverse Effect with respect to
Borrower.
(t) Borrowers' Indebtedness. Except as disclosed
on Schedule 7.1(t) or specifically identified in the financial
statements of Borrower identified in Section 7.1(f), Borrower has
no existing Indebtedness (a) which is not in the ordinary course of
business, and (b) which involves an obligation of $50,000 or
greater.
(u) Cash for Borrower's Expenditure. Borrower
currently has in cash or demand deposit accounts, as equity and not
as Indebtedness, and there are reflected in Borrower's financial
statements identified in Section 7.1(f), funds in the amount of the
Borrower's Expenditure.
ARTICLE 8
AFFIRMATIVE COVENANTS OF BORROWER
So long as the Loans or the Note shall remain unpaid, or
any other Obligation of Borrower shall not have been fully
performed or waived by Lender (including obligations of Borrower
under the Hedging Agreement), Borrower shall, unless Lender
otherwise consents in writing (which consent Lender may grant or
withhold in its sole discretion), perform all covenants in this
Article 8.
8.1 Compliance with Laws, Etc. Borrower shall comply in
all material respects with all applicable laws (including without
limitation Environmental Laws) , rules, regulations and orders,
such compliance to include, without limitation, paying before the
same become delinquent all taxes, assessments, and governmental
charges imposed upon its property, except to the extent contested
in good faith and adequately reserved for in accordance with GAAP.
8.2 Reporting Requirements. Borrower shall deliver to
Lender:
(a) Quarterly Financial Information and Certifi-
cate. As soon as available and in any event within 45 days after
the end of each of the first three quarters of each year, a
consolidated balance sheet of Borrower, and until release of the
Completion Guarantee, of Guarantor, as of the end of such quarter
and consolidated statements of income, cash flow and retained
earnings of Borrower and Guarantor for such quarter and for the
period commencing at the end of the previous year and ending with
the end of such quarter, together with a confirmation (showing
calculations) of Borrower's compliance with the financial covenants
of Sections 9.6 and 9.9 certified by the chief financial officer of
Borrower.
(b) Annual Financial Information and Certificate.
As soon as available and in any event within 90 days after the end
of each year, a consolidated balance sheet of Borrower, and until
release of the Completion Guarantee, of Guarantor, as of the end of
such year and consolidated statements of income, cash flow and
retained earnings of Borrower and Guarantor for such year and for
the quarter, certified in a manner acceptable to Lender by Arthur
Andersen, or other independent public accountants acceptable to
Lender, together with a confirmation (showing calculations) of
compliance with the financial covenants of Sections 9.6 and 9.9,
certified by the chief financial officer of Borrower.
(c) Financial Forecast. Concurrently herewith and
by each December 1, Borrower's operating financial forecasts and
projections (the "Borrower's Financial Forecast"), including
projected consolidated income statements, statements of projected
net operating cash flow and balance sheets. The Borrower's
Financial Forecasts will be on a month-by-month basis and will
pertain to the following year, except that the Borrower's Financial
Forecast submitted herewith will pertain to the balance of 1994.
The Borrower's Financial Forecast shall include schedules of
projected capital expenditures and exploration expenditures and
shall otherwise be in form reasonably acceptable to Lender.
(d) ERISA Information. Promptly after the filing
or receiving thereof (if any), copies of all material reports and
notices under ERISA which Borrower files with or receives from the
Internal Revenue Service, the Pension Benefit Guaranty Corporation
or the U.S. Department of Labor.
(e) Environmental Matters. Promptly after the
filing or receiving thereof, copies of all notices which Borrower
receives from any governmental authority alleging its noncompliance
with Environmental Laws and any replies of Borrower filed in
response thereto.
(f) Projected Variations in the Development Plan.
Concurrently herewith and on or before each December 1, Borrower
shall submit to Lender a report which shall show any projected
variations from the Development Plan in Gold production from the
Project and in operating costs, capital expenditures and
exploration expenditures of achieving such production (i) on a
monthly basis, for the remainder of the then-current calendar year,
and (ii) on a monthly basis, for the next calendar year.
(g) Statement of Reserves. Concurrently herewith,
and not later than each October 1 and April 1 thereafter, Borrower
shall submit to Lender a certificate, certified by each of the
Project Manager and the president of Borrower, indicating the
calculations of the Project's Proven and Probable Reserves as at
the preceding December 31 (in the case of the certificates
submitted concurrently herewith and on April 1) or June 30 (in the
case of the October 1 certificates), with each such certificate
referred to as a "Statement of Reserves."
(h) Quarterly Compliance Certificates. As soon as
available and in any event no later than 45 days after the end of
each quarter, Borrower shall deliver to Lender a certificate by the
chief financial officer of Borrower, showing (i) calculations and
demonstration of compliance with the financial covenants of
Sections 9.6 and 9.9; (ii) after June 30, 1994, actual expenditures
contrasted with projected capital and exploration expenditures as
shown in Borrower's Financial Forecast; and (iii) confirming
compliance by Borrower with the other covenants herein and in the
Loan Documents, including in particular compliance with Sections
9.7 and 9.8 hereof.
(i) Monthly Project Reports. No later than the
30th day of each month, Borrower shall submit to Lender a report
concerning production and operations of the Project during the
preceding month, and showing production and cost information and
statistics, to include actual expenditures contrasted with
projected expenditures as budgeted in the Development Plan, in form
and substance reasonably acceptable to Lender.
(j) Monthly Project Expenditures Forecast. Not
later than the tenth day of each month, Borrower will prepare and
submit to Lender an Expenditure Forecast. Lender will promptly
review the Expenditure Forecast and signify its approval thereof to
Borrower if it is in the required form and provides for
expenditures on the Project which conform to, or are less than
called for in, the Development Plan. In all other cases, approval
of the Expenditure Forecast will be in Lender's sole discretion.
(k) Litigation. Promptly after initiation thereof,
notice of any litigation by or against Borrower or the Property, or
litigation against Borrower's other properties which could have a
Materially Adverse Effect on Borrower.
(l) Other Information. Such other information
respecting the condition or operations, financial or otherwise, of
Borrower as Lender may from time to time reasonably request.
8.3 Inspection. At any reasonable time during normal
business hours and from time to time, on reasonable notice,
Borrower shall permit Lender or its agents or representatives to
examine and make copies of and abstracts from the records and books
of account of, and visit the properties of, Borrower, and to
discuss the affairs, finances and accounts of Borrower with any of
its respective officers, directors, employees or agents. Borrower
will not be responsible for injuries to or damages suffered by
agents or representatives of Lender while visiting the properties
of Borrower unless such injuries or damage are caused or
contributed to by the negligence or willful misconduct of Borrower,
or its employees or agents.
8.4 Maintenance of Insurance Borrower shall maintain,
with respect to the Property and the Project and with respect to
Borrower's other assets and business generally, insurance with
responsible and reputable insurance companies or associations,
including business interruption insurance with respect to the
Project covering losses through such interruption in an amount not
less than $2,000,000, otherwise in such amounts and covering such
risks, as provided in Schedule 8.4.
8.5 Maintenance of Equipment, Etc. Borrower shall
maintain and preserve all equipment and other personal property
which is material to the proper conduct of the Project in good
working order and condition, ordinary wear and tear excepted, in
accordance with maintenance requirements specified in connection
with manufacturer's warranties therefor.
8.6 Keeping of Records and Books of Account. Borrower
shall keep adequate records and books of account, in which complete
entries shall be made in accordance with GAAP consistently applied,
reflecting all financial transactions of such Borrower.
8.7 Preservation of Corporate Existence, Etc. Borrower
shall preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation,
except that Borrower may change its state of incorporation from
Kentucky to Delaware if evidence thereof is promptly provided to
Lender and qualify and remain qualified as a foreign corporation in
each jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the ownership
of its properties.
8.8 Conduct of Business. Borrower shall engage solely
in the business of exploring for and mining gold and industrial
minerals, and in activities incident thereto, in accordance with
generally accepted industry practices.
8.9 Notice of Default. Borrower shall furnish to Lender
as soon as possible and in any event within five Business Days
after the occurrence of each Event of Default or each event or
condition which with the giving of notice or lapse of time, or
both, would constitute an Event of Default, continuing on the date
of such statement, a statement of the president or chief financial
officer of Borrower setting forth the details of such Event of
Default or event or condition, and the action which Borrower
propose to take with respect thereto.
8.10 Defense of Title. Borrower shall defend, at its
expense, title to the Property of Borrower, as such title is
represented and warranted in Section 7. 1 (i) , and the Liens in
favor of Lender under the Security Documents and maintain and
preserve such Liens as first Liens upon the properties and
interests subject to the Security Documents.
8.11 Operation of the Project. Borrower agrees to use
all commercially reasonable efforts to maintain, develop and
operate the Property and the Project in accordance with the
Development Plan.
8.12 Hedging Requirements. Concurrently with the Advance
of the Loans, either pursuant to the Hedging Agreement, or
pursuant to other Price Fixing Commitments fixing the prices at
which Gold produced from the Property is sold, Borrower will have
entered into Price Fixing Commitments for Gold produced from the
Project such that the proceeds thereof (both as to amount and as to
timing) are sufficient to discharge, to an extent acceptable to
Lender, the Operating Costs for the Project through the Scheduled
Maturity Date as reflected in the Development Plan.
8.13 Maintenance of the Property. Borrower agrees to
maintain its property rights and interests in the Property in full
force and effect, and to do all acts reasonably determined by
Borrower to be necessary to preserve such rights and interests,
including, by way of example and not limitation, payment and
performance of all terms of leases pertaining to such rights and
interests, and timely performance of work reasonably intended to
satisfy the annual assessment work requirements for unpatented
mining claims included in such properties, or timely payment of
appropriate sums in lieu of performance of assessment work, and
timely filing of federal and state notices with respect thereto;
provided, however, that Borrower may, in the ordinary course of
business, abandon unpatented mining claims and/or leased properties
which it does not believe warrant further maintenance expenditures.
8.14 Key Personnel. Borrower shall obtain the Lender's
approval of the individual employed to serve as the senior Project
manager, which approval will not be unreasonably withheld by
Lender.
ARTICLE 9
NEGATIVE COVENANTS OF BORROWER
So long as the Loans and the Note shall remain unpaid, or
any other Obligation of Borrower shall not have been fully
performed or waived by Lender (including obligations of Borrower
under the Hedging Agreement), Borrower shall, unless Lender
otherwise consents in writing (which consent Lender may grant or
withhold in its sole discretion), perform all covenants in this
Article 9.
9.1 Indebtedness. Borrower shall not directly or
indirectly, create, incur, assume or suffer to exist any
Indebtedness except (i) Indebtedness hereunder and under the Note;
(ii) Indebtedness secured by purchase money Liens or consisting of
leases permitted by clauses (iii), (iv) and (v) of Section 9.2;
(iii) Indebtedness existing on the date hereof disclosed to Lender,
(iv) unsecured trade payables; and (v) Indebtedness subordinated to
Borrower's Indebtedness under this Agreement or any of the Loan
Documents on terms satisfactory to Lender in its sole discretion.
9.2 Liens, Etc. Borrower shall not, directly or
indirectly, create, incur, assume or suffer to exist any Lien, upon
or with respect to any portion of the Property, now owned or
hereafter acquired, or assign or otherwise convey any right to
receive the production, proceeds or income therefrom, except:
(i) Liens for taxes, assessments or governmental
charges or levies if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested
in good faith and by appropriate proceedings;
(ii) Liens imposed by law, such as carriers,
warehousemen and mechanics' liens and other similar liens arising
in the ordinary course of business in an amount which at no time
exceeds $100,000;
(iii) Liens of purchase money mortgages and other
security interests on equipment acquired, leased or held by
Borrower (including equipment held by any of Borrower as lessee
under leveraged leases in the ordinary course of business to secure
the purchase price of such equipment or to secure indebtedness
incurred solely for the purpose of financing the acquisition
(including acquisition as lessee under leveraged leases),
construction or improvement of any such equipment to be subject to
such mortgages or security interests, or mortgages or other
security interests existing on any such equipment at the time of
such acquisition, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount, provided that no
such mortgage or other security interest shall extend to or cover
any equipment other than the equipment being acquired, constructed
or improved, and no such extension, renewal or replacement shall
extend to or cover any property not theretofore subject to the
mortgage or security interest being extended, renewed or replaced,
and provided further, that the aggregate principal amount of the
Indebtedness of Borrower at any one time outstanding and secured by
mortgages and other security interest permitted by this clause
(iii) shall not exceed $500,000 and that any such Indebtedness
shall not otherwise be prohibited by the terms of this Agreement;
(iv) Liens outstanding on the date hereof and
described in Schedule 7.1(1) hereto;
(v) Liens securing subordinated Indebtedness
permitted by Section 9.1(iii); and
(vi) Liens arising under the Security Documents and
under this Agreement.
9.3 Assumptions, Guarantees, Etc. of Indebtedness of
Other Persons. Borrower shall not, directly or indirectly, assume,
guarantee, endorse or otherwise become directly or contingently
liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise
to assure the creditor against loss) in connection with any
Indebtedness or any other Person, except guarantees by endorsement
of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
9.4 Investments in Other Persons. Borrower shall not,
directly or indirectly, (i) make any loan or advance (other than
approved capital expenditures and exploration expenses) to any
Person exceeding at any one time outstanding an aggregate of
$50,000, or (ii) purchase or otherwise acquire the capital stock,
assets, or obligations of, or any interest in, any Person (other
than readily marketable direct obligations of the United States of
America and certificates of time deposit issued by Lender or
commercial banks of recognized standing operating in the United
States of America) ; provided, however, that to the extent Borrower
invests in any such Person, it shall inform Lender thereof promptly
upon such investment and shall provide all information with respect
to such Person as Lender may require.
9.5 Mergers, Etc. Borrower shall not, directly or
indirectly, merge or consolidate with any Person, or sell, assign,
lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to any Person, or acquire
(whether in one transaction or in any series of transactions) all
or substantially all of the assets of any Person, without the prior
written consent of Lender.
9.6 Financial Covenants. Borrower will not permit:
(a) the Loan Life Ratio, calculated on the date of
the initial Advance and the first day of each quarter of each year
(commencing August 1, 1994), to be, on each such date as shall
occur on or after the date of calculation, less than or equal to
150%; or
(b) the Project Life Ratio, calculated on the date
of the initial Advance and the first day of each quarter of each
year (commencing August 1, 1994), to be, on each such date as shall
occur on or after the date of calculation, less than or equal to
200%.
9.7 Project Reserves. Borrower will not permit the
value of the Proven and Probable Reserves of the Property to be
less than 400% of the aggregate outstanding Principal Amount of the
Loans outstanding at any time.
9.8 Minimum Reserves. Borrower will not permit any
Obligations to remain outstanding if the Proven and Probable
Reserves of the Property included in the Project are reduced to 32%
or less of the Proven and Probable Reserves thereof on the date of
the initial Advance.
9.9 Debt Service Coverage. For any quarter, utilizing
the terms set forth in the Development Plan, Borrower will not
permit the sum of (x) "Net Gold Flow Less Debt Service", plus (y)
total principal and interest payments due with respect to the Loans
in such quarter ("Debt Service") , to be less than 130% of (z) Debt
Service due in such quarter.
9.10 Restriction on Dividends and Redemptions. Borrower
shall not declare, order, pay or make (i) any dividend or other
distribution, directly or indirectly, in respect of any shares of
any class of stock of Borrower, now or hereafter outstanding,
except a dividend payable solely in shares of that class of stock
to the holders of that class, or (ii) any redemption, retirement,
purchase or other acquisition of any such shares of any class of
stock of Borrower.
9.11 Limitations on Price Fixing Commitments. Subject to
the requirements of Section 9.12, Borrower shall not, directly or
indirectly, enter into or be a party to (i) any contract or
arrangement (including forward sales agreements, futures and option
contracts) which requires or may, upon the occurrence of certain
events, require Borrower to deliver Gold during a certain year, if
at such time 72% of the projected Gold production for the Project
for such year (as set forth in the Development Plan) shall already
be committed for delivery under this Agreement and under other
similar contracts or arrangements, or (ii) any production payments
(other than normal and customary royalties on production of the
Project).
9.12 Sale of Project Assets. Borrower shall not,
directly or indirectly, sell, transfer, assign or otherwise dispose
of any of its assets or properties related to the Project, except
for sales of Gold, other mineral production and other properties
and assets related to the Project in the ordinary course of
business.
9.13 Restrictions on Capital Expenditures, Etc. Borrower
shall not, directly or indirectly, incur expenditures for capital
improvements or exploration expense at the Project or on other
properties of Borrower other than as set out in the then-current
Borrower's Financial Forecast and the Development Plan.
9.14 Take or Pay Contracts. Borrower will not enter into
or be a party to any arrangement for the purchase of materials,
supplies, other property or services if such arrangement by its
express terms requires that payment be made by Borrower regardless
of whether or not such materials, supplies, other property or
services are delivered or furnished to it; provided, that nothing
in this Section shall prohibit Borrower from entering into any
Price Fixing Commitments as contemplated by Section 8.12.
9.15 Restrictive and Inconsistent Agreements. Borrower
will not enter into any agreement or undertaking or incur or suffer
any obligation prohibiting or inconsistent with the performance by
Borrower of the Obligations.
9.16 Limitations on Payment of Certain Indebtedness.
Borrower will not repay in whole or in part the principal amount of
any Indebtedness owed to Guarantor, or to any Affiliate of
Guarantor or Borrower, prior to payment and performance in full of
all Obligations hereunder. The foregoing limitation does not apply
to, and Borrower is permitted to redeem or otherwise reacquire from
Guarantor, the Guarantor's equity interest in Borrower issued to
Guarantor in connection with Borrower's acquisition of the funds
comprising the Borrower's Expenditure at any time each of the
following conditions is met: (a) no Default exists, (b) the
Completion Date has occurred, and (c) such redemption or
reacquisition is effected using funds which constitute net proceeds
to Borrower from a public or private sale of common stock in
Borrower. Borrower will not pay any interest or other amounts
(other than principal) due with respect to any such Indebtedness to
Guarantor or to any Affiliate of Guarantor or Borrower while a
Default exists hereunder.
ARTICLE 10
EVENTS OF DEFAULT
10.1 Event of Default. Each of the following events
shall be an "Event of Default" hereunder:
(a) Nonpayment. Borrower shall fail to pay any
principal when due hereunder (whether at stated maturity or by
prepayment or otherwise), or shall fail to pay interest hereunder
or on the Note when due.
(b) Specific Defaults. Borrower shall fail to
observe or perform any of its covenants contained in Article 9 of
this Agreement.
(c) Other Defaults. Borrower shall fail to observe
or perform any of its covenants contained in this Agreement, other
than the covenants referred to in paragraphs (a) and (b) above, and
Borrower has not remedied such default within 10 days after notice
of default has been given by Lender to Borrower.
(d) Representation or Warranty. Any representa-
tions or warranty made by Borrower (or any of their respective
officers) under or in connection with this Agreement or the other
Loan Documents shall prove to have been incorrect in any material
respect when made.
(e) Cross-Default. A default shall occur under any
of the Security Documents, the Hedging Agreement, the Royalty
Conveyance or the Completion Guarantee or Borrower shall fail to
pay any Indebtedness in excess of $100,000 in principal amount (but
excluding Indebtedness evidenced by the Note and LC Loans), or any
interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise);
or any other default under any agreement or instrument relating to
any such Indebtedness or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the
maturity of such Indebtedness, unless such default or event shall
be waived by the holders or trustees for such Indebtedness; or any
such Indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof.
(f) Insolvency. Either of Borrower or (while the
Completion Guarantee is in effect) Guarantor shall generally not
pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against Borrower or Guarantor seeking to
adjudicate it a bankrupt or insolvent, or seeking a liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of any order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any
substantial part of its property and, if instituted against the
Borrower or Guarantor, shall remain undismissed for a period of 60
days; or Borrower or Guarantor shall take any corporate action to
authorize any of the actions set forth in this paragraph (f).
(g) Judgments. A final judgment or order for the
payment of money in excess of $100,000 shall be rendered against
Borrower and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) a
stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect for any period
of 10 consecutive days.
(h) Security Interest. Any of the Security
Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to create a valid
and perfected first priority security interest in any of the
collateral purported to be covered thereby, or Borrower shall so
state in writing.
(i) Completion Guarantee. The Completion Guarantee
shall, for any reason other than the termination thereof in
accordance with Section 11.1, cease to be effective and
enforceable, or Guarantor shall so state in writing.
(j) Condemnation. Any of the property or assets of
Borrower necessary for the operation of the Project is taken by
power of expropriation or eminent domain or sold under threat of
such taking, or possession of any @material portion of the lands
necessary for the operation of the Project is taken through
exercise of such power.
(k) Regulatory Action. Any Governmental Authority
shall take any action with respect to Borrower, the Project or the
Project Permits or any other Collateral subject to the Mortgage
which would materially and adversely affect Borrower's condition,
operations on the Project or ability to repay the Loan unless such
action is set aside, dismissed or withdrawn within ninety (90) days
of its institution or such action is being contested in good faith
and its effect is stayed during such contest.
(l) Abandonment and Termination. The Project shall
be abandoned or terminated.
(m) Default Event Under Price Fixing Commitment.
A default by Borrower shall have occurred and be continuing under
any Price Fixing Commitment, whether with Lender or another Person.
10.2 Remedies Upon Event of Default.
(a) Upon the occurrence of an Event of Default
specified in Section 10.1(f) of this Agreement or, in the case of
any other Event of Default, upon notice by Lender to Borrower of
Lender's election to declare Borrower in default, the obligations
of Lender hereunder including, without limitation, Lender's
obligation to Advance Loans shall terminate. The date on which
such notice is sent or, in the case of an Event of Default
specified in Section 10.l(f) of this Agreement, the date of such
Event of Default, shall be the "Date of Default."
(b) Upon the Date of Default, in addition to any
other remedies that Lender may have hereunder, Lender shall have
the right to elect, upon notice to Borrower, to exercise its rights
under the assignment of production in the Mortgage.
(c) Upon the Date of Default, upon notice thereof
from Lender to Borrower in all cases other than the occurrence of
an Event of Default as specified in Section 10.1(f), the Loans, all
interest thereon, Breakage Costs and all other amounts owed by
Borrower hereunder shall be immediately due and payable in full.
In the case of an Event of Default specified in Section 10.1(f), no
notice from Lender shall be required, and all amounts owed by
Borrower hereunder shall be immediately due and payable on the Date
of Default, without notice from Lender.
(d) Upon the occurrence of an Event of Default, all
of the remedies provided to Lender in all of the Security
Agreements shall immediately become available to Lender.
(e) Except as expressly provided above in this
Section 10.2, presentment, demand, protest and all other notices of
any kind are hereby expressly waived. From and after the Date of
Default, interest shall accrue at the Default Rate provided in
Section 3.5 (c) and shall be payable on demand.
ARTICLE 11
MISCELLANEOUS
11.1 Termination of Completion Guarantee. The Completion
Guarantee shall automatically terminate on the Completion Date.
Upon a request from Guarantor, Lender will promptly execute and
deliver to Guarantor a written Instrument confirming termination of
the Completion Guarantee.
11.2 Independent Consultant Monitoring of Financial
Covenants. As of each June 30 and December 31, commencing December
31, 1994, Lender will cause the Independent Consultant, at the
expense of Borrower, to investigate and provide to Lender a
certificate concerning the compliance or non-compliance of Borrower
with the covenants set forth in Sections 9.6, 9.7, 9.8 and 9.9. A
copy of such certificate and of any report prepared by the
Independent Consultant in connection with such certificate will be
provided to Borrower. Expenses of the Independent Consultant will
be itemized in reasonable detail.
11.3 Amendments, Etc. Except as otherwise expressly
provided in this Agreement, no amendment or waiver of any provision
of this Agreement or of the Note, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same
shall be in writing and signed by Lender, and, in the case of any
amendment, by Borrower, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
11.4 Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telex,
telegraphic and facsimile communication) and mailed, telegraphed,
sent by facsimile, or delivered,
If to Borrower,
5460 Ward Road
Suite 370
Arvada, Colorado 80002
Attention: President
Facsimile: (303) 425-7497;
and if to Lender,
New Court, St. Swithin's Lane
London EC4P 4DU
Attention: Michael Price
Facsimile: 011 44 71 280 5139
with a copy to:
Rothschild Denver, Inc.
3020 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
Facsimile: (303) 572-5472
as to each party, at such other address or number as shall be
designated by such party in a written notice to the other. All
such notices and communications shall be effective (i) when
received, if mailed by registered or certified mail or physically
delivered; (ii) when delivered to the telegraph office, if sent by
telegraph; (iii) five days after being sent by mail, if sent by
ordinary mail; and (iv) upon confirmation of transmission, if sent
by telex or facsimile, addressed in each case as aforesaid, except
that notices to Lender under Articles 2 or 3 shall not be effective
until received by Lender.
11.5 No Waiver; Remedies. No failure on the part of
Lender to exercise, and no delay in exercising, any right hereunder
or under the Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder or under the Note
preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
11.6 Costs, Expenses and Taxes. Borrower agree to pay on
demand all reasonable costs and expenses in connection with the
preparation, execution, delivery and administration of this
Agreement, the Loan Documents, the Completion Guarantee, the
Royalty Conveyance and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and
expenses of legal counsel and any independent consultants to Lender
and all other out-of-pocket expenses of Lender, and all costs and
expenses, if any, in connection with the enforcement of this
Agreement, the Loan Documents, the Completion Guarantee, the
Royalty Conveyance and the other documents to be delivered
hereunder. All such expenses will be itemized in reasonable
detail. In addition, Borrower shall pay any and all stamp,
mortgage recording and other taxes, filing fees or charges payable
or determined to be payable in connection with the execution and
delivery of this Agreement, the Loan Documents, the Completion
Guarantee, the Royalty Conveyance and the other documents to be
delivered hereunder, and agrees to save Lender harmless from and
against any and all liabilities with respect to or resulting from
any delay in paying or omission to pay such taxes, filing fees or
charges.
11.7 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of Borrower, Lender and their
respective successors and assigns, except that Borrower shall not
have the right to assign any of its rights or obligations hereunder
or any interest herein without the prior written consent of Lender.
Lender may assign to its successors and affiliates, or may grant
participations to one or more banks or other Persons (other than
competitors of Borrower identified to Lender by Borrower) in or to
all or any part of, and may assign to one or more banks or other
Persons (other than such competitors) all or any part of, this
Agreement, the Loan Documents, the Loans, the Completion Guarantee,
the Royalty Conveyance and, to the extent of such assignment, such
assignee shall have the same obligations, rights and benefits with
respect to Borrower as it would have had if it were Lender
hereunder.
11.8 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE
OTHER LOAN DOCUMENTS, EXCEPT THE SECURITY DOCUMENTS, SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF COLORADO, INCLUDING THE CONFLICTS OF LAW PROVISIONS
THEREOF. THE SECURITY DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF
THE JURISDICTION SPECIFIED THEREIN, OR IF NONE IS SPECIFIED, BY THE
LAWS OF THE JURISDICTION IN WHICH THE COLLATERAL SUBJECT THERETO IS
PRINCIPALLY LOCATED.
11.9 Submission to Jurisdiction. For the purpose of
assuring that Lender may enforce its rights under this Agreement,
Borrower, for itself and its successors and assigns, hereby
irrevocably (a) agrees that any legal or equitable action, suit or
proceeding against Borrower arising out of or relating to this
Agreement, the Loan Documents, the Royalty Conveyance or any
transaction contemplated hereby or thereby or the subject matter of
any of the foregoing may be instituted in any state or federal
court in the City and County of Denver, State of Colorado; (b)
waives any objection which it may now or hereafter have to the
venue of any such action, suit or proceeding or any claim of forum
non conveniens; (c) submits itself to the nonexclusive jurisdiction
of any such state or federal court for purposes of any such action,
suit or proceeding; and (d) waives any immunity from jurisdiction
to which it might otherwise be entitled in any such action, suit or
proceeding which may be instituted in any such state or federal
court, and waives any immunity from the maintaining of an action
against it to enforce in any such state or federal court or
elsewhere, any judgment for money obtained in any such action, suit
or proceeding and, to the extent permitted by applicable law, any
immunity from execution. Borrower agrees that it will, promptly
after the date hereof, appoint CT Corporation System in Denver,
Colorado, as its registered agent for service of process in the
State of Colorado in any action arising hereunder, and will provide
Lender with evidence of such appointment.
11.10 Waiver of Jury Trial. Each party hereto
irrevocably and unconditionally waives the right to trial by jury
in any legal or equitable action, suit or proceeding arising out of
or relating to this Agreement, the Loan Documents or the Royalty
Conveyance, or any transaction contemplated hereby or thereby or
the subject matter of any of the foregoing.
11.11 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different 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.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first above written.
ADDWEST MINERALS, INC.
By: /s/ Charles S. Williams
Charles S. Williams
President
PER PRO
N M ROTHSCHILD & SONS LIMITED
/s/ Donald Douglas, Asst. Director
/s/ Michael A. Price, Director
Schedule 3.6(b)
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL PAYMENTS
On each of the dates indicated below Borrower shall make a mandatory
repayment of the Principal Amount of the Loans in an amount equal to the
product of (y) the percentage set forth opposite such date and (z) the
initial aggregate Principal Amount of the Loans.
Percentage of
Repayment Date Loans to be Repaid
<S> <C>
July 31, 1995 16.086%
October 31, 1995 30.934%
January 31, 1996 23.819%
April 30, 1996 14.642%
July 31, 1996 8.043%
October 31, 1996 6.476%
100.000%
</TABLE>
396:addingto:asc:exhibit1.0l
<PAGE>
COAL SALES AGREEMENT
This is a COAL SALES AGREEMENT, dated January 14, 1994,
between ADDINGTON MINING, INC., a Kentucky corporation ("Seller"),
and AMERICAN EAGLE COAL COMPANY, a Virginia corporation
("Purchaser").
W I T N E S S E T H:
That for and in consideration of the mutual promises
hereinafter made, Seller hereby agrees to sell to Purchaser and
Purchaser hereby agrees to purchase from Seller, coal of the
quality and quantity at the prices and on the terms and conditions
hereinafter set forth:
1. Purchase and Sale. Purchaser agrees to purchase from
Seller and Seller agrees to sell to Purchaser coal on the terms and
conditions set forth below:
(a) Delivery Point. The delivery point at which Seller
shall deliver the coal shall be either: (1) Purchaser's Sand Lick
Tipple facility located on Route 468 near Sidney, Kentucky
(hereinafter "Sand Lick Tipple"); or (2) such other delivery point
as Purchaser may designate.
(b) Quantity; Term.
(1) During the term hereof, Purchaser shall purchase
from Seller and Seller shall sell to Purchaser coal at the rate of
120,000 tons per month for the initial three-year period, then
100,000 tons per month thereafter, which tonnage can be reduced or
increased by 5% in any month at Purchaser's option.
Notwithstanding the right of Purchaser to reduce or increase the
monthly quantities by 5% in any given month, Purchaser will
schedule 1,440,000 tons of coal per year for delivery, unless
Purchaser is prevented from doing so because of a force majeure
event as set forth in Paragraph 2. Deliveries by Seller shall be
in approximately equal daily quantities during normal business
hours. Purchaser will purchase at least 4,920,000 tons on terms
herein stated, which tonnage may be adjusted in accordance with
Paragraphs 1(b)(2) and 2.
(2) In the event that Seller is unable to deliver
the scheduled tons per month (+5% at Purchaser's option) and the
shortage is not made up with other coals acceptable to Purchaser,
Purchaser, at its option, will have 30 days from the end of the
month when any shortage occurs to either require Seller to supply
the shortage during an extension of the term of this Agreement or
the shortage will reduce the 4,920,000 tons required to be
purchased under this Agreement. If Purchaser does not make such
election within 30 days, the shortage will drop the tons required
to be purchased by Purchaser by any such shortage.
(3) This Agreement shall commence as of January 15,
1994, and shall continue until Purchaser has purchased 4,920,000
tons of coal on terms herein stated, which tonnage may be adjusted
in accordance with Paragraphs 1(b)(3) and 2.
(c) Quality and Specifications.
(1) The coal delivered by Seller hereunder shall be
subject to the following "Contracted" and "Suspension"
Specifications:
<TABLE>
<CAPTION>
"As-Received" Basis
Contacted Suspension
Daily Daily
Weighted Avg. Weighted Avg.
<S> <C> <C>
Calorific Value (Btu) 12,200 11,700 (min)
Moisture 7.0 8.0 (max)
Ash (%) 12.0 14.0 (max)
Volatile (%) 30 (min) 30 (min)
Grindability 42 38 (min)
(Hardgrove Index)
Fusion ( F) 2800 (min) 2800 (min)
Sulfur (%) 1.1 1.5 (max)
</TABLE>
(2) Coal shall be substantially free from
impurities, such as bone, slate, earth, rock pyrite, wood, metal or
water, which can be kept out or removed with the exercise of
reasonable care during mining 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 piles (mine refuse), oxidized coal, or blends of
such materials.
(3) Coal shall be delivered as run-of-the-mine or
washed coal. However, the size of the coal delivered must not be
of a size that would restrict the loading of the coal through the
Sand Lick Tipple.
(4) If any daily delivery of coal fails to meet the
Suspension Specifications stated in Paragraph 1(c)(1) or fails to
meet the requirements of Paragraph 1(c)(2) on the basis of visual
inspection, Purchaser may reject the coal at Seller's loading point
or Purchaser's receiving point. Rejected coal will be removed by
Seller at Seller's expense. If the coal has been dumped in
Purchaser's stockpile, Purchaser will have the option to count such
tonnage against the tonnage to be delivered that calendar month.
If the coal has not been dumped in Purchaser's stockpile, the coal
rejected may be replaced by Seller with coal that meets the
required specifications.
(5) Should any coal be rejected for failure to meet
the Suspension Specifications stated in Paragraph 1(c)(1) or fails
to meet the requirements of Paragraph 1(c)(2) on the basis of
visual inspection, Seller must, within five (5) business days,
advise Purchaser, in writing, as to the steps Seller is taking to
eliminate the problems that caused the coal to be rejected. If
Seller fails to provide such written notification to Purchaser,
Purchaser will have the right, but not the obligation, to refuse
any coal Seller attempts to deliver on a daily basis until
Purchaser receives such notification.
(6) A mutually acceptable sampling company
(hereinafter referred to as "the Sampling Company") shall sample
coal delivered hereunder at least daily using an auger sampler
sampling device installed, calibrated and operated at the Sand Lick
Tipple in accordance with ASTM standards. All samples collected by
the Sampling Company shall be divided into at least three parts and
put into suitable air-tight containers, the first container in each
case to be used by a commercial testing laboratory mutually
acceptable to Seller and Purchaser and the second and third
containers in each case to be held by Purchaser for a period of not
less than 60 days from the actual sampling date, properly sealed
and labeled, to be analyzed if a dispute arises between Seller and
Purchaser. If notice of a dispute is not received within such 60-day
period, the initial analysis by the commercial testing
laboratory referred to in this Paragraph 1(c)(6) shall be
conclusive. The cost of the sampling and the initial analysis is
to be borne by Purchaser.
(7) The adjustments to price for deviations from the
Contacted Specifications as set forth herein shall be based upon a
composite, weighted/average analysis for coal delivered to and
accepted by Purchaser on a daily basis.
(8) If Seller should question the correctness of the
initial analysis, Seller shall have the right to have a second
split of the sample analyzed, at Seller's expense, by a mutually
agreeable second commercial testing laboratory using ASTM
procedures. If Purchaser or Seller does not accept the second
laboratory results, the third split of the sample will be analyzed
by a mutually chosen third commercial testing laboratory, using
ASTM procedures. The results of the third laboratory analysis will
be binding on Seller and Purchaser. The cost of the third analysis
will be borne equally by Seller and Purchaser.
(9) For all coal delivered hereunder, Purchaser
shall promptly deliver by courier or mail to Seller truck weight
tickets, showing origin point, the truck numbers, weight in each
truck and the delivery date. Coal shall be weighed by certified
scales at the Sand Lick Tipple, or at such other delivery point,
and such weights shall govern payment to Seller.
(10) Purchaser's acceptance of any amount of coal
which does not meet any of the Suspension Specifications of
Paragraph 1(c)(1) or the requirements of Paragraph 1(c)(2) shall
not constitute a waiver of any right which Purchaser may have under
this Agreement or as provided by law on account of the delivery of
such coal. In case of rejection of any coal in accordance with
this paragraph, Purchaser will immediately notify Seller of the
rejection and of the cause of rejection. If Purchaser so requests,
Seller shall promptly remove the coal at its expense.
(11) For coal delivered each day which differs from
the Contracted Specifications, the price for such coal shall be
adjusted, either positively or negatively, as follows:
(A) In the event the per shipment weighted
average value for ash exceeds the Contracted Specifications for ash
content, an adjustment at the rate of $0.50 per ton for each one
percentage point (1.00%), pro-rated to cover any fractions thereof,
of ash content (as received basis) in excess of that specified
shall be deducted from the price of the coal delivered in such
shipment.
(B) In the event that the per shipment weighted
average caloric value differs from the Contracted Specifications
for caloric value, an adjustment at the rate of one percent (1.0%)
of the purchase price per ton for each 100 Btus per pound variance
from the Contracted Specifications, pro-rated to cover any fraction
thereof.
(d)(1) Base Price. Purchaser shall pay to Seller the sum
of Twenty-Six Dollar ($26.00), f.o.b. sand lick tipple for each ton
of coal purchased hereunder and delivered prior to December 31,
1994. The price for coal delivered during the contract year 1995,
and any contract year thereafter (the term "contract year" shall
mean the twelve-month period from January 1st of any calendar year
to the last day of December of the following calendar year) will be
the Base Price ($26.00 per ton), plus the most conservative
escalation, as determined by percentage of sales price, that would
be applied to purchases of coal pursuant to the terms of any of the
Coal Supply Agreements which contain indexed escalation formulas
which are held by the Companies, the stock of which was sold by
Addington Holding Company, Inc. To Pittston Acquisition Corporation
in accordance with the September 24, 1993, Stock Purchase
Agreement. For example, if the indexed escalation in the VEPCO
contract is 1% for 1995, and this is the most conservative
escalation, the purchase price will increase from $26.00 to $26.26
for 1995.
(2) Delivery to Another Facility. If Purchaser
requests that the coal be delivered to a facility other than the
Sand Lick Tipple, the price to be paid will be adjusted based upon
the difference between the average truck rates Seller paid for
delivery of coal to the Sand Lick Tipple the prior three (3) months
and the truck rates that will be charged, on a competitive contract
basis, to the other facility. For example, if its truck rates are
$2.00 per ton for delivery to the Sand Lick Tipple and $3.00 per
ton for delivery to the other facility to which Purchaser requests
delivery, the price to be paid will be increased One Dollar ($1.00)
per ton.
2. Force Majeure.
(a) In the event of either party being rendered wholly or
in part, by force majeure, unable to carry out its obligations
under this Agreement, other than the obligation to make payments
due hereunder, it is agreed that upon such party giving notice and
full particulars of such force majeure in writing or by facsimile
transmission to the other party as soon as possible, but not later
than 30 days, after the occurrence of the cause relied upon, the
obligations of the party giving such notice, insofar as they are
affected by such force majeure, shall be suspended during the
continuance of any inability so caused, and for no longer, and such
cause shall, as far as possible,l be remedied with all reasonable
dispatch. The party giving notice hereunder shall not be liable to
the other party for or on account of any loss, damage, injury or
expense resulting from or arising out of such delay or prevention,
provided, however, that such party shall use due and practical
diligence to remove the cause or causes thereof.
(b) As used herein the term "force majeure" shall mean
acts not within the reasonable control of the party seeking to
invoke one or more events of force majeure as an excuse for its
failure to perform any obligation hereunder where the occurrence of
an event of force majeure is made a permissible defense, including,
without limitation, acts of God, strikes, lockouts or other
industrial disputes, acts of the public enemy, war, epidemics,
riots, lightning, fire, storm, flood, any unusually severe weather
conditions, or explosions; provided, however, this provision shall
not be construed to require such party to adjust any labor disputes
or to contest or refrain from contesting, administratively or
judicially, the validity of any federal, state or local law, rules
or regulation.
(c) The parties hereto recognize the mutual dependence of
each one on the other in the orderly carrying out of intent of this
Agreement. In the event either party has to invoke the provisions
of this paragraph for force majeure, that party shall use
reasonable diligence to overcome and mitigate the effects of such
force majeure and shall continually advise the other party of the
anticipated duration of such force majeure every five (5) days in
writing. If Seller is reasonably unable to make up the loss of
tonnage within the term of this Agreement, then the Agreement will
be extended until this shortfall quantity is purchased under the
same terms and conditions.
3. Miscellaneous.
(a) All payments required by this Agreement to be made to
Seller shall be made by check payable to the order of the Seller at
its address for payments set forth below. Payment for coal
received from the 1st through the 15th day of any month shall be
made on or before the last day of the month and payment for coal
received from the 15th day through the end of the month shall be
paid on or before the 16th day of the immediately following month.
(b) Purchaser shall not have any obligation whatsoever
with respect to the distribution of any such payment to any person
or persons other than Seller.
(c) Any notice or other communication required or
permitted to be given hereunder, shall be in writing addressed to
the parties as follows:
Seller: Addington Mining, Inc.
1500 Big Run Road
Ashland, KY 41102
Attention: President
Fax No.: 606/928-9527
Purchaser: American Eagle Coal Company
P. O. Box 120070
Stamford, CT 06912-0070
Attention: Chairman & CEO
Fax No.: 203/978-5360
with a copy to:
American Eagle Coal Company
P. O. Box 6300
Lebanon, VA 24266
Attention: Vice President of
Distribution
Fax No.: 703/889-6277
as the case may be, and delivered personally to the official
specified above or deposited, postage prepaid, in the United States
mail. Any party may, from time to time, change its address for
future notices hereunder by notice in accordance with this
Paragraph 3. Notices and other communications hereunder to either
party, elections and other documents shall be effective when
received by such party.
(d) Seller and Purchaser shall at all times have the sole
responsibility, direction and control over their respective
employees and equipment, and each shall indemnify and hold the
other party, its agents, servants, employees and lessors, harmless
from any and all liens, claims, demands, actions or causes of
action which any person, firm or corporation may have or claim to
have for any money due or for any damages for injury to persons,
life or property in any manner arising out of or in connection with
the activities of the Seller or Purchaser to be performed
hereunder, as the case may be.
(e) Seller will be solely responsible for paying all
royalties and for all federal and state taxes associated with the
mining of coal sold hereunder, including, but not limited to,
payment of reclamation fees required under the Surface Mining
Control and Reclamation Act of 1977, payment of all state, county
or local severance taxes, payment of Federal Black Lung Excise Tax
and all other related taxes inuring to the owner of the economic
interest of such coal.
(f) Seller represents and warrants that it has the right
to sell the coal to be sold hereunder and that such coal, when
tendered to Purchaser, shall be free and clear of any lien or
encumbrance whatsoever. Title to and risk of loss produced and
sold hereunder shall pass from Seller to Purchaser at the time the
coal is delivered to the Sand Lick Tipple; provided, however, in
the event Purchaser and Seller agree to permit Purchaser to pick up
coal at the mine site, title to risk of loss shall pass to
Purchaser when loaded onto Purchaser's trucks.
(g) This Agreement is, and the rights and obligations of
the parties are, strictly limited to the matters expressed herein.
Neither of the parties shall be under any fiduciary or other duty
to the other which will prevent it from engaging in or other duty
to the other which will prevent it from engaging in or enjoying the
benefits of any competing venture or ventures within the general
scope of the activities contemplated by this Agreement.
(h) It is not the purpose or intention of this Agreement
to create a partnership, joint venture or any other partnership
relation between the parties hereto. Each of the parties shall be
responsible only for its obligations and liabilities as set forth
herein, and neither party shall have any authority to act for or to
assume any obligations or responsibility on behalf of the other
party. Nothing contained in this Agreement shall be deemed to
constitute any party the partner of the other or agent or legal
representative of the other or to create any fiduciary relationship
between them.
(i) This Agreement shall be interpreted and governed by
the laws of the Commonwealth of Kentucky, without regard to the law
thereof regarding choice of law.
(j) Each of Purchaser and Seller irrevocably submits to
the exclusive jurisdiction of (i) the Circuit Court of Boyd County,
Kentucky, and (ii) the United States District Court for the Eastern
District of Kentucky, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction
contemplated hereby. Purchaser and Seller each agree to commence
any action, suit or proceeding related hereto either in the United
States District Court for the Eastern District of Kentucky or, if,
for jurisdictional reasons, such suit, action or other proceeding
may not be brought in such court, in the Circuit Court of Boyd
County, Kentucky. Purchaser and Seller further agree that service
of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth above shall be
effective service of process for any action, suit, or proceeding in
Kentucky with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding
sentence. Purchaser and Seller irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit or
proceeding arising out of this agreement or the transactions
contemplated hereby in the courts referred to above, and hereby
further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an
inconvenient forum.
(k) This Agreement shall be subject to all applicable
federal, state and local laws, rules and regulations of public
bodies exercising jurisdiction over the Agreement or the
development or operation of the property. In the event any
provision of this Agreement is, or the operations contemplated
hereby are, found to be inconsistent with or contrary to any such
law, rule or regulation, the latter shall be deemed to control and
this Agreement shall be regarded as modified accordingly, and as so
modified shall continue in full force and effect.
(l) No failure or delay on the part of either Purchaser
or Seller in exercising any of their respective rights hereunder
upon any failure by the other party to perform or observe any
condition, covenant or provision herein contained shall operate as
a waiver thereof, nor shall nay single or partial exercise of any
of such rights preclude any other or further exercise thereof or
the exercise of any other right hereunder. Neither this Agreement
nor any provision thereof may be supplemented, changed, waived,
discharged or terminated orally, or by any course of dealing or
trade usage, but only by an instrument in writing signed by the
party against whom the enforcement of the supplement, change,
waiver, discharge or termination is sought.
(m) Upon the written request of either Purchaser or
Seller, the other agrees to furnish such additional formal
assurances or other written documents in proper and recordable form
as may be reasonably necessary to carry out the intents, purposes
and terms of this Agreement.
(n) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and
assigns; provided, however, this Agreement may not be assigned or
otherwise transferred by either Seller or Purchaser without the
written consent of the other party, which consent shall not be
unreasonably withheld, except that such consent shall not be
required or assignment or transfer by a party (A) to its parent,
wholly-owned affiliate or wholly-owned subsidiary, or (B) by virtue
of statutory merger, consolidation or reorganization, or (C) to a
mortgagee, a corporate trustee, a bank, an insurance company or
other lending source and by any such lending source in the
enforcement of its assignments or rights.
(o) Notwithstanding any assignment or subcontracting,
Purchaser and Seller shall remain responsible under the terms and
conditions of this Agreement as if no assignment or subcontract
took place.
(p) This Agreement, together with the exhibits attached
hereto, constitute the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior
representations, negotiations, writings, memoranda and agreements
with respect to the subject matter hereof. Any prior agreements,
promises, negotiations or representations not expressly set forth
herein are of no force and effect.
WITNESS the following signatures as of the date first
above written.
ADDINGTON MINING, INC.
By /s/ Doug D. Moore
Its: President
AMERICAN EAGLE COAL COMPANY
By /s/ Jack D. McDaniel
Its Chairman and CEO
396\ADDINGTO\COAL.AGR
sh/lw 0320951354
396:addingto:asc:exhibit1.0m
<PAGE>
FIRST AMENDMENT TO
COAL SUPPLY AGREEMENT
BETWEEN
THE CINCINNATI GAS & ELECTRIC COMPANY
AND
ADDINGTON MINING, INC.
This First Amendment is entered into as of the 30th day of
June 1994, by and between The Cincinnati Gas & Electric Company, an
Ohio corporation ("Buyer") and Addington Mining, Inc., a Kentucky
corporation ("Producer").
WHEREAS, Buyer and Producer entered into a Coal Supply Agreement as
of November 15, 1993 (the "Agreement"); and
WHEREAS, Buyer and Producer now desire to amend the Agreement by
this First Amendment, which shall modify and become part of the
Agreement;
Now, Therefore, in consideration of the mutual promises in this
First Amendment and other good and valuable consideration, the
Agreement is amended as follows:
1. Section 9.1 - Adjustment for Calorific Value is amended
by deleting Section 9.1 in its entirety and replacing it
with the following:
Section 9.1 - Adjustment for Calorific Value
It is recognized that the weighted-average calorific
value of coal unloaded during any calendar month might
vary from 12,200 BTUs per pound. If the variation of
said weighted-average calorific value does not exceed
plus or minus 200 BTUs per pound "as received", there
will be no calorific adjustment to the Base Price.
However, should the calorific value vary more than plus
or minus 200 BTUs per pound from 12,200, the price for
coal unloaded during that month shall be determined as
follows:
(1) in the event the BTUs per pound are less than
12,000, the price per ton for that month shall be the
product of the following formula:
[((BP + TC) x ( AVC )) - TC] + FRF + FBLT
MP= .95 x [12,200 BTU ]
(ii) in the event the BTUs per pound are more than
12,400, the price per ton for that month shall be the
product of the following formula:
[ AVC x (BP+TC) ]
MP = [12,200 BTU ] - TC + FRF + FBLT
MP: Per ton price of coal for the month after recalculation
under this Section 9.1
BP: Base Price less FRF and FBLT
FRF: Federal Reclamation Fee. Current FRF is $0.340 per ton
($0.350 per ton less 3% deduction for excess moisture).
The 3% deduction for excess moisture shall remain fixed
for so long as Revenue Ruling 86-96 remains effective.
FBLT: Federal Black Lung Tax. Current FBLT is $0.534 per ton
($0.550 per ton less 3% deduction for excess moisture).
The 3% deduction for excess moisture shall remain fixed
for so long as Revenue Ruling 8696 remains effective.
The Federal Reclamation Fee and Federal Black Lung Tax
are included in the Base Price and are subject to change
as provided in Section 9.4(b) of this Agreement.
TC: The per ton cost of all transportation for such coal from
F.O.B. shipping point to the Station, including all taxes
and charges in connection therewith.
AVC: The weighted-average calorific value per pound for the
month. The remedies set forth in this Section 9.1 are in
addition to any other remedies of law, equity, or as set
forth in this Agreement.
2. All terms and conditions of the Agreement that are not
expressly amended by this First Amendment shall remain in
full effect.
In Witness Whereof, the Parties have caused this First Amendment to
be executed by their duly authorized officers to be effective as of
the date first written above.
THE CINCINNATI GAS & ELECTRIC
COMPANY
WTM
Witness: Laura Moreland By: /s/ Stephen G. Salay
Stephen G. Salay
Vice-President
Electric Production & Fuel
Supply
ADDINGTON MINING, INC.
Witness: Crystal Johnson By: /s/ Douglas D. Moore
Douglas D. Moore, President
COAL SUPPLY AGREEMENT
BETWEEN
THE CINCINNATI GAS & ELECTRIC COMPANY
AND
ADDINGTON MINING, INC.
<TABLE>
<CAPTION>
ADDINGTON MINING, INC.
THE CINCINNATI GAS & ELECTRIC COMPANY
COAL SUPPLY AGREEMENT
Article/Section Page
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 - Source of Reserves. . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 - Term of Agreement . . . . . . . . . . . . . 2
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3.1 - Quantity. . . . . . . . . . . . . . . . . . 2
Section 3.2 - Tonnage Schedule. . . . . . . . . . . . . . 2
Section 3.3 - Specific Performance. . . . . . . . . . . . 3
Section 3.4 - Spot Coal Option. . . . . . . . . . . . . . 4
ARTICLE IV - Delivery. . . . . . . . . . . . . . . . . . . . . 6
Section 4.1 - Title . . . . . . . . . . . . . . . . . . . 6
Section 4.2 - Shipment. . . . . . . . . . . . . . . . . . 7
ARTICLE V - Weighing . . . . . . . . . . . . . . . . . . . . . 7
Section 5.1 - Belt Scales . . . . . . . . . . . . . . . . 7
Section 5.2 - Calibration . . . . . . . . . . . . . . . . 7
Section 5.3 - Inaccuracy. . . . . . . . . . . . . . . . . 7
Section 5.4 - Adjustment. . . . . . . . . . . . . . . . . 8
ARTICLE VI - Specifications. . . . . . . . . . . . . . . . . . 8
Section 6.1 - Size. . . . . . . . . . . . . . . . . . . . 8
Section 6.2 - Analysis. . . . . . . . . . . . . . . . . . 8
Section 6.3 - Suspension of Delivery. . . . . . . . . . . 10
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.1 - Terms of Payment. . . . . . . . . . . . . . 12
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8.1 - Base Price. . . . . . . . . . . . . . . . . 12
ARTICLE IX - Adjustments to Base Price . . . . . . . . . . . . 13
Section 9.1 - Adjustment for Calorific Value. . . . . . . 13
Section 9.2 - Adjustment for Sulfur Content . . . . . . . 14
Section 9.3 - Adjustment for Ash Content. . . . . . . . . 15
Section 9.4 - Adjustment to Base Price. . . . . . . . . . 16
Section 9.5 - Purchased Coal Price Adjustment . . . . . . 19
Section 9.6 - Examination of Records. . . . . . . . . . . 22
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.1 - Sampling and Analysis. . . . . . . . . . . 22
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 11.1 - Representations and Warranties . . . . . . 23
ARTICLE XII - General Provisions . . . . . . . . . . . . . . . 24
Section 12.1 - Force Majeure - Notice . . . . . . . . . . 24
Section 12.2 - Force Majeure-Definition and Deficiencies. 24
Section 12.3 - Force Majeure Option . . . . . . . . . . . 25
Section 12.4 - Waivers and Remedies . . . . . . . . . . . 26
Section 12.5 - Governing Law. . . . . . . . . . . . . . . 26
Section 12.6 - Notices. . . . . . . . . . . . . . . . . . 27
Section 12.7 - Equal Opportunity Clause . . . . . . . . . 27
Section 12.8 - Disabled Veterans and Handicapped
Workers. . . . . . . . . . . . . . . . . . 29
Section 12.9 - Assignments. . . . . . . . . . . . . . . . 30
Section 12.10 - Confidentiality . . . . . . . . . . . . . 30
Section 12.11 - Entire Agreement. . . . . . . . . . . . . 30
</TABLE>
ADDINGTON MINING, INC.
THE CINCINNATI GAS & ELECTRIC COMPANY
COAL SUPPLY AGREEMENT
This Agreement made and entered into as of the 15th day of
November, 1993, by and between The Cincinnati Gas 8, Electric
Company, an Ohio Corporation ("Buyer"), and Addington Mining, Inc.,
a Kentucky Corporation ("Producer").
WITNESSETH:
Producer hereby agrees to sell and deliver, and Buyer hereby
agrees to purchase, receive and pay for, coal in the quantity, at
the price and under the terms and conditions hereinafter set forth
for use by Buyer at its Stations (the "Station") to wit:
ARTICLE I
Section 1.1 - Source of Reserves
The coal to be sold and purchased under this Agreement shall
be produced, processed, and shipped from the coal reserves as
identified on Appendix 1, which is attached to and made a part of
this Agreement (hereafter referred to as "Producer's Operations").
Additional reserves may be added to Appendix I upon approval by
Buyer, and such approval shall not be unreasonably withheld,
subject to a test burn satisfactory to Buyer.
ARTICLE II
Section 2.1 - Term of Agreement
Subject to Buyer's options set forth below in this Section
2.1, this Agreement shall remain in effect until such time as
5,400,000 tons of coal sold and purchased under this Agreement have
been delivered or until cancellation pursuant to any other
provision of this Agreement, whichever occurs first. The delivery
of coal under this Agreement shall commence on or about January 1,
1994. A ton shall be considered to be two thousand (2,000) pounds
avoirdupois.
Buyer, at its sole option, may extend this Agreement, under
the same terms and conditions of this Agreement, up to three
separate consecutive option periods of 1,800,000 tons in each
option period, for up to a total of 5,400,000 additional tons in
the option periods. Buyer shall give Producer notice of its intent
to exercise each option when approximately 225,000 tons remain to
be shipped under the then current term of this Agreement.
ARTICLE III
Section 3.1 - Quantity
The quantity of coal to be sold and purchased under this
Agreement during each calendar month shall be between 63,750 tons
and 86,250 tons subject to the provisions of this Agreement.
Section 3.2 - Tonnage Schedule
By the fifteenth of each calendar month, Buyer shall notify
Producer of the tonnage to be delivered in the next succeeding
month. It is agreed that the tonnage flexibility option under
Section 3.1 of this Agreement, may reduce or increase the
quantities to be purchased and sold during a calendar year to as
low as 765,000 tons, subject to Force Majeure and/or Buyer's
exercise of any of its remedies, or as high as 1,035,000 tons. By
November 1 of each year, Buyer shall provide Producer with a
schedule of the estimated quantities of coal which Buyer
anticipates will be loaded under this Agreement during each
calendar month of the ensuing year.
Section 3.3 - Specific Performance
If, during the term of this Agreement, Producer, except for
reasons of Force Majeure, fails to deliver any part of the monthly
tonnage of the quality specified in this Agreement or delivery of
tonnage is suspended under the provisions of Section 6.3 of this
Agreement (such tonnage is hereafter referred to as the
"Deficiency"), Buyer, at its option and with notice to Producer,
may elect for all or any part of such Deficiency, any of the
following options, including any combination thereof (i) to
purchase from other sources that quantity of comparable quality
coal or portions thereof, which Producer failed to deliver or would
have been required to deliver under this Agreement if not under the
suspension provisions of Section 6.3 of this Agreement, and any
difference between the price paid by Buyer on a delivered cents per
million BTU basis for such coal purchased from such other sources
and the Base Price plus transportation cost, in delivered cents per
million BTU for coal under this Agreement in effect at the time of
such Deficiency, shall be paid by Producer to Buyer, and the total
tonnage to be sold and purchased under Section 2.1 of this
Agreement shall be reduced by the amount of such tonnage purchased,
and in such event Producer shall have no right to supply such
tonnage; (ii) to accept subsequent deliveries of coal from Producer
in the amount necessary to cure the Deficiency, or any portion
thereof; (iii) to reduce the total tonnage to be sold and purchased
under Section 2.1 of this Agreement by the amount of such
Deficiency, or any portion thereof, and in such event Producer
shall have no right to supply such tonnage. If (ii) is elected,
Producer shall have the right to designate the dates, subject to
Buyer's approval, when such deliveries shall be made, and the Base
Price for the coal so delivered shall be the Base Price in effect
at the time of the Deficiency. If Buyer does not grant approval
and designates delivery dates subsequent to the dates designated by
Producer, including a date following the delivery and acceptance of
all other tonnage under this Agreement, the Base Price for the coal
shall be the Base Price in effect at the time the deliveries
actually occur.
Further, notwithstanding anything set forth in this Agreement,
if, at any time during the term of this Agreement, Producer, except
for reasons of Force Majeure, fails to deliver the monthly tonnage
which Buyer notifies Producer to deliver in accordance with Section
3.2 of this Agreement, for three consecutive months or four months
in any twelve consecutive month period, Buyer may elect, by giving
written notice to Producer, to cancel this Agreement. This Section
3.3 grants rights in addition to other rights which Buyer may have
and therefore, is not to be construed as a limitation upon Buyer
exercising any other rights to which ft may be entitled.
Section 3.4 - Spot Coal Option
Producer shall have, during the term of this Agreement, the
option to supply up to 15% of Buyer's spot coal requirements for
the Station of comparable quality coal meeting the specifications
set forth in Section 6.2 of this Agreement, if Producer shall meet
the weighted-average evaluated delivered price in cents per million
BTUs of the second and third lowest quotations acceptable to the
Buyer from other coal suppliers for each spot coal purchasing
solicitation, or in the event of only two quotations acceptable to
Buyer, the weighted-average of the two quotations or, in the event
only one quotation is acceptable to Buyer, that quotation.
The evaluated costs, taking into account the corresponding
qualities of coal, shall be determined by Buyer's coal evaluation
model. The quality values used to determine the busbar costs of
Producer's coal shall be the specifications of Section 6.2(a) of
this Agreement.
Buyer shall notify Producer on or before the twentieth (20th)
day of each month preceding a spot coal purchasing period of the
price which Producer must meet for the option. Producer shall,
within 48 hours of such notification, inform Buyer of Producer's
decision on the option. The notifications by Buyer and Producer
above referenced shall be made in writing. The amount of coal
supplied by Producer to Buyer pursuant to such option shall in no
way reduce the responsibility of Producer to supply and the Buyer
to accept the tonnage as specified in Sections 2.1, 3.1 and 3.2 of
this Agreement. Producer shall have the right to review the
applicable quotations.
Coal purchased by Producer and delivered to Buyer under this
Section 3.4 will not be considered as Purchased Coal under Section
9.5 of this Agreement provided Producer notifies Buyer when
accepting the option as to the quantity of coal to be purchased and
the vendor from whom Producer is purchasing such coal.
Spot coal purchases shall be construed as any formal
purchase solicitation from the open market for a purchase duration
of less than twelve months.
ARTICLE IV
Delivery
Section 4.1 - Title
Coal sold and purchased under this Agreement shall be loaded
by Producer into barges and title to and risk of loss thereof shall
pass to Buyer upon release of barges to the Buyer's barging
contractor at milepost 7.3 on the Big Sandy River, or other
shipping points set forth in Appendix 11, provided that the
delivered cost in cents per million BTU of the coal loaded at the
other shipping points shall be no greater than coal shipped F.O.B.
barge milepost 7.3 on the Big Sandy River.
Barge savings that result from the utilization of loading
facilities by Producer other than at milepost 7.3 on the Big Sandy
River, whereby the transportation cost is reduced, shall accrue to
Producer. If the use by Producer of barge loading facilities other
than at milepost 7.3 on the Big Sandy River results in additional
barge transportation costs (as compared to M.P. 7.3 on the Big
Sandy River), these additional costs shall be borne by Producer.
Other shipping points may be added to Appendix 11 only upon written
approval by Buyer.
Section 4.2 - Shipment
The scheduled tonnage shall be delivered to Buyer in
approximately equal weekly quantities during each month and Buyer
shall arrange for placement of empty barges in sufficient number
and at scheduled times for loading by Producer.
ARTICLE V
Weighing
Section 5.1 - Belt Scales
Coal sold and purchased under this Agreement shall be weighed
by Buyer using belt scales installed at the Station, and the
weights so obtained shall govern all settlements under this
Agreement. If Buyer fails to obtain a weight for any barge or if
Buyer's scales are unavailable for any period, then barge weights
shall be determined on Producer's scales at the shipping point or,
at Buyer's option and expense, by a mutually agreed-upon
independent barge gauging company.
Section 5.2 - Calibration
Buyer shall conduct a test periodically to determine scale
accuracy in accordance with National Institute of Standards and
Technology Handbook 44 requirements for belt scales.
Producer shall have the right at all reasonable time to
observe the weighing of coal at the Station and to observe the
calibration procedures of the belt scales for the purpose of
verifying the accuracy and repeatability of Buyer's scales.
Section 5.3 - Inaccuracy
In the event that calibration of any of Buyer's belt scales,
as provided by Section 5.2 of this Agreement, shows any such scale
to be inaccurate, the inaccuracy shall be presumed to have existed
for one half the number of days between the date on which such
scale was last calibrated and the date of such calibration.
Section 5.4 - Adjustment
Any amount due from Buyer to Producer or from Producer tc,
Buyer as a result of any belt scale calibration shall be paid by
issuance of a credit or debit memorandum, as the case may require,
to be applied against the invoice(s) covering the next succeeding
deliveries of coal under this Agreement.
ARTICLE VI
Specifications
Section 6.1 - Size
Coal sold and purchased under this Agreement shall be high-
volatile, fully washed, partially washed, or run-of-mine,
bituminous coal. Each shipment shall consist of coal crushed to a
top size not larger than two (2) inches, shall average no more than
35% - %" x 0 fines, shall have no intermediate sizes removed or
added and shall be clean, free of extraneous material, and free
flowing upon unloading by Buyer.
Section 6.2 - Analysis
(a) Coal sold and purchased under this Agreement shall conform
to the following analysis on a monthly weighted-average "as
received" basis (except for Ash, which shall be on a "Dry" basis):
Heating Value (BTU/lb.) 12,200 minimum
Ash (%) (Dry) 13.00 maximum
Sulfur (lbs. of SO2/mmBTU) 1.60 maximum
(effective 1/1/2000
1.20 maximum)
Moisture (%) 8.00 maximum
Volatile (%) 30.00 minimum
Ash Fusion Temperature 2450 minimum
(H=W 1/2F Reducing atm.)
Hardgrove Grindability Index 45 minimum
Chlorine (%) 0.12 maximum
(b) Buyer shall have the right to reject individual barges of
coal which, when sampled and analyzed in accordance with procedures
in this Agreement, fail to conform to any of the following
specifications on an "as received" basis (except for Ash, which
shall be on a "Dry" basis):
Heating Value (BTU/lb.) 11,700 minimum
Ash (%)(Dry) 15.0 maximum
Sulfur (lbs. of SO2/mmBTU) 2.61 maximum
(effective 1/1/2000
1.20 maximum)
Moisture (%) 11.0 maximum
Volatile (%) 26.0 minimum
Ash Fusion Temperature
(H=W 1/2F Reducing atm.) 2000 minimum
Hardgrove Grindability Index 40 minimum
Size (% -" x 0") 45 maximum
Chlorine (%) 0.15 maximum
Producer, at its expense, shall remove such rejected barges of
coal from the Station within seven (7) days after receiving notice
of said rejection from Buyer. Notwithstanding the foregoing, it is
understood and agreed that any barge of coal which fails to conform
to the heating value and/or moisture specifications of this Section
6.2(b) as a result of an increase in moisture content occurring
when Buyer has failed to unload and sample the coal within thirty
(30) days following release of the barge of coal to Buyer's barging
contractor, and/or has experienced excessive rainfall upon receipt,
and Producer has shown that such moisture content increase has
caused the failure of the coal to meet such specifications, such
barge of coal shall not be rejected by Buyer.
Section 6.3 - Suspension of Delivery
(a) If the coal shipped under this Agreement fails to conform
to the specifications of Section 6.2(a) of this Agreement, for two
consecutive months or for any three months in any consecutive
twelve month period, or any five barges of coal fail to conform to
the specifications of Section 6.2(b) of this Agreement, in any
consecutive three month period, then Buyer shall have the right, at
its option, and in addition to other remedies of law, equity, or as
set forth in this Agreement, after giving written notice to
Producer, to suspend deliveries under this Agreement until Producer
has established to Buyer's satisfaction that the coal thereafter
delivered will conform to the specifications of Section 6.2 of this
Agreement. If, within ninety (90) days from the date of such
written notice, Producer has not established to Buyer's
satisfaction that the Producer can consistently furnish coal
conforming to the specifications of Section 6.2 of this Agreement,
Buyer may elect to cancel this Agreement. In addition, if at any
time during the term of this Agreement, the coal shipped under this
Agreement fails to conform to the specifications of Section 6.2(a)
of this Agreement, for three consecutive months or for any four
months in a consecutive twelve month period, or any twelve barges
of coal fail to conform to the specifications of Section 6.2(b) of
this Agreement, in any consecutive twelve month period, Buyer may
elect, by giving written notice to Producer, to cancel this
Agreement. (b) in the event that the characteristics of the coal
furnished by Producer, whether or not such coal conforms to the
specifications set forth in this Agreement, are found by Buyer at
any time, to be such that the coal adversely affects the operation
of the boilers or associated equipment at the Station, Buyer may
notify Producer in writing of this fact and of the specific adverse
effect of the coal, and the Producer shall have sixty (60) days
from such notification to correct the characteristics of the coal.
Buyer may suspend shipments of coal during this sixty (60) day
period. During the sixty (60) day period for correction of the
characteristics of the coal, Producer shall make its best efforts
to correct the characteristics which make the coal unsuitable. If,
however, the characteristics of the coal are not corrected, Buyer
may cancel this Agreement upon expiration of the sixty (60) days
whether or not Producer has exercised its best efforts. If Buyer
decides to cancel this Agreement pursuant to this Section 6.3(b)
and Producer has made its best efforts to correct the
characteristics which make the coal unsuitable and the coal
furnished by Producer otherwise conforms to all specifications set
forth in this Agreement and Producer has fully complied with all
the terms and conditions of this Agreement, then Buyer will pay to
Producer two ($2.00) dollars per ton for the remaining tons that
Buyer is obligated to purchase for the initial term of this
Agreement or for an option period that Buyer has actually
exercised, but no monies shall be paid by Buyer for option periods
not yet exercised by Buyer.
ARTICLE VII
Section 7.1 - Terms of Payment
For each shipment of coal under this Agreement, Producer shall
promptly mail to Buyer a shipping notice on Producer's regular
commercial form, showing barge numbers, loading dock, weight of
coal in each barge, and the shipping date, and Buyer shall pay to
Producer, typically within twenty (20) working days after receipt
of the coal at the Station, seventy percent (70%) of the Base
Price. Buyer shall thereafter pay the remaining amounts due, if
any, after analyzing the coal according to the procedures
prescribed in this Agreement, typically within twenty (20) working
days after receipt of invoice. As to any coal that is subsequently
rejected by Buyer under provisions of Section 6.2(b) of this
Agreement, title and risk of loss to such coal shall, immediately
upon rejection, revert to Producer; Buyer shall not be obligated to
pay for such coal and Producer shall reimburse Buyer for any amount
paid for such coal, in addition to the costs of all transportation
for such coal both to and from the Station.
ARTICLE VIII
Section 8.1 - Base Price
The Base Price for coal having a heating value of 12,200 BTU
per pound, "as received" shall be $27.33 per ton as of January 1,
1994, F.O.B. barge milepost 7.3 on the Big Sandy River. The term
Base Price shall mean, after the first adjustment pursuant to the
terms of this Agreement, the Base Price as adjusted from time to
time.
ARTICLE IX
Adjustments to Base Price
Section 9.1 - Adjustment for Calorific Value
It is recognized that the weighted-average calorific value of
coal unloaded during any calendar month might vary from 12,200 BTUs
per pound. If the variation of said weighted-average calorific
value does not exceed plus or minus 1 00 BTUs per pound "as
received", there will be no calorific adjustment to the Base Price.
However, should the calorific value vary more than plus or minus 1
00 BTUs per pound from 12,200, the price for coal unloaded during
that month shall be determined as follows:
(i) in the event the BTUs per pound are less than 12,1 00, the
price per ton for that month shall be the product of the
following formula:
[((BP + TC) x ( AVC )) - TC]
MP = .95 x[( (12,200 BTU)) ] + FRF + FBLT
(ii) in the event the BTUs per pound are more than 12,300, the
price per ton for that month shall be the product of the
following formula:
[ AVC x (BP+TC)]
M= [12,200 BTU ] - TC + FRF + FBLT
MP: Per ton price of coal for the month after recalculation under
this Section 9.1.
BP: Base Price less FRF and FBLT
FRF: Federal Reclamation Fee. Current FRF is $0.340 per ton
($0.350 per ton less 3% deduction for excess moisture). The
3% deduction for excess moisture shall remain fixed for so
long as Revenue Ruling 86-96 remains effective.
FBLT: Federal Black Lung Tax. Current FBLT is $0.534 per ton
($0.550 per ton less 3% deduction for excess moisture). The
3% deduction for excess moisture shall remain fixed for so
long as Revenue Ruling 86-96 remains effective.
The Federal Reclamation Fee and Federal Black Lung Tax are
included in the Base Price and are subject to change as provided in
Section 9.4(b) of this Agreement.
TC: The per ton cost of ali transportation for such coal from
F.O.B. shipping point to the Station, including all taxes and
charges in connection therewith.
AVC: The weighted-average calorific value per pound for the month.
The remedies set forth in this Section 9.1 are in addition to
any other remedies of law, equity, or as set forth in this
Agreement.
Section 9.2 - Adjustment for Sulfur Content
It is recognized that the sulfur content of coal sold under
this Agreement is critical to Buyer, but that, from time to time
the weighted average sulfur content of coal unloaded during any
calendar month might exceed the Section 6.3(a) specification of
1.60 pounds of sulfur dioxide per million BTUs and, after January
1, 2000, the Section 6.2(a) specification of 1.20 pounds of sulfur
dioxide per million BTUS.
If the weighted average of the coal unloaded during any
calendar month contains sulfur which exceeds the Section 6.2(a)
specification of 1.60 pounds of sulfur dioxide per million BTUs
and, after January 1, 2000, the Section 6.2(a) specification of
1.20 pounds of sulfur dioxide per million BTUS, the price per ton
for all coal unloaded during the month shall be reduced by 2.0
cents per ton for each .01 pounds of sulfur dioxide per million
BTUs in excess of the applicable Section 6.2(a) specification of
1.60 pounds or 1.20 pounds of sulfur dioxide per million BTUS. In
the event that coal unloaded from any barge exceeds the sulfur
limitation set forth in Section 6.2(b) of this Agreement, the Base
Price per ton of the coal unloaded from such barge shall be reduced
by 10%. Any coal which has incurred a 10% reduction in price in
accordance with the immediately preceding sentence shall not be
included in any computation of the weighted average specifications
of the other coal unloaded during the month in which such coal was
unloaded. The remedies set forth in this Section 9.2 are in
addition to any other remedies of law, equity, or as set forth in
this Agreement.
Section 9.3 - Adjustment for Ash Content
It is recognized that the ash content of coal sold under this
Agreement is critical to Buyer, but that, from time to time the
weighted average ash content of coal unloaded during any calendar
month might exceed 13.00% "Dry".
If the weighted average of the coal unloaded during any month
contains ash which exceeds 13.00% "Dry", the price per ton for all
coal unloaded during the month shall be reduced by 0.28% for each
1/10th percent (.1%) of ash in excess of 13.00% "Dry'. In the
event that coal unloaded from any barge exceeds the ash limitation
set forth in Section 6.2(b) of this Agreement, the Base Price per
ton of the coal unloaded from such barge shall be reduced by 10%.
Any coal which has incurred a 10% reduction in price in accordance
with the immediately preceding sentence shall not be included in
any computation of the weighted average specifications of the other
coal unloaded during the month in which such coal was unloaded.
The remedies set forth in this Section 9.3 are in addition to any
other remedies of law, equity, or as set forth in this Agreement.
Section 9.4 - Adjustment to Base Price
(a) Except as otherwise provided in this Agreement, the Base
Price for coal shipped on or after the beginning date for each
period stated below shall be as follows,
<TABLE>
<CAPTION> (none)
Period Base Price Per Ton
<S> <C>
January 1, 1994 $27.33
January 1, 1995 27.33
January 1, 1996 27.33
January 1, 1997 27.33
January 1, 1998 27.33
January 1, 1999 27.33
Option Years*
January 1, 2000 29.30
January 1, 2001 29.88
January 1, 2002 30.48
January 1, 2003 31.09
January 1, 2004 31.71
January 1, 2005 32.34
*These Base Prices for the option years are applicable if the
options are so exercised by Buyer. Failure to exercise any of the
three options will conclude this Agreement at the end of the then
current term.
</TABLE>
(b) All of the above Base Prices set forth in Section 9.4 (a)
of this Agreement include the Federal Black Lung Tax, Federal
Reclamation Fee, West- Virginia Special Reclamation Tax, West
Virginia Mines and Minerals Operations Fund Tax, Kentucky Severance
Tax and all other applicable taxes and fees. These taxes and fees
shall be adjusted effective on the first day of the next month
following the effective date of any change occurring after January
1, 1994 in the assessment to Producer. All adjustments shall be
deemed to be based on those assessments applicable to surface
mining.
(c) Producer hereby certifies that as of November 15, 1993 it
is in compliance with the rules, regulations, practices, and
standards issued by any governmental agency with respect to
legislation, regulations, rules, or mandates which were in effect
either by interim or final rules, or passed, adopted, or
promulgated but to go into later effect.
In the event of a change in costs incurred by Producer in the
production, possessing, preparation, and shipping of coal from
Producer's Operations occurring after November 15, 1993 not
provided for in the other provisions of this Agreement, caused by
the enactment, modification, or revision of any federal, state, or
local legislation, regulations, rules, or mandates (Regulatory
Imposition) issued pursuant thereto, (including but not limited to
the Federal Mine Safety & Health Act of 1969 and the Surface Mining
Control and Reclamation Act of 1977), which were not reasonably
foreseeable prior to November 15, 1993, a reimbursement for such
change in costs may be requested by either party and such change in
costs may be audited by Buyer and if equitable, such amount shall
be added to or subtracted from, as the case may be, the Base Price.
Buyer shall have the right, but not the obligation, to cancel
this Agreement at any time should any increase under Section 9.4(b)
or Section 9.4(c) cause the Base Price to be increased by more than
ten percent (1 0%) of its then current amount or should the total
of all increases under Sections 9.4(b) and 9.4(c) at any time
during the term of this Agreement cause the Base Price to be
increased by more than twenty-five percent (25%) ($6.83) of its
initial amount ($27.33) as of January 1, 1994. Should Buyer cancel
this Agreement as provided in the immediately preceding sentence,
Producer may nullify such cancellation by immediate notice to Buyer
that Producer permanently waives its right to right to the amount
of any such adjustment which is in excess of any such limits as
applicable.
In the event of any governmental action applicable under this
Section 9.4(c), the requesting party shall notify the other party
and the requesting party shall submit detailed documentation to
allow determination of such adjustment. If Producer and Buyer are
unable to agree within one hundred eighty (I 80) days of receipt of
the requesting party's request and documentation as to the amount
the Base Price should be adjusted or as to whether the request is
appropriate, then the matter may be submitted to a third party
mutually agreeable to the parties for final determination.
If upon agreement or final determination, an adjustment in the
Base Price is found to be appropriate, any amount due either party
shall be paid by issuance of a credit/debit memorandum to be
applied against the invoice(s) covering the next succeeding
deliveries of coal under this Agreement and such amount shall
include interest computed on the basis of the prime rate in effect
at Citibank, N.A., such interest to commence one hundred eighty (1
80) days after receipt of the request and documentation. Any
increases or decreases in the Base Price resulting from a
Regulatory Imposition shall be effective for all coal shipped on or
after the effective date of the Regulatory Imposition or the date
Producer incurs or ceases to incur costs in compliance with the
Regulatory Imposition, whichever occurs later; provided, however,
Producer shall not be entitled to any Base Price increase for
tonnage delivered prior to the date upon which Producer's written
request for such adjustment was received by Buyer, nor for interest
for a period of one hundred eighty (180) days subsequent to such
date of Buyer's receipt.
Section 9.5 - Purchased Coal Price Adjustment
Buyer recognizes that Producer may wish to purchase some coal,
or ship coal from other than Producer's Operations (hereinafter
referred to as Purchased Coal Tonnage) for fulfillment of this
Agreement. Therefore, beginning with the six month period ending
June 30, 1994, the Base Price shall be reduced for any six month
period ending June 30 or December 31 in which any of the formulas
set forth below are applicable. These formulas shall take into
consideration all coal shipped by Producer under this Agreement
through any of the Approved Docks listed in Appendix 11 that have
shipped coal to Buyer during such six month period (hereinafter
referred to as "Active Docks" ).
a. For any six month period in which the Purchased Coal
Tonnage, whether or not shipped to Buyer, shipped through
Active Docks, whether or not shipped to Buyer, is less
than fifteen percent (15%) of the sum of the tons of coal
from Producers Operations sold and shipped through Active
Docks, whether or not shipped to Buyer, plus the
Purchased Coal Tonnage, there will be no Purchased Coal
Price Reduction.
b. For any six month period in which the Purchased Coal
Tonnage, whether or not shipped to Buyer, shipped through
Active Docks, whether or not shipped to Buyer, is fifteen
percent (1 5%) or greater but less than twenty-seven
percent (27%) of the sum of the tons of coal from
Producer's Operations sold and shipped through Active
Docks, whether or not shipped to Buyer, plus the
Purchased Coal Tonnage, the Purchased Coal Price
Reduction computed in accordance with the formula set
forth below, shall be applied to Buyer's pro-rata share
of Purchased Coal Tonnage exceeding fifteen percent (15%)
of the sum of the tons of coal from Producer's Operations
sold and shipped through Active Docks plus the Purchased
Coal Tonnage.
PCPR = 1/2 x (BP - PC)
Where:
PCPR: Purchased Coal Price Reduction per ton
BP: Base Price of the prior six months
PC: Purchased Coal Tonnage cost to Producer
(weighted-average for such six month period).
Such Purchased Coal Tonnage cost to Producer
shall not exceed an amount which a seller
would receive in a competitive,
straightforward transaction.
There shall be no adjustment for any six month period in which PC
is greater than BP.
c. For any six month period in which the Purchased Coal
Tonnage, whether or not shipped to Buyer, shipped through
Active Docks, whether or not shipped to Buyer, is twenty-
seven percent (27%) or greater of the sum of the tons of
coal from Producer's Operations sold and shipped through
Active Docks, whether or not shipped to Buyer, plus the
Purchased Coal Tonnage, there shall be no reduction under
Section 9.5(b) above, but the price of all coal shipped
to Buyer during such six month period (whether or not any
of such coal was Purchased Coal Tonnage), shall be
reduced in accordance with the following formula:
[BP x (TPO/T) x (TPO)] + [PC x (TPC)*]
AP= [ ( .73 ) ( T )] [ ( T ) ]
Where:
AP: Adjusted Price Per Ton for the six month period.
BP: Base Price of the prior six months.
TPO: Tons of coal from Producer's Operations sold and
shipped through Active Docks during the six month
period, whether or not shipped to Buyer.
PC: PC as defined in Section 9.5(b) above. PC shall
not be greater than BP.
TPC: Purchased Coal Tonnage for the six month period,
whether or not shipped to Buyer.
T: TPO + TPC
*TPC shall never be greater than .70
T
Appendix Ill provides examples of the calculation of the
Purchased Coal Price Reduction.
Section 9.6 - Examination of Records
Buyer shall have the right at any time upon reasonable notice
to Producer to examine Producer's engineering reports and records,
books of account, and all other records relating to matters
affecting this Agreement.
ARTICLE X
Section 10.1 - Sampling and Analysis
Buyer, at its expense, shall sample and analyze coal following
applicable American Society of Testing and Materials (ASTM)
standards. In the absence of ASTM standards, a different sampling
and analytical procedure mutually acceptable to Producer and Buyer
shall be used. Buyer may top sample coal in barges prior to
unloading, or may sample coal at the loading facility while coal is
being loaded into barges and such sampling and analysis shall be
used to determine whether the coal is acceptable under Section
6.2(b) of this Agreement.
Producer shall have the right to have its company
representatives present at any reasonable times to observe Buyer's
sampling and analytical procedures. Buyer shall make available
sample splits for Producer upon request. Producer, at its expense,
may make arrangements to pick up samples. Buyer shall retain, for
a period of sixty (60) days from the unloading date, sample splits
taken in accordance with the provisions of this Agreement for use
by Buyer and the independent laboratory specified below.
Buyer's sampling and analysis shall be used to establish the
quality of coal provided by Producer. Buyer shall, typically
within 15 working days after the end of each month, determine the
weighted average quality for the coal unloaded monthly and provide
a summary of this report to Producer.
In the event of a disagreement over coal analysis, Buyer and
Producer shall select a mutually agreed upon independent
laboratory. Buyer shall provide sample splits to the independent
laboratory for analysis. Such analysis shall be accepted as the
quality of coal received. The cost of the independent analysis
shall be equally shared between Buyer and Producer.
ARTICLE XI
Section 11.1 - Representations and Warranties
Producer represents and warrants that:
(a) Producer presently owns or otherwise controls the coal
reserves identified in Appendix I in an amount sufficient
to fulfill the terms of this Agreement and the coal
contained in such reserves is mineable and of the quality
called for by this Agreement.
(b) There are no existing contractual commitments with
respect to Producer's coal reserves that would prevent
delivery of the quantities of coal specified in this
Agreement and Producer will not enter into contractual
commitments during the term of this Agreement that will
prevent such delivery.
(c) Producer owns and has in operation mining facilities and
equipment sufficient to produce efficiently and
economically, the quantities of coal to be delivered
under this Agreement.
(d) Producer will at all times conduct its mining operations
in a prudent manner consistent with good and acceptable
practice in the coal mining industry, and Buyer shall
have the right, upon reasonable notice, at its own
expense and risk, to have its representatives and/or
qualified consultants observe and inspect Producer's
facilities and operations without interfering with said
operations.
(e) Not less than 15,000,000 tons of coal conforming to the
specifications in this Agreement are recoverable from the
reserves identified in Appendix 1.
ARTICLE XII
General Provisions Section 12.1 - Force Majeure - Notice
If, by reason of Force Majeure, either of the parties to this
Agreement is unable to carry out any of their obligations under
this Agreement, and if a party so disabled promptly gives to the
other party to this Agreement written notice of such Force Majeure,
then the obligations of the party giving such notice shall be
suspended to the extent made necessary by reason of such Force
Majeure during its continuance, provided the effect of such Force
Majeure is eliminated insofar as possible with all reasonable
dispatch.
Section 12.2 - Force Majeure - Definition and Deficiencies
The term Force Majeure as used in this Agreement shall mean
any cause beyond the control of the party disabled thereby such as,
by way of illustration and not by limitation, acts of God, acts of
a public enemy, insurrection, riots, strikes, labor disputes, labor
or material shortages, breakdowns of, scheduled maintenance of, or
damage to, plants, equipment or facilities, the interruption or
reduction, for any reason, of electric generation by the Station,
interruptions to transportation, contingencies of electric
generation, embargoes, governmental legislation, rules, regulations
or orders, orders or acts of civil or military authorities, orders
of courts, or other causes not resulting from any negligence or
fault on the part of the party disabled thereby, which wholly or
partly prevent the mining, selling, or delivering of coal by
Producer or the acceptance, unloading, or utilization of the coal
by Buyer at the Station.
In the event Producer's ability to ship the amount of coal
under this Agreement is reduced by Force Majeure, Producer shall
ship to Buyer an equitable portion of all comparable quality coal
shipped by Producer. Such equitable portion shall be Buyer's
prorated amount in relation to other parties with contractual
entitlements, established prior to the occurrence of the Force
Majeure, to shipments of comparable quality coal for shipment
during such Force Majeure period. Producer shall not enter into
any contractual arrangements that would adversely affect Buyer's
right to such equitable portion.
Notwithstanding anything to the contrary set forth in this
Agreement, including, without limitation, Sections 2.1 and 3.1 of
this Agreement, any deficiencies in deliveries caused by reason of
Force Majeure shall not be made up except by mutual agreement.
Section 12.3 - Force Majeure Option
If governmental legislation or regulations, orders of
regulatory authorities, including, without limitation, any state
regulatory commission, orders of judicial authorities, or orders or
acts of civil or military authorities, results in a Force Majeure
which prevents the burning of the coal to be supplied under this
Agreement at the Station, Producer shall have the option to
substitute coal which meets the standards necessary to relieve said
Force Majeure in such quantities as required by Buyer, provided
however, that such quantities shall not exceed the quantity of coal
to be sold and purchased under Section 2.1 of this Agreement. The
price per ton of such substitute coal shall be the Base Price under
this Agreement during the Force Majeure period.
After the coal specifications of the substitute coal have been
agreed to by Buyer and Producer, the said substitute coal
specifications and price, as determined above, shall, during and
only during the existence of said Force Majeure, become the
specifications of this Agreement.
Section 12.4 - Waivers and Remedies
The failure of either party to this Agreement to insist in any
one or more instances upon strict performance of any of the
provisions of this Agreement or to take advantage of any of its
rights under this Agreement shall not be construed as a waiver of
any such provisions or the relinquishment of any such rights, but
the same shall continue and remain in full force and effect.
Section 12.5 - Governing Law
The validity, construction and performance of this Agreement
shall be determined in accordance with the laws of the State of
Ohio.
Section 12.6 - Notices
All notices required to be given under this Agreement shall be
made in writing, transmitted by FAX, and the original to be sent by
United States mail, postage prepaid, addressed, if to Buyer at P.O.
Box 960, Cincinnati, Ohio 45201-0960, Attention: Manager, Fuel
Procurement Department, FAX number (513) 287-4107, if to Producer
at Addington Mining, Inc., 1500 North Big Run Road, Ashland,
Kentucky 41102, Attention: President, FAX number (606) 928-9527, or
at such other address or FAX number as either party from time to
time may designate in writing to the other.
Section 12.7 - Equal Opportunity Clause
During the performance of this Agreement, and to the extent
that Executive Order 11246 may be applicable to this Agreement,
Producer agrees as follows:
(a) It will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, or national
origin. It will take affirmative action to ensure that
applicants are employed, and that employees are treated during
the employment, without regard to their race, color, religion,
sex, or national origin. Such action shall include, but not
limited to the following: employment, upgrading, demotion, or
transfer, recruitment or recruitment advertising, layoff or
termination, rates of pay or other forms of compensation, and
selection for training, including apprenticeship. It agrees
to post in conspicuous places, available to employees and
applicants for employment, notices setting forth the
provisions of this nondiscrimination clause.
(b) It will, in all solicitations or advertisements for employees
placed by or on its behalf, state that all qualified
applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(c) It will send to each labor union or representative of workers
with which they have a collective bargaining agreement or
other contract or understanding a notice advising the labor
union or workers' representatives of its respective commitment
under Section 202 of Executive Order 11246 of September 24,
1965, as amended and shall post copies of the notice in
conspicuous places available to employees and applicants for
employment.
(d) It will comply with all provisions of Executive Order 11246 of
September 24, 1965, as amended, and the rules, regulations,
and relevant orders of the Secretary of Labor.
(e) It will furnish all information and reports required by
Executive Order 11246 of September 24, 1965, as amended, and
by the rules, regulations, and orders of the Secretary of
Labor, or pursuant thereto, and will permit access to its
books, records, and accounts by the Secretary of Labor for
purposes of investigation to ascertain compliance with such
rules, regulations, and orders.
(f) In the event of its noncompliance with the non-discrimination
clauses of this Agreement or with any of such rules,
regulations, or orders, this Agreement may be cancelled,
terminated or suspended in whole or in part and it may be
declared ineligible for Government contracts in accordance
with procedures authorized in Executive Order 11246 of
September 24, 1965, as amended, and such other sanctions may
be imposed and remedies invoked as provided in said Executive
Order or by rules, regulations or orders of the Secretary of
labor, or as otherwise provided by law.
(g) It will include the provisions of paragraph (a) through (g) in
every subcontract or purchase order unless exempted by rules,
regulations, orders of the Secretary of Labor issued pursuant
to Section 204 of said Executive Order 11246, so that such
provisions will be binding upon such subcontractor or vendor.
It will take such action with respect to any subcontractor or
purchase order as the Secretary of Labor may direct as a means
of enforcing such provisions including sanctions for
noncompliance. Provided, however, that in the event it
becomes involved in, or is threatened with, litigation with a
subcontractor or vendor as a result of such direction by the
Secretary of labor, it may request the United States to enter
into such litigation to protect the interests of the United
States.
Section 12.8 - Disabled Veterans and Handicapped Workers
Contractor in the performance of this Agreement shall, where
applicable, be bound by and comply with the Federal Affirmative
Action requirements of Contractors and Subcontractors for Disabled
Veterans and Veterans of the Vietnam Era (38 U.S.C. 2012) and for
Handicapped Workers (29 U.S.C. 701) and any regulations promulgated
thereunder as such acts and regulations may be amended. The
applicable Affirmative Action clauses are incorporated by reference
in this Agreement.
Section 12.9 - Assignments
This Agreement shall be binding upon the parties and their
successors. This Agreement and/or the rights and/or the
obligations under this Agreement shall not be assignable by
Producer, except to its affiliates.
Section 12.10 - Confidentiality
The parties shall keep confidential the terms and conditions
of this Agreement, the transactions provided for in this Agreement
and any documents or other information delivered in connection with
this Agreement, unless readily ascertainable from public
information or sources, requested by any regulatory commission or
otherwise required by law to be disclosed. In the event of such
disclosure to a regulatory commission or other legal authority, the
disclosing party shall promptly notify the other party.
Section 12.11 - Entire Agreement
This Agreement and the Appendices hereto express the entire
agreement between the parties, there being no other understandings
between them other than those set forth in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers as of the 15th day of
November, 1993.
ATTEST: THE CINCINNATI GAS & ELECTRIC COMPANY
Laura M. Moreland
By: /s/ Stephen G. Salay
Stephen G. Salay, Vice President
Electric Production & Fuel Supply
ATTEST: ADDINGTON MINING, INC.
M.R. Merrill
By: /s/ Douglas B. Moore
Douglas B. Moore, President
396\ADDINGTO\asc\exhibit1.0n
<PAGE>
Exhibit 21. List of Subsidiaries at March 15, 1995
--------------------------------------
Name of Subsidiary (1) Place of Incorporation
---------------------- ----------------------
Addington Holding Company, Inc. (2) Delaware
Green Valley Environmental Corp. Kentucky
Mining Technologies, Inc. Kentucky
Addington Mining, Inc. Kentucky
Addwest Mining, Inc. Kentucky
Addwest Minerals, Inc. Kentucky
New River Lime, Inc. Kentucky
Addington Coal Sales, Inc. Kentucky
Addington Environmental, Inc. Kentucky
Collection Services, Inc. (3) Kentucky
Ohio County Balefill, Inc. (3) Kentucky
East Carolina Environmental, Inc. (3) Kentucky
Epperson Waste Disposal, Inc. (3) Kentucky
Tri-K Landfill, Inc. (3) Kentucky
Uwharrie Environmental, Inc. (3) Kentucky
Mid-State Environmental, Inc. (3) Kentucky
Pinellas Environmental, Inc. (3) Kentucky
Mullis Tree Service, Inc. (3) Georgia
Broadhurst Environmental, Inc. (3) Kentucky
Dozit Co., Inc (3) Kentucky
Belize River Fruit Co. Kentucky
Barton Creek Farm Limited (4) Belize
Addwest Transport, Inc. Kentucky
Tennessee Mining, Inc. (5) Kentucky
___________________
(1) All of the Company's subsidiaries do business under the listed name.
(2) Except as otherwise indicated, all of the subsidiaries listed below are
wholly owned by Addington Holding Company, Inc. which is a wholly owned
subsidiary of Addington Resources, Inc.
(3) A wholly owned subsidiary of Addington Environmental, Inc.
<PAGE>
(4) A jointly owned subsidiary of Belize River Fruit Co. and Addington Holding
Company, Inc.
(5) A jointly owned subsidiary of Addwest Mining, Inc. and Mining Technologies,
Inc.
<PAGE>
EXHIBIT 23
----------
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our reports included in the Form 10-K into the Company's
previously filed Registration Statement File No. 33-34559.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Louisville, Kentucky
March 27, 1995
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